SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10/A

                   GENERAL FORM FOR REGISTRATION OF SECURITIES
                      PURSUANT TO SECTION 12(b) OR 12(g) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                                 MACROPORE, INC.
             (Exact name of registrant as specified in its charter.)

                   Delaware                            330-827-593

        (State or other jurisdiction of             (I.R.S. Employer
        incorporation or organization)             Identification No.)

             6740 Top Gun Street
            San Diego, California                         92121

            (Address of principal                       (Zip Code)
             executive offices)

               Registrant's telephone number, including area code:

                                  858-458-0900

        Securities to be registered pursuant to Section 12(b) of the Act:

                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                         COMMON STOCK, par value $0.001

                                TABLE OF CONTENTS

                                                                                                               PAGE
                                                                                                         
Item 1.       BUSINESS...........................................................................................1

Item 2.       FINANCIAL INFORMATION.............................................................................10

Item 3.       PROPERTIES........................................................................................19

Item 4.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................................19

Item 5.       DIRECTORS, EXECUTIVE OFFICERS AND FOUNDERS........................................................21

Item 6.       EXECUTIVE COMPENSATION............................................................................23

Item 7.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................................28

Item 8.       LEGAL PROCEEDINGS.................................................................................28

Item 9.       MARKET PRICE AND DIVIDENDS........................................................................29

Item 10.      RECENT SALES OF UNREGISTERED SECURITIES...........................................................31

Item 11.      DESCRIPTION OF CAPITAL STOCK......................................................................32

Item 12.      INDEMNIFICATION OF DIRECTORS AND OFFICERS.........................................................33

Item 13.      FINANCIAL STATEMENTS..............................................................................35

Item 14.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..............62

Item 15.      FINANCIAL STATEMENTS AND EXHIBITS.................................................................62

            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This registration statement contains forward-looking statements that involve
risks and uncertainties. These forward-looking statements are often accompanied
by words such as "believes," "anticipates," "estimates," "intends," "plans,"
"expects" and similar expressions. These statements include, without limitation,
statements about market opportunity, MacroPore, Inc.'s growth strategy and its
expectations, plans and objectives. Actual results will likely differ, perhaps
materially, from those anticipated in these forward-looking statements as a
result of various factors, including changes in MacroPore, Inc.'s ability to
obtain necessary state, federal and foreign approval or clearance for use of its
products, acceptance of its products in the medical community or ability to
attract and retain key management and research personnel. Because of these
uncertainties, you should not place undue reliance on these forward-looking
statements. Except to the extent required by applicable laws or rules,
MacroPore, Inc. does not intend to update any of the forward-looking statements
contained herein, whether as a result of new information, future events or
otherwise.

                                       i

ITEM 1. BUSINESS.

GENERAL

     MacroPore, Inc. (the "Company") was initially formed as a California
general partnership on July 1, 1996. On May 16, 1997, the Company was
incorporated in the State of Delaware.

     The Company develops, commercializes and manufactures biodegradable
surgical implants to aid in the reconstruction, repair and regeneration of bone.
The Company's resorbable products are made from a lactic acid copolymer which is
composed of a lactic acid similar to that which occurs naturally in the human
body. The lactic acid copolymer used by the Company, while maintaining its
strength during the bone healing process, is slowly broken down in the body
through hydrolysis into lactic acid molecules and ultimately metabolized into
carbon dioxide and water, which are then released from the body through the
lungs and the kidneys. The Company believes that its products are easier to use
and more cost-effective than products made from alternative materials, such as
titanium, by eliminating the need for a second, later surgery to remove the
implant. The Company has received regulatory clearance or approval to market and
sell some of its products in the United States and Europe, and has entered
into an exclusive worldwide marketing and distribution agreement with Medtronic,
Inc. ("Medtronic") for the global marketing and distribution of some of its
products for use in the craniofacial skeleton.

     The Company is also developing additional products for use in spinal fusion
procedures, neurosurgery plating, long-bone repair, healing of non-union
fractures and cyst or tumor site removal repair, among other things. These
future products may require further development and regulatory clearance or
approval, potentially including clinical trials, prior to marketing and
commercial use.

PRODUCTS AND SERVICES

     The Company currently manufactures its products solely in the United States
at its San Diego facility. The Company markets three product lines in the United
States and in Europe for use in the craniofacial skeleton and for certain
applications in the entire skeleton. Some of the Company's products are being
marketed in Europe for use in spinal applications.

     The Company's MacroPore FX system is comprised of more than 120 lactic acid
copolymer components, including plates, screws, tacks and mesh which can be used
to fixate a bone in place to facilitate healing. This system is currently
approved or cleared for use in the craniofacial skeleton in the United States.
The Company believes its MacroPore FX products are well-suited for use in other
non-load or low-load bearing sites, particularly in orthopedic fracture repair
in the hands and feet. MacroPore FX products have been cleared in Europe for use
throughout the body in no-load and low-load bearing sites.

     The Company also currently manufactures and markets MacroPore PS and
MacroPore OS which are malleable, continuous macroporous sheets used to
protect bone defects from surrounding soft tissues, such as muscle tissue,
which encroach on the site of the bone defect and interfere with the natural
healing process by irritating the bone defect site and causing pain. The
MacroPore PS and MacroPore OS systems consist of various shapes and sizes of
the macroporous sheets and resorbable screws and tacks which are used to fix
the macroporous sheets to the skeleton. MacroPore PS is currently approved or
cleared for use in the craniofacial skeleton in the United States and in
Europe. MacroPore OS is designed for use in bone healing applications in the
skeleton other than the craniofacial skeleton. The Company has received
regulatory approval to market MacroPore OS in the Unites States for use,
other than in spinal applications, in non-load bearing situations and for use
in load bearing situations when used in conjunction with traditional rigid
fixation. MacroPore OS is currently authorized for marketing in Europe,
including for

                                       1

use in spinal applications. MacroPore OS has been cleared for use in the
United States as a containment system for bone grafts or bone graft
substitutes to maintain the bone graft or bone graft substitute in place
while allowing access to the site for blood vessels and bone-forming cells
necessary for healing.

     The Company provides a range of support services to its customers,
including product demonstrations and training at the Company's San Diego
headquarters for surgeons interested in using the Company's products. The
Company also provides regional and on-site training seminars and symposia and
provides support personnel to advise surgeons during surgery on the use of the
Company's products.

     To date, revenue realized from the sale of cranofacial products has
accounted for more than 87.0% of the Company's revenue.

PLAN OF OPERATION

     During 2001, the Company intends to focus on:

     o   continuing to grow its craniofacial and neurosurgical markets by
         introducing new products into these markets

     o   expanding its overseas markets

     o   developing new uses for its existing products

     o   developing new products for use in new applications

     In order to accomplish its goals, the Company intends to support the sales
and marketing efforts of its distributors, develop products for
orthopedic-spinal and craniomaxillofacial-neurologic applications, and continue
its research and development of new products. The Company provides marketing
support by attending trade shows and providing product promotional materials,
through training of the sales force and medical community and by facilitating
communications between the Company and its customers.

RESEARCH AND DEVELOPMENT

     The Company is continuing its research efforts to develop new applications
for its resorbable products and to develop new resorbable products. The Company
is currently developing multiple new products which target craniofacial and
neurosurgery, spinal and orthopedic indications, and expects to continue to
develop new technologically advanced products.

     In 1998, the Company continued research and development of its resorbable
protective sheets, plates and screws and began development of its resorbable
tacks for use in craniofacial indications. Research and development expense for
the year ended December 31, 1998 was $1,175,000.

     In 1999, the Company's research and development efforts focused on
developing its resorbable sheets, plates, screws and tacks for use in other
indications, including neurosurgical indications. Research and development
expense for the year ended December 31, 1999 was $1,172,000.

     In 2000, the Company's research and development efforts focused on
developing its MacroPore DX system and on developing uses of its resorbable
sheets, plates, screws and tacks in other indications. Research and development
expense for the year ended December 31, 2000 was $2,584,000.

                                       2

CUSTOMERS

     Medtronic is the primary distributor for the Company's products and is the
Company's principal customer, directly accounting for approximately 97.0% of the
Company's revenues for the year ended December 31, 2000 and approximately
98.5% of the Company's revenues for the three months ended March 31, 2001.

     The Company entered into a distribution agreement with Medtronic in January
2000. The distribution agreement provides Medtronic with exclusive rights in the
United States and with exclusive worldwide rights except for rights granted
under the Company's existing distribution agreements with other distributors, to
market, distribute and sell MacroPore FX and MacroPore PS products solely for
use in the reconstruction or fixation of the cranial or facial skeleton. The
agreement requires the Company to use its reasonable best efforts to terminate
its other existing distribution agreements, or to convert the existing
distributors into sub-distributors of Medtronic. The agreement also provides
Medtronic with a right of first refusal with respect to any proposed grant to a
third party of the distribution or sales representation rights for any of the
Company's other products. Under the terms of the agreement, Medtronic paid an
up-front payment to the Company and must pay the Company agreed prices for
product that Medtronic orders. In addition, Medtronic must submit a minimum
amount of purchase orders during the first 12 months of the agreement, or must
pay the Company the difference between the amount of purchase orders it actually
submits and the stated minimum amount, if any. The Company has agreed to extend
by 3 months the period of time in which Medtronic must submit its minimum
purchase order amount to allow Medtronic additional time for start up and to
train its sales representatives.

     The distribution agreement is terminable if, among other things, either
party materially breaches the agreement or becomes insolvent. In addition,
the Company may terminate the agreement if Medtronic does not either place a
minimum number of purchase orders or pay for the difference between the
amount of purchase orders it actually submits and the stated minimum amount.
If the agreement is terminated, Medtronic may require the Company to
repurchase most of Medtronic's inventory of the Company's products at the
Company's invoiced price to Medtronic. If the Company fails to provide
Medtronic with an adequate supply of product or fails to supply Medtronic
with product that conforms to product specifications, Medtronic may terminate
the arrangement to purchase MacroPore FX and MacroPore PS from the Company
and Medtronic may itself then manufacture those products and only pay the
Company royalties based on sales.

     The Company and Medtronic also concurrently entered into a development
and supply agreement which provides Medtronic with exclusive worldwide rights
to develop, market and sell the Company's products for use in spinal
applications. Pursuant to this agreement the Company has the right to use
Medtronic's intellectual property in spinal applications in its joint
research and development in this area. The development and supply agreement
provides that Medtronic shall obtain and maintain regulatory approval for the
commercial sale of the products developed pursuant to the agreement. The
Company will be responsible for the manufacture of such products. The
agreement provides that Medtronic will pay the Company a percentage of
Medtronic's net selling price for all of the products sold pursuant to the
development and supply agreement.

     The development and supply agreement is terminable if, among other
things, either party materially breaches the agreement or becomes insolvent.
If the Company fails to provide Medtronic with an adequate supply of product
or fails to supply Medtronic with product that conforms to product
specifications, Medtronic may terminate the arrangement to purchase the
products from the Company and Medtronic may itself then manufacture those
products and only pay the Company royalties based on sales.

     Both of these agreements between the Company and Medtronic have five year
terms and automatically renew for successive five year periods, unless either
party gives the other party written

                                       3

notice that the agreement will not be renewed at least 180 days prior to the
expiration date of that term.

     In the event the Company develops new products and Medtronic does not
exercise its right of first refusal under its distribution agreement with the
Company, the Company may enter into distribution agreements with other
distributors for the sale of these new products. The Company is currently
considering entering into distribution agreements with other distributors,
primarily to market its products for use in applications other than
craniomaxillofacial-neuro and spinal, in Europe, Asia and the Pacific Region.

MARKET AND COMPETITION

     The Company competes with many competitors in developing and marketing its
technology and products. In the craniofacial fixation market, the Company
competes primarily with titanium products, although the Company believes that an
increasing number of other companies are developing, or are offering, resorbable
bone fixation systems. In particular, Walter Lorenz Surgical, Inc. offers a
resorbable fixation system in conjunction with its metallic products, which has
primarily been used in pediatric patients, since it loses its strength within
eight to twelve weeks and resorbs within one year. Bionx Implants, Inc. also
markets a resorbable fixation system for use in the craniofacial skeleton which
has some strength advantages over the Company's products and may be preferred to
the Company's products for use in the lower jaw. In addition, Synthes
Maxillofacial and Stryker Leibinger GmbH & Co. KG, which are primarily metallic
fixation companies, market resorbable craniofacial systems. There can be no
assurance that the Company's products will be able to compete effectively
against such products or against future products that may be developed by these
or other competitors.

     The Company believes the benefits of using a resorbable material in bone
healing and regenerating applications include:

     o   elimination of the necessity for additional surgery to remove
         non-resorbable implants

     o   elimination of the risk of migration of plates and screws during the
         bone healing process

     o   lowering the risk of infection

     o   elimination of thermal sensitivity from temperature changes

     o   elimination of long-term growth restrictions related to the use of
         metallic plates and screws in pediatric patients

     o   no long-term patient palpation

     o   do not appear on x-rays

     o   will not distort diagnostic and therapeutic imaging modalities and
         create imaging artifacts which are commonly encountered with metal
         systems

     In addition, because of their thermoplastic properties, the Company's
resorbable products are easy to shape, size and apply to varying anatomical
structures, which the Company believes allows for a better anatomical fit and
saves valuable minutes in the operating room.

     Many of the Company's competitors and potential competitors have
substantially greater financial,

                                       4

technological, research and development, marketing and personnel resources than
the Company. These competitors may also have greater experience in developing
products, conducting clinical trials, obtaining regulatory approvals, and
manufacturing and marketing such products. Certain of these competitors may
obtain patent protection, approval or clearance by the FDA or from foreign
countries, or may achieve product commercialization earlier than the Company,
any of which could materially adversely effect the Company. There can be no
assurance that the Company's competitors will not succeed in developing
alternative technologies and products that are more effective, easier to use or
more economical than those which have been or are being developed by the Company
or that would render the Company's technology and products obsolete and
noncompetitive in these fields. Furthermore, under the terms of the Company's
marketing agreement with Medtronic, Medtronic may pursue parallel development of
other technologies or products, which may result in Medtronic developing
additional products that will compete with the Company's products.

SALES BY GEOGRAPHIC REGION

     The Company sells products in the United States and internationally through
a network of independent distributors. International sales may be limited or
disrupted by political instability, price controls, trade restrictions and
changes in tariffs. The Company's existing distribution agreements provide for
payment in U.S. dollars and the Company intends to include similar payment
provisions in future distribution agreements. Additionally, fluctuations in
currency exchange rates may adversely affect demand for the Company's products
by increasing the price of the Company's products in the currency of the
countries in which the products are sold.

     The Company recorded its first sales in 1999. For the year ended
December 31, 1999, the Company recorded $1,513,000 in sales. The Company sold
approximately $1,472,000 of product in the United States and $41,000 of
product outside the United States. For the year ended December 31, 2000, the
Company recorded $6,251,000 in sales. The Company sold approximately
$6,200,000 of product in the United States and $51,000 of product outside the
United States. For the three months ended March 31, 2001, the Company
recorded $2,029,000 in sales, all of which was generated from the sale of
product in the United States.

WORKING CAPITAL

     The Company generally maintains an inventory of approximately six to twelve
months of products. Although capital expenditures may vary depending on a
variety of factors, including sales, the Company presently intends to spend
approximately $3,100,000 on capital equipment purchases in 2001. The Company
believes its inventory practices and capital expenditures are consistent with
other similar companies at similar levels of development.

RAW MATERIALS

     The Company presently purchases all of its supply of lactic acid copolymer,
the primary raw material used in manufacturing the Company's medical devices,
from one source. In August 1999, the Company entered into an agreement with B.I.
Chemicals, Inc. to provide the Company with its required supply of lactic acid
copolymer. The agreement has a three year term and automatically renews for
successive one year terms, unless either party gives written notice that the
agreement will not be renewed six months prior to the end of that term. In the
event that B.I. Chemicals is unable to supply the raw lactic acid copolymer,
B.I. Chemicals has agreed to provide the Company with the manufacturing protocol
to enable the Company to produce the raw lactic acid copolymer in-house. The
lactic acid copolymer is also available from at least one other supplier.

                                       5

INTELLECTUAL PROPERTY

     The Company's success depends in large part on its ability to protect its
proprietary technology and information, and operate without infringing on the
proprietary rights of third parties. The Company relies on a combination of
patent, trade secret, copyright and trademark laws, as well as confidentiality
agreements, licensing agreements and other agreements, to establish and protect
its proprietary rights. The Company's success also depends on its ability to
obtain patents on its technology. The Company has one U.S. patent for the design
of its resorbable sheets that was issued in July 1999 and expires in 2016. The
Company has filed applications for ten additional U.S. patents, as well as
nine corresponding patent applications outside the United States, relating to
the Company's technology. There can be no assurance that any of the pending
patent applications will be approved, that the Company will develop additional
proprietary products that are patentable, that any patents issued to the Company
will provide the Company with competitive advantages or will not be challenged
by any third parties or that the patents of others will not prevent the
commercialization of products incorporating the Company's technology.
Furthermore, there can be no assurance that others will not independently
develop similar products, duplicate any of the Company's products or design
around the Company's patents.

     Litigation, which would result in substantial costs to and diversion of
effort by the Company, may also be necessary to enforce any patents issued or
licensed to the Company or to determine the scope and validity of third party
proprietary rights. If competitors of the Company that claim technology also
claimed by the Company prepare and file patent applications in the United
States, the Company may have to participate in interference proceedings declared
by the U.S. Patent and Trademark Office to determine priority of invention,
which could result in substantial costs to and diversion of effort by the
Company, even if the eventual outcome is favorable to the Company. Any such
litigation or interference proceedings, regardless of outcome, could be
expensive and time consuming. Litigation could subject the Company to
significant liabilities to third parties and require disputed rights to be
licensed from third parties or require the Company to cease using certain
technology.

     The Company currently has five pending patent applications in the European
Patent Office, Australia, Japan and Canada and has published four other
international patent applications with all countries designated. In addition,
the Company has one patent issued in Australia for the design of its resorbable
sheets that expires on August 5, 2017, and has four pending patent applications
in Australia. Patent law outside the United States is uncertain and in many
countries is currently undergoing review and revisions. The laws of some
countries may not protect the Company's proprietary rights to the same extent as
United States laws. Third parties may attempt to oppose the issuance of the
Company's patents in foreign countries by way of opposition proceedings.
Additionally, if an opposition proceeding is initiated against any of the
Company's patent filings in a foreign country, that proceeding could have an
adverse effect on the corresponding patents that are issued or pending in the
United States. It may be necessary or useful for the Company to participate in
proceedings to determine the validity of its, or its competitors, patents that
have been issued in countries other than the United States, which could result
in substantial cost, divert the Company's efforts and attention from other
aspects of its business, and could have a material adverse effect on the
Company's results of operations and financial condition.

     In addition to patent protection, the Company relies on unpatented trade
secrets and proprietary technological expertise. There can be no assurance that
others will not independently develop or otherwise acquire substantially
equivalent techniques, or otherwise gain access to the Company's trade secrets
and proprietary technological expertise or disclose such trade secrets, or that
the Company can ultimately protect its rights to such unpatented trade secrets
and proprietary technological expertise. The Company relies, in part, on
confidentiality agreements with its marketing partners, employees, advisors,

                                       6

vendors and consultants to protect its trade secrets and proprietary
technological expertise. There can be no assurance that these agreements will
not be breached, that the Company will have adequate remedies for any breach or
that the Company's unpatented trade secrets and proprietary technological
expertise will not otherwise become known or be independently discovered by
competitors. Failure to obtain or maintain patent and trade secret protection,
for any reason, could have a material adverse effect on the Company's results of
operations and financial condition.

GOVERNMENT REGULATION

     Most medical devices for use in humans, including the Company's
resorbable protective sheets, plates, screws and tacks, are subject to
stringent government regulation in the United States by the Food and Drug
Administration, or FDA, under the Federal Food, Drug and Cosmetic Act, or FDC
Act. The FDA regulates the clinical testing, manufacture, safety, labeling,
sale, distribution and promotion of medical devices. Included among these
regulations are premarket clearance, premarket approval, and Quality System
Regulation, or QSR, requirements. Other statutory and regulatory requirements
govern, among other things, registration and inspection, medical device
listing, prohibitions against misbranding and adulteration, labeling and
postmarket reporting. The regulatory process may be lengthy, expensive and
uncertain. Securing FDA approvals and clearances may require the submission
of extensive clinical data and supporting information to the FDA. Failure to
comply with applicable requirements can result in application integrity
proceedings, fines, recalls or seizures of products, injunctions, civil
penalties, total or partial suspensions of production, withdrawals of
existing product approvals or clearances, refusal to approve or clear new
applications or notifications, and criminal prosecution.

     Under the FDC Act, medical devices are classified into Class I, Class II
or Class III devices, based on their risks and the control necessary to
reasonably ensure their safety and effectiveness. Class I devices are subject
to general controls such as labeling, premarket notification and adherence to
QSR requirements. Class II devices are subject to general controls, and to
specific controls such as performance standards, postmarket surveillance and
patient registries. Generally, Class III devices, which include certain
life-sustaining, life-supporting and implantable devices or new devices which
have been found not to be substantially equivalent to certain legally
marketed devices, must receive premarket approval from the FDA. MacroPore FX,
MacroPore PS and MacroPore OS are Class II medical devices.

     Before any new medical device may be introduced to the market, the
manufacturer generally must obtain either premarket clearance through the
510(k) premarket notification process or premarket approval through the
lengthier Premarket Approval Application, or PMA, process. A 510(k) premarket
notification will be granted if the submitted data establish that the
proposed device is "substantially equivalent" to a legally marketed Class I
or Class II medical device, or to a Class III medical device for which the
FDA has not called for PMAs. The FDA may request data, including clinical
studies, before a substantial equivalence determination can be made. It
generally takes from three to 12 months from submission to obtain 510(k)
premarket clearance, although it may take longer. There is no assurance that
clearance will be granted. A PMA must be filed if a product is found not to
be substantially equivalent to a legally marketed Class I or II device or if
it is a Class III device for which the FDA requires PMAs. A PMA must be
supported by extensive data to demonstrate the safety and effectiveness of
the device, including laboratory, preclinical and clinical trial data, as
well as extensive manufacturing information. Before initiating human clinical
trials on devices that present a significant risk, the manufacturer must
first obtain an Investigational Device Exemption, or IDE, for the proposed
medical device. Toward the end of the PMA review process, the FDA will
generally conduct an inspection of the manufacturer's facilities to ensure
compliance with QSRs. Approval of a PMA could take up to one or more years
from the date of submission of the application or petition. The PMA process
can be expensive, uncertain and

                                       7

lengthy, and there is no guarantee of ultimate approval.

     Modifications or enhancements of products that could affect the safety or
effectiveness or effect a major change in the intended use of a device that was
either cleared through the 510(k) process or approved through the PMA process
may require further FDA review through new 510(k) or PMA submissions.

     Medical device manufacturers are subject to periodic inspections by the
FDA to ensure that devices continue to be manufactured in accordance with QSR
requirements.  Device manufacturers also are subject to postmarket reporting
requirements for deaths or serious injuries when the device may have caused
or contributed to death or serious injury, and for certain device
malfunctions that would be likely to cause or contribute to a death or
serious injury if the malfunction were to recur. Postmarket reporting also
may be required for certain corrective actions undertaken for distributed
devices. If safety or effectiveness problems occur after the product reaches
the market, the FDA may take steps to prevent or limit further marketing of
the product. Additionally, the FDA actively enforces regulations prohibiting
marketing of devices for indications or uses that have not been cleared or
approved by the FDA.

     The Company's current human medical devices are at different stages of
FDA review. On July 30, 1998, the Company received 510(k) clearance for the
use of MacroPore FX and MacroPore PS in trauma and reconstructive procedures
in the midface and craniofacial skeleton. On March 19, 1999, the Company
received 510(k) clearance for the use of MacroPore PS in trauma,
reconstructive and bone augmentation procedures of the mandible. The Company
received 510(k) clearance on October 19, 2000 for the use of MacroPore MX in
stabilizing fractured bones in the mandible. The Company also received 510(k)
clearance on June 26, 2000 for the use of MacroPore DX, a craniofacial
distractor system for the treatment of cranial or midface conditions in
reconstructive osteotomy and segment advancement, and on July 24, 2000 for
the use of MacroPore OS in protecting iliac crest, or hip bone, graft donor
sites, tumor resections where bone strength is not compromised and throughout
the skeleton, other than in spinal applications, when used in conjunction
with traditional rigid fixation devices. On May 2, 2001, the Company received
510(k) clearance for the use of MacroPore NS CraniLoc in the fixation of bone
flaps after a craniotomy. The Company has submitted 510(k) notifications in
connection with two of its products, including one for use in spinal
applications and one for use in pediatric applications. All of the Company's
products that have received 510(k) clearance are subject to QSR and other FDA
postmarket requirements.

     Under the terms of the Company's development and supply agreement with
Medtronic, Medtronic will be responsible for preparing and filing
applications for, and obtaining regulatory approval of the products developed
by the Company pursuant to the terms of that agreement for use in spinal
applications. The Company or its marketing partners may not be able to obtain
necessary 510(k) clearances or PMA approvals to market the products it is
developing in the United States for their intended use on a timely basis, if
at all.

     In addition, the Company must obtain marketing authorization for its
products marketed in Europe, Canada and certain other non-U.S. jurisdictions.
The Company received marketing authorization for the sale of its MacroSorb
System, including MacroPore FX and PS, in the European Community and in
Canada in December 1999, in Malaysia in June 2000, in Singapore in November
2000 and in South Korea in January 2001. The marketing authorizations generally
permit the Company to market the MacroSorb System, including MacroPore FX and
PS, for use in trauma and reconstructive procedures in the skeletal system to
facilitate bone healing and bone regeneration. This includes but is not
limited to, maintaining the position of bony fragments, regeneration of bone
in defects, maintaining space and allowing bone growth to occur in a
protected environment, preventing soft tissue prolapsed into bony defects and
aiding in reattachment of soft tissue to its anatomic origin. The Company
submitted applications in 1999 for marketing authorization for its MacroSorb
System in Indonesia, China, Taiwan and Thailand, and in 2000 in Syria, Egypt,
United Arab Emirates, India, Hong Kong, Macau, Saudi Arabia, Philippines and
Australia. All of these applications are still pending. The Company must
comply with extensive regulations from foreign jurisdictions regarding
safety, manufacturing processes and quality. These regulations, including the
requirements for marketing authorization, may differ from the FDA regulatory
scheme. Under the terms of the Company's distribution agreements, its
distributors are responsible for obtaining such approvals.

     The Company may not be able to obtain marketing authorization in all of
the countries where it intends to market its products, may incur significant
costs in obtaining or maintaining its foreign marketing authorizations, or
may not be able to successfully commercialize its current or future products
in any foreign markets. Delays in receipt of marketing authorizations for the
Company's products in foreign countries, failure to receive such marketing
authorizations or the future loss of previously received marketing
authorizations could have a material adverse effect on the Company's results
of operations and financial condition.

                                       8

ENVIRONMENTAL REGULATION

     Companies in the United States are subject to federal, state and local laws
and regulations governing the use, manufacture, storage, handling and disposal
of hazardous materials and chemicals and certain wastes. The Company does not
currently use any hazardous materials or chemicals in its manufacturing
processes.

STAFF

     As of March 31, 2001, the Company had 71 full-time employees, comprised
of 24 employees in research and development, 19 employees in manufacturing,
16 employees in management and finance and administration, and 12 employees
in marketing. From time to time, the Company also employs independent
contractors to support its administrative organizations. The Company's
employees are not represented by any collective bargaining unit, and the
Company has never experienced a work stoppage. The Company believes its
relations with its employees are good.

                                       9

ITEM 2. FINANCIAL INFORMATION.

SELECTED HISTORICAL FINANCIAL DATA

     The following selected financial data are derived from the Company's
audited and unaudited financial statements and the related notes thereto. The
Company was founded as a partnership in July 1996, commenced operations in
January 1997 and incorporated in May 1997. Results of the partnership through
the date of incorporation have been included with the 1997 results. The
following data should be read in conjunction with the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes thereto.

                                                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                  THREE MONTHS ENDED                       YEAR ENDED DECEMBER 31,
                                                        MARCH 31,
                                                    2001        2000         2000           1999            1998          1997
                                                 ----------  ----------   ----------    -----------     -----------    ----------
                                                 (UNAUDITED) (UNAUDITED)
                                                                                                     
 STATEMENT OF OPERATIONS DATA:
 Revenues:
 Sales to related party.......................   $     1,999  $       880  $    6,092    $         -     $        -     $        -
 Sales to distributors and end-users..........            30          379         159          1,513              -              -
                                                 -----------  -----------  ----------    -----------     ----------     ----------
                                                       2,029        1,259       6,251          1,513              -              -
 Costs directly related to revenue............           665          595       2,376            481              -              -
                                                 -----------  -----------  ----------    -----------     ----------     ----------
 Gross profit.................................         1,364          664       3,875          1,032              -              -

 Operating expenses:
 Research and development.....................         1,184          350       2,584          1,172          1,175            299
 Sales and marketing..........................         1,012          390       2,629          2,356            202            104
 General and administrative...................           927          599       2,555          1,313            604            197
 Stock based compensation.....................           143        2,428       5,716            666             76              9
                                                 -----------  -----------  ----------    -----------     ----------     ----------
 Total operating expenses.....................         3,266        3,767      13,484          5,507          2,057            609
                                                 -----------  -----------  ----------    -----------     ----------     ----------

 Other income and (expenses):
 Interest income..............................           676           90       1,315             68             10              9
 Interest and other expenses..................            12          (28)       (351)          (164)           (43)             -
                                                 -----------  -----------  ----------    -----------     ----------     ----------
 Net loss.....................................        (1,214)      (3,041)     (8,645)        (4,571)        (2,090)          (600)
                                                 -----------  -----------  ----------    -----------     ----------     ----------
 Basic and diluted net loss per share.........   $     (0.08) $     (0.82) $    (1.05)   $     (1.32)    $    (0.64)    $    (0.18)
                                                 -----------  -----------  ----------    -----------     ----------     ----------
 Shares used in calculating basic and diluted
  net loss per share..........................    14,917,376    3,704,270   8,201,739      3,458,292      3,250,000      3,250,000
                                                 -----------  -----------  ----------    -----------     ----------     ----------

 STATEMENT OF CASH FLOWS:
 Net cash (used in) provided by operating
   activities.................................   $    (1,904) $       688  $   (2,982)   $    (5,107)    $   (1,523)    $     (545)
 Net cash provided by (used in) investing
   activities.................................         1,731         (312)    (39,450)          (381)          (598)          (205)
 Net cash (used in) provided by financing
   activities.................................            (7)       4,080      47,437          7,924          1,837          1,065
                                                 -----------  -----------  ----------    -----------     ----------     ----------
 Net (decrease) increase in cash..............          (180)       4,456       5,005          2,436           (284)           315
 Cash and cash equivalents at beginning of
   period.....................................         7,476        2,471       2,471             35            319              4
                                                 -----------  -----------  ----------    -----------     ----------     ----------
 Cash and cash equivalents at end of period...   $     7,296  $     6,927  $    7,476    $     2,471     $       35     $      319
                                                 ===========  ===========  ==========    ===========     ==========     ==========

 BALANCE SHEET DATA:
 Cash, cash equivalents and short-term
  investments.................................        41,534        7,039  $   44,484    $     2,581     $      140     $      419
 Working capital..............................        44,992        8,105      46,858          3,510           (493)           387
 Total assets.................................        51,359       10,633      52,269          5,575          1,020            515
 Capital lease obligations, less current portion         227          342         255            304            209              -
 Convertible redeemable preferred stock.......             -       14,674           -     10,689,000      2,696,000      1,055,000
 Total stockholders' equity (deficit).........        48,438       (6,636) $   49,335    $    (6,147)    $      108     $      481

                                       10

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

OVERVIEW

     The Company has a limited operating history and its prospects are subject
to the risk and uncertainties frequently encountered by companies in the early
stages of development, and particularly by companies in rapidly evolving and
technologically advanced fields such as the medical device field. On August 8,
2000, the Company completed its initial public offering in Germany and listed
its common stock for trading on the NEUER MARKT segment of the Frankfurt Stock
Exchange in Frankfurt, Germany.

The Company incurred a net loss of $1,214,000 for the three months ended
March 31, 2001 and net losses for the years ended December 31, 2000, 1999 and
1998 of $8,645,000, $4,571,000 and $2,090,000, respectively. As of March 31,
2001, the Company had an accumulated deficit of $17,106,000. As of December
31, 2000, the Company had an accumulated deficit of $15,892,000. Such losses
have resulted to a large extent from expenses associated with the development
of the resorbable implant designs, preclinical studies, preparation of
submissions to the FDA and foreign regulatory agencies, marketing and
distribution channels, and the development of the Company's manufacturing
capabilities. The Company expects to expend substantial financial resources
to expand marketing, training and customer support needed to generate and
support higher sales, expand its manufacturing capabilities and to develop
new products. This investment is likely to result in lower gross margins
until production efficiencies are reached.

     In May 1999, the Company recognized revenue for the first time from the
sale of its products. For the three months ended March 31, 2001 and 2000 and
the years ended December 31, 2000 and 1999, the majority of the Company's
revenues came from the sales of its resorbable protective sheets, plates,
screws and tacks, which are high revenue dollar and volume items. A smaller
percentage of the Company's revenues for the three months ended March 31,
2001 and 2000 and for the years ended December 31, 2000 and 1999 came from
accessories used by surgeons to form, mold and manipulate the Company's
resorbable products during surgical procedures, which are lower revenue
dollar and lower volume items. The Company expects to continue to realize the
majority of its revenues from the sale of its resorbable protective sheets,
plates, screws and tacks.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000

     REVENUES. For the three months ended March 31, 2001, revenues were
$2,029,000 compared to $1,259,000 for the three months ended March 31, 2000. The
increase in revenues was primarily the result of sales to Medtronic, the
Company's principal distributor, which totaled $1,999,000. Revenues from this
distributor, which owns approximately 6.7% of the outstanding common stock in
the Company, represented approximately 98.5% of the Company's revenues for the
three months ended March 31, 2001.

     COST DIRECTLY RELATED TO REVENUES. For the three months ended March 31,
2001, cost directly related to revenues was $665,000 or 32.8% of revenues,
compared to $595,000 or 47.3% of revenues for the three months ended March 31,
2000. Cost directly related to revenues includes material, manufacturing labor
and overhead costs. The dollar increase in cost directly related to revenue for
the three months ended March 31, 2001 is primarily attributable to increased
costs to support the increased revenue base. The decrease in cost as a
percentage of revenues was primarily attributable to certain manufacturing
overhead costs decreasing in relation to the increase in revenue volume.

                                     11

     GROSS PROFIT. For the three months ended March 31, 2001, gross profit was
$1,364,000 or 67.2% of revenues, compared to $664,000 or 52.7% of revenues for
the three months ended March 31, 2000.

     RESEARCH AND DEVELOPMENT EXPENSES. For the three months ended March 31,
2001, research and development expenses excluding related stock based
compensation expenses were $1,184,000 compared to $350,000 for the three
months ended March 31, 2000. Research and development expenses include costs
associated with the design, development, testing, enhancement of the
Company's products, regulatory fees, the purchase of laboratory supplies and
clinical trials. The Company expenses research and development costs as
incurred. The increase in research and development expenses in the three
months ended March 31, 2001 is primarily attributable to the hiring of 11
additional people causing an increase of approximately $302,000 and other
costs associated with research into the development of new product lines
caused an increase of approximately $532,000. In addition, stock based
compensation related to research and development was $30,000 for the three
months ended March 31, 2000 and $431,000 for the three months ended March 31,
1999.  For further information regarding fluctuations in research and
development inclusive of stock based compensation, see the section entitled
Stock Based Compensation Expenses. The Company expects research and
development spending to continue to increase for the year ending December 31,
2001 as the Company expands its product development efforts and seeks further
regulatory approvals.

     SALES AND MARKETING EXPENSES. For the three months ended March 31, 2001,
sales and marketing expenses excluding related stock based compensation
expenses were $1,012,000, compared to $390,000 for the three months ended
March 31, 2000. Sales and marketing expenses include costs for marketing
personnel, tradeshow expenses, and promotional activities and materials. The
increase in sales and marketing expenses in the three months ended March 31,
2001 is primarily attributable to the hiring of 8 additional people causing
an increase of approximately $245,000 and other costs associated with
marketing expenses related to the promotion of product lines causing an
increase of approximately $377,000. In addition, stock based compensation
related to sales and marketing was ($52,000) for the three months ended
March 31, 2000 and $1,806,000 for the three months ended March 31, 1999.  For
further information regarding fluctuations in sales and marketing inclusive
of stock based compensation, see the section entitled Stock Based
Compensation Expenses. The Company expects sales and marketing expenses to
increase for the year ending December 31, 2001 to support expanding business
activities.

     GENERAL AND ADMINISTRATIVE EXPENSES. For the three months ended March
31, 2001, general and administrative expenses excluding related stock based
compensation expenses were $927,000, compared to $599,000 for the three months
ended March 31, 2000. General and administrative expenses include costs for
administrative personnel, legal and other professional expenses and general
corporate expenses. The increase in general and administrative expenses in
the three months ended March 31, 2001 is primarily attributable to increased
personnel costs of approximately $196,000, as well as increased
administrative costs of approximately $132,000 such as professional services
and other general corporate expenditures related to all areas of the
Company's operations, as well as costs to support the Company's status as
traded on the NEUER MARKT. In addition, stock based compensation related to
general and administrative expenses was $160,000 for the three months ended
March 31, 2000 and $189,000 for the three months ended March 31, 1999.  For
further information regarding fluctuations in general and administrative
expenses inclusive of stock based compensation, see the section entitled
Stock Based Compensation Expenses. The Company expects general and
administrative expenses to increase for the year ending December 31, 2001 to
support expanding business activities.

     STOCK BASED COMPENSATION EXPENSES. For the three months ended March 31,
2001, non-cash stock based compensation expenses were $143,000, compared to
$2,428,000 for the three months ended March 31, 2000. Stock based compensation
results from options issued to employees and non-employees. Stock based
compensation expenses are amortized over the remaining vesting periods of the
options, generally four years from the date of grant. The overall decrease in
stock based compensation was due to approximately $1,775,000 in additional
expense relating to sales and marketing stock based compensation in the three
months ended March 31, 2000, which was a result of a modification to extend the
expiration date of certain stock options granted to members of the sales force
upon their termination.

     INTEREST INCOME. For the three months ended March 31, 2001, interest income
was $676,000, compared to $90,000 for the three months ended March 31, 2000. The
increase in interest income resulted from an increase in cash, cash equivalents
and short-term investments to approximately $41,534,000 as of March 31, 2001
from approximately $7,039,000 as of March 31, 2000.

                                      12

     INTEREST EXPENSE AND OTHER. For the three months ended March 31, 2001,
interest expense and other expenses were $12,000 in income, compared to
$28,000 in expenses for the three months ended March 31, 2000. The income in
interest expense and other for the three months ended March 31, 2001 was the
result of realized gains on available for sale investments sold during the
period.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     REVENUES. For the year ended December 31, 2000, revenues were
$6,251,000 compared to $1,513,000 for the year ended December 31, 1999. The
increase in revenues was primarily the result of sales to Medtronic, the
Company's principal distributor, which totaled $6,092,000 and included an
initial inventory purchase of $1,162,000 which occurred in the three months
ended June 30, 2000. Revenues from this distributor, which is a major
stockholder in the Company, represented approximately 97.0% of the Company's
revenues for the year ended December 31, 2000.

     COST DIRECTLY RELATED TO REVENUES. For the year ended December 31, 2000,
cost directly related to revenues was $2,376,000 or 38.0% of revenues,
compared to $481,000 or 31.8% of revenues for the year ended December 31,
1999. Cost directly related to revenues includes material, manufacturing
labor and overhead costs. The increase in cost directly related to revenue
for the year ended December 31, 2000 is primarily attributable to increased
costs to support the increased revenue base. The percentage of revenues
increase of 6.2% was due to a decrease in revenues per unit resulting from
the Company's use of third party distributors rather than an internal sales
force. The Company's savings relating to the use of third party distributors
are reflected below the gross profit line in sales and marketing expenses for
the commissions and other selling expenses that were outsourced. The Company
sells its products to its principal distributor for fixed prices pursuant to
the distribution agreement. Product pricing is subject to biannual reviews
with the distributor. Revenues, operating results and cash flow are affected
by product pricing, fixed costs of sales and fluctuations in variable cost of
sales and sales volumes. Although direct selling costs are borne by the
distributor, the percentage of revenues may continue to be adversely affected.

     GROSS PROFIT. For the year ended December 31, 2000, gross profit was
$3,875,000 or 62.0% of revenues, compared to $1,032,000 or 68.2% of revenues for
the year ended December 31, 1999.

                                       13

     RESEARCH AND DEVELOPMENT EXPENSES. For the year ended December 31, 2000,
research and development expenses were $2,584,000, compared to $1,172,000
excluding related stock based compensation expenses for the year ended
December 31, 1999. Research and development expenses include costs associated
with the design, development, testing, enhancement of the Company's products,
regulatory fees, the purchases of laboratory supplies and clinical trials.
The Company expenses research and development costs as incurred. The increase
in research and development expenses in the year ended December 31, 2000 is
primarily attributable to research into the development of new product lines.
In addition, stock based compensation related to research and development was
$2,239,000 for the year ended December 31, 2000 and $70,000 for the year
ended December 31, 1999.  For further information regarding fluctuations in
research and development inclusive of stock based compensation, see the
section entitled Stock Based Compensation Expenses. The Company expects
research and development spending to continue to increase in the future as
the Company expands its product development efforts and seeks further
regulatory approvals.

     SALES AND MARKETING EXPENSES. For the year ended December 31, 2000,
sales and marketing expenses were $2,629,000, compared to $2,356,000
excluding related stock based compensation expenses for the year ended
December 31, 1999. Sales and marketing expenses include costs for marketing
personnel, tradeshow expenses, and promotional activities and materials.
Despite the elimination of the Company's internal sales force in January
2000, the Company re-deployed sales costs to marketing personnel and other
internal marketing expenses related to the promotion of its product lines.
After the initial public offering, the Company allocated some of its
available funds to marketing activities. Accordingly, the increase in sales
and marketing expenses in the year ended December 31, 2000 is primarily
attributable to the Company's increased efforts to provide regional and
on-site seminars and symposia and in providing support personnel to give
demonstrations on the use of the Company's new products to surgeons. In
addition, stock based compensation related to sales and marketing was
$1,852,000 for the year ended December 31, 2000 and $231,000 for the year
ended December 31, 1999.  For further information regarding fluctuations in
sales and marketing inclusive of stock based compensation, see the section
entitled Stock Based Compensation Expenses. The Company expects sales and
marketing expenses to increase in the future to support expanding business
activities.

     GENERAL AND ADMINISTRATIVE EXPENSES. For the year ended December 31,
2000, general and administrative expenses were $2,555,000, compared to
$1,313,000 excluding related stock based compensation expenses for the year
ended December 31, 1999. General and administrative expenses include costs
for administrative personnel, legal and other professional expenses and
general corporate expenses. The increase in general and administrative
expenses in the year ended December 31, 2000 is primarily attributable to
increased personnel costs of approximately $605,000 due to the addition of
eight full-time employees. In addition, growth of administrative costs such
as professional services and insurance by approximately $366,000 and other
general corporate expenses related to the expansion of all areas of the
Company's operations, as well as costs to support the Company's listing and
trading on the NEUER MARKT caused an increase of approximately $271,000. In
addition, stock based compensation related to general and administrative
expense was $1,607,000 for the year ended December 31, 2000 and $360,000 for
the year ended December 31, 1999.  For further information regarding
fluctuations in general and administrative expense inclusive of stock based
compensation, see the section entitled Stock Based Compensation Expenses. The
Company expects general and administrative expenses to increase in the future
to support expanding business activities.

     STOCK BASED COMPENSATION EXPENSES. For the year ended December 31, 2000,
non-cash stock based compensation expenses were $5,716,000, compared to
$666,000 for the year ended December 31, 1999. Stock based compensation
results from options issued to employees and non-employees. Stock based
compensation expenses are amortized over the remaining vesting periods of the
options, generally four years from the date of grant. The overall increase in
stock based compensation is related to compensatory stock options granted to
employees and consultants, and the increase in fair market value of the
common stock. The $2,169,000 increase in research and development stock based
compensation was due to a large grant of options to doctors and other
professionals who performed consulting services related to the Company's
development and start-up activities through August 8, 2000. Approximately
$1,257,000 of this increase was due to management's decision to accelerate
those options on August 9, 2000, as the services for which they were granted
were deemed complete and the compensation expense related to all the
accelerated options was recognized. The increase in sales and marketing stock
based compensation was due to approximately $1,775,000 in additional expense
recorded in the three months ended March 31, 2000 as a result of a
modification to extend the expiration date of some stock options granted to
former members of the Company's sales force upon their termination. General
and administrative stock based compensation increased by $1,247,000 as a
result of significant option grants to senior management and other employees
at below fair market value.

     INTEREST INCOME. For the year ended December 31, 2000, interest income was
$1,315,000, compared to $68,000 for the year ended December 31, 1999. The
increase in interest income resulted from an increase in cash, cash equivalents
and short-term investments to approximately $44,500,000 as of December 31, 2000
from approximately $2,600,000 as of December 31, 1999.

     INTEREST EXPENSE AND OTHER EXPENSES. For the year ended December 31, 2000,
interest expense and other expenses were $351,000, compared to $164,000 for the
year ended December 31, 1999. The increase in interest expense and other
expenses is primarily related to a loss on the conversion of Euros to

                                       14

U.S. dollars in connection with the net proceeds realized by the Company from
the sale of its common stock in August 2000.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     REVENUES. For the year ended December 31, 1999, the Company recorded
$1,513,000 in revenues of its resorbable implants and related accessory
products. The Company did not report any revenues for the year ended December
31, 1998.

     COST DIRECTLY RELATED TO REVENUES. For the year ended December 31, 1999,
the Company reported cost directly related to revenues of $481,000 or 31.8% of
revenues. Since the Company had no revenues in 1998, the Company did not incur
any cost directly related to revenues for the year ended December 31, 1998.

     GROSS PROFIT. For the year ended December 31, 1999, gross profit was
$1,032,000 or 68.2% of revenues. The Company did not record gross profit for the
year ended December 31, 1998.

     RESEARCH AND DEVELOPMENT EXPENSES. For the year ended December 31, 1999,
research and development expenses were $1,172,000, compared to $1,175,000 for
the year ended December 31, 1998. The relatively flat level of expense in
research and development expenses in 1999 as compared to 1998 is primarily
attributable to a shift from development of the product line to manufacturing of
products for sale.

     SALES AND MARKETING EXPENSES. For the year ended December 31, 1999, sales
and marketing expenses were $2,356,000, compared to $202,000 for the year ended
December 31, 1998. The increase is primarily attributable to an increase in
personnel costs related to hiring a sales force of thirteen people and the
associated sales and marketing expenses such as travel, trade shows and product
promotion materials. The sales force was subsequently terminated in 2000 after
the Company entered into its distribution agreement with Medtronic.

     GENERAL AND ADMINISTRATIVE EXPENSES. For the year ended December 31, 1999,
general and administrative expenses were $1,313,000, compared to $604,000 for
the year ended December 31, 1998. The increase is primarily attributable to
increased personnel costs and growth of administrative costs such as
professional services, insurance and other general corporate expenses related to
the expansion of all areas of the Company's operations.

     STOCK BASED COMPENSATION EXPENSES. For the year ended December 31, 1999,
non-cash stock based compensation expenses were $666,000, compared to $76,000
for the year ended December 31, 1998. The increase was primarily due to the
grants of additional options to new and existing employees and consultants as
well as an increase in the fair market value of the common stock.

     INTEREST INCOME. For the year ended December 31, 1999, interest income was
$68,000, compared to $10,000 for the year ended December 31, 1998. The increase
in interest income resulted from an increase in the average cash balances.

     INTEREST EXPENSE AND OTHER EXPENSES. For the year ended December 31, 1999,
interest expense and other expenses were $164,000, compared to $43,000 for the
year ended December 31, 1998. The increase in interest expense and other
expenses related to increased interest expense on capital lease financing and
the use of short-term financing until the debt was converted to preferred stock
in September 1999.

                                       15

UNEARNED COMPENSATION

     The Company records unearned compensation for options granted to
employees as the difference between the exercise price of options granted and
the fair value of its common stock at the time of grant. Unearned
compensation is amortized to stock based compensation expense and reflected
as such in the statement of operations and comprehensive income. Unearned
compensation recorded through March 31, 2001 was $6,562,000 with an
accumulated amortization, net of charges reversed during the period for the
forfeiture of unvested awards, of $3,679,000. The remaining $2,883,000 as of
March 31, 2001 will be amortized using the straight-line method over the
remaining vesting periods of the options, generally four years from the date
of grant. The Company expects to record amortization expense for unearned
compensation of $789,000 for the period April 1, 2001 to December 31, 2001,
$1,022,000 in 2002, $856,000 in 2003 and $216,000 in 2004. The amount of
unearned compensation expense recorded in future periods may decrease if
unvested options for which unearned compensation has been recorded are
subsequently forfeited.

NET OPERATING LOSS AND TAX CREDIT CARRY FORWARDS

     As of December 31, 2000, the Company had federal net operating loss
carryforwards of approximately $7,789,000 and state net operating loss
carryforwards of approximately $6,710,000, which may be available to offset
future taxable income for tax purposes. The federal net operating loss
carryforwards begin to expire in 2012. The state net operating loss
carryforwards begin to expire in 2005. A portion of the net operating losses are
limited in their annual utilization. As of December 31, 2000, the Company also
had research tax credit carryforwards of approximately $170,000 and $141,000 for
federal and state tax purposes, respectively. The federal carryforward will
begin to expire in 2012, if unused. As of December 31, 2000, the Company also
had California manufacturer's credit carryforwards of approximately $160,000,
which begin to expire in 2007, if unused.

RECENT ACCOUNTING PRONOUNCEMENTS

     The Company has adopted Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133, which is effective for fiscal years beginning after June 15,
2000, requires that all derivative instruments be recorded on the balance sheet
at their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, unless specific hedge
accounting criteria are met. The Company does not expect that the adoption of
SFAS 133 will have a material impact on its financial statements

                                       16

because it does not currently hold any derivative instruments and does not
engage in any hedging activities.

     In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes the SEC's views regarding the application of
generally accepted accounting principles to revenue recognition in financial
statements. The Company believes that its current revenue recognition principles
comply with SAB 101.

     In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" ("FIN 44"). This interpretation clarifies the application of APB
Opinion No. 25 for certain issues related to stock based compensation, including
the definition of employee for the purposes of applying APB 25, the criteria for
determining whether a plan qualifies as a noncompensatory plan, the accounting
consequences of modifications to the terms of a previously fixed stock option
award, and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 was effective July 1, 2000, but covers certain
events that occur either after December 15, 1998 or January 12, 2000. The
Company has applied the interpretations set forth in FIN 44 for the recognition
of certain stock based compensation during the year ended December 31, 2000.

LIQUIDITY AND CAPITAL RESOURCES

     As of March 31, 2001, the Company had cash, cash equivalents and
short-term investments of $41,534,000 and working capital of $44,992,000. Since
inception, the Company has financed its operations primarily through sales of
stock. The sale of preferred stock in 1997, 1998 and 1999 yielded net proceeds
of approximately $14,679,000. On August 8, 2000, the Company completed its
initial public offering in Germany and listed its common stock for trading on
the NEUER MARKT segment of the Frankfurt Stock Exchange in Frankfurt, Germany.
The net proceeds to the Company from the sale of 3,500,000 shares of common
stock in the offering were approximately $43,244,000. A portion of those net
proceeds have been used for research and development, to expand the Company's
manufacturing operations, to promote the Company's brand and to pursue
regulatory approvals for the Company's products. In addition, some of the
proceeds have been used for working capital and general corporate purposes. The
Company has invested some of the proceeds from the offering in short-term
investments, pending other uses of the proceeds in its business.

     Net cash used in operating activities was approximately $1,904,000 for
the three months ended March 31, 2001. Net cash used primarily relates to net
loss and the use of working capital to build up inventory of approximately
$534,000 in anticipation of sales in 2001 and the increase in accounts
receivable of $503,000. Net cash provided by operating activities was
$688,000 for the three months ended March 31, 2000. The net cash provided by
operating activities resulted primarily from a net loss that was offset by an
up-front license fee of $1,425,000 paid to the Company by a distributor for
exclusive worldwide distribution rights on all of the Company's products for
use in the craniofacial areas and from stock based compensation expenses of
$2,428,000.

     Net cash used in operating activities was approximately $2,982,000 for
the year ended December 31, 2000, $5,107,000 for the year ended December 31,
1999 and $1,523,000 for the year ended December 31, 1998.  For each such
period, net cash used in operating activities resulted primarily from net
losses and working capital requirements.  Net losses resulted to a large
extent from expenses associated with the development of MacroPore's
resorbable designs, preclinical studies, preparation of submissions to the
FDA and foreign regulatory agencies, marketing and distribution channels, and
the improvement of MacroPore's manufacturing capabilities.  The $2,125,000
decrease in cash used in operating activities from December 31, 2000 to 1999
primarily related to MacroPore's net loss of $8,645,000 for the year ended
December 31, 2000 which was offset by stock based compensation of $5,716,000
and deferred revenue related to the license fee and other activities of
$1,090,000.  In addition, inventories increased by $1,143,000 in 2000 in
anticipation of increased sales of continued and new products in early 2001.
The $3,584,000 increase in cash used in operating activities from December
31, 1999 to 1998 primarily related to MacroPore's net loss of $4,571,000 for
the year ended December 31, 1999.  In addition, inventories increased by
$1,097,000 in 1999 in anticipation of increased sales in the three months
ended March 31, 2000.  These increases in cash used for operating activities
were partially offset by stock based compensation and other activities of
approximately $561,000.  MacroPore's working capital requirements fluctuate
with changes in its operating activities that include such items as sales and
manufacturing costs, which affect the levels of accounts receivable,
inventories and current liabilities.

     Net cash provided by investing activities was approximately $1,731,000 for
the three months ended March 31, 2001. The net cash investing activities
primarily consisted of the purchase and sale of short-term investments and
capital expenditures. Net cash used in investing activities was $312,000 for the
three months ended March 31, 2000 and primarily related to the purchase of fixed
assets to be used in the manufacturing process.

     Net cash used in investing activities was approximately $39,450,000 for
the year ended December 31, 2000, $381,000 for the year ended December 31,
1999 and $598,000 for the year ended December 31, 1998. The Company's
investing activities primarily consist of the purchase of short-term
investments and capital expenditures. The Company's investing activities in
the year ended December 31, 2000 included increased short-term investments
related to the short-term investment of the proceeds of the Company's initial
public offering in August 2000.

     Net cash used in financing activities was approximately $7,000 for the
three months ended March 31, 2001 and resulted primarily from principal
payments on the Company's capital leases. Net cash provided by financing
activities was approximately $4,080,000 for the three months ended March 31,
2000 and related to the sale of Series D preferred stock.

     Net cash provided by financing activities was approximately $47,437,000
for the year ended December 31, 2000, $7,924,000 for the year ended December
31, 1999 and $1,837,000 for the year ended December 31, 1998. The net cash
provided by financing activities was primarily attributable to the sale of
common stock in the initial public offering and to the sale of preferred
stock.

                                       17

     The Company has equipment lease obligations that mature at various dates
through 2004 with interest rates ranging from 12.4% to 30.5%. The monthly
payments under the equipment lease obligations are $14,000.

     As of March 31, 2001, the Company had capital equipment of $5,638,000
less accumulated depreciation of $981,000 to support its clinical, research,
development, manufacturing and administrative activities. For the three
months ended March 31, 2001, the Company's capital expenditures were
$1,192,000. For the year ended December 31, 2000, the Company's capital
expenditures were $2,732,000. The Company expects capital expenditures for
the year ended December 31, 2001 to be approximately $3,100,000 as the
Company acquires additional equipment and expands its facilities. In
addition, the Company is negotiating the purchase of its manufacturing
facility in San Diego, California at a cost of approximately $2,750,000. The
Company intends to pay for all capital expenditures with available working
capital.

     In May 2001, the Company acquired an ownership interest in StemSource,
Inc. StemSource, which is in its early stages of development, was formed to
principally engage in biomedical research. The Company is negotiating the
terms of a collaborative agreement with StemSource for the purpose of
engaging in joint research and development activities. From time to time, the
Company may enter into collaborative arrangements with, and acquire ownership
interest in, other companies for the purpose of engaging in joint research and
development activities.

     The Company's capital requirements depend on numerous factors, including
market acceptance of its products, the resources the Company devotes to
developing and supporting its products and other factors. The Company expects to
devote substantial capital resources to continue its research and development
efforts, to expand its support and product development activities and for other
general corporate activities. The Company believes that its current cash and
investment balances and revenue to be derived from the sale of its products will
be sufficient to fund its operations at least through December 31, 2002.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     The Company is exposed to market risk related to fluctuations in interest
rates and in foreign currency exchange rates.

     INTEREST RATE EXPOSURE. The Company's exposure to market risk due to
fluctuations in interest rates relates primarily to short term investments,
which consist primarily of investments in debt instruments of financial
institutions, corporations with strong credit ratings and United States
government obligations, reported at an aggregate fair market value of
$40,362,000 as of March 31, 2001. These securities are subject to interest
rate risk inasmuch as their fair value will fall if market interest rates
increase. If market interest rates were to increase immediately and uniformly
by 100 basis points from the levels prevailing at March 31, 2001, for
example, and assuming an average investment duration of nine months, the fair
value of the portfolio would not decline by a material amount. The Company
does not use derivative financial instruments to mitigate the risk inherent
in these securities. However, the Company does attempt to reduce such risks
by generally limiting the maturity date of such securities, diversifying its
investments and limiting the amount of credit exposure with any one issuer.
The Company believes that it currently has the ability to hold these
investments until maturity and, therefore, believes that reductions in the
value of such securities attributable to short-term fluctuations in interest
rates would not materially affect its financial position, results of
operations or cash flows.

     FOREIGN CURRENCY EXCHANGE RATE EXPOSURE. The Company's exposure to market
risk due to fluctuations in foreign currency exchange rates relates primarily to
sales of the Company's products in Europe and other foreign markets. Although
the Company transacts business in various foreign countries, settlement amounts
are usually based on U.S. dollars or the Euro. Transaction gains or losses
resulting from sales revenues have not been significant in the past and there is
no hedging activity on the Euro or other currencies. Based on the Company's
revenues derived from markets other than the United States for

                                       18

the three months ended March 31, 2001, a hypothetical 10% adverse change in
Euros against U.S. dollars would not result in a material foreign exchange
loss. Consequently, the Company does not expect that reductions in the value
of such sales denominated in foreign currencies resulting from even a sudden
or significant fluctuation in foreign exchange rates would have a direct
material impact on its financial position, results in operations or cash
flows.

     Notwithstanding the foregoing, the indirect effect of fluctuations in
interest rates and foreign currency exchange rates could have a material adverse
effect on the Company's business, financial condition and results of operations.
For example, international demand for the Company's products may be affected by
foreign currency exchange rates. In addition, interest rate fluctuations may
affect the buying patterns of the Company's customers. Furthermore, interest
rate and currency exchange rate fluctuations may broadly influence the United
States and foreign economies resulting in a material adverse effect on the
Company's business, financial condition and results of operations.

ITEM 3. PROPERTIES.

     The Company's main facility is located at 6740 Top Gun Street, San Diego,
California. The Company currently leases approximately 27,000 square feet of
space at this location which it uses for its corporate headquarters and for
manufacturing. Of the 27,000 square feet, approximately 8,500 square feet is
laboratory space, 6,000 square feet is office space and 12,500 square feet is
manufacturing space. The Company's lease has a five year term and will expire in
2003. The Company is currently negotiating to purchase this property at an
approximate purchase price of $2,750,000.

     The Company also leases a facility located at 6749 Top Gun Street, San
Diego, California. The Company expects to use the 14,000 square foot facility
primarily for research and development. The lease has a five year term and
expires in 2006.

     The Company leases approximately 5,800 square feet of office space in
Frankfurt, Germany for use in marketing and administration. The lease has a five
year term and expires in 2006.

     In addition, the Company collectively leases approximately 400 square
feet of office space in Malvern, Pennsylvania and Atlanta, Georgia. These
offices have been leased for six month terms that renew automatically, unless
terminated.

     The Company pays an aggregate of approximately $41,000 in rent per month
for its properties located in the United States and approximately DM9,500 for
its property in Germany.

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table provides certain information regarding beneficial
ownership of the Company's common stock as of May 10, 2001 by:

     o   each shareholder known by the Company to own beneficially more than 5%
         of the outstanding shares

     o   all directors

     o   the Company's Chief Executive Officer and four other executive
         officers

     o   all of the Company's directors and executive officers, as a group

     The amounts and percentages of common stock beneficially owned are reported
on the basis of regulations of the SEC governing the determination of beneficial
ownership of securities. Under the rules of the SEC, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities for which that person has a right to acquire beneficial

                                       19

ownership within 60 days. Under these rules, more than one person may be deemed
a beneficial owner of the same securities and a person may be deemed to be the
beneficial owner of securities as to which that person has no economic interest.

     All of the individuals listed below who hold stock options granted by the
Company prior to January 1, 2001 may exercise stock option grants which have not
yet vested. Shares of common stock issued by the Company upon the exercise of
unvested options are held in escrow with the Secretary of the Company. None of
the option shares are held in escrow at this time. Unless otherwise indicated,
the address for each person or entity named below is c/o MacroPore, Inc., 6740
Top Gun Street, San Diego, California 92121.

                                                                       NUMBER OF SHARES
                                                                       OF COMMON STOCK             PERCENTAGE OF
NAME                                                                  BENEFICIALLY OWNED        OUTSTANDING SHARES
- ----                                                                  ------------------        ------------------
                                                                                          
Marshall Cox (1).............................................                768,980                     5.1%
Christopher J. Calhoun (2)...................................                875,000                     5.8
Michael Simpson (3)..........................................                268,750                     1.8
Ari Bisimis (4)..............................................                298,368                     2.0
Charles E. Galetto (5).......................................                100,000                      *
Gary Sohngen (6).............................................                100,000                      *
Stefan M. Lemperle (7).......................................                766,194                     5.1
David Rickey (8).............................................                 50,000                      *
Ralph E. Holmes (9)..........................................                800,000                     5.4
Medtronic Asset Management, Inc. (10)........................              1,000,000                     6.7
Edmund Krix (11).............................................                296,386                     2.0
All directors and executive officers as a group
  (11 persons) (12)..........................................              2,954,989                    18.5

- ----------
* Less than one percent.

(1)   Includes 115,625 shares issuable upon the exercise of stock options and
      22,223 shares issuable upon exercise of warrants. Also includes 48,530
      shares held of record by Saratoga Boys Club and 5,334 shares held of
      record by his spouse. Mr. Cox is the managing director of Saratoga Boys
      Club and has sole voting and investment power with respect to the shares
      of the Company's common stock held by Saratoga Boys Club. Mr. Cox
      disclaims beneficial ownership of shares held by his spouse.

(2)   Includes 218,750 shares issuable upon the exercise of stock options. Also
      includes a total of 600,000 shares held of record by TTMC Investments,
      Inc., a total of 37,500 shares held of record by the Calhoun Family Trust
      and 18,750 shares held of record by Mr. Calhoun and his wife. Mr. Calhoun
      has sole voting and investment power with respect to the shares of the
      Company's common stock held by TTMC Investments. Mr. Calhoun and his wife
      are co-trustees of the Calhoun Family Trust and share voting and
      investment power with respect to the shares of the Company's common stock
      held by the Calhoun Family Trust.

(3)   Includes 213,125 shares issuable upon the exercise of stock options.

(4)   Includes 260,000 shares issuable upon the exercise of stock options. Also
      includes 25,000 shares of the Company's common stock pledged to the
      Company to secure the repayment of two loans made by the Company to Mr.
      Bisimis.

(5)   Includes 100,000 shares issuable upon the exercise of stock options.

(6)   Includes 100,000 shares issuable upon the exercise of stock options.

                                       20

(7)   Includes 600,000 shares held of record by Creative Microspheres, Inc. Dr.
      Lemperle has sole voting and investment power with respect to the shares
      of the Company's common stock held by Creative Microspheres. The address
      for Dr. Lemperle is c/o Artes Medical, 4660 La Jolla Village Drive Suite
      825, San Diego, California 92122.

(8)   Includes 50,000 shares issuable upon the exercise of stock options.

(9)   The address for Dr. Holmes is 8010 Frost Street Suite 412, San Diego,
      California 92123.

(10)  The address for Medtronic Asset Management, Inc. is Medtronic, Inc.
      Corporate Center, 7000 Central Avenue, N.E., Minneapolis, Minnesota 55432.

(11)  Includes 50,000 shares issuable upon the exercise of stock options.

(12)  Includes all shares and options exercisable within sixty days owned by
      all directors and executive officers and their spouses.

ITEM 5. DIRECTORS, EXECUTIVE OFFICERS AND FOUNDERS.

     The following table sets forth certain information regarding the directors
and executive officers of the Company as of May 10, 2001.

NAME                                        AGE   POSITION(S)
- ----                                        ---   -----------
                                            
Marshall G. Cox..............................65   Chairman of the Board and Director
Christopher J. Calhoun.......................35   Chief Executive Officer, Vice-Chairman, Secretary and Director
Michael Simpson..............................55   President and Director
Ari Bisimis..................................32   Chief Financial Officer and Director
Charles Galetto..............................50   Senior Vice President - Finance and Administration, and Treasurer
Gary Sohngen.................................41   Vice President - Research & Development
Sharon Schulzki..............................43   Vice President and General Manager - Spine & Orthopedics
Bruce Reuter.................................52   Vice President - Market Development
R. Mark Lane.................................53   Vice President - U.S. Sales
David Rickey.................................45   Director
Edmund Krix..................................42   Director

     MARSHALL G. COX, a current employee of the Company, has served as Chairman
of the Board of Directors of the Company since May 1997. He founded Western
Micro Technology, Inc. and from 1994 to 1997 served as its chairman and chief
executive officer. Mr. Cox retired from Western Micro as Chairman Emeritus in
1997. He is the Managing Director of the Saratoga Boy's Club, formerly a major
stockholder in the Company and he serves on the board of directors of Internix,
Inc. Mr. Cox holds a B.S. from the University of California, Los Angeles.

     CHRISTOPHER J. CALHOUN is a co-founder of the Company and has served as the
Company's Vice-Chairman, Chief Executive Officer and Secretary since May 1997.
Since 1989, Mr. Calhoun has been involved in research and management for the
Plastic Surgery Bone Histology and Histometry Laboratory at the University of
California at San Diego. Mr. Calhoun received a B.A. from the University of
California at San Diego, and an M.B.A. from the University of Phoenix.

     MICHAEL SIMPSON has served as the Company's President since September 1998.
From 1986 to 1996,

                                       21

Mr. Simpson served as President of Synthes (USA) Maxillofacial Division, a
medical devices company. From 1997 to 1998, he served as President of the
Craniofacial Division at Bionx Implants, Inc. Mr. Simpson holds a B.A. from St.
Bonaventure University.

     ARI BISIMIS has served as the Company's Chief Financial Officer since April
2000. Mr. Bisimis worked in various investment banking firms before joining the
Company. From 1998 to 2000, Mr. Bisimis served as head of Eurobond trading for
Dresdner Kleinwort Benson. From 1997 to 1998, he served as Senior Fixed Income
Trader for Commerzbank and from 1994 to 1997 as Eurobond trader for JP Morgan.
Mr. Bisimis holds a Diplom Kaufmann degree from Johann Wolfgang Goethe
University in Frankfurt, Germany.

     CHARLES E. GALETTO has served as the Company's Senior Vice President -
Finance and Administration and Treasurer since April 2000. From August 1997 to
January 2000, Mr. Galetto served in various positions with PMR Corporation, a
company specializing in mental health care programs, including service as Senior
Vice President-Finance and Treasurer of PMR Corporation. From June 1996 to July
1997, he served as Vice President-Corporate Controller of Medtrans, a medical
transportation service, a division of Laidlaw, Inc. and from 1989 to 1996, as
Chief Finance Officer, Treasurer and Secretary of Data/Ware Development, Inc.
Mr. Galetto is a Certified Public Accountant and holds a B.S. from Wayne State
University.

     GARY SOHNGEN has served as the Company's Vice President - Research &
Development since January 2000. From 1985 to 1999, Mr. Sohngen served as Vice
President of Research and Development for DePuy ACE, a Johnson & Johnson company
specializing in the manufacture of orthopedic implants. He holds a B.S. from
Twickenham Technical College in the United Kingdom and an M.B.A. from the
University of Phoenix.

     SHARON SCHULZKI has served as the Company's Vice President and General
Manager - Spine & Orthopedics business unit since July 2000. Prior to July
2000, her most recent employment was at Howmedica, Inc. Division of Pfizer, a
manufacturer of medical devices, where she served in various positions from
1983 to 1998, including Vice President. During that time she also served as
Senior Vice President, Worldwide Marketing and Product Development, Howmedica
Leibinger, Inc. Ms. Schulzki holds a B.S. from Loyola College, Baltimore, MD.

     BRUCE REUTER has served as the Company's Vice President - Market
Development since February 2001. From 1990 to 2000, Mr. Reuter served as the
Vice President and Managing Director of Mentor International, a multi-national
marketer of medical devices. He holds a B.A. from the University of Rhode Island
and an M.B.A. from Memphis State University.

     R. MARK LANE has served as the Company's Vice President - U.S. Sales since
March 2001. From 1998 to 2001, Mr. Lane served as the Executive Vice President
of Business Development for dotMD.Inc, a company licensing URL domain names, and
President and Chief Operating Officer of MedAscend, Inc., a company providing
education and training to physicians worldwide. From 1994 to 1998, he served as
Vice President of Marketing Services and Promotions for Genzyme Surgical
Products (formerly DSP Worldwide, Inc.). Mr. Lane holds a B.A. from the
University of Kentucky.

     DAVID RICKEY has served as a director of the Company since November 1999.
Since 1996, Mr. Rickey has served as President and Chief Executive Officer of
Applied Micro Circuits Corporation, which provides high-performance,
high-bandwidth silicon solutions for optical networks. Mr. Rickey also serves as
a director of Applied Micro Circuits Corporation and Silicon Wave. He holds a
B.S. from Marietta College, a B.S. from Columbia University and an M.S. from
Stanford University.

                                       22

     EDMUND KRIX has served as a director of the Company since August 2000.
Since 1984, Mr. Krix has served as Chief Executive Officer and Chairman of the
Board of Teleplan International N.V., an office products service and maintenance
company.

     The Board of Directors is responsible for managing the Company in
accordance with the provisions of the Company's bylaws (the "Bylaws") and
certificate of incorporation (the "Certificate of Incorporation") and applicable
law. The number of directors which constitutes the Board of Directors is
established by the Board, subject to a minimum of three directors. Currently,
all directors hold office for a term ending on the date of the annual meeting
following the annual meeting at which such director was elected.

     Except as otherwise provided by the Bylaws for filling vacancies on the
Company's Board of Directors, the Company's directors are elected at the
Company's annual meeting of stockholders and hold office until their respective
successors are elected, or until their earlier resignation or removal.

     Mr. Cox, a director of the Company and Chairman of the Board of Directors,
is Mr. Calhoun's father-in-law.

BOARD COMMITTEES

     The Board of Directors has established a committee (the "Committee") to
handle compensation matters and administer the Company's Stock Option and Stock
Purchase Plan, as amended (the "Stock Option Plan"). The Committee consists of
Mr. Calhoun and Mr. Cox. The Committee determines the compensation received by
the Company's directors and executive officers and administers the Company's
Stock Option Plan. The committee reviews and approves the compensation and
benefits for the Company's executive officers, and makes recommendations to the
Board of Directors regarding these matters.

     The Board of Directors has also established an Audit Committee consisting
of Mr. Rickey and Mr. Krix. Paul Araquistain, an employee and former member of
the Board of Directors of the Company also serves on the Audit Committee. The
Audit Committee provides recommendations to the Board of Directors regarding the
selection of the Company's independent public accountants, reviews the scope of
the annual audit of the Company's books and records, approves the audit fees to
be paid, and reviews the Company's financial accounting controls with the
Company's staff and its independent public accountants.

ITEM 6. EXECUTIVE COMPENSATION.

DIRECTOR COMPENSATION

     Presently, other than expenses in connection with attendance at meetings
and other approved expenses, the Company does not compensate any non-employee
members of its Board of Directors. Non-employee directors are eligible to
receive options under the Company's Stock Option Plan.

EXECUTIVE COMPENSATION

     Executive officers of the Company are appointed by the Board of Directors
annually at the first meeting of the Board of Directors following the annual
meeting of stockholders and generally serve until their successors have been
duly appointed and qualified.

     The following table sets forth summary information concerning compensation
awarded to, earned by,

                                       23

or accrued for services by the Company's Chief Executive Officer and four
additional officers for services rendered to the Company in all capacities
during the years ended December 31, 1998, 1999 and 2000. Except as set forth
below, no profit-sharing, allowances, insurance payments, commissions or other
remuneration paid or benefits in kind were made to the Company's officers during
such years.

                                       24

                                                                                          LONG TERM
                                                          ANNUAL COMPENSATION           COMPENSATION
                                                          -------------------              AWARDS
                                                                                       ----------------
                                                                                          SECURITIES
                                                                                          UNDERLYING           ALL OTHER
NAME AND PRINCIPAL POSITION                   YEAR         SALARY          BONUS       OPTIONS/SARS (#)     COMPENSATION (1)
- ---------------------------                   ----         ------          -----       ----------------     ----------------
                                                                                             
Christopher L. Calhoun...................     2000    $   177,303          $ 50,760          62,500          $   12,845
   CHIEF EXECUTIVE OFFICER AND SECRETARY      1999        145,750            41,086         250,000               7,385
                                              1998         10,008                 0               0                   0
Michael Simpson..........................     2000        168,299            46,530          68,750               9,600
   PRESIDENT                                  1999        165,000            41,086          55,000               9,600
                                              1998         55,000            30,000         220,000               2,400
Ari Bisimis (2)..........................     2000        120,000            36,000         275,000               7,200
   CHIEF FINANCIAL OFFICER
Charles Galetto (3)......................     2000        102,885            38,125         100,000               6,600
   SENIOR VICE PRESIDENT, FINANCE AND
   ADMINISTRATION AND TREASURER
Gary Sohngen (4).........................     2000        120,000             1,500         100,000               9,600
   VICE PRESIDENT, RESEARCH AND DEVELOPMENT

- ---------------
(1)  The amounts in this column represent the car allowance given to each named
     executive officer.
(2)  Mr. Bisimis began his employment with the Company in April 2000. He was
     granted 10,000 options in May 1999 for consulting services he provided
     prior to joining the Company.
(3)  Mr. Galetto began his employment with the Company in April 2000.
(4)  Mr. Sohngen began his employment with the Company in January 2000.

OPTION GRANTS IN 2000

     The following table sets forth, as to the named executive officers,
information concerning stock options granted during the year ended December 31,
2000.

                                                    INDIVIDUAL GRANTS
                             NUMBER OF
                             SECURITIES          PERCENT OF      EXERCISE                        GRANT DATE
                             UNDERLYING        TOTAL OPTIONS    PRICE PER                      PRESENT VALUE
NAME                    OPTION/SARS GRANTED       GRANTED          SHARE     EXPIRATION DATE         (1)
- ----                    -------------------       -------          -----     ---------------         ---
                                                                                
Christopher Calhoun........... 62,500               4.0%          $   3.00   January 1, 2010     $ 150,312

Michael Simpson............... 68,700               4.4               3.00   January 1, 2010       165,224

Ari Bisimis...................250,000              15.8               3.00     April 1, 2010     2,659,500

                               25,000               1.6               3.00   January 1, 2010        60,125

Charles Galetto...............100,000               6.3               3.00    April 24, 2010     1,063,600

Gary Sohngen..................100,000               6.3               3.00   January 1, 2010       240,500

- ---------------
(1)   The Company used the Black-Scholes option-pricing model to determine the
      grant date present value of the options set forth in this table. The
      Company's use of this model should not be construed as an endorsement of
      its accuracy at valuing options. The real value of the options depends
      upon the actual changes in the market price of the Company's common stock
      during the applicable period.

      All stock option valuation models, including the Black-Scholes model,
      require a prediction about the future movement of the stock price. The
      following facts and assumptions were used in calculating grant date
      present value: exercise prices as indicated in the table above, fair
      market value of each option on the date of grant based on the best
      information available, a dividend yield of 0.0%, an expected stock option
      term of ten years and a stock price volatility of 60.0% based on the
      market

                                       25

      performance of the stock of similar medical device companies. The Company
      used an assumed risk-free interest rate in its calculations equivalent to
      the yield of a zero-coupon, ten-year Treasury bond on the date of the
      grants. The risk-free interest rate was 6.48% for options granted on
      January 1, 2000, 6.03% for options granted on April 1, 2000 and 6.00% for
      options granted on April 24, 2000. No other discounts or restrictions
      related to vesting or the likelihood of vesting of the stock options were
      applied.

AGGREGATED OPTIONS EXERCISES IN 2000 AND OPTION VALUES IN 2000

     The following table sets forth information concerning options to purchase
common stock held as of December 31, 2000 by each of the officers named in the
summary compensation table that have stock options.

     Amounts set forth as "value realized" in the following table represent
hypothetical calculations based on the difference between the fair market value
of the common stock underlying the options and the exercise price of the
options. Prior to the Company's initial public offering in August 2000, there
was no public market for the Company's stock. The value realized is therefore
based on the best information available as to the fair market value of the
Company's stock at the date of grant. The value realized does not necessarily
represent any actual monetary gain to the option holder.

                                                                  NUMBER OF SECURITIES
                                                                 UNDERLYING UNEXERCISED           VALUE OF UNEXERCISED
                         SHARES ACQUIRED ON                              OPTIONS                  IN-THE-MONEY OPTIONS
                            EXERCISE (#)      VALUE REALIZED     AS OF DECEMBER 31, 2000        AS OF DECEMBER 31, 2000
                            ------------      --------------     -----------------------        -----------------------
NAME                                                           EXERCISABLE   UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
- ----                                                           -----------   -------------    -----------    -------------
                                                                                           
Christopher Calhoun............93,750          $1,093,125         218,750          -           $1,425,313          -
Michael Simpson................130,625          1,394,406         213,125          -            1,366,269          -
Ari Bisimis....................25,000             248,750         260,000          -            1,164,800          -
Charles Galetto................   -                 -             100,000          -              448,000          -
Gary Sohngen...................   -                 -             100,000          -              448,000          -

EMPLOYMENT AGREEMENTS

     The Company has not entered into any written employment agreements with any
of its executive officers or directors. The Company intends to enter into an
employment agreement with Mr. Bisimis and into standard employment agreements
with its other overseas employees.

STOCK OPTION PLAN

     In October 1997, the Board of Directors of the Company adopted, and the
stockholders approved, the Stock Option Plan. The Stock Option Plan is
administered by the Committee. The purpose of the Stock Option Plan is to
provide the Company's designated employees, consultants and advisors who
perform services for the Company, and non-employee members of the Company's
Board of Directors, with the opportunity to receive grants of incentive stock
options, nonqualified stock options and restricted stock. Awards under the Stock
Option Plan may be made in the form of:

     o   incentive stock options

     o   nonqualified stock options (incentive and nonqualified stock options
         are collectively referred to as "options")

                                       26

     o   direct awards or sales of stock

Awards may be made to such directors and employees of the Company, and to such
consultants to the Company as the Committee shall, in its own discretion,
select.

     The Company is currently authorized to issue 5,000,000 shares under its
Stock Option Plan. As of May 10, 2001, the Company had outstanding options to
purchase 3,800,778 shares of the Company's common stock pursuant to the Stock
Option Plan. As of May 10, 2001, options to acquire 1,112,905 shares of
common stock had been exercised and 2,086,317 shares of common stock were
available for grant under the Stock Option Plan. The Company's Board of
Directors has authorized, and the Company expects the stockholders of the
Company to approve, an increase in the number of shares authorized for
issuance under the Stock Option Plan to 7,000,000.

     Awards granted under the Stock Option Plan and shares acquired pursuant
thereto are subject to a number of rights and restrictions, including provisions
relating to the termination of employment of service of the grantee. The
Committee may, without stockholder approval, adopt, amend or rescind rules,
procedures, and terms of the Stock Option Plan at any time, or from time to
time; provided, however, that stockholder approval shall be obtained for any
amendment for which such approval is required by Section 422 of the United
States Internal Revenue Code of 1986, as amended, or by other provisions of
applicable law. Unless sooner terminated by the Committee or unless the
employee's service terminates, the provisions of the Stock Option Plan relating
to the grant of incentive stock options shall terminate on October 22, 2007. All
awards made under the Stock Option Plan prior to its termination shall remain in
effect until they are satisfied or terminated. Stock options awarded under the
Plan are not transferable.

     In general, the individual stock option agreements granted under the Stock
Option Plan prior to January 1, 2001 provide the Company's option holders with
the ability to exercise stock option grants which have not yet vested. Shares of
common stock issued by the Company upon the exercise of unvested options are
held in escrow with the Secretary of the Company. Such escrowed shares typically
vest 25% at the end of the first year anniversary of the stock option agreement
and then vest at the rate of 1/48th per month thereafter until fully vested. In
the event of termination of employment, the Company typically has a right to
purchase any shares of common stock issued to an employee pursuant to the
exercise of an unvested stock option. Individual stock option agreements issued
under the Stock Option Plan since January 1, 2001 generally do not allow the
exercise of unvested stock options. Stock option accounting is consistent
with fixed plan accounting under APB 25.

     The Committee is authorized to construe, interpret and implement the
provisions of the Stock Option Plan, to select the persons to whom awards will
be granted, to determine the terms and provisions of such awards, including the
vesting schedule and purchase price per share payable upon the exercise of an
option, and to amend outstanding awards. The determinations of the Committee are
made in its sole discretion and are binding and conclusive.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     Mr. Calhoun, who is a member of the Committee, is currently Vice-Chairman,
Chief Executive Officer and Secretary and serves as a director of the Company.
He also serves as a director of Artes Medical, Inc. Mr. Cox, who is also a
member of the Committee, serves as an employee of the Company and as Chairman of
the Board of Directors. Mr. Cox is also the Managing Director of Saratoga Boys
Club and serves as a director for Internix, Artes Medical, Inc., Triscend Inc.
and G2 Inc.

                                       27

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The following is a description of transactions since January 1998 to which
the Company has been a party and in which any director, executive officer or
holder of more than 5% of the Company's capital stock had or will have a direct
or indirect material interest. All of the transactions disclosed below were duly
authorized by the then-serving Board of Directors.

     In November 1999, Mr. Simpson purchased 45,951 shares, Mr. Bisimis
purchased 92,558 shares, Mr. Lane purchased 22,505 shares and Mr. Krix purchased
246,386 shares of the Company's Series C preferred stock at a purchase price of
$2.25 per share for a total cash consideration of approximately $917,000.

     In November 1999 and June and July 2000, the Company issued 59,707 shares
of common stock to Mr. Bisimis in consideration of services rendered by Mr.
Bisimis as a consultant to the Company prior to April 2000 when he became an
employee of the Company.

     Mr. Cox, the Chairman of the Company's Board of Directors, is the
Managing Director of Saratoga Boys Club. During the period from September
1997 through November 1999, Saratoga Boys Club purchased an aggregate of
2,099,880 shares of the Company's Series A, B and C preferred stock for a
total cash consideration of approximately $1,978,000. In 1998 and 1999, the
Company issued three warrants for a total of 22,223 shares of common stock to
Mr. Cox as partial consideration for three loans made by Mr. Cox to the
Company. The loans, which were made on September 28, 1998, November 27, 1998
and January 8, 1999 for $99,000, $50,000 and $51,000, respectively, have been
repaid in full. The loans were unsecured and bore interest at the rate of 10%
per annum. The loans were short term loans which matured in less than a year
and were used to provide working capital. See "Description of Capital Stock -
Warrants" for a further description of these warrants. In November 1999, the
Company issued 39,333 shares of common stock to Mr. Cox for total cash
consideration of approximately $59,000.

     In 2000, the Company issued two loans to Ari Bisimis, one of the
Company's directors and executive officers, in the aggregate amount of
$46,500, at an annual interest rate of 10.0%, for the purchase of a total of
25,000 shares of the Company's common stock. The loans were issued pursuant
to the exercise of stock options granted to Mr. Bisimis. The loans were
repaid in full on April 30, 2001.

     In January 2000, the Company entered into a distribution agreement and a
development and supply agreement with Medtronic. Medtronic paid a $1,500,000
license fee to the Company for the exclusive worldwide distribution rights
granted under the distribution agreement. In January 2000, Medtronic
purchased 1,000,000 shares of the Company's Series D preferred stock for
total cash consideration of $3,500,000.

     The Company believes that all of the transactions described above were made
and are on terms no less favorable to the Company than those that could be
obtained from independent third parties in arms-length negotiations.

ITEM 8. LEGAL PROCEEDINGS.

     The Company is not currently a party to any material legal proceedings.

                                       28

ITEM 9. MARKET PRICE AND DIVIDENDS.

MARKET PRICES

     The Company's common stock has been quoted on the NEUER MARKT of the
Frankfurt Stock Exchange under the symbol "XMP" since its initial public
offering on August 8, 2000. Prior to this time, there was no public market for
the Company's stock. The Company's common stock is not currently traded on any
United States exchange. The following table shows the high and low sales prices
for the Company's common stock for the periods indicated, as reported on the
NEUER MARKT. These prices do not include retail markups, markdowns or
commissions. Average daily trading volume since the Company's shares were
listed and began trading on the NEUER MARKT through September 30, 2000 was
136,674 shares per day. Average daily trading volume of the Company's shares
was 19,517 shares per day for the quarter ended December 31, 2000 and 17,503
shares per day for the quarter ended March 31, 2001.

     2000                                                                 HIGH                  LOW
                                                                                          
       Quarter ended September 30, 2000.....................              E27.2                 E17.8
       Quarter ended December 31, 2000......................              E20.0                 E 6.8

    2001

       Quarter ended March 31, 2001.........................              E14.0                 E 6.0

     Substantially all of the Company's shares are represented by a global
stock certificate issued in the name of Concord Effekten AG and deposited
with Clearstream Banking AG ("Clearstream"), Frankfurt, Germany, the German
securities depository.  As of May 30, 2001, based on information provided by
Clearstream, the Company estimates that the number of beneficial owners of
its common stock held through the global stock certificate is approximately
5,500. As of May 30, 2001, there were an additional fifteen stockholders of
record who held individual stock certificates.

     The Company has issued and has outstanding options to purchase 3,800,778
shares of common stock and warrants to purchase 47,223 shares of common
stock. All of the outstanding shares of common stock are deemed to be
"restricted securities" as that term is defined in Rule 144. Of these
restricted shares, 6,876,909 shares are available for sale in the public
market pursuant to Rule 144, subject to compliance with Rule 144 volume and
other requirements.

DIVIDENDS

     The Company has never declared or paid any dividends and currently
intends to retain all available earnings generated by its operations for the
development and growth of its business. It does not currently anticipate
paying any cash dividends on its outstanding shares of common stock in the
foreseeable future.

THE GERMAN EQUITY MARKET

    GERMAN SECURITIES LAWS

     As a United States company offering securities on a German stock exchange,
the Company is subject to various laws and regulations in both jurisdictions.
Some of these laws and regulations, in turn, can affect the ability of holders
of the Company's securities to transfer or sell those securities.

     At present, Germany does not restrict the export or import of capital,
except for investments in Iraq and Libya in accordance with applicable
resolutions adopted by the United Nations and the European Union. However,
for statistical purposes only, every individual or corporation residing in
Germany must report to the German Central Bank, subject only to immaterial
exceptions, any payment received from or made to an individual or a
corporation not a resident of Germany if such payment exceeds DM5,000 (E2,550
or the equivalent in a foreign currency). In addition, residents of Germany
must report any claims against or any liabilities payable to non-residents if
such claims or liabilities, in the aggregate, exceed DM3.0 million, or E1.53
million or the equivalent in a foreign currency, during any one month.
Residents must also report any direct investment outside Germany if such
investment exceeds DM100,000, or E51,000 or the equivalent in a foreign
currency.

     There are no limitations imposed by German law or the Company's Certificate
of Incorporation or Bylaws on the right of non-resident owners to hold or vote
the shares.
                                       29

    THE FRANKFURT STOCK EXCHANGE AND THE NEUER MARKT

     The Frankfurt Stock Exchange is one of nine German stock exchanges
(including the Eurex Deutschland). The NEUER MARKT segment of the Frankfurt
Stock Exchange is a new trading segment that was launched in March 1997. It
is designed for innovative, small to mid-size companies in high growth
industries or in traditional industries that have an international
orientation and that are willing to provide active investor relations.
Issuers are requested to provide investors on an ongoing basis with
information such as annual and quarterly reports, including cash flow
statements, and a corporate action timetable. This information is required to
be submitted in English and German as well as in electronic form, thus
enabling the stock exchange to disseminate corporate information via the
Internet. The NEUER MARKT permits the Company to file its reports in English
only.

    TRADING ON THE NEUER MARKT

     Trading of shares on the NEUER MARKT takes place on the floor of the
stock exchange, but is computer aided. Shares can also be traded on the
Exchange Electronic Trading System (hereinafter referred to as "Xetra").
Trading takes place on every business day between 9:00 a.m. and 8:00 p.m.,
Central Europe Time. Trading within the Xetra system is done by financial
services institutes and securities trading firms which have been admitted to
trading on at least one of Germany's stock exchanges. Xetra is integrated
into the Frankfurt Stock Exchange and is subject to its rules and regulations.

     Markets in listed securities are generally of the auction type, but
listed securities also change hands in inter-bank dealer markets off the
Frankfurt Stock Exchange. Price formation is determined by open bid by
state-appointed specialists who are themselves exchange members, but who do
not, as a rule, deal with the public. Prices of shares traded on the NEUER
MARKT are displayed continuously during trading hours. At the half-way point
of each trading day, a single standard quotation is determined for all
shares. The members' association of the Frankfurt Stock Exchange publishes a
daily list of prices which contains the standard prices of all traded
securities, as well as their highest and lowest quotation during the past
year.

     Transactions on the Frankfurt Stock Exchange, including transactions
within the Xetra system, are settled on the second business day following
trading. Transactions off the Frankfurt Stock Exchange, for large volumes or
if one of the parties is foreign, are generally also settled on the second
business day following trading, unless the parties have agreed upon a
different date. Following a recent amendment to the conditions of German
banks for securities trading, customers' orders to buy or sell listed
securities must be executed on a stock exchange, unless the customer
instructs otherwise. Trading can be suspended by the Frankfurt Stock Exchange
if orderly stock exchange trading is temporarily endangered or if a
suspension is in the public interest. A specific feature of the NEUER MARKT
is the introduction of the obligatory "Designated Sponsor," an entity
admitted for trading at the Frankfurt Stock Exchange which provides
additional liquidity by quoting prices for the buying and selling of shares
on request. Each issuer on the NEUER MARKT is required to nominate at least
two Designated Sponsors which will not only ensure that there is sufficient
liquidity for its shares, but also serve as consultants on all stock market
related matters for the issuer for at least twelve months.

     The Company's common stock has been admitted at the Frankfurt Stock
Exchange with trading on the NEUER MARKT of the Frankfurt Stock Exchange. The
NEUER MARKT is still a relatively new market. Accordingly, there can be no
assurance that an active trading market for the shares will develop on the
NEUER MARKT or that the NEUER MARKT will not experience problems in
settlement or clearance as trading develops. Any such delays or problems
could adversely affect the market price of the shares. Persons proposing to
trade the shares on the NEUER MARKT should inform themselves about the
potential costs of such trading.

                                       30

ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.

     During the last three years, the Company has sold and issued unregistered
securities as follows.

     In October 1998, the Company issued 1,032,583 shares of Series B preferred
stock to seven accredited investors, including Saratoga Boys Club, an affiliate
of Mr. Cox, one of the Company's directors. These shares were issued for total
cash consideration of approximately $1,549,000.

     In September and November 1999, the Company issued 2,574,989 shares of
Series C preferred stock to approximately eighty four accredited investors,
including Messrs. Bisimis, Krix and Simpson, three of the Company's directors,
Mr. Lane, a vice president of the Company, and Saratoga Boys Club, an affiliate
of Mr. Cox, one of the Company's directors. These shares were issued for total
cash consideration of approximately $5,794,000 and the conversion of $77,000 of
interest that accrued on early payments made by some of the investors. For
accounting purposes, the accrued interest was reflected on the financial
statements of the Company as debt which was later converted to preferred
stock. In May 2000, the Company issued an additional 2,777 shares of Series C
preferred stock for total cash consideration of $6,000 upon the exercise of
warrants issued to Richard Christopher. In February 2000, Mr. Simpson converted
45,951 shares of Series C preferred stock into 45,951 shares of common stock.

     In November 1999, the Company issued 132,666 shares of common stock
to four accredited investors, including Mr. Cox, one of the Company's
directors. These shares were issued for total cash consideration of
approximately $304,000. From March through June 1999 and June and July 2000,
the Company also issued 79,707 shares of common stock in consideration of
services rendered to five employees and consultants, including Mr. Bisimis,
who became a director of the Company in May 2000.

     In December 1999 and March 2000, the Company issued an aggregate of
2,000,000 shares of Series D preferred stock to approximately sixty accredited
investors. These shares were issued for total cash consideration of $7,000,000.

     In 1998 and 1999, the Company issued warrants to Mr. Cox and Richard
Christopher to purchase an aggregate of 25,000 shares of the Company's Series C
preferred stock at an exercise price of $2.25 per share. The warrants were
issued in connection with loans made to the Company by Mr. Cox and Mr.
Christopher. In July 2000, the Company also issued one warrant to Surgical
Science to purchase 25,000 shares of the Company's common stock at an exercise
price of $12.00, in connection with the termination of Surgical Science's
distribution agreement with the Company.

     The securities described in the foregoing paragraphs were issued in
reliance on the exemption from the registration requirements under the
Securities Act provided by Section 4(2) under the Securities Act or Regulation D
promulgated thereunder. The Company believes that these transactions are exempt
from registration because the subject securities were sold to limited groups of
persons, each of whom was believed to have been a sophisticated investor or to
have had a pre-existing business or personal relationship with the Company or
the Company's management and to have been purchasing for investment without a
view to further distribution.

     In August 2000, the Company issued 3,500,000 shares of common stock to
non-U.S. investors in a transaction completed outside the United States
pursuant to an underwritten offering for total cash consideration of
approximately $47,201,000. The Company paid approximately $2,478,000 in
underwriting commissions to Concord Effekten AG, the Company's principal
underwriter, in connection with this offering. These shares were listed on
the NEUER MARKT. The shares were issued in reliance on the exemption from the
registration requirements under the Securities Act provided by Section 4(2)
under the Securities Act or Regulations S promulgated thereunder.

     In August 2000, all of the outstanding 6,831,398 shares of the Company's
preferred stock, including 1,267,000 shares of Series A preferred stock,
1,032,583 shares of Series B preferred stock, 2,531,815 shares of Series C
preferred stock, and 2,000,000 shares of Series D preferred stock, were
converted into 6,831,398 shares of common stock.

     Pursuant to the Stock Option Plan and an exemption from the registration
requirements under the Securities Act provided by Rule 701, since October 1997
and as of May 10, 2001, the Company has granted options to some of its
employees, directors, officers and advisors to purchase a total of 5,210,476
shares of the Company's common stock, at a weighted average exercise price of
$3.52.

                                       31

ITEM 11. DESCRIPTION OF CAPITAL STOCK.

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

     The Company's authorized capital stock consists of 95,000,000 shares of
common stock and 5,000,000 shares of preferred stock. As of May 10, 2001,
14,952,627 shares of common stock and no shares of preferred stock were
outstanding.

COMMON STOCK

    VOTING

     Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the Company's stockholders. Other
than the election of directors by a plurality of votes cast, all other matters
shall be decided by a majority of the votes cast.

    DIVIDENDS

     Holders of common stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally available
therefor, subject to any preferential dividend rights of any outstanding
Preferred Stock.

    ADDITIONAL RIGHTS

     Upon the liquidation, dissolution or winding up of the Company, the holders
of common stock are entitled to receive ratably the net assets of the Company
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. Holders of the common stock
have no preemptive, subscription, redemption or conversion rights. Some of the
rights, preferences and privileges of holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
preferred stock which the Company may designate and issue in the future without
further stockholder approval.

PREFERRED STOCK

     The Company's Certificate of Incorporation provides that the Company's
Board of Directors, without any further vote or action by the Company's
stockholders, may authorize and issue, subject to limitations prescribed by law,
up to an aggregate of 5,000,000 shares of preferred stock. The preferred stock
may be issued in one or more series. The Company's Board of Directors may
determine the designation and the number of shares, preferences, limitations and
special rights of any series of preferred stock, including dividend rights,
conversion rights, voting rights, redemption rights and liquidation preferences.
Because of the rights that may be granted, the issuance of preferred stock may
delay, defer or prevent a change of control of the Company.

SHARE CERTIFICATES

     Shares in the Company are represented by one or more global certificates
deposited with Clearstream. However, pursuant to the Delaware General
Corporation Code, or DGCL, stockholders are entitled to individual certificates,
in such form as may be prescribed by law and the Board of Directors, certifying
the number and class of shares owned by the stockholder in the Company. Each
such certificate shall be signed by, or in the name of the Company by the
chairperson or vice-chairperson of the Board of

                                       32

Directors, or the president or vice president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the Company.

WARRANTS

     In September 1998, November 1998 and January 1999, the Company issued
warrants to Marshall Cox providing Mr. Cox with options to purchase 11,000,
5,556 and 5,667 shares of the Company's Series C preferred stock, respectively.
The warrants were issued in connection with three loans made to the Company by
Mr. Cox, which have been paid in full and canceled. The warrants are each
exercisable at an exercise price of $2.25 per share. The warrants are
exercisable in full. The warrants expire on the earliest to occur of:

     o   ten years from their respective issue dates in September 2008, November
         2008 and January 2009

     o   upon a firmly underwritten public offering of the Company's common
         stock under the securities laws of the United States

     o   upon the sale of all or substantially all of the Company's assets or a
         change in control of the Company

     In July 2000, the Company issued a warrant to Surgical Science Systems
in connection with the termination of the distribution agreement between the
two companies. The warrant to purchase 25,000 shares of the Company's common
stock is exercisable in full at an exercise price of $12.00 per share. The
warrant expires on the earliest to occur of:

     o   July 31, 2004

     o   upon a firmly underwritten public offering of the Company's common
         stock under the securities laws of the United States

     o   upon the sale of all or substantially all of the Company's assets or a
         change in control of the Company

The fair value of the warrant on the grant date was determined by using the
Black-Scholes option-pricing model, resulting in expense of approximately
$33,000 being recorded in conjunction with the issuance of the warrant.

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

LIMITATION OF LIABILITY

     The Certificate of Incorporation provides that the Company's directors will
not be personally liable to the Company or its stockholders for monetary damages
resulting from a breach of fiduciary duty except for:

     o   any breach of the duty of loyalty to the Company or its stockholders

     o   acts or omissions not in good faith or which involve intentional
         misconduct or a knowing violation of law

     o   liability under Section 174 of the DGCL

     o   any transaction from which the director derived an improper personal
         benefit

                                       33

     This limitation of liability does not apply to the responsibility or
liability of the Company's directors pursuant to any criminal statute nor does
it relieve the directors from payment of taxes pursuant to federal, state or
local law.

INDEMNIFICATION

     The Certificate of Incorporation provides that the liability of the
directors will be limited to the fullest extent permitted by Delaware law. The
Bylaws provide that the Company will indemnify its directors and executive
officers and may indemnify other corporate agents, to the fullest extent
permitted by Delaware law. Section 145 of DGCL provides a corporation with the
power to indemnify any officer or director acting in his capacity as the
corporation's representative who was, is or is threatened to be made, a party to
any action or proceeding for expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action or
proceeding. The indemnity provisions apply whether the action was instituted by
a third party or arose by or in the Company's right. Generally, the only
limitation on the Company's ability to indemnify its officers and directors is
if their actions violate a criminal statute or if their actions or failures to
act are finally determined by a court to have constituted willful misconduct or
recklessness.

     The Company currently has directors' and officers' liability insurance to
provide its directors and officers with insurance coverage for losses arising
from claims based on breaches of duty, negligence, errors and other wrongful
acts. At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted. The Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.

                                       34

ITEM 13. FINANCIAL STATEMENTS.

INDEX TO FINANCIAL STATEMENTS                                                                            PAGE
                                                                                                      
Review Report of Arthur Andersen LLP, Independent Public Accountants....................................  36

Condensed Balance Sheets as of March 31, 2001 (unaudited)
and December 31, 2000...................................................................................  37

Condensed Statements of Operations and Comprehensive Income
for the three months ended March 31, 2001 and 2000 (unaudited)..........................................  38

Condensed Statements of Cash Flows for the three months
Ended March 31, 2001 and 2000 (unaudited)...............................................................  39

Notes to Condensed Financial Statements (unaudited).....................................................  40

Report of Arthur Andersen LLP, Independent Public Accountants...........................................  43

Report of PricewaterhouseCoopers LLP, Independent Accountants...........................................  44

Balance Sheets as of December 31, 2000 and 1999.........................................................  45

Statements of Operations and Comprehensive Income for the Years Ended
December 31, 2000, 1999 and 1998........................................................................  46

Statements of Stockholders' Equity and Convertible Redeemable Preferred Stock
for the Years Ended December 31, 2000, 1999 and 1998....................................................  47

Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998........................................................................  48

Notes to Financial Statements...........................................................................  49

                                       35

Report of Independent Public Accountants

To MacroPore, Inc.

We have reviewed the accompanying condensed balance sheet of MacroPore, Inc. (a
Delaware corporation) as of March 31, 2001 and 2000, and the related condensed
statements of operations and comprehensive income and cash flows for each of the
three-month periods then ended. These financial statements are the
responsibility of the company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.

/s/ Arthur Andersen LLP

San Diego, California
May 2, 2001

                                        36

                                 MACROPORE, INC.
                            CONDENSED BALANCE SHEETS

                                                               MARCH 31,     DECEMBER 31,
                                                             ------------    ------------
                                                                 2001            2000
                                                             ------------    ------------
                                                              (UNAUDITED)
                                                                       
ASSETS
Current assets:
  Cash and cash equivalents                                  $  7,296,000    $  7,476,000
  Short-term investments, available for sale                   34,238,000      37,008,000
  Accounts receivable, related party, net of allowance
    for bad debts of $35,000 and $75,000 in 2001 and
    2000, respectively                                          1,196,000         693,000
  Inventories                                                   2,812,000       2,278,000
  Prepaids and other current assets                             1,019,000         882,000
                                                             ------------    ------------
       Total current assets                                    46,561,000      48,337,000

Property and equipment, net                                     4,657,000       3,691,000
Deposits                                                          141,000         241,000
                                                             ------------    ------------
       Total assets                                          $ 51,359,000    $ 52,269,000
                                                             ------------    ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses                      $  1,454,000    $  1,364,000
  Current portion of capital lease obligations                    115,000         115,000
                                                             ------------    ------------
       Total current liabilities                                1,569,000       1,479,000

Deferred revenue, related party                                 1,125,000       1,200,000
Capital lease obligations, less current portion                   227,000         255,000
                                                             ------------    ------------
       Total liabilities                                        2,921,000       2,934,000

Stockholders' equity:
  Preferred stock; $0.001 par value; 5,000,000 authorized;
    -0- shares issued  and outstanding in 2001 and 2000                 -               -
  Common stock; $0.001 par value; 95,000,000 shares
    authorized in 2001 and 2000; 14,952,127 and 14,814,346
    issued and outstanding in 2001 and 2000, respectively          15,000          15,000
  Additional paid-in capital                                   68,079,000      68,126,000
  Unearned compensation                                        (2,883,000)     (3,094,000)
  Accumulated deficit                                         (17,106,000)    (15,892,000)
  Other accumulated comprehensive income                          333,000         180,000
                                                             ------------    ------------
       Total stockholders' equity                              48,438,000      49,335,000
                                                             ------------    ------------

       Total liabilities and stockholders' equity            $ 51,359,000    $ 52,269,000
                                                             ------------    ------------

                   See notes to condensed financial statements.

                                        37

                                 MACROPORE, INC.
           CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                                   (UNAUDITED)

                                                                          THREE MONTHS
                                                                         ENDED MARCH 31,
                                                                  ----------------------------
                                                                      2001            2000
                                                                  ------------    ------------
                                                                            
         Revenues:
            Sales to related party                                $  1,999,000    $    880,000
            Sales to distributors and end-users                         30,000         379,000
                                                                  ------------    ------------
                                                                     2,029,000       1,259,000
         Costs directly related to revenues, net of stock based
              compensation expense of $5,000 and $2,000 for the
              three months ended March 31, 2001 and 2000,
              respectively                                             665,000         595,000
                                                                  ------------    ------------
                     Gross profit                                    1,364,000         664,000

         Operating expenses:
            Research and development, net of stock based
              compensation expense of $30,000 and $431,000
              for the three months ended March 31, 2001
              and 2000, respectively                                 1,184,000         350,000
            Sales and marketing, net of stock based
              compensation expense of ($52,000) and $1,806,000
              for the three months ended March 31, 2001
              and 2000, respectively                                 1,012,000         390,000
            General and administrative, net of stock based
              compensation expense of $160,000 and $189,000
              for the three months ended March 31, 2001
              and 2000, respectively                                   927,000         599,000
            Stock based compensation                                   143,000       2,428,000
                                                                  ------------    ------------
                     Total operating expenses                        3,266,000       3,767,000
                                                                  ------------    ------------

         Other income (expenses):
            Interest income                                            676,000          90,000
            Interest expense and other                                  12,000         (28,000)
                                                                  ------------    ------------
                     Net loss                                       (1,214,000)     (3,041,000)
                                                                  ------------    ------------

         Other comprehensive income:
            Unrealized holding gains arising during period             153,000               -
                                                                  ------------    ------------

                     Comprehensive loss                           $ (1,061,000)   $ (3,041,000)
                                                                  ------------    ------------

         Basic and diluted net loss per share                     $      (0.08)   $      (0.82)
                                                                  ------------    ------------

         Shares used in calculating basic and
            diluted net loss per share                              14,917,376       3,704,270
                                                                  ------------    ------------

                  See notes to condensed financial statements.

                                        38

                                 MACROPORE, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                           THREE MONTHS ENDED
                                                                MARCH 31,
                                                      ----------------------------
                                                           2001           2000
                                                      -------------   ------------
                                                                
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                             $ (1,214,000)   $ (3,041,000)
 Adjustments to reconcile net loss to net
   cash (used in) provided by operating activities:
     Depreciation and amortization                         226,000          90,000
     Stock based compensation                              143,000       2,428,000
     Increases (decreases) in cash caused by
       changes in operating assets and liabilities:
       Accounts receivable                                (503,000)        (29,000)
       Inventories                                        (534,000)       (143,000)
       Prepaids and other current assets                  (137,000)        (65,000)
       Deposits                                            100,000         (62,000)
       Accounts payable and accrued expenses                90,000          85,000
       Deferred revenue                                    (75,000)      1,425,000
                                                      ------------    ------------
           Net cash (used in) provided by operating
              activities                                (1,904,000)        688,000

CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from the sale and maturity of short-term
     investments                                        29,876,000               -
 Purchase of short-term investments                    (26,953,000)         (2,000)
 Purchases of property and equipment                    (1,192,000)       (310,000)
                                                      ------------    ------------
           Net cash provided by (used in) investing
               activities                                1,731,000        (312,000)
                                                      ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Principal payments on capital leases                      (28,000)        (28,000)
 Proceeds from sale of Common Stock                         21,000          21,000
 Proceeds from sale of Series D
   Preferred Stock, net of issuance costs                        -       4,087,000
                                                      ------------    ------------
           Net cash (used in) provided by financing
              activities                                    (7,000)      4,080,000
                                                      ------------    ------------

           Net (decrease) increase in cash                (180,000)      4,456,000

Cash and cash equivalents at beginning of period         7,476,000       2,471,000
                                                      ------------    ------------

Cash and cash equivalents at end of period            $  7,296,000    $  6,927,000
                                                      ------------    ------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
 Cash paid during period for:
   Interest                                           $     14,000    $     28,000
   Taxes                                                       800               -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
 FINANCING ACTIVITIES:
   Equipment acquired under capital leases            $          -    $     81,000

                  See notes to condensed financial statements.

                                        39

                                 MACROPORE, INC.

               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                                 MARCH 31, 2001

1. BASIS OF PRESENTATION

     The accompanying unaudited financial statements for the three months ended
March 31, 2001 and 2000 have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for audited financial statements. The condensed balance
sheet at December 31, 2000 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation of
the financial position and results of operations of MacroPore, Inc. ("MacroPore"
or "the Company") have been included. Operating results for the three months
ended March 31, 2001, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001. For further information, refer
to the financial statements for the year ended December 31, 2000 and footnotes
thereto which were included in the Company's Report on Form 10, dated March 30,
2001.

2. USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions affecting the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from estimates.

3. LONG-LIVED ASSETS

     The Company assesses potential impairments to its long-lived assets when
there is a change in circumstances that indicate carrying values of assets may
not be recovered. An impairment loss is recognized when the undiscounted cash
flows expected to be generated by an asset is less than its carrying amount. Any
required impairment loss would be measured as the amount by which the asset's
carrying value exceeds its fair value, and would be recorded as a reduction in
the carrying value of the related asset and a charge to operating expense. The
Company has not incurred any such losses.

4. INVENTORIES

     Inventories are valued at the lower of average cost (determined on a FIFO
basis) or market. Provisions, when necessary, are made to reduce excess and
obsolete inventories to their estimated net realizable values.

                                      40

5. REVENUE RECOGNITION

     The Company sells its products to distributors. The Company has agreements
with its distributors which provide that title and risk of loss pass to the
distributor upon shipment of the products. The Company warrants that its
products are free from manufacturing defects at the time of shipment to the
distributor. Revenue is recognized upon shipment of products to distributors
following receipt and acceptance of a distributor's purchase order.

     Revenue from license agreements is recognized ratably over the term of the
agreement, provided no significant obligations remain.

6. EMPLOYEE STOCK-BASED COMPENSATION

     The Company measures compensation expense for its employee stock-based
compensation plans using the intrinsic value method in accordance with APB 25.
Accordingly, compensation cost for stock awards is measured as the excess, if
any, of the deemed market value for financial reporting purposes of the
Company's common stock at the date of grant over the amount an employee must pay
to acquire the stock. Compensation cost is amortized using the straight-line
method over the related vesting periods. Earned compensation costs for awards
that are forfeited are reversed against compensation expense in the period of
forfeiture.

7. SEGMENT INFORMATION

      The Company follows the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information". The Company believes that all of its material operations are
managed under the medical device industry, with similar purpose, production
processes, markets, and regulatory requirements, and it currently reports as a
single industry segment.

8. NON-EMPLOYEE STOCK-BASED COMPENSATION

     Stock-based awards issued to non-employees are accounted for using a fair
value method and are remeasured to estimated fair value at each period end until
the earlier of the date that performance by the counterparty is complete or the
awards are fully vested.

9. EARNINGS (LOSS) PER SHARE

     Basic earnings (loss) per share is computed by dividing earnings (loss)
available to common stockholders by the weighted average number of common shares
outstanding during the period. Weighted average shares exclude shares of
unvested common stock subject to repurchase by the Company. Diluted earnings
(loss) per share is computed by dividing net earnings (loss) available to common
stockholders by the weighted average number of common shares outstanding during
the period increased to include, if dilutive, the number of additional common
shares that would have been outstanding if potential common shares had been
issued. The dilutive effect of outstanding stock options and unvested common
stock subject to repurchase is reflected in diluted earnings (loss) per share by
application of the treasury stock method. Potentially dilutive securities have
been excluded from the computations as their inclusion would be antidilutive.

                                      41

10. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

     ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

                                      MARCH 31,      DECEMBER 31,
                                        2001            2000
                                     ----------      ----------
                                                      (AUDITED)
                                               
               Accounts payable      $  851,000      $  784,000
               Accrued expenses         444,000         459,000
               Accrued vacation         159,000         121,000
                                     ----------      ----------

                                     $1,454,000      $1,364,000
                                     ----------      ----------

11. SUBSEQUENT EVENT

     On May 2, 2001, the Company invested $1,000,000 in cash in the Series A
preferred stock of a company principally engaged in biomedical research. The
Company will account for this investment under the equity method of accounting.

                                      42

Report of Independent Public Accountants

To the Board of Directors and Stockholders of
MacroPore, Inc.

We have audited the accompanying balance sheet of MacroPore, Inc. as of December
31, 2000 and the related statements of operations and comprehensive income,
stockholders' equity and convertible redeemable preferred stock and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MacroPore, Inc. as of December
31, 2000, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States.

/s/ Arthur Andersen LLP

San Diego, California
February 23, 2001

                                      43

Report of Independent Accountants

To the Board of Directors of
MacroPore, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations and comprehensive income, of stockholders' equity and convertible
redeemable preferred stock and of cash flows present fairly, in all material
respects, the financial position of MacroPore, Inc. at December 31, 1999, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

/s/  PricewaterhouseCoopers LLP

San Diego, California
June 30, 2000

                                        44

                                 MACROPORE, INC.
                                 BALANCE SHEETS

                                                                                           DECEMBER 31,
                                                                                 ---------------------------------
                                                                                     2000               1999
                                                                                 --------------     --------------
                                                                                             
ASSETS
Current assets:
   Cash and cash equivalents                                                     $  7,476,000      $     2,471,000
   Short-term investments, available for sale                                      37,008,000              110,000
   Accounts receivable, related party, net of allowance for bad debts of
     $75,000 (Note 10)                                                                693,000                    -
   Accounts receivable, net of allowance for bad debts of $53,000                           -              492,000
   Inventories                                                                      2,278,000            1,135,000
   Prepaids and other current assets                                                  882,000               31,000
                                                                                 ------------      ---------------
     Total current assets                                                          48,337,000            4,239,000

Property and equipment, net                                                         3,691,000            1,318,000
Deposits                                                                              241,000               18,000
                                                                                 ------------      ---------------
     Total assets                                                                $ 52,269,000      $     5,575,000
                                                                                 ============      ===============

LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
   Accounts payable and accrued expenses                                         $  1,364,000      $       640,000
   Current portion of capital lease obligations                                       115,000               89,000
                                                                                 ------------      ---------------
     Total current liabilities                                                      1,479,000              729,000

Deferred revenue, related party                                                     1,200,000                    -
Capital lease obligations, less current portion                                       255,000              304,000
                                                                                 ------------      ---------------
     Total liabilities                                                              2,934,000            1,033,000

Commitments (Note 5)

Convertible redeemable preferred stock:
   Series A non-cumulative, convertible preferred stock; $0.001 par value; -0-
     and 1,267,000 shares authorized, issued and outstanding in 2000 and 1999,
     respectively; liquidation preference of $0 and $634,000 in 2000
     and 1999, respectively                                                                 -              630,000
   Series B non-cumulative, convertible preferred stock; $0.001 par value;
     -0- and 1,032,583 shares authorized, issued and outstanding in 2000 and
     1999, respectively; liquidation preference of $0 and $1,549,000 in 2000
     and 1999, respectively                                                                 -            1,547,000
   Series C non-cumulative, convertible preferred stock; $0.001 par value;
     -0- and 2,600,000 shares authorized in 2000 and 1999, respectively; -0- and
     2,574,989 shares issued and outstanding in 2000 and 1999, respectively;
     liquidation preference of $0 and $5,696,000 in 2000 and
     1999, respectively                                                                     -            5,657,000
   Series D non-cumulative, convertible preferred stock; $0.001 par value;
     -0- and 2,000,000 shares authorized in 2000 and 1999, respectively; -0- and
     832,226 issued and outstanding in 2000 and 1999, respectively; liquidation
     preference of $0 and $7,000,000 in 2000 and 1999,
     respectively                                                                           -            2,855,000
                                                                                 ------------      ---------------
                                                                                            -           10,689,000
Stockholders' equity (deficit):
   Preferred stock; $0.001 par value; 5,000,000 authorized; -0- shares
     issued and outstanding in 2000                                                         -                    -
   Common stock; $0.001 par value; 95,000,000 and 17,000,000 shares
     authorized in 2000 and 1999, respectively; 14,814,346 and 3,639,505
     issued and outstanding in 2000 and 1999, respectively                             15,000                4,000
   Additional paid-in capital                                                      68,126,000            2,381,000
   Unearned compensation                                                           (3,094,000)          (1,285,000)
   Accumulated deficit                                                            (15,892,000)          (7,247,000)
   Other accumulated comprehensive income                                             180,000                    -
                                                                                 ------------      ---------------
     Total stockholders' equity (deficit)                                          49,335,000           (6,147,000)
                                                                                 ------------      ----------------
     Total liabilities, convertible redeemable preferred stock and
        stockholders' equity (deficit)                                           $ 52,269,000      $     5,575,000
                                                                                 ============      ===============

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                       45

                                 MACROPORE, INC.
                STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

                                                                            YEAR ENDED DECEMBER 31,
                                                                  --------------------------------------------
                                                                     2000            1999            1998
                                                                  ------------    ------------    ------------
                                                                                         
Revenues:
   Sales to related party (Note 10)                               $  6,092,000    $          -    $          -
   Sales to distributors and end-users                                 159,000       1,513,000
                                                                  ------------    ------------    ------------

                                                                     6,251,000       1,513,000               -

   Costs directly related to revenues, net of stock based
      compensation expense of $18,000, $5,000 and $0 for
      the years ended December 31, 2000, 1999 and 1998,
      respectively                                                   2,376,000         481,000               -
                                                                  ------------    ------------    ------------

           Gross profit                                              3,875,000       1,032,000               -

Operating expenses:
   Research and development, net of stock based compensation
      expense of $2,239,000, $70,000 and $40,000 for the
      years ended December 31, 2000, 1999 and 1998, respectively     2,584,000       1,172,000       1,175,000
   Sales and marketing, net of stock based compensation
      expense of $1,852,000, $231,000 and $0 for the years
      ended December 31, 2000, 1999 and 1998, respectively           2,629,000       2,356,000         202,000
   General and administrative, net of stock based
      compensation expense of $1,607,000, $360,000 and
      $32,000 for the years ended December 31, 2000, 1999
      and 1998, respectively                                         2,555,000       1,313,000         604,000
   Stock based compensation                                          5,716,000         666,000          76,000
                                                                  ------------    ------------    ------------

           Total operating expenses                                 13,484,000       5,507,000       2,057,000
                                                                  ------------    ------------    ------------

Other income (expenses):
   Interest income                                                   1,315,000          68,000          10,000
   Interest and other expenses                                        (351,000)       (164,000)        (43,000)
                                                                  -------------   -------------   -------------

           Net loss                                                 (8,645,000)     (4,571,000)     (2,090,000)
                                                                  -------------   -------------   -------------

Other comprehensive income:
   Unrealized holding gains arising during period                      180,000               -               -
                                                                  ------------    ------------    ------------

           Comprehensive loss                                     $ (8,465,000)   $ (4,571,000)   $ (2,090,000)
                                                                  =============   =============   =============

Basic and diluted net loss per share                              $      (1.05)   $     (1.32)    $      (0.64)
                                                                  =============   =============   =============

Shares used in calculating basic and diluted
   net loss per share                                                8,201,739       3,458,292       3,250,000
                                                                  =============   =============   =============

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                       46

                                 MACROPORE, INC.
  STATEMENTS OF STOCKHOLDERS' EQUITY AND CONVERTIBLE REDEEMABLE PREFERRED STOCK

                                                    PREFERRED A        PREFERRED B            PREFERRED C          PREFERRED D
                                    PREFERRED  ------------------ ---------------------   -------------------  --------------------
                                      STOCK      SHARES   AMOUNT    SHARES     AMOUNT      SHARES     AMOUNT    SHARES      AMOUNT
                                   SUBSCRIBED  --------- -------- ---------- ----------   --------   --------  ---------  ---------
                                                                                               
Balance at December 31, 1997        $ 425,000  1,267,000 $630,000          - $        -          -   $      -          -  $       -
Compensatory stock options
Issuance of Series B Preferred
   shares for cash, at $1.50 per
   share, net of issuance costs
   of $2,000                         (253,000)                     1,032,583  1,547,000
Preferred stock subscribed            347,000
Net loss for the year ended
   December 31, 1998
                                    ---------  --------- -------- ---------- ----------  ---------   --------  ---------  ---------
Balance at December 31, 1998          519,000  1,267,000  630,000  1,032,583  1,547,000          -          -          -          -
Issuance of common stock for
  services rendered
Issuance of common stock under
  stock option plan
Issuance of common stock for cash    (172,000)
Compensatory stock options
Issuance of Series C Preferred
   shares for cash, at $2.25 per
   share, net of issuance costs of
   $137,000                          (347,000)                                           2,574,989  5,657,000
Issuance of Series D Preferred
   shares for cash, at $3.50 per
   share, net of issuance costs of
   $58,000                                                                                                       832,226  2,855,000
Net loss for the year ended
   December 31, 1999
                                    ---------  --------- -------- ---------- ----------  ---------  ---------  ---------  ---------
Balance at December 31, 1999                -  1,267,000  630,000  1,032,583  1,547,000  2,574,989  5,657,000    832,226  2,855,000
Issuance of common stock under
   stock option plan
Conversion of Series C Preferred
   shares to common stock                                                                  (45,951)  (103,000)
Issuance of Series C Preferred
   shares for cash, at $2.25 per
   share                                                                                     2,777      6,000
Issuance of Series D Preferred
   shares for cash, at $3.50                                                                                   1,167,774  4,087,000
Issuance of common stock for
   service rendered
Issuance of common stock in
   initial public offering, net
   of issuance costs of $3,957,000
Conversion of  preferred stock in
   connection with initial public
   offering                                   (1,267,000)(630,000)(1,032,583)(1,547,000)(2,531,815)(5,560,000)(2,000,000)(6,942,000)
Compensatory stock options
Unrealized income on investments
Net loss for the year ended
   December 31, 2000
                                    --------- ---------- -------- ---------- ----------  ---------  ---------  ---------  --------
Balance at December 31, 2000        $       -          - $      -          - $        -          -  $       -          -  $      -
                                    ========= ========== ======== ========== ==========  =========  =========  =========  ========

                                                    COMMON STOCK                                                 OTHER
                                               ---------------------    ADDITIONAL                            ACCUMULATED
                                                SHARES      AMOUNT       PAID-IN     UNEARNED    ACCUMULATED COMPREHENSIVE
                                     TOTAL     ---------  ----------     CAPITAL   COMPENSATION    DEFICIT       INCOME     TOTAL
                                                                                                 
Balance at December 31, 1997      $ 1,055,000  3,250,000  $    3,000  $    9,000   $         -  $   (586,000) $      -   $(574,000)
Compensatory stock options                  -                             292,000     (216,000)                             76,000
Issuance of Series B Preferred
   shares for cash, at $1.50 per
   share, net of issuance costs
   of $2,000                        1,294,000                                   -                                                -
Preferred stock subscribed            347,000                                                                                    -
Net loss for the year ended
   December 31, 1998                        -                                                     (2,090,000)           (2,090,000)
                                  -----------  ---------  ----------  -----------  -----------  ------------  -------- -----------
Balance at December 31, 1998        2,696,000  3,250,000       3,000      301,000     (216,000)   (2,676,000)        -  (2,588,000)
Issuance of common stock for
  services rendered                         -     66,339                   13,000                                           13,000
Issuance of common stock under
  stock option plan                         -    190,500                   14,000                                           14,000
Issuance of common stock for cash    (172,000)   132,666       1,000      303,000                                          304,000
Compensatory stock options                  -                           1,750,000   (1,069,000)                            681,000
Issuance of Series C Preferred
   shares for cash, at $2.25 per
   share, net of issuance costs of
   $137,000                         5,310,000                                   -                                                -
Issuance of Series D Preferred
   shares for cash, at $3.50 per
   share, net of issuance costs of
   $58,000                          2,855,000                                   -                                                -
Net loss for the year ended
   December 31, 1999                        -          -           -            -                 (4,571,000)           (4,571,000)
                                  -----------  ---------  ----------  -----------  -----------  ------------  -------- -----------
Balance at December 31, 1999       10,689,000  3,639,505       4,000    2,381,000   (1,285,000)   (7,247,000)        -  (6,147,000)
Issuance of common stock under
   stock option plan                        -    784,124           -      156,000                                          156,000
Conversion of Series C Preferred
   shares to common stock            (103,000)    45,951           -      103,000                                          103,000
Issuance of Series C Preferred
   shares for cash, at $2.25 per
   share                                6,000                                   -                                                -
Issuance of Series D Preferred
   shares for cash, at $3.50        4,087,000                                   -                                                -
Issuance of common stock for
   service rendered                         -     13,368           -      161,000                                          161,000
Issuance of common stock in
   initial public offering, net
   of issuance costs of $3,957,000          -  3,500,000       4,000   43,240,000                                       43,244,000
Conversion of  preferred stock in
   connection with initial public
   offering                       (14,679,000) 6,831,398       7,000   14,672,000                                       14,679,000
Compensatory stock options                  -                           7,413,000   (1,809,000)                          5,604,000
Unrealized income on investments            -                                                                  180,000     180,000
Net loss for the year ended
   December 31, 2000                        -          -                                          (8,645,000)           (8,645,000)
                                  -----------  ---------  ----------  -----------  -----------  ------------  -------- -----------
Balance at December 31, 2000      $         - 14,814,346  $   15,000  $68,126,000  $(3,094,000) $(15,892,000) $180,000 $49,335,000
                                  =========== ==========  ==========  ===========  ===========  ============  ======== ===========

  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                      47

                                 MACROPORE, INC.
                            STATEMENTS OF CASH FLOWS

                                                                        YEAR ENDED DECEMBER 31,
                                                            -------------------------------------------------
                                                                2000              1999             1998
                                                            --------------    -------------    --------------
                                                                                      
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                   $ (8,645,000)   $ (4,571,000)     $(2,090,000)
   Adjustments to reconcile net loss to net cash used in
      operating activities:
       Depreciation and amortization                               441,000         235,000          113,000
       Stock based compensation                                  5,716,000         666,000           76,000
       Loss from sale of equipment                                       -               -            9,000
       Increases (decreases) in cash caused by changes in
          operating assets and liabilities:
         Accounts receivable                                      (201,000)       (492,000)               -
         Inventories                                            (1,143,000)     (1,097,000)         (38,000)
         Prepaids and other current assets                        (851,000)          1,000          (30,000)
         Deposits                                                 (223,000)         (6,000)         (12,000)
         Accounts payable and accrued expenses                     724,000         157,000          449,000
         Deferred revenue                                        1,200,000               -                -
                                                              ------------    ------------     ------------
           Net cash used in operating activities                (2,982,000)     (5,107,000)      (1,523,000)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from the sale and maturity of short-term
      investments                                               85,610,000               -                -
   Purchase of short-term investments                         (122,328,000)         (5,000)          (5,000)
   Purchases of property and equipment                          (2,732,000)       (376,000)        (593,000)
                                                              -------------   -------------    -------------
           Net cash used in investing activities               (39,450,000)       (381,000)        (598,000)
                                                               ------------   -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments on capital leases                           (105,000)        (73,000)         (15,000)
   Proceeds from sale of equipment to leasing company                    -               -           37,000
   Proceeds from short-term debt                                         -          51,000          174,000
   Proceeds from stock subscriptions of Series C
      Preferred Stock                                                    -               -          347,000
   Proceeds from sale of Common Stock                              205,000         146,000                -
   Proceeds from sale of Series B, Series C and Series D
      Preferred Stock, net of issuance costs                     4,093,000       7,800,000        1,294,000
   Proceeds from initial public offering, net of offering
      cost                                                      43,244,000               -                -
                                                              ------------    ------------     ------------
           Net cash provided by financing activities            47,437,000       7,924,000        1,837,000
                                                              ------------    ------------     ------------
           Net increase (decrease) in cash                       5,005,000       2,436,000         (284,000)
Cash and cash equivalents at beginning of period                 2,471,000          35,000          319,000
                                                              ------------    ------------     ------------
Cash and cash equivalents at end of period                    $  7,476,000    $  2,471,000     $     35,000
                                                              ============    ============     ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
  Cash paid during period for:
     Interest                                                 $     82,000    $    111,000     $      8,000
     Taxes                                                             800             800              800

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND  FINANCING
   ACTIVITIES:
     Equipment acquired under capital leases                  $     82,000    $    211,000         $270,000
     Conversion of bridge loan to Series B preferred
       stock (Note 6)                                                    -               -          425,000
     Conversion of bridge loan to Series C preferred
       stock (Note 6)                                                    -         225,000                -
     Issuance of Series C preferred stock for purchase of
       equipment                                                         -         140,000                -
     Issuance of Common Stock for services rendered                112,000               -                -

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                       48

                                 MACROPORE, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

1.       ORGANIZATION AND OPERATIONS
         THE COMPANY
         MacroPore, Inc. (the "Company") was founded as MacroPore (the
         "Partnership"), a California general partnership with three equal
         partners, on July 1, 1996. On May 16, 1997, the Company was
         incorporated in the State of Delaware. The Company received assets from
         and liabilities of the Partnership and a cash contribution from a
         shareholder solely in exchange for common stock on May 20, 1997 (the
         "Transfer").

         The Transfer was undertaken to reconstitute the Company as a
         corporation for tax purposes, at which time the Company transferred the
         amount of the Partnership's accumulated deficit to the additional
         paid-in-capital balance until it was zero, with the remainder
         transferred to the deficit accumulated during the development stage.

         The Company develops, commercializes and manufactures biodegradable
         surgical implants to aid in the reconstruction, repair and regeneration
         of bone. The Company's resorbable products are made from a lactic acid
         copolymer which is composed of a lactic acid similar to that which
         occurs naturally in the human body.

         CERTAIN RISKS AND UNCERTAINTIES
         The Company has a limited operating history and its prospects are
         subject to the risks and uncertainties frequently encountered by
         companies in the early stages of development, and particularly by such
         companies in rapidly evolving and technologically advanced fields such
         as the medical device field. The future viability of the Company is
         largely dependent on the Company completing development of new products
         and receiving regulatory approvals for those products. No assurance can
         be given that the Company's new products will be successfully
         developed, regulatory approvals will be granted, or acceptance of these
         products will be achieved.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         USE OF ESTIMATES
         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States requires management
         to make estimates and assumptions affecting the reported amounts of
         assets and liabilities and disclosure of contingent assets and
         liabilities at the date of the financial statements, and the reported
         amounts of revenue and expenses during the reporting period. Actual
         results could differ from estimates.

         CONCENTRATION OF CREDIT RISK
         The Company's financial instruments that are subject to concentration
         of credit risk consist primarily of cash and cash equivalents,
         certificates of deposit and money market accounts. The balances in
         excess of FDIC insured amounts are $3,274,000 and $2,611,000 as of
         December 31, 2000 and 1999, respectively.

         CASH AND CASH EQUIVALENTS
         The Company considers all highly liquid investments with maturities of
         three months or less at the time of purchase to be cash equivalents.
         Investments with original maturities of three months or less that were
         classified as cash equivalents totaled $4,522,000 as of December 31,
         2000. There were no investments classified as cash equivalents as of
         December 31, 1999.

                                       49

                                 MACROPORE, INC.
                  NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         SHORT-TERM INVESTMENTS
         The Company invests its excess cash in debt instruments of financial
         institutions, corporations with strong credit ratings, and in U.S.
         government obligations. The Company has established guidelines relative
         to diversification and maturities that maintain safety and liquidity.
         These guidelines are periodically reviewed and modified to take
         advantage of trends in yields and interest rates.

         Investments are accounted for in accordance with FASB Statement No.
         115, Accounting for Certain Investments in Debt and Equity Securities,
         which requires that the Company determine the appropriate
         classification of investments at the time of purchase based on
         management's intent. Held to maturity investments are recorded at
         amortized cost as management has the positive intention and ability to
         hold such investments to maturity. Any premium or discounts are
         amortized to income over the term of the investment using a method,
         which approximates the interest method. Available-for-sale investments
         are stated at fair value, with net unrealized gains or losses, if any,
         net of tax, reported as a separate component of stockholders' equity.
         Realized gains or losses from the sale of investments, interest income
         and dividends are included in interest income in the accompanying
         statements of operations and comprehensive income.

         Management reviews the carrying values of its investments and writes
         such investments down to estimated fair value by a charge to operations
         when such review results in management's determination that an
         investment's impairment is considered to be other than temporary. The
         cost of securities sold is based on the specific identification method.

         FAIR VALUE OF FINANCIAL INSTRUMENTS
         The carrying amounts of the Company's cash and cash equivalents,
         accounts receivable and accounts payable and accrued expenses
         approximate their fair value due to the short-term nature of these
         balances. The carrying amounts of the Company's short-term debt and
         capital lease obligations approximate fair value as the rates of
         interest for these instruments approximate market rates of interest
         currently available to the Company for similar instruments.

         INVENTORIES
         Inventories are valued at the lower of average cost (determined on a
         FIFO basis) or market. Provisions, when necessary, are made to reduce
         excess and obsolete inventories to their estimated net realizable
         values.

         LONG-LIVED ASSETS
         The Company assesses potential impairments to its long-lived assets
         when there is a change in circumstances that indicate carrying values
         of assets may not be recovered. An impairment loss is recognized when
         the undiscounted cash flows expected to be generated by an asset is
         less than its carrying amount. Any required impairment loss would be
         measured as the amount by which the asset's carrying value exceeds its
         fair value, and would be recorded as a reduction in the carrying value
         of the related asset and a charge to operating expense. The Company has
         not incurred any such losses.

         PROPERTY AND EQUIPMENT
         Property and equipment is stated at cost. Depreciation expense, which
         includes the amortization of assets recorded under capital leases, is
         provided on a straight-line basis over the useful lives of the assets,
         which range from three to seven years. When assets are sold or
         otherwise disposed, the

                                       50

                                 MACROPORE, INC.
                  NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         cost and related accumulated depreciation are removed from the accounts
         and the resulting gain or loss is included in operations. Leasehold
         improvements are amortized over the shorter of the estimated useful
         life of the asset or the lease term. Maintenance and repairs are
         charged to operations as incurred.

         REVENUE RECOGNITION
         The Company generally sells its products to hospitals and distributors.
         Revenue from sales to hospitals is recognized upon delivery of the
         product. The Company has agreements with its distributors which provide
         that title and risk of loss pass to the distributor upon shipment of
         the products. The Company warrants that its products are free from
         manufacturing defects at the time of shipment to the distributor.
         Revenue is recognized upon shipment of products to distributors
         following receipt and acceptance of a distributor's purchase order.

         Revenue from license agreements is recognized ratably over the term of
         the agreement, provided no significant obligations remain.

         RESEARCH AND DEVELOPMENT
         Research and development expenditures are charged to expense in the
         period incurred.

         INCOME TAXES
         Deferred income taxes are recognized for the expected tax consequences
         in future years of temporary differences between the tax bases of
         assets and liabilities and their financial reporting amounts at each
         year end as well as the expected future tax benefit from tax loss and
         tax credit carryforwards, based on enacted tax laws and statutory tax
         rates applicable to the periods in which the differences are expected
         to affect taxable income. Valuation allowances are established when
         necessary to reduce deferred tax assets to the amount more likely than
         not to be realized in future tax returns. Income tax expense is the tax
         payable for the period and the change during the period in deferred tax
         assets and liabilities.

         EMPLOYEE STOCK-BASED COMPENSATION
         The Company measures compensation expense for its employee stock-based
         compensation plans using the intrinsic value method and provides pro
         forma disclosures of net loss and net loss per share as if fair value
         methods had been applied in measuring compensation expense.
         Accordingly, compensation cost for stock awards is measured as the
         excess, if any, of the deemed market value for financial reporting
         purposes of the Company's Common Stock at the date of grant over the
         amount an employee must pay to acquire the stock. Compensation cost is
         amortized using the straight-line method over the related vesting
         periods. Accrued compensation costs for awards that are forfeited are
         reversed against compensation expense in the period of forfeiture.

         NON-EMPLOYEE STOCK-BASED COMPENSATION
         Stock-based awards issued to non-employees are accounted for using a
         fair value method and are remeasured to estimated fair value at each
         period end until the earlier of the date that performance by the
         counterparty is complete or the awards are fully vested.

         OTHER COMPREHENSIVE INCOME (LOSS)
         In accordance with FASB Statement No. 130, Reporting Comprehensive
         Income, the Company displays comprehensive income (loss) and its
         components in a financial statement that is displayed with the same
         prominence as other financial statements.

                                       51

                                 MACROPORE, INC.
                  NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         SEGMENT INFORMATION
         The Company follows the provisions of Statement of Financial Accounting
         Standards No. 131, "Disclosures about Segments of an Enterprise and
         Related Information". The Company believes that all of its material
         operations are managed under the medical device industry, with similar
         purpose, production processes, markets, and regulatory requirements,
         and it currently reports as a single industry segment.

         EARNINGS (LOSS) PER SHARE
         Basic earnings (loss) per share is computed by dividing earnings (loss)
         available to common stockholders by the weighted average number of
         common shares outstanding during the period. Weighted average shares
         exclude shares of unvested Common Stock subject to repurchase by the
         Company. Diluted earnings (loss) per share is computed by dividing net
         earnings (loss) available to common stockholders by the weighted
         average number of common shares outstanding during the period increased
         to include, if dilutive, the number of additional common shares that
         would have been outstanding if potential common shares had been issued.
         The dilutive effect of outstanding stock options and unvested Common
         Stock subject to repurchase is reflected in diluted earnings (loss) per
         share by application of the treasury stock method.

         The Company has excluded all convertible Preferred Stock and
         outstanding stock options from the calculation of diluted loss per
         share attributable to Common Stockholders for the periods ended
         December 31, 2000, 1999 and 1998 because all such securities are
         antidilutive. The number of potential common shares excluded from the
         calculations of diluted loss per share for the years ended December 31,
         2000, 1999 and 1998 was 2,750,000, 5,907,420 and 2,431,977,
         respectively.

         RECENT ACCOUNTING PRONOUNCEMENTS
         In June 1998, the FASB issued Statement of Financial Accounting
         Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
         Hedging Activities." SFAS No. 133 is effective for fiscal years
         beginning after June 15, 2000. SFAS No. 133 requires that all
         derivative instruments be recorded on the balance sheet at their fair
         value. Changes in the fair value of derivatives are recorded each
         period in current earnings or other comprehensive income, unless
         specific hedge accounting criteria are met. The Company does not expect
         that the adoption of SFAS No. 133 will have a material impact on its
         financial statements because it does not currently hold any derivative
         instruments and does not engage in any hedging activities.

         In December 1999, the Securities and Exchange Commission ("SEC") issued
         Staff Accounting Bulletin No. 101 ("SAB 101") "Revenue Recognition in
         Financial Statements." SAB 101 summarizes the SEC's views regarding the
         application of generally accepted principles to revenue recognition in
         financial statements. The Company believes that its revenue recognition
         principles comply with SAB 101.

         In March 2000, the FASB issued Interpretation No. 44, "Accounting for
         Certain Transactions Involving Stock Compensation" (FIN 44). This
         interpretation clarifies the application of APB Opinion No. 25 for
         certain issues related to stock based compensation, including the
         definition of employee for the purposes of applying APB 25, the
         criteria for determining whether a plan qualifies as a noncompensatory
         plan, the accounting consequences of modifications to the terms of a
         previously fixed stock option award, and the accounting for an exchange
         of stock compensation awards in a business combination. FIN 44 is
         effective July 1, 2000, but covers certain events that occur either
         after December 15, 1998 or January 12, 2000. The Company has

                                       52

                                 MACROPORE, INC.
                  NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         applied the interpretations set forth in FIN 44 for the recognition of
         certain stock based compensation during the year ended December 31,
         2000.

3.       SHORT-TERM INVESTMENTS
         As of December 31, 2000, all investments were classified as
         available-for-sale, which consisted of the following:

                                                                       GROSS              ESTIMATED
                                                 AMORTIZED          UNREALIZED               FAIR
                                                   COST                GAINS                VALUE
                                              ----------------    ----------------     -----------------
                                                                              
         Corporate notes and bonds               $17,594,000              $45,000           $17,639,000
         Agency securities                        17,740,000              133,000            17,873,000
         Treasury note                             1,494,000                2,000             1,496,000
                                              ----------------    ----------------     -----------------
                                                 $36,828,000            $ 180,000           $37,008,000
                                              ================    ================     =================

         As of December 31, 2000, investments available for sale have the
         following matures:

                                                                                          ESTIMATED
                                                                    AMORTIZED                FAIR
                                                                       COST                 VALUE
                                                                 -----------------     -----------------
                                                                                 
         Corporate notes and bonds:
             with maturity of less than 1 year                        $17,594,000           $17,639,000
         Agency securities:
             with maturity of less than 1 year                          5,639,000             5,677,000
             with maturity of 1 to 2 years                             12,101,000            12,196,000
         Treasury note:
             with maturity of less than 1 year                          1,494,000             1,496,000
                                                                 -----------------     -----------------
                                                                      $36,828,000           $37,008,000

         As of December 31, 1999, investments consisted of a corporate note
         which was classified as held to maturity with the amortized cost and
         estimated fair value approximately equal with a value of $110,000. The
         investment was due within one year.

         Proceeds from sales of investments for the year ended December 31, 2000
         were $85,610,000. Gross realized gains on such sales for the year ended
         December 31, 2000 were approximately $6,000. There were no sales of
         investments for the year ended December 31, 1999.

                                       53

                                 MACROPORE, INC.
                  NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

4.       COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

         INVENTORIES

                                                                    DECEMBER 31,
                                                    ---------------------------------------------
                                                            2000                   1999
                                                                         
            Raw Materials                               $     706,000          $      97,000
            Finished goods                                  1,572,000              1,038,000
                                                        -------------          -------------

                                                        $   2,278,000          $   1,135,000
                                                        =============          =============

         PROPERTY AND EQUIPMENT, NET

                                                                    DECEMBER 31,
                                                    ---------------------------------------------
                                                            2000                   1999
                                                                         
          Office and computer equipment                 $     845,000          $     356,000
          Manufacturing and development                     2,684,000                874,000
            equipment
          Leasehold improvements                              916,000                423,000
                                                        -------------          -------------

                                                            4,445,000              1,653,000
          Less accumulated depreciation and
            amortization                                     (754,000)              (335,000)
                                                        --------------         --------------

                                                        $   3,691,000          $   1,318,000
                                                        =============          =============

         ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

                                                                    DECEMBER 31,
                                                    ---------------------------------------------
                                                            2000                   1999
                                                                         
          Accounts payable                              $     784,000          $     334,000
          Accrued expenses                                    459,000                251,000
          Accrued vacation                                    121,000                 55,000
                                                        -------------          -------------

                                                        $   1,364,000          $     640,000
                                                        =============          =============

                                       54

                                 MACROPORE, INC.
                  NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

5.       COMMITMENTS

         The Company leases office space as well as equipment under
         noncancelable leases as follows:

                                                                           CAPITAL            OPERATING
             YEAR ENDING DECEMBER 31,                                       LEASES             LEASES
                                                                                      
                  2001                                                   $   164,000         $   322,000
                  2002                                                       152,000             341,000
                  2003                                                       116,000              57,000
                  2004                                                        37,000                   -
                  2005                                                             -                   -
                  Thereafter                                                       -                   -
                                                                        ---------------    ----------------

                  Total minimum lease payments                               469,000         $   720,000
                  Less amounts representing interest                         (99,000)      ================
                                                                        ---------------

                  Present value of minimum capital lease
                    obligations                                              370,000
                  Less current portion                                      (115,000)
                                                                        ---------------

                  Long term portion of capital lease obligations         $   255,000
                                                                        ===============

         Equipment acquired under capital leases included in property and
         equipment amount to $588,000 ($446,000 net of accumulated depreciation
         and amortization) as of December 31, 2000. The Company's capital lease
         obligations mature at various dates through 2004 with interest rates
         ranging from 12.42% to 30.46%.

         Rent expense for the years ended December 31, 2000, 1999 and 1998 was
         $369,000, $210,000 and $102,000, respectively.

         The Company has entered into a long-term supply agreement with B.I.
         Chemical. The Company has agreed to purchase at least 50 kilograms
         of the product per year, at a cost of between $2,480 and $2,655 per
         kilogram, depending on the volume purchased by the Company. If the
         Company purchases less than 50 kilograms of the product per year,
         the purchase price the Company pays for the product will be subject
         to renegotiation.

6.       SHORT-TERM DEBT
         In 1998, the Company executed two bridge notes with a 10% annual
         interest rate with certain stockholders in the amount of $174,000. The
         principal and accrued interest was paid during 1999. In conjunction
         with the bridge notes, warrants to purchase 19,333 shares of Series C
         preferred stock were issued. The fair value of the warrants was
         calculated using the minimum value method and was determined to be di
         minimis.

         In 1999, the Company executed a bridge note with a 10% annual interest
         rate with a stockholder in the amount of $51,000. The principal and
         accrued interest was paid during 1999. In conjunction with the bridge
         note, warrants to purchase 5,667 shares of Series C preferred stock
         were issued. The fair value of the warrants was calculated using the
         minimum value method and was determined to be di minimis.

         In 1999, the Company had available up to $100,000 under an irrevocable
         letter of credit agreement with a bank. Interest was payable monthly at
         the bank's prime rate plus 0.5% with a maturity date of December 15,
         1999. The agreement was collateralized by a certificate of deposit held
         at the bank in the amount of $100,000. At December 31, 1999, the
         Company had $100,000

                                       55

                                 MACROPORE, INC.
                  NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         available under the letter of credit. The letter of credit expired in
         April 2000 and was not renewed by the Company.

7.       INCOME TAXES
         Due to the Company's net loss position for the years ended December 31,
         2000, 1999 and 1998 and as the Company has recorded a full valuation
         allowance against deferred tax assets, there was no provision or
         benefit for income taxes recorded.

         The following is a reconciliation of the statutory federal income tax
         rate to the Company's effective tax rate:

                                                                       YEAR ENDED
                                                                      DECEMBER 31,
                                                  ------------------------------------------------------
                                                      2000                 1999                1998
                                                                                   
        Tax provision (benefit) at
          statutory rate                                -34.00%             -34.00%            -34.00%
        State tax, net of federal tax
          benefit                                        -3.00%              -5.95%             -6.89%
        Stock based compensation                            --                3.43%              0.50%
        Research credits and other credits               -5.44%              -0.68%             -2.42%
        Other permanent differences                       0.14%               0.66%             -0.85%
        Change in valuation allowance                    42.30%              36.54%             43.66%
                                                   ------------          ----------         ----------

                                                          0.00%               0.00%              0.00%
                                                   ------------          ----------         ----------

         The components of the deferred tax assets and liabilities are as
         follows:

                                                                      DECEMBER 31,
                                                  ------------------------------------------------------
                                                      2000                 1999                1998
                                                                                   
        DEFERRED TAX ASSET
             Accrued expenses                      $   42,000         $   22,000          $  15,000
             Accounts receivable                       30,000             72,000                  -
             Deferred expenses                        136,000            188,000            241,000
                Deferred revenue                      480,000                  -                  -
             Property and equipment                  (173,000)           (41,000)            (6,000)
             Stock based compensation               2,376,000             89,000             21,000
             Net operating loss
               carryforwards                        3,051,000          2,247,000            725,000
             Research credits                         310,000            143,000             94,000
             California manufacturer's
               credits                                160,000             36,000             18,000
                                                   ----------         ----------          ----------

                                                    6,412,000          2,756,000          1,108,000
             Less valuation allowance              (6,412,000)        (2,756,000)         (1,108,000)
                                                   ----------         ----------          ----------

             Net deferred tax asset                $        -         $        -          $       -
                                                   ==========         ==========          =========

         The Company has established a valuation allowance against its deferred
         tax assets due to the uncertainty surrounding the realization of such
         assets. Management periodically evaluates the recoverability of the
         deferred tax asset. At such time as it is determined that it is more
         likely than not that deferred tax assets are realizable, the valuation
         allowance will be reduced.

         At December 31, 2000, the Company had federal net operating loss
         carryforwards of approximately $7,789,000, and state net operating loss
         carryforwards of approximately $6,710,000, which may be available to
         offset future taxable income for tax purposes. The federal net
         operating loss carryforwards begin to expire, if unused, in 2012. The
         state net operating loss carryforwards begin to expire in 2005.

                                       56

                                 MACROPORE, INC.
                  NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         At December 31, 2000, the Company also had a research tax credit
         carryforward of approximately $170,000 for federal tax purposes and
         $141,000 for state tax purposes. The federal carryforward will begin
         expiring, if unused, in 2012. The Company also has a California
         manufacturer's credit carryforward of approximately $160,000 at
         December 31, 2000, which will begin to expire, if unused, in 2007.

         The Internal Revenue Code (the "Code") limits the availability of net
         operating losses and certain tax credits that arose prior to certain
         cumulative changes in a corporation's ownership resulting in a change
         of control of the Company. Due to an ownership change during 1997 and
         2000, as defined in IRC Section 382, a portion of the net operating
         losses is limited in their annual utilization.

8.       EMPLOYEE BENEFIT PLAN
         The Company implemented a 401(k) retirement savings and profit sharing
         plan (the "Plan") effective January 1, 1999. The Company may make
         discretionary annual contributions to the Plan, which is allocated to
         the profit sharing accounts based on the number of years of employee
         service and compensation. At the sole discretion of the Board of
         Directors, the Company may also match the participants' contributions
         to the Plan. There were no contributions made by the Company to the
         Plan in 2000 and 1999.

9.       EQUITY
         CONVERTIBLE PREFERRED STOCK
         In August 1997, the Company issued 1,267,000 shares of Series A
         non-cumulative convertible preferred stock ("Series A") at $0.50 per
         share. Proceeds, net of issuance costs, were $630,000. In July 1998,
         the Company issued 1,032,583 shares of Series B non-cumulative
         convertible preferred stock ("Series B") at $1.50 per share. Proceeds,
         net of issuance costs, were $1,547,000. In September 1999, the Company
         issued 2,574,989 shares of Series C non-cumulative convertible
         preferred stock ("Series C") at $2.25 per share. Proceeds, net of
         issuance costs, were $5,657,000. In December 1999, the Company issued
         832,226 shares of Series D non-cumulative convertible preferred stock
         ("Series D") at $3.50 per share. Proceeds, net of issuance costs, were
         $2,855,000. In May 2000, the Company issued an additional 2,777 shares
         of Series C at $2.25 per share for $6,000 upon the exercise of
         warrants. In March 2000, the Company issued an additional 1,167,774
         shares of Series D at $3.50 per share for $4,087,000.

         In February 2000, certain stockholders converted 45,951 shares of
         Series C preferred stock into 45,951 shares of Common Stock. In August
         2000, all outstanding shares of Series A, Series B, Series C and Series
         D preferred stock were converted into shares of common stock upon the
         consent of the majority of holders, in connection with the Company's
         initial public offering.

         PREFERRED STOCK
         The Company currently has authorized 5,000,000 shares of preferred
         stock, with no shares outstanding. The Board of Directors of the
         Company is authorized to designate the terms and conditions of any
         preferred stock issued by the Company without further action by the
         common stockholders.

                                       57

                                 MACROPORE, INC.
                  NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         STOCK OPTIONS
         During 1997, the Company adopted a stock option and stock purchase plan
         (the "1997 Plan") which provides for the direct award or sale of shares
         and for the grant of incentive stock options ("ISO") and non-statutory
         options ("NSO") to employees, directors or consultants. The Plan, as
         amended, provides for the issuance of up to 5,000,000 shares of the
         Company's Common Stock.

         Under the provisions of the 1997 Plan, the exercise price of ISO's is
         not less than the fair market value of the underlying shares on the
         date of grant. Option vesting is determined by the Board of Directors
         and is generally over a four-year period. Options expire no later than
         ten years from date of grant.

         The following summarizes activity with respect to the options granted
         under the 1997 Plan:

                                                              YEAR ENDED DECEMBER 31,
                               ---------------------------------------------------------------------------------------
                                         2000                           1999                          1998
                               --------------------------     --------------------------    --------------------------
                                               WEIGHTED                       WEIGHTED                      WEIGHTED
                                               AVERAGE                        AVERAGE                       AVERAGE
                                               EXERCISE                       EXERCISE                     EXERCISED
                                OPTIONS         PRICE          OPTIONS         PRICE         OPTIONS         PRICE
                                                                                   
        Options outstanding
          at beginning of
          period                2,151,000         $0.19       1,035,000          $0.11      485,000          $ 0.05
        Granted                 1,577,000         $5.92       1,306,000          $0.25      550,000          $ 0.15
        Exercised               (784,000)         $0.20       (190,000)          $0.07            -               -
        Forfeited               (194,000)         $0.65              -               -            -               -
                               -----------                    -----------                   ----------

        Options outstanding
          at end of  period     2,750,000         $3.44       2,151,000          $0.19       1,035,000       $ 0.11
                               ===========                    ==========                     =========

        Options vested at
          end of period          840,000          $1.41        499,000           $0.13         349,000       $ 0.09
                               ===========                    =========                      =========

         The following table summarizes information about options outstanding
         under the 1997 Plan as of December 31, 2000:

                                                                 WEIGHTED
                                                                 AVERAGE
                                                                REMAINING
                EXERCISE                OPTIONS              CONTRACTUAL LIFE                      OPTIONS
                 PRICES               OUTSTANDING               (IN YEARS)                          VESTED
                                                                                     
          $  0.05  -   $ 0.45         1,182,000                   7.9                              480,000
          $  1.90  -   $ 3.00         1,075,000                   9.1                              355,000
          $ 10.56  -   $12.00           425,000                   9.6                                5,000
          $ 13.88  -   $15.14            57,000                   9.8                                    -
          $ 16.30  -   $17.26            11,000                   9.7                                    -
                                   ------------------                                         -------------------

                                      2,750,000                                                    840,000
                                   ==================                                         ===================

         The weighted-average grant date fair value (minimum value for the
         periods prior to the initial public offering) per share of options
         granted under the 1997 Plan for the years ended 2000, 1999 and 1998
         was $6.40, $1.42 and $0.55, respectively.

                                       58

                                 MACROPORE, INC.
                  NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         EMPLOYEE STOCK-BASED COMPENSATION
         Employee stock-based compensation is recognized using the intrinsic
         value method. In connection with the grant of stock options to
         employees and directors, the Company recorded unearned stock-based
         compensation within stockholders' equity of $4,980,000, $1,480,000 and
         $247,000 during the years ended December 31, 2000, 1999 and 1998,
         respectively. This represents the difference between the exercise price
         of these stock-based awards and the deemed market value of the
         underlying Common Stock on the date of grant. Amortization of unearned
         stock-based compensation, net of any charges reversed during the period
         for the forfeiture of unvested awards, was $3,171,000, $411,000 and
         $31,000 for the years ended December 31, 2000, 1999 and 1998,
         respectively.

         In January 2000, employee stock options previously granted to
         MacroPore's sales force were modified upon the termination of those
         employees.  The modification extended the expiration date of the
         options to ten years, upon termination of employment.  As the
         services related to these options were deemed completed,
         approximately $1,775,000 of unearned compensation was recognized in
         conjunction with the modification.

         The remaining unearned stock-based compensation of $3,094,000 at
         December 31, 2000 will be amortized as follows: $1,020,000 in 2001,
         $989,000 in 2002, $860,000 in 2003 and $225,000 in 2004. The amount of
         stock-based compensation expense to be recorded in future periods could
         decrease if awards are forfeited for which accrued but unamortized
         compensation expense has been recorded.

         PRO FORMA COMPENSATION
         The Company has computed the value of all options granted to employees
         using a fair value method. Under this method, the Company used the
         risk-free interest rate at the date of grant, expected volatility,
         expected dividend yield and the expected life of the options to
         determine the fair value of options granted. The risk-free interest
         rates ranged from 4.65% to 6.71%, expected volatility was assumed to be
         60%, expected dividend yield of 0%, and the expected life of the
         options was assumed to be 4 years.

         The following pro forma information is determined as if the Company had
         accounted for its employee stock options using the fair value
         methodology.

                                                                       DECEMBER 31,
                                            --------------------------------------------------------------------
                                                             2000              1999                   1998
                                                                                        
        Net loss:
             As reported                                 $(8,645,000)       $ (4,571,000)        $(2,090,000)
             Pro forma                                    (9,456,000)         (4,962,000)         (2,125,000)

        Loss  per common share:
             As reported                                 $     (1.05)       $      (1.32)        $     (0.64)
             Pro forma                                         (1.15)              (1.43)              (0.65)

         For purposes of pro forma disclosures, the estimated fair value of
         options is amortized to expense over the options' vesting period. The
         pro forma compensation expense may not be representative of such
         expense in future years.

         NON-EMPLOYEE STOCK-BASED COMPENSATION
         The Company issued 298,000, 226,000 and 35,000 stock options to
         non-employees for consulting services for the years ended December 31,
         2000, 1999 and 1998, respectively. As a result, the Company recorded
         stock-based compensation expense of $2,545,000, $255,000 and $45,000
         for the years ended December 31, 2000, 1999 and 1998, respectively.

         The weighted-average grant-date fair value per share of stock options
         issued to non-employees for the years ended December 31, 2000, 1999 and
         1998 was $9.42, $1.49 and $0.55, respectively.

                                       59

                                 MACROPORE, INC.
                  NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         The fair value of the grants was estimated using the Black-Scholes
         option-pricing model with the following weighted average assumptions
         for the years ended December 31, 2000, 1999 and 1998: expected dividend
         yield of 0.0%, risk-free interest rate ranging from 5.33% to 6.52%,
         expected volatility ranging from 60% to 100% and expected life of 2
         years.

         WARRANTS
         The Company, in connection with the convertible bridge loan financing
         in 1998 and 1999, issued warrants to purchase 25,000 shares of Series C
         convertible preferred stock with an exercise price of $2.25 per share.
         All of the warrants are exercisable, and begin to expire in September
         2008. As of December 31, 2000, 2,777 of these warrants had been
         exercised. Upon conversion of the Company's outstanding preferred stock
         into common stock, which occurred in August 2000, the warrants became
         immediately exercisable into shares of the Company's common stock.

         The Company, in connection with a termination of a sales distribution
         agreement in 2000, issued warrants to purchase 25,000 shares of common
         stock with an exercise price of $12.00 per share. All the warrants are
         exercisable and expire in July 2004.

10.       RELATED PARTY TRANSACTIONS

         Included in research and development expenses are consulting fees,
         manufacturing and out-of-pocket expenses paid to various stockholders
         and employees. These expenses amounted to $19,000, $151,000 and
         $146,000 for the years ended December 31, 2000, 1999 and 1998,
         respectively.

         In January 2000, the Company entered into a five-year distribution
         agreement with a distributor. Under the terms of the agreement, the
         Company granted the distributor exclusive worldwide rights, except
         for certain international rights previously granted, to market,
         distribute and sell all of the Company's products for use in the
         cranial and facial areas. In consideration for this exclusive right,
         the distributor paid a $1,500,000 up-front license fee to the
         Company, which will be recognized ratably over the same five-year
         period. Additionally, the distributor is required to purchase a
         minimum amount of product at agreed-upon prices for the first
         fifteen months of the agreement, as amended. The Company and the
         distributor concurrently entered into a five-year development and
         supply agreement, which provides the distributor exclusive worldwide
         rights for products developed as a result of the agreement. The
         terms of the aforementioned distribution agreement and development
         and supply agreement are consistent with the terms of other
         MacroPore distribution agreements with unaffiliated third parties.
         Additionally, in January 2000, the distributor purchased 1,000,000
         shares Series D convertible preferred stock for $3,500,000. For the
         year ended December 31, 2000, the Company had sales to the
         distributor of $6,092,000 which represented 97% of total revenue. At
         December 31, 2000, the Company had amounts due from the distributor
         of $693,000. The terms of the sale of the Series D preferred stock
         were equivalent to the terms and price paid by unaffiliated third
         parties who also purchased shares of Series D preferred stock.

         In April 2000, the Company entered into two one year full-recourse
         notes receivable with one of its directors and officers. At December
         31, 2000, the notes totaled approximately $47,000, with an annual
         interest rate of 10%.

         The notes were repaid in full on April 30, 2001.

11.      QUARTERLY INFORMATION (UNAUDITED)
         The following unaudited quarterly financial information includes, in
         management's opinion, all the normal and recurring adjustments
         necessary to fairly state the results of operations and related
         information for the periods presented. The quarterly information is
         restated due to an adjustment of approximately $1.8 million to stock
         based compensation for certain employee stock options

                                       60

                                 MACROPORE, INC.
                  NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         accelerated in January 2000. The effects of this adjustment are
         reflected in all appropriate quarters.

        ---------------------------------------------------------------------------------------------------------
                                                FIRST             SECOND              THIRD             FOURTH
                                               QUARTER            QUARTER            QUARTER           QUARTER
        ---------------------------------------------------------------------------------------------------------
                                                                                        
        YEAR 2000

        Revenues                              $1,259,000        $ 2,206,000       $ 1,114,000       $ 1,672,000
        Gross profit                             664,000          1,673,000           766,000           772,000
        Operating expenses, excluding
          stock based compensation             1,339,000          1,702,000         2,076,000         2,651,000
        Stock based compensation               2,428,000          1,431,000         1,745,000           112,000
        Other income                              62,000             84,000            81,000           737,000
        Net loss                              (3,041,000)        (1,376,000)       (2,974,000)       (1,254,000)
                                            ===============    ==============     ==============    =============
        Basis and diluted net loss per        $    (0.82)       $     (0.36)      $     (0.50)      $     (0.15)
          share                             ===============    ==============     ==============    =============

        YEAR 1999

        Revenues                              $   54,000        $   243,000       $   601,000       $   615,000
        Gross profit                              38,000            165,000           410,000           419,000
        Operating expenses, excluding
          stock based compensation               594,000          1,502,000         1,338,000         1,407,000
        Stock based compensation                  61,000            169,000           237,000           199,000
        Other expenses                           (58,000)           (25,000)           (9,000)           (4,000)
        Net loss                                (675,000)        (1,531,000)       (1,174,000)       (1,191,000)
                                            ===============    ==============     ==============    =============
        Basis and diluted net loss per        $    (0.21)       $     (0.46)       $    (0.35)      $     (0.34)
          share                             ===============    ==============     ==============    =============

                                       61

                                 MACROPORE, INC.
                  NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     On December 12, 2000, PricewaterhouseCoopers LLP ("PWC") resigned as
independent accountants for the Company.

     PWC's report on the Company's financial statements for the fiscal years
ended December 31, 1998 and 1999 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.

     In connection with PWC's audit of the Company's fiscal years ended December
31, 1998 and 1999 and through December 12, 2000, there were no disagreements
with PWC on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement(s), if
not resolved to PWC's satisfaction, would have caused PWC to make reference to
the subject matter of the disagreement(s) in connection with PWC's report.

     During the Company's fiscal years ended December 31, 1998 and 1999 and
through December 12, 2000, there were no reportable events (as defined in Item
304(a)(1)(v) of Regulation S-K).

     The Company engaged Arthur Andersen, LLP as its independent accountants on
December 15, 2000. The Company's Audit Committee participated in and approved
the decision to engage Arthur Andersen.

     The Company has provided PWC with a copy of the disclosures contained in
Item 14 of this registration statement and has requested that PWC furnish to the
Company a letter addressed to the SEC stating whether or not it agrees with the
statements made therein.

ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.

INDEX TO FINANCIAL STATEMENTS

     See the Index to the Company's financial statements included in Item 13 of
this registration statement.

EXHIBITS

      EXHIBIT NO.        DESCRIPTION OF EXHIBITS
                      
        * 3.1            Amended and Restated Certificate of Incorporation of MacroPore, Inc. (the "Company")
        * 3.2            Bylaws of the Company
        *10.1            Amended and Restated Stock Option and Stock Repurchase Plan
         10.2+           Distribution Agreement, made and entered into as of January 5, 2000, between the Company
                              and Medtronic, Inc. ("Medtronic")
         10.3+           Amendment No. 1 to Distribution Agreement, effective as of December 22, 2000, by and
                              between the Company and Medtronic
         10.4+           Development and Supply Agreement, made and entered into as of January 5, 2000, by and
                              between the Company and Medtronic
         10.5+           Amendment No. 1 to Development and Supply Agreement, effective as of December 22, 2000, by
                              and between the Company and Medtronic
         16.1            Letter from PricewaterhouseCoopers LLP re: change in certifying accountant

- --------------

          * Previously filed.

          + Portions of these exhibits have been omitted pursuant to a
          request for confidential treatment.

                                       62

                                   SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Company has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in San Diego,
California, on June 1, 2001.

                                   MACROPORE, INC.

                                   By:    /S/ CHRISTOPHER J. CALHOUN
                                       -----------------------------------------
                                          Christopher J. Calhoun
                                          VICE-CHAIRMAN, CHIEF EXECUTIVE OFFICER
                                          AND SECRETARY

                                       63

                                                                   EXHIBIT 10.2

                             DISTRIBUTION AGREEMENT

         THIS DISTRIBUTION AGREEMENT (the "AGREEMENT") is made and entered
into as of January 5, 2000 (the "EFFECTIVE DATE"), between MACROPORE, INC.
("MACROPORE"), a Delaware corporation, and MEDTRONIC, INC. (as defined below,
"MEDTRONIC"), a Minnesota corporation.

                                   WITNESSETH:

         WHEREAS, MacroPore has developed bioabsorbable surgical implants for
use in, among other areas, bone fixation and reconstruction in the
craniofacial skeleton; and

         WHEREAS, MacroPore and Medtronic's Affiliate, Medtronic Asset
Management, Inc. ("MAMI"), intend to enter into a Series D Preferred Stock
Purchase Agreement (the "INVESTMENT AGREEMENT") pursuant to which MAMI will
purchase Series D Preferred Stock of MacroPore and receive various rights; and

         WHEREAS, it is a condition to MAMI's willingness to purchase such
MacroPore Series D Preferred Stock that the parties enter into this Agreement.

         NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and for other valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the parties mutually
agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

1.1      SPECIFIC DEFINITIONS.  As used in this Agreement, the following
terms shall have the meanings set forth or as referenced below:

"AFFILIATE" of a specified person (natural or juridical) means a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified.
"CONTROL" shall mean ownership of more than 50% of the shares of stock
entitled to vote for the election of directors in the case of a corporation,
and more than 50% of the voting power in the case of a business entity other
than a corporation.

"AGREEMENT" means this Agreement and all Exhibits and Schedules hereto.

"CONFIDENTIAL INFORMATION" means know-how, trade secrets, and unpublished
information disclosed (whether before or during the term of this Agreement)
by one of the parties (the "disclosing party") to the other party or such
other party's designee pursuant to Section 13.5 (the "receiving party"), and
which is marked as proprietary or confidential as provided below, excluding
information that:

              (a)  was already in the possession of receiving party prior to
          its receipt from the disclosing party (provided that the receiving
          party is able to provide the disclosing party with reasonable
          documentary proof thereof);

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

              (b)  is or becomes part of the public domain by reason of
          acts not attributable to the receiving party;

              (c)  is or becomes available to receiving party from a source
          other than the disclosing party which source, to the best of
          receiving party's knowledge, has rightfully obtained such
          information and has no obligation of nondisclosure or
          confidentiality to the disclosing party with respect thereto;

              (d)  is made available by the disclosing party to a third party
          unaffiliated with the disclosing party on an unrestricted basis;

              (e)  is independently developed by the receiving party
          completely without reference to any Confidential Information of the
          disclosing party, as evidenced by the receiving party's written
          records; or

              (f)  has been or must be publicly disclosed by reason of legal,
          accounting or regulatory requirements beyond the reasonable
          control, and despite the reasonable efforts, of the receiving party.

         All Confidential Information disclosed by one party to the other
under this Agreement shall be in writing and bear a legend "Proprietary,"
"Confidential" or words of similar import or, if disclosed in any manner
other than writing, shall be followed by confirmation that such information
is confidential by the disclosing party within 30 days.

         Specific aspects or details of Confidential Information shall not be
deemed to be within the public domain merely because the aspects or details
of the Confidential Information is embraced by general disclosures in the
public domain. In addition, any combination of Confidential Information shall
not be considered in the public domain or in the prior possession of the
receiving party merely because individual elements thereof are in the public
domain or in the prior possession of the receiving party unless the
combination and its principles are in the public domain or in the prior
possession of the receiving party.

"CRANIAL FIELD" means the reconstruction or fixation of the cranial or facial
skeleton, including but not limited to cranial, cranial-facial, mid-facial
and mandibular applications.

"EXISTING DISTRIBUTION AGREEMENT" means: the Exclusive Sales Distribution
Agreement dated as of July 15, 1999, by and between MacroPore, Inc. and
Normed GmbH; the Exclusive Sales Agency Agreement dated as of July 15, 1999,
by and between MacroPore, Inc. and Medsource; and the Exclusive Sales
Distribution Agreement dated as of October 15, 1999, by and between
MacroPore, Inc. and Surgical Science Systems.

"FDA" means the United States Food and Drug Administration.

"FAILURE OF SUPPLY" means (i) MacroPore's failure, for any reason other than
Force Majeure, to deliver any Product ordered in accordance with the
provisions of Article 5 by the date scheduled for delivery thereof, including
but not limited to a failure to deliver Product which conforms to the
Specifications therefor, which failure is not cured within one month after
MacroPore is notified of such failure, or (ii) MacroPore's failure due to
Force Majeure to deliver any Product

                                   2

ordered in accordance with the provisions of Article 5 by the date scheduled
for delivery thereof, including but not limited to a failure to deliver
Product which conforms to the Specifications therefor, which failure is not
cured within three months after MacroPore is notified of such failure.

"FORCE MAJEURE" means any event or condition, not existing as of the date of
this Agreement, not reasonably foreseeable as of such date and not reasonably
within the control of either party, which prevents in whole or in material
part the performance by one of the parties of its obligations hereunder, such
as an act of government, war or related actions, civil insurrection, riot,
sabotage, strike, epidemic, fire, flood, windstorm, and similar events.

"FOREIGN DEVICE REGULATORY AUTHORITIES" means foreign regulatory authorities,
the function and purpose of which include regulating the design, manufacture,
quality and/or sale of medical devices.

"INTELLECTUAL PROPERTY" means letters patent and patent applications;
trademarks, service marks and registrations thereof and applications
therefor; copyrights and copyright registrations and applications; mask works
and registrations thereof; all inventions, discoveries, ideas, technology,
know-how, trade secrets, data, information, processes, formulas, drawings and
designs, licenses, computer programs and software; and all amendments,
modifications, and improvements to any of the foregoing.

"KNOWLEDGE" means actual knowledge of a fact or the knowledge that such
person could reasonably be expected to have based on reasonable inquiry. The
"knowledge" of an entity shall include the knowledge of such entity's
employees.

"LICENSED INTELLECTUAL PROPERTY" means, with respect to a Failure of Supply
of a particular Product, all Intellectual Property used by MacroPore in
connection with the manufacture or sale of such Product at the time of such
Failure of Supply.

"MACROPORE" means MacroPore, Inc. and its Affiliates.

"MEDTRONIC" means Medtronic, Inc. and its Affiliates.

"NET SALES" of Products for purposes of Article 13 with respect to a
particular period means the amounts that Medtronic or any Affiliate of
Medtronic receives from third parties (eliminating transactions among
Affiliates of Medtronic and/or Medtronic) for net sales of Products during
such period, excluding sales, use or excise tax, freight, duty or insurance
included therein, returns, discounts and allowances, credits or repayments
due to rejections, defects or returns, provided that if Medtronic or any
Affiliate of Medtronic sells at a single price or rate a packaged combination
of products, not all of which if sold individually would be Products, then
"Net Sales" with respect to such sales of packaged products shall equal the
number of units of Products sold as part of such packaged products (less
rejections, defects and returns) multiplied by either (i) the respective
average net selling price during such period of the same type of Product sold
individually, or (ii) the average net selling price during such period for a
comparable product (if the same type of Product is not sold individually), in
either case excluding sales, use or excise tax, freight, duty or insurance
included therein.

                                      3

"NON-CRANIAL FIELD" means uses outside of the Cranial Field.

"PRODUCTS" means all products, devices, systems and instruments now or
hereafter during the Term (as defined in Section 12.1) of this Agreement
developed, manufactured, produced or sold by MacroPore that may be used in
the Cranial Field, including but not limited to MacroPore's MacroSorb(TM)
product line, including all components thereof and accessories thereto, and
any modifications, improvements, substitutions and future generations of such
products made by or under the authority of MacroPore during the Term.

"PRODUCT LIABILITY DAMAGES" means any liability, claim or expense, including
but not limited to reasonable attorneys' fees and medical expenses, arising
in whole or in part out of claims of third parties for personal injury or
loss of or damage to property relating to or arising out of the Products,
whether based on strict liability in tort, negligent manufacture of product,
or any other allegation of liability arising directly from the design,
testing, manufacture, packaging, labeling (including instructions for use),
or sale of the Products.

"SPECIFICATIONS" means MacroPore's current specifications for the Products,
as the same may be amended from time to time by MacroPore in compliance with
this Agreement.

     1.2   OTHER TERMS.  Other terms may be defined elsewhere in the text of
this Agreement and shall have the meaning indicated throughout this Agreement.

     1.3   DEFINITIONAL PROVISIONS.

              (a)  The words "hereof," "herein," and "hereunder" and words of
          similar import, when used in this Agreement, shall refer to this
          Agreement as a whole and not to any particular provisions of this
          Agreement.

              (b)  The terms defined in the singular shall have a comparable
          meaning when used in the plural, and vice versa.

              (c)  References to an "Exhibit" or to a "Schedule" are, unless
          otherwise specified, to one of the Exhibits or Schedules attached
          to or referenced in this Agreement, and references to an "Article"
          or a "Section" are, unless otherwise specified, to one of the
          Articles or Sections of this Agreement.

              (d)  The term "person" includes any individual, partnership,
          joint venture, corporation, trust, unincorporated organization or
          government or any department or agency thereof.

              (e)  The term "dollars" or "$" shall refer to the currency of
          the United States of America.

              (f)  All references to time shall refer to Minneapolis,
          Minnesota time.

                                    4

                                  ARTICLE 2
                  APPOINTMENT; ADDITIONAL RIGHTS OF FIRST OFFER

     2.1    SCOPE. Subject to the terms and conditions of this Agreement,
MacroPore hereby appoints Medtronic, and Medtronic hereby accepts
appointment, as MacroPore's exclusive worldwide distributor during the Term
with the right to sell and distribute Products solely for use in the Cranial
Field. Except as provided in Section 2.5, Medtronic shall not have any right
to distribute Products for use outside the Cranial Field.

     2.2    PAYMENT FOR DISTRIBUTION RIGHTS. In consideration of Medtronic's
rights hereunder, Medtronic shall, within two business days after the date
hereof, pay MacroPore the sum of One Million Five Hundred Thousand Dollars
($1,500,000).

     2.3    EXCLUSIVITY.

            (a)   Medtronic's distribution rights under this Agreement shall
        be exclusive throughout the United States and, except for the
        Existing Distribution Agreements throughout the world.  MacroPore
        represents and warrants to Medtronic that, except for the Existing
        Distribution Agreements, MacroPore has not entered into any other
        distributorship agreements or sales representative agreements,
        written or oral, with any third party permitting the sale of Products
        for use in the Cranial Field, and, to the extent it has entered into
        such agreements in the past, that all such agreements have been
        terminated without liability to MacroPore or Medtronic.  MacroPore
        covenants and agrees that during the Term, MacroPore will not enter
        into any such agreement or itself sell or distribute any Products for
        use in the Cranial Field.  MacroPore will use its reasonable best
        efforts to negotiate the termination of the Existing Distribution
        Agreements or, if such termination is not commercially feasible, to
        convert such existing distributors to sub-distributors of Medtronic.

            (b)   Except as set forth in Article 13, during the term of this
        Agreement, Medtronic shall not purchase or resell any poly-lactic
        acid implantable reconstruction or fixation products for use in the
        Cranial Field (excluding however, applications in the nose, sinus or
        ears) except those purchased from MacroPore hereunder.

        2.4 SUBDISTRIBUTORS. Medtronic may appoint subdistributors for the
sale or distribution of Products for use in the Cranial Field; provided that
Medtronic gives MacroPore written notice of the identity of such
subdistributors, and uses commercially reasonable efforts to ensure that such
subdistributors comply with the applicable provisions of this Agreement.
Notwithstanding such appointment of subdistributors, Medtronic shall remain
fully responsible for the performance of all of its covenants and obligations
hereunder, and any shipments by MacroPore to such Medtronic subdistributors
shall be billed by MacroPore to Medtronic directly. Medtronic shall indemnify
and hold MacroPore harmless from and against any claim, loss, damage or
expense (including reasonable attorneys' fees) suffered or incurred by
MacroPore relating to any claim in connection with this Agreement that is
threatened or initiated by any subdistributor or sub-agent appointed by
Medtronic, except for claims for which Medtronic is entitled to
indemnification from MacroPore under Section 11.1.

                                    5

2.5      RIGHT OF FIRST OFFER FOR DISTRIBUTION RIGHTS IN NON-CRANIAL FIELD.

         (a) MacroPore shall not enter into any definitive agreement with
respect to the grant by MacroPore of distribution or sales representative
rights with respect to any MacroPore products, devices, systems and
instruments now or hereafter during the Term developed, manufactured,
produced or sold by MacroPore (such proposed grant of such rights referred to
as a "PROPOSED TRANSACTION") unless Medtronic is given MacroPore's Notice (as
defined below) with respect thereto and MacroPore complies with the terms of
this Section 2.5.

         (b) If (i) MacroPore receives a bona fide offer or written
indication of interest from a third party to enter into a Proposed
Transaction which MacroPore is willing to accept, or (ii) MacroPore
determines to seek a third party to enter into a Proposed Transaction, then,
in either such event MacroPore shall, within ten (10) days after such event,
notify Medtronic in writing of MacroPore's receipt of such offer or
indication of interest described in (i) above or of MacroPore's determination
described in (ii) above ("MACROPORE'S NOTICE").  MacroPore's Notice shall
include a copy of such offer or indication of interest and any other terms of
such Proposed Transaction proposed by such third party, in the case of (i)
above, or all material terms and provisions upon which MacroPore proposes to
seek a third party to enter into a Proposed Transaction, in the case of (ii)
above.  For a period of 45 days following Medtronic's receipt of MacroPore's
Notice with respect to such Proposed Transaction (referred to in this Section
2.5 as the "EXCLUSIVE PERIOD"), Medtronic shall have the exclusive right to
negotiate with MacroPore regarding the material terms of such Proposed
Transaction and, with respect to a Proposed Transaction initiated by
MacroPore pursuant to (ii) above, the irrevocable right and option to enter
into the Proposed Transaction on the terms and provisions specified in
MacroPore's Notice.  In the event Medtronic proposes, in the course of
negotiation with MacroPore during the Exclusive Period, terms and provisions
more favorable to MacroPore than those contained in Medtronic's initial
proposal to MacroPore, then Medtronic shall memorialize such revised proposed
terms and provisions in writing prior to the end of the Exclusive Period.

         (c) During the Exclusive Period, MacroPore shall negotiate in good
faith exclusively with Medtronic regarding the material terms of such
Proposed Transaction or any comparable transaction. During the Exclusive
Period, MacroPore shall not solicit offers from, negotiate with, or provide
information to any third party regarding the Proposed Transaction or any
comparable transaction. Nothing in this section shall prohibit MacroPore from
consulting with or providing information to its attorneys, accountants,
investment bankers or other consultants or advisors.

         (d) If during the Exclusive Period MacroPore and Medtronic fail to
reach agreement in principal upon the material terms for such Proposed
Transaction and, in the event of a Proposed Transaction initiated by
MacroPore pursuant to (b)(ii) above, Medtronic fails to exercise its option
to enter into such Proposed Transaction, then MacroPore shall have 120 days
after the expiration of the Exclusive Period in which to complete such
Proposed Transaction with the third party whose bona fide offer or indication
of interest was described in MacroPore's Notice (with respect to a Proposed

                                    6

      Transaction described in (b)(i) above) or with any third party (with
      respect to a Proposed Transaction described in (b)(ii) above); provided
      that MacroPore may not complete such Proposed Transaction unless the
      terms and provisions thereof are, in the aggregate, (with respect to a
      Proposed Transaction described in (b)(i) above) more favorable to
      MacroPore (as reasonably and in good faith determined by MacroPore's
      Board of Directors) than the terms and provisions most favorable to
      MacroPore that were proposed by Medtronic in its negotiations with
      MacroPore, or (with respect to a Proposed Transaction described in
      (b)(ii) above) at least as favorable to MacroPore as the terms and
      provisions specified in MacroPore's Notice.  If MacroPore fails to
      complete such particular Proposed Transaction within such 120-day
      period, then Medtronic's rights under this Section 2.5 shall be
      reinstated and MacroPore may not enter into such Proposed Transaction
      without first giving Medtronic a new MacroPore's Notice and complying
      with the terms of this Section 2.5.

      2.6 RESERVATION OF RIGHTS. Except as expressly provided herein, no
right, title, or interest is granted, whether express or implied by MacroPore
to Medtronic, and nothing in this Agreement shall be deemed to grant to
Medtronic rights in any products or technology other than the Products.

                                    ARTICLE 3
                        GENERAL OBLIGATIONS OF MEDTRONIC

     3.1 MARKETING AND DISTRIBUTION. Medtronic shall use reasonable best
efforts to further the promotion, marketing, sale and/or other distribution
of Products for use in the Cranial Field. Without limiting the generality of
the foregoing, Medtronic shall maintain adequate sales channels to market and
distribute the Products for use in the Cranial Field.

     3.2 QUALITY CONTROL. Medtronic agrees to follow reasonable quality
control standards with respect to the storage, preservation, sale and use of
the Products purchased under this Agreement. Medtronic shall make no
representations or warranties concerning such Products other than as made to
Medtronic by MacroPore or as otherwise may be agreed by the parties.

     3.3 SALES AND SERVICE; TRAINING.  Medtronic shall be solely responsible
for marketing and selling all Products for use in the Cranial Field.

     3.4 INVENTORY. Medtronic shall use commercially reasonable efforts to
maintain sufficient quantities of each Product as reasonably necessary to
meet the demand of customers for the Products in the Cranial Field.

     3.5 MARKETING MATERIALS. Subject to Section 4.4, Medtronic shall be
responsible for the preparation of sales and marketing materials for the
marketing and sale of Products for use within the Cranial Field, including
the translation, adaptation and/or modification of MacroPore's sales and
marketing materials, as deemed appropriate by Medtronic, to reflect the
culture or business practices and languages of the particular regions and to
reflect Medtronic as the exclusive distributor of the Products for use in the
Cranial Field. Medtronic shall provide to MacroPore for purposes of review
and approval (such approval not to be unreasonably withheld

                                     7

or delayed) all such sales and marketing materials relating to Products at
least ten (10) days prior to the commercial release of such materials.

     3.6 RECORDS AND RECALL. Medtronic shall maintain complete and accurate
records of all Products sold by Medtronic and its subdistributors in
sufficient detail to enable MacroPore to conduct an effective recall of
Products if MacroPore determines that such a recall is required or otherwise
necessary or appropriate. Medtronic shall not initiate a recall of Products
without MacroPore's prior written consent, which consent shall not be
unreasonably withheld. In the event of a recall of any of the Products,
Medtronic will cooperate with and assist MacroPore in effecting such recall,
including promptly contacting any purchasers that MacroPore reasonably
desires to be contacted and promptly communicating to such purchasers the
information or instructions MacroPore reasonably desires to be transmitted
relating to such recall, all of which customer contact and communication
shall be conducted by Medtronic at its own expense. Notwithstanding the
foregoing, MacroPore shall pay, or reimburse Medtronic, for all other costs
of effecting such recall, including any shipping costs related to returning
recalled Products to MacroPore and replacing such recalled Products with new
Products at MacroPore's expense.

In addition, upon MacroPore's request, Medtronic shall provide MacroPore with
access to Medtronic's records of sales of Products in the event of Product
recall or other quality related issue. During the Term of this Agreement,
Medtronic also shall promptly forward all Product complaints which it
receives to MacroPore. Medtronic shall make available to MacroPore for
inspection Medtronic's process and records for adverse events and other
regulatory reporting purposes at mutually agreed upon time and further shall
ensure that Medtronic's processes comply with all applicable laws and
regulations.

     3.7 IMPORT APPROVALS. Except for (i) the CE Mark, which MacroPore shall
be responsible for obtaining, and (ii) existing import licenses, which
MacroPore shall assign or transfer to Medtronic, Medtronic shall be
responsible for obtaining all import licenses and permits as may be required
to import the Products into countries as selected by Medtronic in accordance
with then prevailing laws and regulations of such countries. All such filings
and registrations of the Products shall be owned by Medtronic and shall be
obtained and maintained in the name of Medtronic, whenever feasible in
accordance with prevailing laws and regulations. MacroPore shall cooperate
fully with Medtronic in its efforts to obtain any such approvals.

     3.8 EUROPEAN AUTHORIZED REPRESENTATIVE. Medtronic agrees to act as
MacroPore's European Authorized Representative as required by the Medical
Device Directive and as MacroPore's representative for Products for use
within the Cranial Field in the countries outside the European Common Market.
Medtronic shall, as soon as reasonably practicable, notify, document and
forward to MacroPore or MacroPore's authorized representative all customer
complaints received by Medtronic such that MacroPore can comply with Medical
Device Reporting (MDR) regulations and vigilance. Medtronic shall notify
Competent Authorities of clinical investigations as required, and shall
represent MacroPore if a Competent Authority decides to: (i) refuse to allow
the marketing of a Product in the Cranial Field, (ii) restrict the marketing
of Product in the Cranial Field, or (iii) withdraw a Product from the market
in the Cranial Field. Medtronic agrees to provide the competent authorities
and notified bodies with access to the table of contents for the Technical
File. In addition, Medtronic shall authorize

                                      8

MacroPore to list Medtronic as the Authorized European Representative on
product labeling, outer packaging, and instructions for use.

                                    ARTICLE 4
                        GENERAL OBLIGATIONS OF MACROPORE

     4.1 MANUFACTURE AND SUPPLY OF PRODUCTS. MacroPore shall use commercially
reasonable efforts to manufacture, or have manufactured, Products in
accordance with the Specifications and to ship such Products to Medtronic in
the quantities ordered by Medtronic pursuant to Article 5 of this Agreement.
MacroPore shall be responsible for packaging in accordance with packaging
specifications to be mutually agreed upon by Medtronic and MacroPore, and for
any necessary sterilization of Products purchased under this Agreement in
accordance with the Specifications.

     4.2 REGULATORY APPROVALS.

         (a) CLINICALS. MacroPore shall be responsible for all clinical study
     design, investigator selection, data analysis in connection with
     clinical trials of the Products. Medtronic shall assist MacroPore in
     such clinical study activities such as investigator selection, and such
     other clinical matters as the parties may agree.

         (b) DEVICE APPROVALS.  MacroPore shall be responsible, on a timely
     basis and at its expense, for filing, obtaining and maintaining
     regulatory approvals in the Territory.  To the extent permitted by law,
     all foreign regulatory approvals, including those processed by
     Medtronic, shall be owned by MacroPore and shall be in the name of
     MacroPore.  Except as otherwise required by law or agreed by the
     parties, MacroPore will be responsible for the content of its own
     labeling.  In connection with obtaining Device Approvals, MacroPore
     shall bear the expenses of meeting any applicable Product design and
     manufacturing facility requirements applicable to its then current
     manufacturing facility, and shall take all steps as are necessary to
     meet the EMD Directive.

         (c) EXPORT. MacroPore shall be responsible for obtaining all export
     licenses and permits as may be required to export the Products from the
     country of manufacture into the particular countries where such Products
     are delivered. Medtronic shall cooperate fully with MacroPore in its
     efforts to obtain any such approvals.

         (d) GOOD MANUFACTURING PRACTICES/QUALITY SYSTEMS REGULATIONS.
     MacroPore shall be responsible for compliance with present and future
     applicable statutes, laws, ordinances and regulations of national,
     federal, state and local governments now or hereafter in effect relating
     to the design, manufacture and/or quality of Products.  Without
     limitation of the foregoing, MacroPore represents and warrants to
     Medtronic that all Products sold and delivered to Medtronic under this
     Agreement will have been designed, manufactured and labeled in
     accordance with all applicable requirements.  MacroPore shall cause
     Medtronic's regulatory personnel to be provided with reasonable access
     from time to time to the facilities and records of MacroPore for the
     purpose of confirming MacroPore's compliance with this Section 4.2(d).

                                     9

     4.3 TRAINING. MacroPore at its expense will provide Medtronic with
surgical procedure manuals and a reasonable level of sales and technical
training for Medtronic's dedicated sales personnel for Products and other
appropriate Medtronic personnel. If requested by Medtronic, MacroPore at its
expense will also provide training for up to fifty (50) physicians per annum.

     4.4 PRODUCT LITERATURE AND PACKAGING. MacroPore will work jointly with
Medtronic in the preparation of mutually acceptable Product packaging,
labeling and operations and technical manuals for use with the Products, and
will not unreasonably refuse to incorporate any changes thereto reasonably
requested by Medtronic. MacroPore at its expense shall provide Medtronic from
time to time as requested by Medtronic with a reasonable supply of Product
sales and marketing materials in the English language. Pursuant to Section
3.5, Medtronic shall be responsible for the translation, adaptation and/or
modification of MacroPore's sales and marketing materials as deemed
appropriate by Medtronic, and MacroPore shall supply any artwork or other
materials reasonably requested by Medtronic for use solely in connection
therewith.

     4.5 SALES LEADS.  MacroPore shall forward to Medtronic all leads for
sales of Products in the Cranial Field.

                                    ARTICLE 5
                               ORDERS FOR PRODUCTS

     5.1 PURCHASE ORDERS. Medtronic shall submit purchase orders for Products
to MacroPore in writing, whether by mail, telecopier, telegram or otherwise,
at the time that each forecast is delivered to MacroPore pursuant to Section
5.2. Each purchase order shall, at a minimum, set forth the product numbers,
quantities (subject to Section 5.3), delivery dates, and shipping
instructions and shipping addresses for all Products ordered. Each purchase
order shall be subject to and governed by the terms of this Agreement.
Purchase orders shall be binding upon MacroPore unless and to the extent the
quantities specified therein exceed the amounts specified in the Plan. No
partial shipment of an order shall constitute the acceptance of the entire
order, absent the written acceptance of such entire order. The terms and
conditions of this Agreement shall so govern and supersede any additional or
contrary terms set forth in Medtronic's purchase order or any MacroPore or
Medtronic acceptance, confirmation, invoice or other document unless duly
signed by an officer of Medtronic and an officer of MacroPore and expressly
stating and identifying which specific additional or contrary terms shall
supersede the terms and conditions of this Agreement. Upon the execution of
this Agreement, Medtronic will place a three-month purchase order for
deliveries in January, February and March 2000. Subsequently, Medtronic will
place orders for the next succeeding months on a monthly basis, at the time
that it provides its forecast described in Section 5.2, with all such
subsequent purchase orders submitted at least 60 days in advance of the
earliest scheduled delivery date for such order.

     5.2 MEDTRONIC'S FORECASTS. At the time that Medtronic places its order
for the first month following the three months covered by the initial
purchase order, Medtronic shall provide MacroPore with a six-month sales plan
to be mutually agreed upon (but subject to Section 5.3 and Exhibit A)
indicating by month the number of Products anticipated to be sold by
Medtronic

                                    10

or purchased by Medtronic for use as demonstration units (as updated as
provided herein, the "Plan") in the Territory. The Plan shall be updated by
Medtronic on a quarterly basis (on or before the first day of each subsequent
quarter) for a rolling successive six-month period. Each Plan shall be used
for purposes of facilitating Medtronic's marketing plans, MacroPore's
manufacturing plans, and meeting the lead times required by certain of
MacroPore's suppliers, but are not legally-binding on Medtronic or MacroPore
in any manner.

      5.3 ORDER LIMITATIONS. During the first 12 months of the Term,
MacroPore shall maintain the ability to supply at least the "Guaranteed
Supply Quantities" specified on Exhibit A hereto. Except as provided in the
immediately proceeding sentence, MacroPore shall not be required to deliver
quantities in excess of 100% of forecasted requirements, provided, however,
that MacroPore shall use all commercially reasonable efforts to supply such
excess.

     5.4 MODIFICATION OF ORDERS. Medtronic may cancel or reschedule purchase
orders for products only with MacroPore's prior written approval.
Notwithstanding the foregoing, any purchase order may be cancelled by
Medtronic as to any Products that are not delivered within 60 days after the
delivery date requested by Medtronic pursuant to a purchase order, and any
such cancellation shall not limit or affect any contract remedies available
to Medtronic with respect thereto. Any such cancellation by Medtronic must be
by written notice to MacroPore given within 10 business days after such 60th
day.

     5.5 DELIVERY TERMS. Subject to MacroPore's obligations in Section 4.2
above, all deliveries of Products shall be F.O.B. MacroPore's facility in
California. Except as otherwise provided in Article 9 or Article 11 below,
MacroPore shall have no further responsibility for risk of damage to or loss
or delay of Products after their delivery at the aforesaid F.O.B point. All
Product deliveries shall be made by a common carrier specified by Medtronic
or, in the event that no carrier shall have been specified by Medtronic on or
before the date 15 days prior to the requested shipment date, a reputable
common carrier selected by MacroPore.

     5.6 PRODUCT CHANGES. MacroPore shall not, without Medtronic's prior
written consent, modify the Specifications for a Product in a manner that
materially affects the performance or regulatory approval status of the
Product or materially increases Medtronic's costs or expenses. Subject to the
foregoing, MacroPore may modify the Specifications for the Product without
the consent of Medtronic, provided that MacroPore notifies Medtronic of such
modifications within 30 days. If such modifications affect the performance or
applicable regulatory approvals of the Product, Medtronic shall not be
obligated to purchase such altered Product.

     5.7 CUSTOM PRODUCTS. In the event Medtronic is requested by a customer
to provide customized Products, Medtronic shall provide the specifications
for the customized Product to MacroPore. MacroPore will determine and provide
to Medtronic the additional cost, if any, and the feasibility of providing
the customized Product. Medtronic will thereafter notify MacroPore if it
intends to provide such customer with the customized Product.

     5.8 REPORTS.  Medtronic shall provide MacroPore, on a quarterly basis,
with reports reflecting Medtronic's sales of the Products (on a
product-by-product basis).

                                     11

                                    ARTICLE 6
                             MINIMUM PURCHASE QUOTA

     6.1 DETERMINATION OF QUOTE. During the first 12-month period of the
Term, Medtronic shall submit purchase orders to purchase at least the minimum
amount set forth on Exhibit A (the "Quota"). By the end of each quarter of
such initial 12-month period, Medtronic shall have submitted purchase orders
for at least the cumulative percentage of the Quota set forth on Exhibit A.

     6.2 REDUCTIONS IN QUOTA. Notwithstanding Section 6.1, the Quota for any
period shall be reduced (a) in the case of subpart (i) below by an amount
equal to 1.5 times the aggregate transfer price of Products not supplied by
MacroPore against purchase orders issued by Medtronic in accordance with
Article 5, (b) in the case of subpart (ii) below, by an amount equal to 1.5
times the aggregate transfer price of Products affected by such recall or
withdrawal, and (c) in the case of subpart (iii) below, by a pro rata amount
of the Quota for the applicable period based upon the number of days of such
period that have transpired prior to the removal of the restriction on sale
referenced in such subpart:

                (i)   If MacroPore materially and substantially fails for any
         reason to deliver ordered Products by the date scheduled for
         delivery thereof pursuant to purchase orders issued by Medtronic in
         accordance with Article 5, including but not limited to a failure to
         deliver Products that conform to the then current Specifications and
         such failure is not cured within 30 days;

                (ii)  If a Product covered by this Agreement is recalled from
         the market or withdrawn from sale for reasons of product safety or
         quality as determined by any applicable governmental authority or by
         the mutual agreement of the parties; or

                (iii) If Medtronic is restricted in the sale of Products in a
         market within the European Common Market that affects the CE Mark by
         any applicable regulatory authority because approval to sell the
         Product is pending, denied or revoked therein.

     6.3 TERMINATION OF AGREEMENT. If Medtronic does not order at least the
applicable Quota, as it may be modified as provided herein, and does not
elect to make the Shortfall payment described below, MacroPore shall have the
right, at its option, to terminate this Agreement. Notice of MacroPore's
election to terminate this Agreement (the "Termination Notice") must be given
by MacroPore in writing within 30 days following the period for which
Medtronic has not satisfied the Quota, specifying the amount by which
Medtronic's purchases for such period were below the Quota (the "Shortfall").
If within 30 days after such Termination Notice Medtronic either (i) places
orders for the purchase of sufficient quantities of Products to make up the
Shortfall and agrees to pay for such Products within 10 days after shipment
thereof, or (ii) Medtronic pays MacroPore cash in the amount of 75% of the
Shortfall, then MacroPore's Termination Notice will be deemed to be
automatically withdrawn. If Medtronic pays MacroPore cash in the amount of
75% of the Shortfall, such payment shall be treated as a prepayment for
Products to be ordered by Medtronic in the future and shall be applied toward
the

                                   12

purchase price of such future Product purchase orders as Medtronic directs.
Termination of this Agreement shall be MacroPore's sole and exclusive remedy
for any failure by Medtronic to purchase the applicable Quota.

                                 ARTICLE 7
                            PRICES AND PAYMENTS

     7.1 PRICES. Unless and until otherwise mutually agreed by the parties in
writing, the purchase prices per unit of Products to Medtronic under this
Agreement shall equal [***] of MacroPore's average selling price per unit for
such Product, excluding any sales, use or excise tax, freight duty or
insurance included therein, during the six-month period immediately prior to
the date of this Agreement (the "Transfer Price"). Separate Transfer Prices
will be established for sales in the United States and for each major
international market. If MacroPore's sales were inadequate for purposes of
establishing such average price, then the Transfer Price shall equal [***] of
Medtronic's average selling price per unit for such Products, excluding any
sales, use or excise tax, freight duty or insurance included therein, in such
market during the initial twelve-month period after commencement of
commercial sales of such Products in such market (the "Medtronic Pricing
Period"). If the Transfer Price is to be based on the Medtronic Pricing
Period, then during the Medtronic Pricing Period Medtronic shall pay
MacroPore [***] of Medtronic's published list price as the estimated Transfer
Price, and within 90 days after the end of the Medtronic Pricing Period,
Medtronic or MacroPore, respectively, shall pay the other party the aggregate
amount by which the estimated Transfer Price for Products purchased during
the Medtronic Pricing Period is less than, or more than, respectively, the
actual Transfer Price. Any prices referred to in any information provided to
Medtronic by MacroPore (other than the transfer Prices for Products) are
recommended prices only and Medtronic has no obligation to comply with any
such recommendations.

     7.2 PAYMENT TERMS. Payments made by Medtronic for Products purchased
hereunder shall be due and payable in full within 30 days after the date of
invoice by MacroPore. Any payments due hereunder which are not paid on the
date such payments are due shall bear interest at the lesser of one and
one-half percent (1 1/2%) per month or the maximum rate permitted by law,
calculated on the number of days such payment is delinquent. This Section 7.2
shall in no way limit any other remedies available to MacroPore.

     7.3 TAXES. The transfer prices for Products established pursuant to this
Article 7 do not include any sales, use, value added or similar taxes,
customs, duties, or tariffs imposed by any governmental authority or agency
on Products or any components thereof that are imported by Medtronic into any
country (other than taxes on the net income of MacroPore), and Medtronic
shall bear all such taxes and duties. MacroPore shall be required to take
appropriate steps to minimize imposition of such taxes by filing sales
exemption certificates and taking similar actions where applicable to the
seller. When MacroPore has the legal obligation to collect and/or pay such
taxes, the appropriate amount shall be added to Medtronic's invoice and paid
by Medtronic, unless Medtronic provides MacroPore with a valid tax exemption
certificate authorized by the appropriate taxing authority. Medtronic shall
not be obligated to pay or reimburse MacroPore for taxes that are not imposed
on the sale of Product to Medtronic.

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

                                    13

                                  ARTICLE 8
                                  EMPLOYEES

     8.1 OFFERS OF EMPLOYMENT. Medtronic shall have the right to interview
and offer employment to some or all of MacroPore's sales organization. Those
employees of MacroPore that accept such employment with Medtronic are
referred to herein as "Hired Employees." The employment of all Hired
Employees will be at will. Medtronic will set its own initial terms and
conditions of employment for Hired Employees and others it may hire,
including without limitation work rules, benefits and salary and wage
structure, all as permitted by law.

     8.2 COBRA. MacroPore will be responsible for satisfying obligations
under Section 601 et seq. of ERISA and Section 4980B of the Code and any
applicable similar state laws, to provide continuation coverage to or with
respect to any MacroPore employee in accordance with law with respect to any
"qualifying event" occurring up to the date of hiring such employee by
Medtronic. Medtronic will be responsible for satisfying obligations under
Section 601 et seq. of ERISA and Section 4980B of the Code and any applicable
similar state laws, to provide continuation coverage to or with respect to
any Hired Employee in accordance with law with respect to any "qualifying
event" which occurs following the date of hire.

     8.3 VACATION. Medtronic will assume all obligations to Hired Employees
for any vacation entitlement and vacation pay entitlement as of the date of
hire and MacroPore shall reimburse Medtronic for the amount of accrued
vacation assumed.

     8.4 WORKERS' COMPENSATION. MacroPore shall be responsible for all
workers' compensation benefits, occupational diseases claims and employer
liability claims payable to MacroPore employees with respect to (i) claims
filed through the date such employee is hired by Medtronic and (ii) claims
filed after such date resulting from a discrete event or injury occurring
through such date. Medtronic shall be responsible for all workers'
compensation benefits, and employer liability claims payable to Hired
Employees with respect to a discrete event or injury occurring after the date
of hire.

     8.5 SEVERANCE. MacroPore shall be responsible for paying to any employee
of its sales organization all termination or severance benefits, if any, that
MacroPore is required to pay, pursuant to its contracts or policies or
pursuant to law, to such employee.

     8.6 NO THIRD PARTY BENEFICIARY. The provisions of this Article 8 are not
intended to and shall not be construed as granting rights to or vesting
rights in any party or creating any third party beneficiary, including,
without limitation, any Affected Employee or any Hired Employee.

                                   ARTICLE 9
                        INSPECTION, WARRANTY AND SERVICE

     9.1 INSPECTION OF PRODUCT. Medtronic shall inspect all Products promptly
upon receipt thereof, and in the event of any shortage, damage or discrepancy
in or to a shipment of Products or in the event any of the Products fail to
comply with the then current Specifications for the Products (except for
latent defects not readily observable by Medtronic), Medtronic shall report
the same to MacroPore within 60 days after delivery thereof to Medtronic and
furnish such written evidence or other documentation as MacroPore reasonably
may deem appropriate. If the

                                    14

substantiating evidence delivered by Medtronic reasonably demonstrates that
such shortage, damage or discrepancy or nonconformity with Specifications
existed at the time of delivery of the Products, Medtronic may return the
Products to MacroPore, at MacroPore's expense, and, at Medtronic's request,
MacroPore shall use all reasonable efforts to deliver promptly replacement
Products to Medtronic in accordance with the delivery procedures set forth
herein. Any Products not rejected by Medtronic by written notice given to
MacroPore within such 60-day period (other than Products containing latent
defects not readily observable by Medtronic) shall be deemed to have been
accepted by Medtronic. Following any such acceptance, the sole remedies of
Medtronic with respect to damage to or defects in the Products shall be those
set forth in Sections 9.2 and 11.1.

      9.2  WARRANTY.

          (a) MacroPore represents and warrants to Medtronic that all
      Products sold under this Agreement will have been designed,
      manufactured, labeled, packaged and sold to Medtronic in accordance
      with all applicable laws and regulations, including (as applicable) FDA
      GMP requirements, European Medical Device Directive requirements, ISO
      9001 certification or successor requirements, and all other applicable
      manufacturing requirements. Upon prior written notice, MacroPore shall
      cause Medtronic's regulatory personnel to be provided with reasonable
      access from time to time to the facilities and records of MacroPore for
      the purpose of confirming MacroPore's and the Product's compliance with
      all applicable laws and regulations.

          (b) MacroPore warrants to Medtronic and to Medtronic's customers
      that Products shall, when delivered to Medtronic, meet the
      Specifications and, for a period of 2 years (shelf life) after delivery
      of the Product to the customer, be free from defects in materials and
      workmanship.  The foregoing express warranty is contingent upon proper
      use of the Products in the applications for which they were intended as
      indicated in the Product label claims.  Medtronic shall invoice
      MacroPore for, and MacroPore shall promptly pay, all shipping,
      transportation, insurance and other expenses actually incurred in
      replacing defective Products that were under warranty.  MacroPore will
      repair, replace or credit Medtronic's account for any Product that it
      reasonably determines was defective at the time of shipment to
      Medtronic or that does not conform to the express warranties herein;
      provided, however, that MacroPore shall have no obligation under this
      warranty to repair, make replacements, or grant credits necessitated in
      whole or in part by accidents; failure to maintain in accordance with
      any transportation, storage, handling, or maintenance, instructions
      supplied by MacroPore; damage by acts of nature, vandalism, burglary
      neglect or misuse; or other fault or negligence of Medtronic or (except
      for any strict liability of MacroPore) the customer or user.  Prior to
      returning any Product alleged to be defective, Medtronic shall notify
      MacroPore in writing of the claimed defect and shall include the model
      and lot/serial number of such Product, as well as the number and date
      of the invoice therefor.  No Product shall be returned without first
      obtaining a returned goods authorization from MacroPore, which
      authorization shall not be unreasonably withheld.

      9.3 LIMITED WARRANTY. THE EXPRESS WARRANTIES SET FORTH ABOVE ARE IN
LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE HEREBY

                                   15

SPECIFICALLY DISCLAIMED, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. IN NO EVENT
SHALL MACROPORE'S LIABILITY FOR PRODUCT WARRANTY INCLUDE ANY INDIRECT,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES.

                                  ARTICLE 10
               CERTAIN REPRESENTATIONS, WARRANTIES AND INDEMNITIES

      10.1  REPRESENTATIONS AND WARRANTIES.

           (a) MacroPore represents and warrants to Medtronic that the
      execution and delivery by MacroPore of this Agreement and the
      performance by MacroPore of its obligations hereunder have been duly
      authorized by all requisite corporate action and will not violate any
      provision of law, any order of any court or other agency of government,
      the Articles of Incorporation or Bylaws of MacroPore, as amended, or
      any provision of any indenture, agreement or other instrument to which
      MacroPore or any of its properties or assets is bound, or conflict
      with, result in a breach of or constitute (with due notice or lapse of
      time or both) a default under any such indenture, agreement or other
      instrument, or result in the creation or imposition of any lien,
      charge, restriction, claim or encumbrance of any nature whatsoever upon
      any of the properties or assets of MacroPore.  This Agreement has been
      duly executed and delivered by MacroPore and constitutes the legal,
      valid and binding obligation of MacroPore, enforceable in accordance
      with its terms, subject, as to the enforcement of remedies, to the
      discretion of the courts in awarding equitable relief and to applicable
      bankruptcy, reorganization, insolvency, moratorium and similar laws
      affecting the rights of creditors generally.

           (b) Medtronic represents and warrants to MacroPore that the
      execution and delivery by Medtronic of this Agreement and the
      performance by Medtronic of its obligations hereunder have been duly
      authorized by all requisite corporate action and will not violate any
      provision of law, any order of any court or other agency of government,
      the Articles of Incorporation or Bylaws of Medtronic, as amended, or
      any provision of any indenture, agreement or other instrument to which
      Medtronic or any of its properties or assets is bound, or conflict
      with, result in a breach of or constitute (with due notice or lapse of
      time or both) a default under any such indenture, agreement or other
      instrument, or result in the creation or imposition of any lien,
      charge, restriction, claim or encumbrance of any nature whatsoever upon
      any of the properties or assets of Medtronic.  This Agreement has been
      duly executed and delivered by Medtronic and constitutes the legal,
      valid and binding obligation of Medtronic, enforceable in accordance
      with its terms, subject, as to the enforcement of remedies, to the
      discretion of the courts in awarding equitable relief and to applicable
      bankruptcy, reorganization, insolvency, moratorium and similar laws
      affecting the rights of creditors generally.

                                     16

                                   ARTICLE 11
                                 INDEMNIFICATION

     11.1 MACROPORE'S LIABILITY. MacroPore shall indemnify, defend and hold
harmless Medtronic and each of its subsidiaries, officers, directors,
employees, shareholders and distributors from and against and in respect of
any and all demands, claims, actions or causes of action, assessments,
losses, damages, liabilities, interest and penalties, costs and expenses
(including, without limitation, reasonable legal fees and disbursements
incurred in connection therewith and in seeking indemnification therefor, and
any amounts or expenses required to be paid or incurred in connection with
any action, suit, proceeding, claim, appeal, demand, assessment or judgment)
finally awarded ("Indemnifiable Losses"), resulting from, arising out of, or
imposed upon or incurred by any person to be indemnified hereunder by reason
of (i) any breach of representation, warranty, or agreement on the part of
MacroPore under this Agreement, (ii) Product Liability Damages with respect
to the Products, or (iii) other negligence or intentional misconduct of
MacroPore; provided that in no event shall MacroPore be liable for matters
for which Medtronic is responsible under Section 11.2 below or for punitive
or exemplary damages. MacroPore shall maintain product liability insurance or
self-insurance in such amounts as ordinary good business practice for its
type of business would make advisable and shall provide Medtronic with
evidence of this coverage.

     11.2 MEDTRONIC'S LIABILITY. Medtronic shall indemnify, defend and hold
harmless MacroPore and each of its subsidiaries, officers, directors,
employees, shareholders and suppliers from and against and in respect of any
and all Indemnifiable Losses resulting from, arising out of, or imposed upon
or incurred by any person to be indemnified hereunder by reason of (i) any
breach of representation, warranty, or agreement on the part of Medtronic
under this Agreement, (ii) product claims whether written or oral, made or
alleged to be made, by Medtronic in its advertising, publicity, promotion, or
sale of any Products where such product claims were not provided by or
approved by MacroPore, (iii) negligent handling by Medtronic of the Products
or changes, additions or modifications to the Products by Medtronic, or (iv)
other negligence or intentional misconduct of Medtronic; provided that in no
event shall Medtronic be liable for matters for which MacroPore is
responsible under Section 11.1 above or for punitive or exemplary damages.
Medtronic shall maintain product liability insurance or self-insurance in
such amounts as ordinary good business practice for its type of business
would make advisable and shall provide MacroPore with evidence of this
coverage.

     11.3 PROCEDURE. If a claim by a third party is made and a party (the
"Indemnitee") intends to claim indemnification under this Article 11, the
Indemnitee shall promptly notify the other party (the "Indemnitor") in
writing of any claim in respect of which the Indemnitee or any of its
subsidiaries, directors, officers, employees, shareholders, suppliers or
distributors intends to claim such indemnification and the Indemnitor shall
have sole control of the defense and/or settlement thereof, provided that the
Indemnitee may participate in any such proceeding with counsel of its choice
at its own expense. The indemnity agreement in this Article 11 shall not
apply to amounts paid in settlement of any Indemnifiable Losses if such
settlement is effected without the consent of the Indemnitor, which consent
shall not be withheld unreasonably. The failure to deliver written notice to
the Indemnitor within a reasonable time after the commencement of any such
action, if adversely prejudicial to its ability to defend such action, shall
relieve such Indemnitor of any liability to the Indemnitee under this Article
11, but the

                                      17

omission to so deliver written notice to the Indemnitor shall not relieve the
Indemnitor of any liability that it may otherwise have to any Indemnitee
other than under this Article 11. If the Indemnitor fails to provide defense
of the claim, and diligently defend or settle the same after receipt of
notice from Indemnitee of, and a reasonable opportunity to cure such failure,
the Indemnitee may defend or settle the claim without prejudice to its rights
to indemnification hereunder, provided that the Indemnitee does so diligently
and in good faith and further does not enter into any settlement or agree to
any stipulation that would adversely affect the rights of the Indemnitor or
impose any additional obligation on the Indemnitor without the Indemnitor's
prior written consent (which consent will not be unreasonably withheld). The
Indemnitee under this Article 11, its employees and agents, shall cooperate
fully with the Indemnitor and its legal representatives and provide full
information in the investigation of any Indemnifiable Losses, in order to be
covered by this indemnification.

                                   ARTICLE 12
                              TERM AND TERMINATION

     12.1 TERM. This Agreement shall take effect as of the date hereof and
shall continue in force until the fifth anniversary of the date hereof, and
shall automatically renew for successive five-year periods unless either
party gives the other party written notice of non-renewal at least 180 days
prior to such renewal date (the "Term").

     12.2 TERMINATION.  Notwithstanding the provisions of Section 12.1 above,
this Agreement may be terminated in accordance with the following provisions:

          (a)  MacroPore may terminate this Agreement in the manner described
     in Section 6.3 hereof;

          (b)  Except as described in Section 6.3, a party may terminate
     this Agreement by giving notice in writing to the other party if the
     other party is in breach of any material representation, warranty or
     covenant of this Agreement and, except as otherwise provided herein,
     shall have failed to cure such breach within 60 days after receipt of
     written notice thereof from the first party;

          (c)  A party may terminate this Agreement at any time by giving
     notice in writing to the other party, which notice shall be effective
     upon dispatch, should the other party become insolvent, make an
     assignment for the benefit of creditors, go into liquidation or
     receivership or otherwise lose legal control of its business; or

          (d)  A party may terminate this Agreement by giving notice in
     writing to the other party should an event of Force Majeure preventing
     performance by such other party continue for more than 180 consecutive
     days as provided in Article 13 below.

     12.3 RIGHTS AND OBLIGATIONS ON TERMINATION.  In the event of termination
of this Agreement for any reason, the parties shall have the following rights
and obligations:

          (a)  Termination of this Agreement shall not release either party
     from the obligation to make payment of all amounts previously due and
     payable.

                                 18

          (b)  The terminating party shall have the right, at its option, to
     cancel any or all purchase orders that provide for delivery after the
     effective date of termination.

          (c)  Medtronic shall have the right, at its option, to require
     MacroPore to repurchase from Medtronic all of Medtronic's inventory of
     Products (excluding demonstration units and Products with less than 6
     months shelf life remaining as of the effective date of termination) as
     of the termination date at MacroPore's invoiced price (and inclusive of
     any shipping charges or taxes, but net of any price adjustments, credits
     or other allowances) to Medtronic for such Products.  Medtronic may
     exercise its option under this Section 12.3(c) by notifying MacroPore in
     writing no later than 30 days after the effective termination date.
     Medtronic shall be permitted to resell any such inventory of Products
     that MacroPore does not repurchase from Medtronic.

          (d)  The parties' obligations pursuant to Articles 9, 11 and 14 and
     Sections 3.6, 12.3, 12.4, and 15.1 hereof shall survive termination of
     this Agreement. All other provisions of this Agreement shall terminate
     upon termination of this Agreement.

          (e)  Upon expiration or termination of this agreement, Medtronic
     shall use reasonable best efforts to transfer ownership to MacroPore of
     all Product authorizations, registrations, permits and approvals of any
     kind with respect to Products and applications therefor, including
     without limitation, marketing approval applications, and other
     governmental approvals, registrations and the like, at MacroPore's cost
     and expense, and shall execute such documents and perform such acts as
     may be necessary, useful or convenient to perfect such transfer.

          (f)  For a period of one year following expiration or termination
     of this Agreement, neither party shall solicit or cause to be solicited
     for employment any employees of the other party; provided that, if this
     Agreement is terminated pursuant to Section 6.3, MacroPore may, for a
     period of 60 days from and after such termination, interview and offer
     employment to former MacroPore employees hired by Medtronic pursuant to
     Section 8.1.

     12.4 TERMINATION OF SUBDISTRIBUTORS. If MacroPore terminates this
Agreement in accordance with its rights under Section 12.2, Medtronic shall
have sole responsibility for termination of any subdistributor, including any
costs or expenses associated therewith, and shall indemnify and hold
MacroPore harmless from and against any claim, loss, damage or expense
(including reasonable attorneys' fees) suffered or incurred by MacroPore
relating to the termination of any subdistributor appointed by Medtronic.

                                  ARTICLE 13
                       FAILURE TO SUPPLY AND FORCE MAJEURE

     13.1 NOTICE OF FORCE MAJEURE. Upon giving notice to the other party, a
party affected by an event of Force Majeure shall be released without any
liability on its part from the performance of its obligations under this
Agreement, except for the obligation to pay any amounts due and owing
hereunder, but only to the extent and only for the period that its
performance of such obligations is prevented by the event of Force Majeure.

                                      19

     13.2 SUSPENSION OF PERFORMANCE. Subject to Section 13.3 below, during
the period that the performance by one of the parties of its obligations
under this Agreement has been suspended by reason of an event of Force
Majeure, the other party may likewise suspend the performance of all or part
of its obligations hereunder (except for the obligations to pay any amounts
due and owing hereunder) to the extent that such suspension is commercially
reasonable.

     13.3 EXERCISE OF LICENSE UPON FAILURE OF SUPPLY. Upon a Failure of
Supply, Medtronic shall have the right to exercise its license rights granted
pursuant to Section 13.4 below to manufacture and sell such Product (but not
any other Product) itself or have such Product manufactured by others.

     13.4 LICENSE GRANT.

          (a) MacroPore hereby grants Medtronic (i) an exclusive,
     sublicensable, worldwide, license to the Licensed Intellectual Property
     to make, have made, use, distribute, sell, offer for sale, have sold,
     import and otherwise commercialize and exploit Products in the Cranial
     Field during the Term. Medtronic may not exercise such license unless
     and until the occurrence of a Failure of Supply.

          (b) The license granted herein shall be royalty free with respect
     to any Products manufactured or supplied to Medtronic by MacroPore or
     any Affiliate of MacroPore. If Medtronic exercises its right pursuant to
     Section 13.3 to make or have made by a third party a Product, then
     subject to the terms of this Agreement, Medtronic shall pay to MacroPore
     a royalty equal to [****************] of Medtronic's Net Sales of such
     Product.

          (c) Within sixty (60) days after the end of each Medtronic fiscal
     quarter, Medtronic shall provide MacroPore with a written report
     indicating the amount of Net Sales of Products during such quarter and
     the amount of the royalties due for such quarter. Simultaneously with
     making such report, Medtronic shall pay to MacroPore the amount of
     royalties then due.

          (d) Medtronic agrees to keep accurate written records sufficient in
     detail to enable the royalties payable under this Agreement by Medtronic
     to be determined and verified. Such records for a particular quarter
     shall be retained by Medtronic for a period of not less than three years
     after the end of such quarter.

          (e) Upon reasonable notice and during regular business hours,
     Medtronic shall from time to time (but no more frequently than once
     annually) make available the records referred to in subsection (d) above
     for audit at MacroPore's expense by independent representatives selected
     by MacroPore to verify the accuracy of the reports provided to
     MacroPore.  Such representatives shall execute a suitable
     confidentiality agreement reasonably acceptable to Medtronic prior to
     conducting such audit.  Such representatives may disclose to MacroPore
     only their conclusions regarding the accuracy and completeness of
     royalty payments and of records related thereto, and shall not disclose
     Medtronic's confidential business information to MacroPore without the
     prior written consent of Medtronic.

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

                                      20

     13.5 TECHNOLOGY TRANSFER. Upon Medtronic's request any time after a
Failure of Supply, MacroPore shall promptly provide to Medtronic, or a third
party designated by Medtronic, as applicable, copies of such technical
documentation and related know-how and trade secrets, and training as is
reasonably necessary for a skilled manufacturer to make such Product;
provided that any such third party shall agree to maintain the
confidentiality of all such information to the same extent that Medtronic is
obligated to do so under this Agreement, and Medtronic will reimburse
MacroPore for salary and reasonable travel and lodging expenses for MacroPore
personnel with respect to training requested by Medtronic at a location other
than MacroPore's facility to the extent such expenses are substantiated by
expense receipts.

     13.6 MAINTAIN LICENSES IN FORCE. MacroPore shall comply with all of the
provisions of, and shall maintain in full force and effect, all license
agreements with third parties pursuant to which MacroPore is licensee of
intellectual property included in the Licensed Intellectual Property.
MacroPore shall promptly notify Medtronic if any such third party licensor
alleges any breach by MacroPore of any such license agreement. Medtronic
shall be entitled, but not obligated, to cure any alleged breach by MacroPore
of such license agreement and set-off the cost of such cure against amounts
otherwise owed to MacroPore hereunder.

     13.7 NO LIABILITY. MacroPore shall have no obligation or any liability
under Sections 9.2 or 11.1(ii) with respect to any Products produced by
Medtronic or its third party designee pursuant to the license granted in this
Article 13.

                                   ARTICLE 14
                              INTELLECTUAL PROPERTY

     14.1 TRADEMARK LICENSE. MacroPore hereby grants Medtronic a royalty-free
license to use all trademarks, trade names and logotypes of MacroPore
relating to the Products solely in connection with the sale or other
distribution, promotion, advertising and/or maintenance of the Products in
the Cranial Field. Medtronic shall acquire no right, title or interest in
such MacroPore trademarks, trade names and logotypes, other than the license
provided for above, and Medtronic shall not use any MacroPore trademarks,
trade names and logotypes as part of Medtronic's corporate, trade name,
trademark or logotype or permit any third party under Medtronic's control to
do so without the prior written consent of MacroPore. To the extent permitted
by local law, any statutory powers which would be granted to Medtronic by
virtue of its local use of MacroPore's trademarks or its licensee status are
excluded. Medtronic shall in addition have the right to promote and sell the
Products under trademarks, trade names and logotypes of Medtronic selected by
Medtronic, which trademarks, trade names and logotypes shall be and shall
remain the property of Medtronic, provided however, that Medtronic agrees to
use reasonable efforts to credit MacroPore as the manufacturer, and to
include the brand name, on packaging, brochures and advertisements specific
to the Products.

     14.2 TRADEMARK INFRINGEMENT. Medtronic shall promptly notify MacroPore
of any use by any third party of MacroPore's trademarks, trade names or
logotypes or any use by such third parties of similar marks that may
constitute an infringement or passing off of MacroPore's trademarks, trade
names or logotypes of which Medtronic has knowledge. MacroPore reserves the
right in its sole discretion to institute any proceedings against such
third-party infringers and Medtronic shall refrain from doing so. Medtronic
agrees to cooperate fully with MacroPore in

                                     21

any action taken by MacroPore against such third parties, provided that all
expenses of such action shall be borne by MacroPore and all damages that may
be awarded or agreed upon in settlement of such action shall accrue to
MacroPore.

     14.3 TERMINATION OF USE OF TRADEMARKS. Medtronic acknowledges
MacroPore's proprietary rights in and to MacroPore's trademarks, trade names
and logotypes, and Medtronic hereby waives all right to any trademarks, trade
names and logotypes now or hereafter originated by MacroPore. Medtronic shall
not after the date of this Agreement adopt, use or register any words,
phrases or symbols that are identical to or confusingly similar to any of
MacroPore's trademarks. Upon termination of this Agreement, Medtronic shall
cease using MacroPore's trademarks, trade names and logotypes in any manner,
subject to Medtronic's right, if any, to continue to sell Products under
Section 12.3(c).

     14.4 PATENT RIGHTS.

          (a) DEFENSE OF CLAIMS.  MacroPore shall defend, or at its option
     settle, any suit instituted against Medtronic that is based on an
     allegation that any Product constitutes an infringement of any patent or
     any other intellectual property right.  MacroPore shall have sole
     control of defense of any such action, including any appeals and
     negotiations for the settlement or compromise thereof and shall have
     full authority to enter into a binding settlement or compromise;
     provided that MacroPore shall not enter into any settlement or
     compromise that may adversely affect Medtronic without Medtronic's
     consent, which consent shall not be unreasonably withheld.  MacroPore
     shall indemnify, subject to the limitations set forth herein, Medtronic
     against any final award of damages and costs made against Medtronic and
     any settlement amounts as a result of any such action.  In order to
     qualify for such indemnification, Medtronic shall notify MacroPore
     promptly in writing of such claim, suit or proceeding and give MacroPore
     such information and assistance as MacroPore may reasonably request to
     settle and defend any such claim; provided the failure to give such
     notice, information and assistance shall only relieve MacroPore of
     liability under this subsection to the extent such failure adversely
     affects MacroPore's ability to defend such action.

          (b) LIMITATION OF LIABILITY. MacroPore shall have no liability of
     any kind to Medtronic under Section 14.4(a) or based upon any other
     claim Medtronic may have to the extent any such claim is based upon or
     arises out of (a) the use of any Product in combination with an
     apparatus or device not manufactured, supplied or approved by MacroPore,
     (b) the use of any Product in a manner for which it was not designed or
     intended to be used, or (c) any modification of any Product by Medtronic
     or any third party that causes it to become infringing.

          (c) REPLACEMENT PRODUCT.  Notwithstanding the foregoing, if it is
     adjudicatively determined that any Product infringes, or in MacroPore's
     sole opinion, may be found to infringe a third party's patent or other
     intellectual property rights, or if the sale or use of the Products is,
     as a result, enjoined, then MacroPore shall, at its option and expense,
     either: (i) procure for Medtronic the right under such patent to sell or
     use, as appropriate, the Products; or (ii) replace the Products with
     other noninfringing functionally equivalent products; or (iii) modify
     the Products to make the Products

                                       22

     functionally equivalent and noninfringing, remove any prior version of
     the Products in Medtronic's inventory and refund the aggregate payments
     made therefor by Medtronic; or (iv) if the use of the Products is
     prevented by injunction, discontinue Product sales under the Agreement
     and remove any Products in Medtronic's inventory and refund the
     aggregate payments paid therefor by Medtronic, in which event MacroPore
     shall promptly refund to Medtronic a pro rata portion (based on the
     portion of the original Term remaining) of the $1,500,000 paid by
     Medtronic pursuant to Section 2.2.

     14.5 OWNERSHIP. MacroPore represents and warrants to Medtronic the
following: MacroPore owns or possesses licenses or other rights to use all
Intellectual Property used in the research, design, development, manufacture
or sale of the Products (the "MacroPore Intellectual Property"), free and
clear of any liens, charges, security interests, mortgages, pledges,
restrictions, or any other encumbrances of any kind which are inconsistent
with the rights granted to Medtronic hereunder. To the knowledge of
MacroPore, the MacroPore Intellectual Property is valid and has not been
challenged in any judicial or administrative proceeding. MacroPore has taken
all necessary steps or appropriate actions to record its interests, or to
protect its rights, in the MacroPore Intellectual Property. To the knowledge
of MacroPore, no person or entity nor such person's or entity's business or
products has infringed, misused, misappropriated or conflicted with the
MacroPore Intellectual Property or currently is infringing, misusing,
misappropriating or conflicting with the MacroPore Intellectual Property. To
the knowledge of MacroPore, all proprietary technical information developed
by and belonging to MacroPore that has not been patented has been kept
confidential.

     14.6 PROTECTION OF MACROPORE'S INTELLECTUAL PROPERTY AND IMPROVEMENTS.
MacroPore shall be responsible for filing, prosecuting and maintaining all US
and foreign patents and copyrights and applications therefor to the extent it
deems necessary or appropriate to protect the MacroPore Intellectual Property.

                                   ARTICLE 15
                                  MISCELLANEOUS

     15.1 NONDISCLOSURE. The parties agree not to disclose or use (except as
permitted or required for performance by the party receiving such
Confidential Information of its rights or duties hereunder) any Confidential
Information of the other party obtained during the during the term of this
Agreement until the expiration of five years after the receiving party's
receipt of such Confidential Information. Each party further agrees to take
appropriate measures to prevent any such prohibited disclosure of
Confidential Information by its present and future employees, officers,
agents, subsidiaries, or consultants during such period.

     15.2 PUBLIC ANNOUNCEMENT. In the event any party proposes to issue any
press release or public announcement concerning any provisions of this
Agreement or the transactions contemplated hereby, such party shall so advise
the other parties hereto, and the parties shall thereafter use their best
efforts to cause a mutually agreeable release or announcement to be issued.
Neither party will publicly disclose or divulge any provisions of this
Agreement or the transactions contemplated hereby without the other party's
written consent, except as may be required by applicable law or stock
exchange regulation, and except for communications to such

                                     23

party's employees or customers or investors or prospective investors (subject
to appropriate confidentiality obligations).

     15.3 COMPLETE AGREEMENT. This Agreement, the Investment Agreement, the
Investors' Rights Agreement, the Supplemental Rights Agreement, the Supply
Agreement, and the Schedules and Exhibits hereto and thereto, constitute the
entire agreement between the parties hereto with respect to the subject
matter hereof and supersede all prior agreements whether written or oral
relating hereto.

     15.4 WAIVER, DISCHARGE, AMENDMENT, ETC. The failure of any party hereto
to enforce at any time any of the provisions of this Agreement shall not,
absent an express written waiver signed by the party making such waiver
specifying the provision being waived, be construed to be a waiver of any
such provision, nor in any way to affect the validity of this Agreement or
any part thereof or the right of the party thereafter to enforce each and
every such provision. No waiver of any breach of this Agreement shall be held
to be a waiver of any other or subsequent breach. Any amendment to this
Agreement shall be in writing and signed by the parties hereto.

     15.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and the successors or assigns of
the parties hereto; provided, that (i) the rights and obligations of
MacroPore herein may not be assigned except to any person who succeeds to
substantially all of the assets and business of MacroPore to which this
Agreement relates, and (ii) the rights and obligations of Medtronic herein
may not be assigned except to any person who succeeds to substantially all of
that portion of Medtronic's business to which this Agreement relates.

     15.6 NOTICES. All notices or other communications to a party required or
permitted hereunder shall be in writing and shall be delivered personally or
by facsimile (receipt confirmed electronically) to such party (or, in the
case of an entity, to an executive officer of such party) or shall be sent by
a reputable express delivery service or by certified mail, postage prepaid
with return receipt requested, addressed as follows:

if to Medtronic, to:

         Medtronic, Inc.
         Corporate Center
         7000 Central Avenue N.E.
         Minneapolis, MN  55432
         Attention:  General Counsel
         FAX (612) 572-5459

         with a copy to:

         Medtronic, Inc.
         Corporate Center
         7000 Central Avenue N.E.
         Minneapolis, MN  55432
         Attention:  Vice President and Chief Development Officer
         FAX (612) 572-5404

                                     24

if to MacroPore, to:

         MacroPore, Inc.
         6740 Top Gun Street
         San Diego, CA  92121
         Attention:  Christopher J. Calhoun
         FAX (858) 458-0995

         with a copy to:

         MacroPore, Inc.
         6740 Top Gun Street
         San Diego, CA  92121
         Attention:  Vice President of Finance
         FAX (858) 458-0994

Any party may change the above-specified recipient and/or mailing address by
notice to all other parties given in the manner herein prescribed. All
notices shall be deemed given on the day when actually delivered as provided
above (if delivered personally or by telecopy) or on the day shown on the
return receipt (if delivered by mail or delivery service).

     15.7  EXPENSES. Except as expressly provided herein, MacroPore and
Medtronic shall each pay their own expenses incident to this Agreement and
the preparation for, and consummation of, the transactions provided for
herein.

     15.8  GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Minnesota, including all matters
of construction, validity, performance and enforcement, without giving effect
to principles of conflict of laws.

     15.9  TITLES AND HEADINGS; CONSTRUCTION. The titles and headings to the
Articles and Sections herein are inserted for the convenience of reference
only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement. This Agreement shall be construed without
regard to any presumption or other rule requiring construction hereof against
the party causing this Agreement to be drafted.

     15.10 ILLEGALITY: SEVERABILITY.  In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

     15.11 RELATIONSHIP. This Agreement does not make either party the
employee, agent or legal representative of the other for any purpose
whatsoever. Neither party is granted any right or authority to assume or to
create any obligation or responsibility, express or implied, on behalf of or
in the name of the other party. In fulfilling its obligations pursuant to
this Agreement, each party shall be acting as an independent contractor.

     15.12 BENEFIT. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.

                                  25

     15.13 SURVIVAL. All of the representations, warranties, and covenants
made in this Agreement, and all terms and provisions hereof intended to be
observed and performed by the parties after the termination hereof, shall
survive such termination and continue thereafter in full force and effect.

     15.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed as original and all of which
together shall constitute one instrument.

     15.15 EXECUTION OF FURTHER DOCUMENTS. Each party agrees to execute and
deliver without further consideration any further applications, licenses,
assignments or other documents, and to perform such other lawful acts as the
other party may reasonably require to fully secure and/or evidence the rights
or interests herein.

                                      26

         IN WITNESS WHEREOF, each of the parties has caused this Distribution
Agreement to be executed in the manner appropriate to each, as of the date first
above written.

MACROPORE, INC.

By:   /s/ Christopher J. Calhoun
      --------------------------------------------
Its:  Vice Chairman, Chief Executive Officer

MEDTRONIC, INC.

By:   /s/ Michael D. Ellwein
      --------------------------------------------
Its:  Vice President and Chief Development Officer

                                       27

                                    EXHIBIT A
                                      QUOTA

         During the first 12-month of the Term, Medtronic shall submit purchase
orders for at least [********] of Product (based on Transfer Price to Medtronic)
(the "Quota"). By the end of each three-month quarter of such initial 12-month
period, Medtronic shall have ordered at least the following cumulative
percentage of the Quota, and MacroPore shall supply all Products so ordered up
to the following cumulative percentage of the Quota:

         Quarter          Medtronic Cumulative            MacroPore Cumulative
         -------                 Minimum                       Guaranteed
                          Order (as % of Quota)          Supply (as % of Quota)
                          ---------------------          ----------------------
                                                   
         First                   [*****]                         [*****]
         Second                  [*****]                         [*****]
         Third                   [*****]                         [*****]
         Fourth                  [*****]                         [*****]

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

                                     28

                                                                    EXHIBIT 10.3

                                 AMENDMENT NO. 1
                                       TO
                             DISTRIBUTION AGREEMENT

          This Amendment No. 1, effective as of December 22, 2000, is to that
certain Distribution Agreement (the "Agreement"), dated as of January 5,
2000, by and between MacroPore, Inc., a Delaware corporation ("MacroPore")
and Medtronic, Inc. ("Medtronic"), a Minnesota corporation.

          WHEREAS, MacroPore and Medtronic desire to amend the Agreement as
set forth below.

          NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties, hereby agree
as follows:

     1.   Section 7.1 (Prices) of the Agreement is hereby amended by deleting
Section 7.1 in its entirety and inserting the following in its place.

          "Section 7.1)    PRICES

          (a) Unless and until otherwise mutually agreed upon by the parties
              in writing, the purchase price per unit to Medtronic (the
              "Transfer Price") under this Agreement shall be based on the
              price list in effect at the time of MacroPore's receipt of the
              order from Medtronic (the "Price List") as set forth on Exhibit
              B; PROVIDED, HOWEVER, that the Transfer Price for all Product
              sales from MacroPore to Medtronic from January 5, 2000 to the
              date hereof shall be the Transfer Price as set forth on Exhibit
              B. MacroPore established the attached Price List based on [***]
              of the average selling price per unit for each Product,
              excluding any sales, use or excise tax, freight, duty or
              insurance included therein, during the six-month period
              immediately prior to the date of the Price List.

          (b) The Price List shall be reviewed by MacroPore and Medtronic on
              the six month anniversary of the date hereof and every six
              months thereafter (the "Six Month Review"), with any changes in
              these prices to take effect upon delivery of the revised Price
              List to Medtronic. MacroPore shall prepare the revised Price
              List, to be prepared after each Six Month Review, on the same
              basis as the initial Price List.

          (c) New products may be added to the Price List at any time by 30
              day prior written notice to Medtronic. In the event that a new
              Product is added to the Price List, the Transfer Price shall be
              based on [**] of the estimated selling price per unit for such
              Product until the next Six Month Review.

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

          (d) In the event sales of a Product already on the Price List were
              inadequate to establish an average selling price during the
              previous six month period, MacroPore shall set the Transfer
              Price based on [***] of the estimated selling price per unit
              for such Product, which price may be based on the Transfer
              Price for that Product from the previous Price List.

          (e) In the event MacroPore and Medtronic's review of the Price List
              results in a change to the Transfer Price for any of the
              Products on the Price List, all such changes will apply to the
              Transfer Price of future sales of that Product and shall not be
              applied retroactively to previous sales of that Product to
              Medtronic. Separate Transfer Prices will be established for
              sales in the United States and for sales in the international
              market. The prices for customized products are not included in
              the Price List but shall be determined in accordance with
              Section 5.7 herein."

     2. The Agreement is hereby amended by inserting Exhibit B attached
hereto immediately after Exhibit A to the Agreement.

     3. Except as amended hereby, the Agreement shall remain unchanged and in
full force and effect.

     4. This Amendment No. 1 and the Agreement constitute the entire
agreement among the parties hereto with respect to the subject matter hereof,
and supersede any and all prior agreements and undertakings, oral or written,
concerning the subject matter hereof. This Agreement may not be changed or
terminated orally, and may only be changed or terminated by a writing signed
by the party against whom such change or termination is sought.

     5. This Amendment No. 1 may be executed in any number of counterparts
and by facsimile, each of which, when executed, shall be deemed to be an
original and all of which together shall be deemed to be one and the same
instrument.

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

                        *  *  *  *  *  *

         IN WITNESS WHEREOF, this Amendment No. 1 has been duly executed by the
parties as of the date first set forth above.

                             MACROPORE, INC.,
                             a Delaware corporation

                             By:   /s/ Charles E. Galetto
                                   ------------------------
                             Name: Charles E. Galetto
                             Its:  VP - Finance

                             MEDTRONIC, INC.,
                             a Minnesota corporation

                              By:  /s/ Michael D. Ellwein
                                   ------------------------
                              Name: Michael D. Ellwein
                              Its:  VP and Chief Development Officer

                                    EXHIBIT B
                                   PRICE LIST

MacroPore, Inc. Master Product
     Library - Pricing

Version - 1 - 12/22/00

- ------------------------------------------------------------------------------------------------------
CATALOG   DESCRIPTION   UNIT OF    SYSTEM   MEDTRONIC     U.S.A.    INTERNATIONAL    SAMPLE     SAMPLE
NUMBER                  MEASURE             LIST PRICE   TRANSFER     TRANSFER       CATALOG    PRICE
                                                          PRICE        PRICE         NUMBER
- ------------------------------------------------------------------------------------------------------
                                                                        
[***]       [***]        [***]      [***]     [***]        [***]        [***]         [***]      [***]

FOUR PAGES OF THE PRICE LIST HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL, MARKED AS [***], HAS BEEN
FILED SEPARATELY WITH THE SEC.

                                                                   EXHIBIT 10.4

                        DEVELOPMENT AND SUPPLY AGREEMENT

         THIS DEVELOPMENT AND SUPPLY AGREEMENT (the "AGREEMENT") is made and
entered into as of January 5, 2000 (the "EFFECTIVE DATE") between MACROPORE,
INC. ("MACROPORE"), a Delaware corporation, and MEDTRONIC, INC. (as defined
below, "MEDTRONIC"), a Minnesota corporation.

                                   WITNESSETH:

         WHEREAS, MacroPore has developed bioabsorbable surgical implants for
use in, among other areas, bone fixation and reconstruction in the
craniofacial skeleton and, on even date herewith, MacroPore and Medtronic
have entered into a Distribution Agreement (the "DISTRIBUTION AGREEMENT")
pursuant to which Medtronic is granted exclusive worldwide distribution
rights with respect to such products; and

         WHEREAS, the parties desire MacroPore to develop bioabsorbable
spinal implants and [**************] pursuant to Medtronic's designs and
specifications and to manufacture and supply such developed products to
Medtronic; and

         WHEREAS, MacroPore and Medtronic's Affiliate, Medtronic Asset
Management, Inc. ("MAMI"), intend to enter into a Series D Preferred Stock
Purchase Agreement (the "INVESTMENT AGREEMENT") pursuant to which MAMI will
purchase Series D Preferred Stock of MacroPore and receive various rights; and

         WHEREAS, it is a condition to MAMI's willingness to purchase such
MacroPore Series D Preferred Stock that the parties enter into this Agreement.

         NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and for other valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties mutually agree as follows:

                                  ARTICLE 1
                                 DEFINITIONS

         1.1 SPECIFIC DEFINITIONS.  As used in this Agreement, the following
terms shall have the meanings set forth or as referenced below:

"AFFILIATE" of a specified person (natural or juridical) means a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified.
"Control" shall mean ownership of more than 50% of the shares of stock
entitled to vote for the election of directors in the case of a corporation,
and more than 50% of the voting power in the case of a business entity other
than a corporation.

"AGREEMENT" means this Agreement and all Exhibits and Schedules hereto.

"CONFIDENTIAL INFORMATION" means know-how, trade secrets, and unpublished
information disclosed (whether before or during the term of this Agreement)
by one of the parties (the "disclosing party") to the other party or such
other party's designee pursuant to Section 11.5 (the

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

"receiving party"), and which is marked as proprietary or confidential as
provided below, excluding information that:

     (a) was already in the possession of receiving party prior to its
receipt from the disclosing party (provided that the receiving party is able
to provide the disclosing party with reasonable documentary proof thereof);

     (b) is or becomes part of the public domain by reason of acts not
attributable to the receiving party;

     (c) is or becomes available to receiving party from a source other than
the disclosing party which source, to the best of receiving party's
knowledge, has rightfully obtained such information and has no obligation of
nondisclosure or confidentiality to the disclosing party with respect thereto;

     (d) is made available by the disclosing party to a third party
unaffiliated with the disclosing party on an unrestricted basis;

     (e) is independently developed by the receiving party completely without
reference to any Confidential Information of the disclosing party, as
evidenced by the receiving party's written records; or

     (f) has been or must be publicly disclosed by reason of legal,
accounting or regulatory requirements beyond the reasonable control, and
despite the reasonable efforts, of the receiving party.

     All Confidential Information disclosed by one party to the other under
this Agreement shall be in writing and bear a legend "Proprietary,"
"Confidential" or words of similar import or, if disclosed in any manner
other than writing, shall be followed by confirmation that such information
is confidential by the disclosing party within 30 days.

     Specific aspects or details of Confidential Information shall not be
deemed to be within the public domain merely because the aspects or details
of the Confidential Information is embraced by general disclosures in the
public domain. In addition, any combination of Confidential Information shall
not be considered in the public domain or in the prior possession of the
receiving party merely because individual elements thereof are in the public
domain or in the prior possession of the receiving party unless the
combination and its principles are in the public domain or in the prior
possession of the receiving party.

"DEVELOPED PRODUCTS" means as defined in Section 2.3.

"FAILURE OF SUPPLY" means (i) MacroPore's failure, for any reason other than
Force Majeure, to deliver any Developed Product ordered in accordance with
the provisions of Article 5 by the date scheduled for delivery thereof,
including but not limited to a failure to deliver Developed Products which
conforms to the Specifications therefor, which failure is not cured within
two months after MacroPore is notified of such failure, (ii) MacroPore's
failure due to Force Majeure to deliver any Developed Product ordered in
accordance with the provisions of Article 5 by the date scheduled for
delivery thereof, including but not limited to a failure to deliver Developed
Product which

                                       2

conforms to the Specifications therefor, which failure is not cured within
three months after MacroPore is notified of such failure, or (iii)
MacroPore's failure on any five occasions within any 24-month period, for any
reason other than Force Majeure, to deliver any Developed Product ordered in
accordance with the provisions of Article 5 within 30 days after the
respective dates scheduled for delivery thereof, including but not limited to
a failure to deliver Developed Product which conforms to the Specifications
therefor.

"FDA" means the United States Food and Drug Administration.

"FORCE MAJEURE" means any event or condition, not existing as of the date of
this Agreement, not reasonably foreseeable as of such date and not reasonably
within the control of either party, which prevents in whole or in material
part the performance by one of the parties of its obligations hereunder, such
as an act of government, war or related actions, civil insurrection, riot,
sabotage, strike, epidemic, fire, flood, windstorm, and similar events.

"GMP" means Good Manufacturing Practices as defined in 21 CFR Parts 210
through 226 and Parts 600 through 680.

"INTELLECTUAL PROPERTY" means letters patent and patent applications;
trademarks, service marks and registrations thereof and applications
therefor; copyrights and copyright registrations and applications; mask works
and registrations thereof, all inventions, discoveries, ideas, technology,
know-how, trade secrets, data, information, processes, formulas, drawings and
designs, licenses, computer programs and software; and all amendments,
modifications, and improvements to any of the foregoing.

"[***************]" means those medical devices (other than Spinal Implants)
designed to be [***************************************************************
******] as the parties may agree to develop hereunder.

"INVENTION" means any invention, discovery, know-how, trade secret, data,
information, technology, process or concept, whether or not patented or
patentable, and whether or not memorialized in writing.

"KNOWLEDGE" means actual knowledge of a fact or the knowledge that such
person could reasonably be expected to have based on reasonable inquiry. The
"knowledge" of an entity shall include the knowledge of such entity's
employees.

"LICENSED INTELLECTUAL PROPERTY" means, with respect to a Failure of Supply
of a particular Developed Product, all Intellectual Property used by
MacroPore in connection with the manufacture or sale of such Developed
Product at the time of such Failure of Supply.

"MACROPORE" means MacroPore, Inc. and its Affiliates.

"MEDTRONIC" means Medtronic, Inc. and its Affiliates.

"NET SALES" of Developed Products for purposes of Article 11 with respect to
a particular period means the amounts that Medtronic or any Affiliate of
Medtronic receives from third parties (eliminating transactions among
Affiliates of Medtronic and/or Medtronic) for net sales of

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

                                  3

Developed Products during such period, excluding sales, use or excise tax,
freight, duty or insurance included therein, returns, discounts and
allowances, credits or repayments due to rejections, defects or returns,
provided that if Medtronic or any Affiliate of Medtronic sells at a single
price or rate a packaged combination of products, not all of which if sold
individually would be Developed Products, then "Net Sales" with respect to
such sales of packaged products shall equal the number of units of Developed
Products sold as part of such packaged products (less rejections, defects and
returns) multiplied by either (i) the respective average net selling price
during such period of the same type of Developed Product sold individually,
or (ii) the average net selling price during such period for a comparable
product (if the same type of Developed Product is not sold individually), in
either case excluding sales, use or excise tax, freight, duty or insurance
included therein.

"PMA" means a Premarket Approval Application as defined in 21 CFR Part 814.

"PRODUCT LIABILITY DAMAGES" means any liability, claim or expense, including
but not limited to reasonable attorneys' fees and medical expenses, arising
in whole or in part out of claims of third parties for personal injury or
loss of or damage to property relating to or arising out of the Developed
Products, whether based on strict liability in tort, negligent manufacture of
product, or any other allegation of liability arising directly from the
design, testing, manufacture, packaging, labeling (including instructions for
use), or sale of the Developed Products.

"SAFETY" means the relative freedom from harmful effect to persons affected,
directly or indirectly, by a product when prudently administered, taking into
consideration the character of the product in relation to the condition of
the recipient at the time. This definition of "safety" is essentially the
definition of "safety" as used in 21 CFR part 600.

"SPECIFICATIONS" means the specifications for the Developed Products as
determined by Medtronic.

"SPINAL IMPLANTS" means those medical devices (other than [**************])
designed to be implanted in the human body for the treatment of spinal
disease, deformity or trauma as the parties may agree to develop hereunder.

"STATEMENT OF WORK" means, with respect to each Spinal Implant and/or
[************], the mutually-agreed upon and signed written description of
the development process for such product, and shall include unless otherwise
agreed between the parties: a detailed description of such product; a
description of each phase in such development; a list of goals (or
"milestones") and target dates for achievement of such milestones and
completion of each phase; and such other details as the parties may agree in
writing. A Statement of Work shall include any mutually agreed-upon written
amendments thereto.

     1.2 OTHER TERMS.  Other terms may be defined elsewhere in the text of
this Agreement and shall have the meaning indicated throughout this Agreement.

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

                                    4

     1.3 DEFINITIONAL PROVISIONS.

     The words "hereof," "herein," and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provisions of this Agreement.

     The terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa.

     References to an "Exhibit" or to a "Schedule" are, unless otherwise
specified, to one of the Exhibits or Schedules attached to or referenced in
this Agreement, and references to an "Article" or a "Section" are, unless
otherwise specified, to one of the Articles or Sections of this Agreement.

     The term "person" includes any individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or any
department or agency thereof.

     The term "dollars" or "$" shall refer to the currency of the United
States of America.

                                ARTICLE 2
                     LICENSE AND DEVELOPMENT OF PRODUCTS

     2.1 LICENSE TO MACROPORE. Medtronic hereby grants MacroPore a
non-exclusive license to use all Intellectual Property owned by or licensed
to (with the right to sublicense) Medtronic used or usable in the development
or manufacture of the Spinal Implants and the [**************] during the Term
of this Agreement, solely for the purpose of development, manufacture and
sale to Medtronic of Developed Products. MacroPore shall not use any
Intellectual Property of Medtronic except for the development, manufacture
and sale to Medtronic of Developed Products.

     2.2 EXCLUSIVITY. During the term of this Agreement, MacroPore shall not
develop manufacture or sell any products or devices for use in the field of
spinal fixation, stabilization and/or fusion, except for Developed Products
to be supplied to Medtronic hereunder.

     2.3 DEVELOPMENT EFFORTS. MacroPore shall be responsible for developing
the ability, equipment and processes to manufacture Spinal Implants and
[*************] from poly-lactic acid (or other resorbable materials as
agreed to by Medtronic) pursuant to Statements of Work. Those Spinal Implants
and [**************] which MacroPore demonstrates to Medtronic's reasonable
satisfaction can be manufactured from poly-lactic acid on a commercially
feasible scale and without any material adverse effect on the functionality
thereof (versus the functionality of a product manufactured in the same
design but from other materials) are referred to as "Developed Products". If
either Medtronic or MacroPore notifies the other party in writing of a
proposal for a potential Developed Product, MacroPore and Medtronic shall,
within thirty (30) days thereafter, each designate the appropriate personnel
to meet and/or correspond with the appropriate personnel of the other party
with a view to evaluating the technical and commercial feasibility of such
proposed Developed Product. Attached hereto as Exhibit A is notice of
proposed potential Development Products to be initiated at the signing of
this Agreement. If the parties mutually determine in their discretion that
research and/or development of such proposed

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

                                     5

Developed Product appears to be desirable and technically and commercially
feasible, MacroPore and Medtronic shall each use good faith reasonable
efforts to agree upon a Statement of Work for such proposed Developed
Product. Such Statement of Work shall, when signed by each of Medtronic and
MacroPore, become subject to the general terms and provisions of this
Agreement. Subject to the terms and conditions of this Agreement, Medtronic
and MacroPore shall each use good faith reasonable efforts to perform their
respective responsibilities under each Statement of Work within the
timeframes specified in such Statement of Work. Any changes to a Statement of
Work will require mutual written agreement by the parties.

     2.4 REGULATORY APPROVALS.

     (a) Medtronic shall be responsible obtaining all necessary regulatory
approvals for the commercial sale of the Developed Products, including the
preparation of the clinical study protocols, selection of investigational
sites, preparation of the investigator's brochures, instruction and training
of clinical investigators, monitoring the performance of clinical trials,
data collection and analysis, reporting of adverse events, preparation and
prosecution of regulatory submissions, and post approval clinical studies All
regulatory approvals for the Developed Products will be in Medtronic's name
and owned by Medtronic.

     (b) MacroPore shall supply to Medtronic such quantities of Developed
Products as is reasonably required by Medtronic to obtain necessary
regulatory approvals. Medtronic shall pay MacroPore an amount equal to
MacroPore's direct cost of materials and labor for such Developed Products
used in clinical trials.

     (c) MacroPore will grant Medtronic the right of reference to MacroPore's
regulatory files with the FDA or other appropriate government agencies as
necessary or helpful for support of Medtronic's regulatory submissions with
respect to Developed Products and, upon Medtronic's request participate in
any discussions with the FDA or clinical investigators with respect thereto.
MacroPore represents and warrants to Medtronic that MacroPore's poly-lactic
acid material has been approved by the FDA for Safety in long term
implantable devices.

     2.5 TERMINATION OF DEVELOPMENT STATEMENT OF WORK. Medtronic shall be
entitled to terminate any Statement of Work for a Developed Product or
potential Developed Product if Medtronic, in its sole discretion, determines
that such Developed Product will not be technically or commercially feasible
or will have only limited commercial value to Medtronic.

                                  ARTICLE 3
                        GENERAL OBLIGATIONS OF MEDTRONIC

     3.1 SALES OF DEVELOPED PRODUCTS.  Medtronic shall be solely responsible
for marketing and selling all Developed Products.

     3.2 QUALITY CONTROL.  Medtronic agrees to follow reasonable quality
control standards with respect to the storage, preservation, sale and use of
the Developed Products purchased under this Agreement.

     3.3 RECORDS AND RECALL. Medtronic shall maintain complete and accurate
records of all Developed Products sold by Medtronic and its subdistributors
in sufficient detail to enable

                                      6

Medtronic to conduct an effective recall of Developed Products if Medtronic
determines that such a recall is required or otherwise necessary or
appropriate. In the event of a recall of any of the Developed Products,
MacroPore will cooperate with and assist Medtronic in effecting such recall.

     3.4 REGULATORY APPROVALS.

     (a) CLINICALS. Medtronic shall be responsible for all clinical study
design, investigator selection, and data analysis in connection with clinical
trials of the Developed Products. MacroPore shall give Medtronic such
assistance in connection with such clinical studies as Medtronic may
reasonably request.

     (b) DEVICE APPROVALS. Medtronic shall be responsible for filing,
obtaining and maintaining all necessary regulatory approvals for the
importation and sale of Developed Products. To the extent permitted by law,
all foreign regulatory approvals shall be owned by Medtronic and shall be in
the name of Medtronic.

     (c) EXPORT. Medtronic shall be responsible for obtaining all export
licenses and permits as may be required to export the Developed Products from
the country of manufacture into the particular countries where such Developed
Products are delivered. MacroPore shall cooperate fully with Medtronic in its
efforts to obtain any such approvals.

                                    ARTICLE 4
                        GENERAL OBLIGATIONS OF MACROPORE

     4.1 MANUFACTURE AND SUPPLY OF DEVELOPED PRODUCTS. MacroPore shall use
commercially reasonable efforts to manufacture, or have manufactured,
Developed Products in accordance with the Specifications and to ship such
Developed Products to Medtronic in the quantities ordered by Medtronic
pursuant to Article 5 of this Agreement. MacroPore shall be responsible for
packaging in accordance with packaging specifications to be mutually agreed
upon by Medtronic and MacroPore, and for any necessary sterilization of
Developed Products purchased under this Agreement in accordance with the
Specifications.

     4.2 GOOD MANUFACTURING PRACTICES/QUALITY SYSTEMS REGULATIONS. MacroPore
shall be responsible for compliance with present and future applicable
statutes, laws, ordinances and regulations of national, federal, state and
local governments now or hereafter in effect relating to the [design,]
manufacture and/or quality of Developed Products. Without limitation of the
foregoing, MacroPore represents and warrants to Medtronic that all Developed
Products sold and delivered to Medtronic under this Agreement will have been
manufactured in accordance with all applicable requirements. MacroPore shall
cause Medtronic's regulatory personnel to be provided with reasonable access
from time to time to the facilities and records of MacroPore for the purpose
of confirming MacroPore's compliance with this Section 4.2.

     4.3 TRAINING. MacroPore shall provide Medtronic with such training as
Medtronic may reasonably request in connection with the sale of Developed
Products. Medtronic shall reimburse MacroPore for travel and other
out-of-pocket costs reasonably incurred by MacroPore in connection with such
training upon submission by MacroPore of appropriate documentation thereof.

                                  7

     4.4 PRODUCT LITERATURE AND PACKAGING. MacroPore will give Medtronic such
assistance in connection with the preparation of Developed Product packaging,
labeling and operations and technical manuals for use with the Developed
Products as reasonably requested by Medtronic. Medtronic shall be responsible
for the preparation of sales and marketing materials as deemed appropriate by
Medtronic, and MacroPore shall supply any artwork or other materials
reasonably requested by Medtronic in connection therewith.

                                    ARTICLE 5
                               ORDERS FOR PRODUCTS

     5.1 PURCHASE ORDERS. Medtronic shall submit purchase orders for
Developed Products to MacroPore in writing, whether by mail, telecopier,
telegram or otherwise, at the time that each forecast is delivered to
MacroPore pursuant to Section 5.3. Each purchase order shall, at a minimum,
set forth the product numbers, quantities (subject to Section 5.3), delivery
dates, and shipping instructions and shipping addresses for all Developed
Products ordered. Purchase orders shall be binding upon MacroPore unless and
to the extent the quantities specified therein exceed the amounts specified
in the Plan. Each purchase order shall be subject to and governed by the
terms of this Agreement. No partial shipment of an order shall constitute the
acceptance of the entire order, absent the written acceptance of such entire
order. The terms and conditions of this Agreement shall so govern and
supersede any additional or contrary terms set forth in Medtronic's purchase
order or any MacroPore or Medtronic acceptance, confirmation, invoice or
other document unless duly signed by an officer of Medtronic and an officer
of MacroPore and expressly stating and identifying which specific additional
or contrary terms shall supersede the terms and conditions of this Agreement.

     5.2 FIRST ORDER. The first purchase order for a Developed Product will
be placed by Medtronic approximately 90 days prior to commercial release of
the Developed Product. Subsequently, Medtronic will place orders for the next
succeeding months on a monthly basis, at the time that it provides its
forecast described in Section 5.3, with all such subsequent purchase orders
submitted at least 60 days in advance of the earliest scheduled delivery date
for such order.

     5.3 MEDTRONIC'S FORECASTS. At the time that Medtronic places its first
order for a Developed Product, Medtronic shall provide MacroPore with a
six-month sales plan to be mutually agreed upon indicating by month the
number of such Developed Products anticipated to be sold by Medtronic or
purchased by Medtronic for use as demonstration units (as updated as provided
herein, the "Plan"). The Plan shall be updated by Medtronic on a quarterly
basis (on or before the first day of each subsequent month) for a rolling
successive six-month period. Each Plan shall be used for purposes of
facilitating Medtronic's marketing plans, MacroPore's manufacturing plans,
and meeting the lead times required by certain of MacroPore's suppliers, but
are not legally binding on Medtronic or MacroPore in any manner.

     5.4 ORDER LIMITATIONS. MacroPore shall not be required to deliver
quantities in excess of 100% of forecasted requirements for the first three
months of any Plan, provided, however, that MacroPore shall use all
commercially reasonable efforts to supply such excess.

                                   8

     5.5 MODIFICATION OF ORDERS. Medtronic may cancel or reschedule purchase
orders for products only with MacroPore's prior written approval.
Notwithstanding the foregoing, any purchase order may be cancelled by
Medtronic as to any Developed Products that are not delivered within 60 days
after the delivery date requested by Medtronic pursuant to a purchase order,
and any such cancellation shall not limit or affect any contract remedies
available to Medtronic with respect thereto. Any such cancellation by
Medtronic must be by written notice to MacroPore given within 15 business
days after such 60th day.

     5.6 DELIVERY TERMS. All deliveries of Developed Products shall be F.O.B.
MacroPore's facility in California. Except as otherwise provided in Article 7
or Article 9 below, MacroPore shall have no further responsibility for risk
of damage to or loss or delay of Developed Products after their delivery at
the aforesaid F.O.B. point. All Product deliveries shall be made by a common
carrier specified by Medtronic or, in the event that no carrier shall have
been specified by Medtronic on or before the date 15 days prior to the
requested shipment date, a reputable common carrier selected by MacroPore.

     5.7 PRODUCT CHANGES. MacroPore shall not, without Medtronic's prior
written consent, modify the Specifications for a Product in a manner that
materially affects the performance or regulatory approval status of the
Product or materially increases Medtronic's costs or expenses.

     5.8 CUSTOM DEVELOPED PRODUCTS. In the event Medtronic is requested by a
customer to provide customized Developed Products, Medtronic shall provide
the specifications for the customized Product to MacroPore. MacroPore will
determine and provide to Medtronic the additional cost, if any, and the
feasibility of providing the customized Product. Medtronic will thereafter
notify MacroPore if it intends to provide such customer with the customized
Developed Product.

                                    ARTICLE 6
                               PRICES AND PAYMENTS

     6.1 PRICES. Unless and until otherwise mutually agreed by the parties in
writing, the purchase prices per unit of Developed Products to Medtronic
under this Agreement (the "Transfer Price") shall be (i) for Developed
Products that are Spinal Implants, [***] of Medtronic's average net selling
price per unit during the six-month period following commercial release of
such Developed Product in such market, and (ii) for Developed Products that
are [**************], [***] of Medtronic's average net selling price per unit
during the six-month period following commercial release of such Developed
Product in such market; provided that in no event shall the Transfer Price
for any Developed Products be less than [****] of MacroPore's per unit direct
cost of manufacturing. Separate Transfer Prices will be established for sales
in the United States market and for each major international market. Until
six months after commercial release of a Developed Product in a particular
market, Medtronic's average net selling price per unit shall be based on
Medtronic's catalog list price. If Medtronic sells the Developed Product as
part of a packaged combination of products or instruments, then Medtronic's
sale price of the Developed Product shall equal either (i) the respective
average net selling price during such period of the same type of Developed
Product sold individually, or (ii) the average net selling price during such
period for a comparable product (if the same type of Developed Product is not

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

                                   9

sold individually). Medtronic's net selling price shall exclude sales, use or
excise tax, freight, duty or insurance included therein. MacroPore and
Medtronic agree to review the Transfer Price at least annually to determine
if adjustments are appropriate, taking into account then market conditions.
Medtronic and MacroPore agree to keep accurate written records sufficient in
detail to enable Medtronic's average selling price and MacroPore's direct
cost of manufacturing, respectively, of Developed Products to be determined
and verified. Such records for a particular quarter shall be retained for a
period of not less than three years. Upon reasonable notice and during
regular business hours, each party shall from time to time (but no more
frequently than once annually) make available such records for audit at the
other party's expense by independent representatives selected by such other
party to verify the accuracy of the reports provided to such other party.
Such representatives shall execute a suitable confidentiality agreement
reasonably acceptable to the party whose records are being audited prior to
conducting such audit. Such representatives may disclose to such other party
only their conclusions regarding the accuracy and completeness of records
related thereto, and shall not disclose confidential business information to
such other party without the prior written consent of Medtronic.

     6.2 PAYMENT TERMS. Payments made by Medtronic for Developed Products
purchased hereunder shall be due and payable in full within 30 days after the
date of invoice by MacroPore. Any payments due hereunder which are not paid
on the date such payments are due shall be subject to interest at the rate of
one and one-half percent (1 1/2%) per month calculated on the number of days
such payment is delinquent.

     6.3 TAXES. The transfer prices for Developed Products established
pursuant to this Article 6 do not include any sales, use, value added or
similar taxes, customs, duties, or tariffs imposed by any governmental
authority or agency on Developed Products or any components thereof that are
imported by Medtronic into any country (other than taxes on the net income of
MacroPore), and Medtronic shall bear all such taxes and duties. MacroPore
shall be required to take appropriate steps to minimize imposition of such
taxes by filing sales exemption certificates and taking similar actions where
applicable to the seller. When MacroPore has the legal obligation to collect
and/or pay such taxes, the appropriate amount shall be added to Medtronic's
invoice and paid by Medtronic, unless Medtronic provides MacroPore with a
valid tax exemption certificate authorized by the appropriate taxing
authority. Medtronic shall not be obligated to pay or reimburse MacroPore for
taxes that are not imposed on the sale of Product to Medtronic.

                                   ARTICLE 7
                        INSPECTION, WARRANTY AND SERVICE

     7.1 INSPECTION OF PRODUCT. Medtronic shall inspect all Developed
Products promptly upon receipt thereof, and in the event of any shortage,
damage or discrepancy in or to a shipment of Developed Products or in the
event any of the Developed Products fail to comply with the then current
Specifications for the Developed Products (except for latent defects not
readily observable by Medtronic), Medtronic shall report the same to
MacroPore within 60 days after delivery thereof to Medtronic and furnish such
written evidence or other documentation as MacroPore reasonably may deem
appropriate. If the substantiating evidence delivered by Medtronic reasonably
demonstrates that such shortage, damage or discrepancy or nonconformity with
Specifications existed at the time of delivery of the Developed Products,
Medtronic may return the Developed Products to MacroPore, at MacroPore's
expense, and, at Medtronic's

                                   10

request, MacroPore shall use all reasonable efforts to deliver promptly
replacement Developed Products to Medtronic in accordance with the delivery
procedures set forth herein. Any Developed Products not rejected by Medtronic
by written notice given to MacroPore within such 60-day period (other than
Developed Products containing latent defects not readily observable by
Medtronic) shall be deemed to have been accepted by Medtronic. Following any
such acceptance, the sole remedies of Medtronic with respect to damage to or
defects in the Developed Products shall be those set forth in Sections 7.2
and 9.1.

     7.2 WARRANTY.

     (a) MacroPore represents and warrants to Medtronic that all Developed
Products sold under this Agreement will have been manufactured and packaged
in accordance with all applicable laws and regulations, including (as
applicable) FDA GMP requirements, European Medical Device Directive
requirements, ISO 9001 certification or successor requirements, and all other
applicable manufacturing requirements. Upon prior written notice, MacroPore
shall cause Medtronic's regulatory personnel to be provided with reasonable
access from time to time to the facilities and records of MacroPore for the
purpose of confirming MacroPore's and the Product's compliance with all
applicable laws and regulations.

     (b) MacroPore warrants to Medtronic and to Medtronic's customers that
Developed Products shall, when delivered to Medtronic, meet the
Specifications and, for a period of one year after delivery of the Product to
the customer but not more than two years after receipt by Medtronic, be free
from defects in materials and workmanship. The foregoing express warranty is
contingent upon proper use of the Developed Products in the applications for
which they were intended as indicated in the Product label claims. Medtronic
shall invoice MacroPore for, and MacroPore shall promptly pay, all shipping,
transportation, insurance and other expenses actually incurred in replacing
defective Developed Products that were under warranty. MacroPore will repair,
replace or credit Medtronic's account for any Product that it reasonably
determines was defective at the time of shipment to Medtronic or that does
not conform to the express warranties herein; provided, however, that
MacroPore shall have no obligation under this warranty to repair or make
replacements or grant credits necessitated in whole or in part by accidents;
failure to maintain in accordance with any transportation, storage, handling,
or maintenance, instructions supplied by MacroPore; damage by acts of nature,
vandalism, burglary neglect or misuse; or other fault or negligence of
Medtronic or (except for any strict liability of MacroPore) the customer or
user. Prior to returning any Product alleged to be defective, Medtronic shall
notify MacroPore in writing of the claimed defect and shall include the model
and lot/serial number of such Product, as well as the number and date of the
invoice therefor. No Product shall be returned without first obtaining a
returned goods authorization from MacroPore, which authorization shall not be
unreasonably withheld.

     7.3 LIMITED WARRANTY. THE EXPRESS WARRANTIES SET FORTH ABOVE ARE IN LIEU
OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE HEREBY SPECIFICALLY
DISCLAIMED, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. IN NO EVENT SHALL
MACROPORE'S LIABILITY FOR PRODUCT WARRANTY INCLUDE ANY INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES.

                                 11

                               ARTICLE 8
               CERTAIN REPRESENTATIONS, WARRANTIES AND INDEMNITIES

     8.1 REPRESENTATIONS AND WARRANTIES.

     (a) MacroPore represents and warrants to Medtronic that the execution
and delivery by MacroPore of this Agreement and the performance by MacroPore
of its obligations hereunder have been duly authorized by all requisite
corporate action and will not violate any provision of law, any order of any
court or other agency of government, the Articles of Incorporation or Bylaws
of MacroPore, as amended, or any provision of any indenture, agreement or
other instrument to which MacroPore or any of its properties or assets is
bound, or conflict with, result in a breach of or constitute (with due notice
or lapse of time or both) a default under any such indenture, agreement or
other instrument, or result in the creation or imposition of any lien,
charge, restriction, claim or encumbrance of any nature whatsoever upon any
of the properties or assets of MacroPore. This Agreement has been duly
executed and delivered by MacroPore and constitutes the legal, valid and
binding obligation of MacroPore, enforceable in accordance with its terms,
subject, as to the enforcement of remedies, to the discretion of the courts
in awarding equitable relief and to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the rights of creditors
generally.

     (b) Medtronic represents and warrants to MacroPore that the execution
and delivery by Medtronic of this Agreement and the performance by Medtronic
of its obligations hereunder have been duly authorized by all requisite
corporate action and will not violate any provision of law, any order of any
court or other agency of government, the Articles of Incorporation or Bylaws
of Medtronic, as amended, or any provision of any indenture, agreement or
other instrument to which Medtronic or any of its properties or assets is
bound, or conflict with, result in a breach of or constitute (with due notice
or lapse of time or both) a default under any such indenture, agreement or
other instrument, or result in the creation or imposition of any lien,
charge, restriction, claim or encumbrance of any nature whatsoever upon any
of the properties or assets of Medtronic. This Agreement has been duly
executed and delivered by Medtronic and constitutes the legal, valid and
binding obligation of Medtronic, enforceable in accordance with its terms,
subject, as to the enforcement of remedies, to the discretion of the courts
in awarding equitable relief and to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the rights of creditors
generally.

     (c) Medtronic represents and warrants to MacroPore that the requirements
it specifies for Developed Products and the information or designs it
provides to MacroPore for incorporation into Developed Products under this
Agreement will not infringe any Intellectual Property rights of any third
party. MacroPore represents and warrants to Medtronic that the Intellectual
Property related to poly-lactic acid used by MacroPore in the manufacture of
Developed Products under this Agreement will not infringe any Intellectual
Property rights of any third party.

                                ARTICLE 9
                              INDEMNIFICATION

     9.1 MACROPORE'S LIABILITY. MacroPore shall indemnify, defend and hold
harmless Medtronic and each of its subsidiaries, officers, directors,
employees, shareholders and

                                   12

distributors from and against and in respect of any and all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities,
interest and penalties, costs and expenses (including, without limitation,
reasonable legal fees and disbursements incurred in connection therewith and
in seeking indemnification therefor, and any amounts or expenses required to
be paid or incurred in connection with any action, suit, proceeding, claim,
appeal, demand, assessment or judgment) finally awarded ("Indemnifiable
Losses"), resulting from, arising out of, or imposed upon or incurred by any
person to be indemnified hereunder by reason of (i) any breach of
representation, warranty, or agreement on the part of MacroPore under this
Agreement, or (ii) other negligence or intentional misconduct of MacroPore;
provided that in no event shall MacroPore be liable for matters for which
Medtronic is responsible under Section 9.2 below or for punitive or exemplary
damages. MacroPore shall maintain product liability insurance or
self-insurance in such amounts as ordinary good business practice for its
type of business would make advisable and shall provide Medtronic with
evidence of this coverage.

     9.2 MEDTRONIC'S LIABILITY. Medtronic shall indemnify, defend and hold
harmless MacroPore and each of its subsidiaries, officers, directors,
employees, shareholders and suppliers from and against and in respect of any
and all Indemnifiable Losses resulting from, arising out of, or imposed upon
or incurred by any person to be indemnified hereunder by reason of (i) any
breach of representation, warranty, or agreement on the part of Medtronic
under this Agreement, (ii) Product Liability Damages with respect to the
Developed Products (except to the extent Medtronic has a claim against
MacroPore pursuant to Section 9.1 above) or (iii) other negligence or
intentional misconduct of Medtronic; provided that in no event shall
Medtronic be liable for matters for which MacroPore is responsible under
Section 9.1 above or for punitive or exemplary damages. Medtronic shall
maintain product liability insurance or self-insurance in such amounts as
ordinary good business practice for its type of business would make advisable
and shall provide MacroPore with evidence of this coverage.

     9.3 PROCEDURE. If a claim by a third party is made and a party (the
"Indemnitee") intends to claim indemnification under this Article 9, the
Indemnitee shall promptly notify the other party (the "Indemnitor") in
writing of any claim in respect of which the Indemnitee or any of its
subsidiaries, directors, officers, employees, shareholders, suppliers or
distributors intends to claim such indemnification and the Indemnitor shall
have sole control of the defense and/or settlement thereof, provided that the
Indemnitee may participate in any such proceeding with counsel of its choice
at its own expense. The indemnity agreement in this Article 9 shall not apply
to amounts paid in settlement of any Indemnifiable Losses if such settlement
is effected without the consent of the Indemnitor, which consent shall not be
withheld unreasonably. The failure to deliver written notice to the
Indemnitor within a reasonable time after the commencement of any such
action, if adversely prejudicial to its ability to defend such action, shall
relieve such Indemnitor of any liability to the Indemnitee under this Article
9 but the omission to so deliver written notice to the Indemnitor shall not
relieve the Indemnitor of any liability that it may otherwise have to any
Indemnitee other than under this Article 9. If the Indemnitor fails to
provide defense of the claim, and diligently defend or settle the same after
receipt of notice from Indemnitee of, and a reasonable opportunity to cure,
such failure, the Indemnitee may defend or settle the claim without prejudice
to its rights to indemnification hereunder, provided that the Indemnitee does
so diligently and in good faith and further does not enter into any
settlement or agree to any stipulation that would adversely affect the rights
of the Indemnitor or impose any additional obligation on the Indemnitor
without the Indemnitor's prior

                                    13

written consent (which consent will not be unreasonably withheld). The
Indemnitee under this Article 9, its employees and agents, shall cooperate
fully with the Indemnitor and its legal representatives and provide full
information in the investigation of any Indemnifiable Losses covered by this
indemnification.

                                 ARTICLE 10
                           TERM AND TERMINATION

     10.1 TERM. This Agreement shall take effect as of the date hereof and
shall continue in force until the fifth anniversary of the date hereof, and
shall automatically renew for successive five-year periods unless either
party gives the other party written notice of non-renewal at least 180 days
prior to such renewal date (the "Term").

     10.2 TERMINATION.  Notwithstanding the provisions of Section 10.1 above,
this Agreement may be terminated in accordance with the following provisions:

     (a) A party may terminate this Agreement by giving notice in writing to
the other party if the other party is in breach of any material
representation, warranty or covenant of this Agreement and, except as
otherwise provided herein, shall have failed to cure such breach within 60
days after receipt of written notice thereof from the first party;

     (b) A party may terminate this Agreement at any time by giving notice in
writing to the other party, which notice shall be effective upon dispatch,
should the other party become insolvent, make an assignment for the benefit
of creditors, go into liquidation or receivership or otherwise lose legal
control of its business; or

     (c) A party may terminate this Agreement by giving notice in writing to
the other party should an event of Force Majeure preventing performance by
such other party continue for more than 180 consecutive days as provided in
Article 11 below.

     10.3 RIGHTS AND OBLIGATIONS ON TERMINATION.  In the event of termination
of this Agreement for any reason, the parties shall have the following rights
and obligations:

     (a) Termination of this Agreement shall not release either party from
the obligation to make payment of all amounts previously due and payable.

     (b) The terminating party shall have the right, at its option, to cancel
any or all purchase orders that provide for delivery after the effective date
of termination.

     (c) The parties' obligations pursuant to Articles 7, 9 and 12 and
Sections 3.3, 10.3 and 13.1 hereof and any and all other terms and provisions
hereof intended to be observed and performed by the parties after the
termination hereof, shall survive termination of this Agreement. All other
provisions of this Agreement shall terminate upon termination of this
Agreement.

                                      14

                                    ARTICLE 11
                       FAILURE TO SUPPLY AND FORCE MAJEURE

     11.1 NOTICE OF FORCE MAJEURE. Upon giving notice to the other party, a
party affected by an event of Force Majeure shall be released without any
liability on its part from the performance of its obligations under this
Agreement, except for the obligation to pay any amounts due and owing
hereunder, but only to the extent and only for the period that its
performance of such obligations is prevented by the event of Force Majeure.

     11.2 SUSPENSION OF PERFORMANCE. Subject to Section 11.3 below, during
the period that the performance by one of the parties of its obligations
under this Agreement has been suspended by reason of an event of Force
Majeure, the other party may likewise suspend the performance of all or part
of its obligations hereunder (except for the obligation to pay any amounts
due and owing hereunder) to the extent that such suspension is commercially
reasonable.

     11.3 EXERCISE OF LICENSE UPON FAILURE OF SUPPLY. Upon a Failure of
Supply, Medtronic shall have the right to exercise its license rights granted
pursuant to Section 11.4 below to manufacture and sell such Developed Product
(but not any other Developed Product) itself or have such Product
manufactured by others.

     11.4 LICENSE GRANT.

     (a) MacroPore hereby grants Medtronic (i) an exclusive, sublicensable,
worldwide, license to the Licensed Intellectual Property to make, have made,
use, distribute, sell, offer for sale, have sold, import and otherwise
commercialize and exploit Developed Products during the Term. Medtronic may
not exercise such license unless and until the occurrence of a Failure of
Supply.

     (b) The license granted herein shall be royalty free with respect to any
Developed Products manufactured or supplied to Medtronic by MacroPore or any
Affiliate of MacroPore. If Medtronic exercises its right pursuant to Section
11.3 to make or have made by a third party a Developed Product, then subject
to the terms of this Agreement, Medtronic shall pay to MacroPore a royalty
equal to [*************] of Medtronic's Net Sales of such Developed Product.

     (c) Within sixty (60) days after the end of each Medtronic fiscal
quarter, Medtronic shall provide MacroPore with a written report indicating
the amount of Net Sales of Developed Products during such quarter and the
amount of the royalties due for such quarter. Simultaneously with making such
report, Medtronic shall pay to MacroPore the amount of royalties then due.

     (d) Medtronic agrees to keep accurate written records sufficient in
detail to enable the royalties payable under this Agreement by Medtronic to
be determined and verified. Such records for a particular quarter shall be
retained by Medtronic for a period of not less than three years after the end
of such quarter.

     (e) Upon reasonable notice and during regular business hours, Medtronic
shall from time to time (but no more frequently than once annually) make
available the records referred to in

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

                               15

subsection (d) above for audit at MacroPore's expense by independent
representatives selected by MacroPore to verify the accuracy of the reports
provided to MacroPore. Such representatives shall execute a suitable
confidentiality agreement reasonably acceptable to Medtronic prior to
conducting such audit. Such representatives may disclose to MacroPore only
their conclusions regarding the accuracy and completeness of royalty payments
and of records related thereto, and shall not disclose Medtronic's
confidential business information to MacroPore without the prior written
consent of Medtronic.

     11.5 TECHNOLOGY TRANSFER. Upon Medtronic's request any time after a
Failure of Supply, MacroPore shall promptly provide to Medtronic, or a third
party designated by Medtronic, as applicable, copies of such technical
documentation and related know-how and trade secrets, and training as is
reasonably necessary for a skilled manufacturer to make such Product;
provided that any such third party shall agree to maintain the
confidentiality of all such information to the same extent that Medtronic is
obligated to do so under this Agreement, and Medtronic will reimburse
MacroPore for salary and reasonable travel and lodging expenses for MacroPore
personnel with respect to training requested by Medtronic at a location other
than MacroPore's facility to the extent such expenses are substantiated by
expense receipts.

     11.6 MAINTAIN LICENSES IN FORCE. MacroPore shall comply with all of the
provisions of, and shall maintain in full force and effect, all license
agreements with third parties pursuant to which MacroPore is licensee of
intellectual property included in the Licensed Intellectual Property.
MacroPore shall promptly notify Medtronic if any such third party licensor
alleges any breach by MacroPore of any such license agreement. Medtronic
shall be entitled, but not obligated, to cure any alleged breach by MacroPore
of such license agreement and set-off the cost of such cure against amounts
otherwise owed to MacroPore hereunder.

     11.7 NO LIABILITY. MacroPore shall have no obligation or any liability
under Section 7.2 with respect to any Developed Products produced by
Medtronic or its third party designee pursuant to the license granted in this
Article 11.

                                   ARTICLE 12
                              INTELLECTUAL PROPERTY

     12.1 TRADEMARKS. MacroPore hereby grants Medtronic a royalty-free
license to use all trademarks, trade names and logotypes of MacroPore
relating to the Developed Products solely in connection with the sale or
other distribution, promotion, advertising and/or maintenance of the
Developed Products. Medtronic shall acquire no right, title or interest in
such MacroPore trademarks, trade names and logotypes, other than the license
provided for above, and Medtronic shall not use any MacroPore trademarks,
trade names and logotypes as part of Medtronic's corporate or trade name, or
trademark or logotype or permit any third party under Medtronic's control to
do so without the prior written consent of MacroPore. To the extent permitted
by local law, any statutory powers which would be granted to Medtronic by
virtue of its local use of MacroPore's trademarks or its licensee status are
excluded. Medtronic shall, in addition, have the right to promote and sell
the Developed Products under trademarks, trade names and logotypes of
Medtronic selected by Medtronic, which trademarks, trade names and logotypes
shall be and shall remain the property of Medtronic.

                                  16

     12.2 TRADEMARK INFRINGEMENT. Each party shall promptly notify the other
party of any use by any third party of such other party's trademarks, trade
names or logotypes or any use by such third parties of similar marks that may
constitute an infringement or passing off of such other party's trademarks,
trade names or logotypes of which such first party has knowledge. The owner
of such trademark(s) reserves the right in its sole discretion to institute
any proceedings against such third-party infringers and the other party shall
refrain from doing so. Each party agrees to cooperate fully with the other
party in any action taken by such other party against such third parties,
provided that all expenses of such action shall be borne by such other party
and all damages that may be awarded or agreed upon in settlement of such
action shall accrue to such other party.

     12.3 TERMINATION OF USE OF TRADEMARKS. Medtronic acknowledges
MacroPore's proprietary rights in and to MacroPore's trademarks, trade names
and logotypes, and Medtronic hereby waives all right to any trademarks, trade
names and logotypes now or hereafter originated by MacroPore. Medtronic shall
not after the date of this Agreement adopt, use or register any words,
phrases or symbols that are identical to or confusingly similar to any of
MacroPore's trademarks. Upon termination of this Agreement, Medtronic shall
cease using MacroPore's trademarks, trade names and logotypes in any manner,
subject to Medtronic's right, if any, to continue to sell its remaining
inventory of Developed Products.

     12.4 MEDTRONIC PROPERTY. All tooling, patterns, dies, gauges, jobs,
fixtures, and all specifications, drawings, samples, designs, software,
firmware, programs, formulae, and other items and information, including,
without limitations improvements to the Developed Product furnished by
Medtronic to MacroPore in connection with this Agreement shall only be used
in the performance of work for Medtronic; and shall remain the property of
Medtronic; and together with all copies thereof shall be disposed of or
returned in good repair, normal wear and tear excepted, by MacroPore to
Medtronic at Medtronic's direction and expense upon Medtronic's request.
MacroPore assumes risk of loss and damage to said items while in its
possession or under its control. MacroPore shall notify Medtronic promptly
whenever any items of Medtronic's tangible property are in need of repair or
replacement. Medtronic's property shall be marked or otherwise adequately
identified by MacroPore as property of Medtronic for use only under this
Agreement and shall be safely stored. MacroPore waives any right it may have
in law or equity to withhold Medtronic's property.

     12.5 PATENT RIGHTS.

     (a) DEFENSE OF CLAIMS. Medtronic shall defend, or at its option settle,
any suit instituted against Medtronic that is based on an allegation that any
Developed Product constitutes an infringement of any patent or any other
intellectual property right. Medtronic shall have sole control of defense of
any such action, including any appeals and negotiations for the settlement or
compromise thereof and shall have full authority to enter into a binding
settlement or compromise; provided that Medtronic shall not enter into any
settlement or compromise that may adversely affect MacroPore without
MacroPore's consent, which consent shall not be unreasonably withheld.
Medtronic shall indemnify, subject to the limitations set forth herein,
MacroPore against any final award of damages and costs made against MacroPore
and any settlement amounts as a result of any such action. MacroPore shall
notify Medtronic promptly in

                                  17

writing of such claim, suit or proceeding and give Medtronic such information
and assistance as Medtronic may reasonably request to settle and defend any
such claim.

     (b) LIMITATION OF LIABILITY. Medtronic shall have no liability of any
kind to MacroPore under Section 10.5 or based upon any other claim MacroPore
may have to the extent any such claim is based upon or arises out of the use
of poly-lactic acid or any manufacturing or processing of Developed Product.

     12.6 PROTECTION OF INTELLECTUAL PROPERTY. Each party shall be
responsible for and have control of filing, prosecuting and maintaining all
US and foreign patents and copyrights and applications therefor owned by it,
and no party shall have any obligation to obtain or maintain any patent or
copyright except as it deems necessary or appropriate to protect such party's
Intellectual Property.

     12.7 OWNERSHIP OF INVENTIONS. Subject to the terms of this Agreement,
(a) any Invention conceived, reduced to practice or otherwise made, developed
or acquired by one or more employees or agents of MacroPore shall be the
property of MacroPore, (b) any Invention conceived, reduced to practice or
otherwise made, developed or acquired by one or more employees or agents of
Medtronic shall be the property of Medtronic, and (c) MacroPore and Medtronic
shall each have an undivided one-half interest in any Invention jointly
conceived, reduced to practice or otherwise made, developed or acquired by
one or more employees or agents of MacroPore and one or more employees or
agents of Medtronic; provided that neither party shall exploit such
jointly-owned Invention without the written consent of the other party.

                                   ARTICLE 13
                                  MISCELLANEOUS

     13.1 NONDISCLOSURE. The parties agree not to disclose or use (except as
permitted or required for performance by the party receiving such
Confidential Information of its rights or duties hereunder) any Confidential
Information of the other party obtained during the during the term of this
Agreement until the expiration of five years after the receiving party's
receipt of such Confidential Information. Each party further agrees to take
appropriate measures to prevent any such prohibited disclosure of
Confidential Information by its present and future employees, officers,
agents, subsidiaries, or consultants during such period.

     13.2 PUBLIC ANNOUNCEMENT. In the event any party proposes to issue any
press release or public announcement concerning any provisions of this
Agreement or the transactions contemplated hereby, such party shall so advise
the other parties hereto, and the parties shall thereafter use their best
efforts to cause a mutually agreeable release or announcement to be issued.
Neither party will publicly disclose or divulge any provisions of this
Agreement or the transactions contemplated hereby without the other party's
written consent, except as may be required by applicable law or stock
exchange regulation, and except for communications to such party's employees
or customers or investors or prospective investors (subject to appropriate
confidentiality obligations).

     13.3 COMPLETE AGREEMENT. This Agreement, the Investment Agreement, the
Investors' Rights Agreement, the Supplemental Rights Agreement, the
Distribution Agreement, and the

                                  18

Schedules and Exhibits hereto and thereto, constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersede all prior agreements whether written or oral relating hereto.

     13.4 WAIVER, DISCHARGE, AMENDMENT, ETC. The failure of any party hereto
to enforce at any time any of the provisions of this Agreement shall not,
absent an express written waiver signed by the party making such waiver
specifying the provision being waived, be construed to be a waiver of any
such provision, nor in any way to affect the validity of this Agreement or
any part thereof or the right of the party thereafter to enforce each and
every such provision. No waiver of any breach of this Agreement shall be held
to be a waiver of any other or subsequent breach. Any amendment to this
Agreement shall be in writing and signed by the parties hereto.

     13.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and the successors or assigns of
the parties hereto; provided, that (i) the rights and obligations of
MacroPore herein may not be assigned except to any person who succeeds to
substantially all of the assets and business of MacroPore to which this
Agreement relates, and (ii) the rights and obligations of Medtronic herein
may not be assigned except to any person who succeeds to substantially all of
that portion of Medtronic's business to which this Agreement relates.

     13.6 NOTICES. All notices or other communications to a party required or
permitted hereunder shall be in writing and shall be delivered personally or
by facsimile (receipt confirmed electronically) to such party (or, in the
case of an entity, to an executive officer of such party) or shall be sent by
a reputable express delivery service or by certified mail, postage prepaid
with return receipt requested, addressed as follows:

if to Medtronic, to:

         Medtronic, Inc.
         Corporate Center
         7000 Central Avenue N.E.
         Minneapolis, MN  55432
         Attention:  General Counsel
         Facsimile:  (612) 572-5459

         with a copy to:

         Medtronic, Inc.
         Corporate Center
         7000 Central Avenue N.E.
         Minneapolis, MN  55432
         Attention:  Vice President and Chief Development Officer
         Facsimile:  (612) 572-5404

if to MacroPore, to:

                                    19

         MacroPore, Inc.
         6740 Top Gun Street
         San Diego, CA  92121
         Attention:  Christopher J. Calhoun
         Facsimile:  (858) 458-0995

         with a copy to:

         MacroPore, Inc.
         6740 Top Gun Street
         San Diego, CA  92121
         Attention:  Vice President of Finance
         Facsimile:  (858) 458-0994

Any party may change the above-specified recipient and/or mailing address by
notice to all other parties given in the manner herein prescribed. All
notices shall be deemed given on the day when actually delivered as provided
above (if delivered personally or by telecopy) or on the day shown on the
return receipt (if delivered by mail or delivery service).

     13.7  EXPENSES. Except as expressly provided herein, MacroPore and
Medtronic shall each pay their own expenses incident to this Agreement and
the preparation for, and consummation of, the transactions provided for
herein.

     13.8  GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Minnesota, including all matters
of construction, validity, performance and enforcement, without giving effect
to principles of conflict of laws.

     13.9  TITLES AND HEADINGS; CONSTRUCTION. The titles and headings to the
Articles and Sections herein are inserted for the convenience of reference
only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement. This Agreement shall be construed without
regard to any presumption or other rule requiring construction hereof against
the party causing this Agreement to be drafted.

     13.10 ILLEGALITY; SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

     13.11 RELATIONSHIP. This Agreement does not make either party the
employee, agent or legal representative of the other for any purpose
whatsoever. Neither party is granted any right or authority to assume or to
create any obligation or responsibility, express or implied, on behalf of or
in the name of the other party. In fulfilling its obligations pursuant to
this Agreement, each party shall be acting as an independent contractor.

     13.12 BENEFIT. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.

                                20

     13.13 SURVIVAL. All of the representations, warranties, and covenants
made in this Agreement, and all terms and provisions hereof intended to be
observed and performed by the parties after the termination hereof, shall
survive such termination and continue thereafter in full force and effect.

     13.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed as original and all of which
together shall constitute one instrument.

     13.15 EXECUTION OF FURTHER DOCUMENTS. Each party agrees to execute and
deliver without further consideration any further applications, licenses,
assignments or other documents, and to perform such other lawful acts as the
other party may reasonably require to fully secure and/or evidence the rights
or interests herein.

     IN WITNESS WHEREOF, each of the parties has caused this Development and
Supply Agreement to be executed in the manner appropriate to each, as of the
date first above written.

MACROPORE, INC.

By:    /s/ Christopher J. Calhoun
       -----------------------------------------
Its:   Vice-Chairman and Chief Executive Officer

MEDTRONIC, INC.

By:      /s/ Michael D. Ellwein
         ---------------------------
Its:     VP and Chief Development Officer

                                        21

                                    EXHIBIT A

                     PROPOSED POTENTIAL DEVELOPMENT PRODUCTS

1.       [*****************]

2.       [********************]

3.       [********************]

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

                                       22

                                                                   EXHIBIT 10.5

                                 AMENDMENT NO. 1
                                       TO
                        DEVELOPMENT AND SUPPLY AGREEMENT

          This Amendment No. 1, effective as of December 22, 2000, is to that
certain Development and Supply Agreement (the "Agreement"), dated as of
January 5, 2000, by and between MacroPore, Inc., a Delaware corporation
("MacroPore") and Medtronic, Inc. ("Medtronic"), a Minnesota corporation.

          WHEREAS, MacroPore and Medtronic desire to amend the Agreement as
set forth below.

          NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties, hereby agree
as follows:

     1.   Section 6.1 (Prices) of the Agreement shall be deleted in its
entirety and the following inserted in its place.

                  "Section 6.1)     PRICES.

                   (a)      Unless and until otherwise mutually agreed upon by
                            the parties in writing, the purchase price per
                            unit of Developed Products to Medtronic (the
                            "Transfer Price") under this Agreement shall be
                            based on the price list in effect at the time of
                            receipt of the order (the "Price List") to be set
                            forth on Exhibit B to this Agreement.  The Price
                            List shall be reviewed by MacroPore and Medtronic
                            on the six month anniversary of the date of the
                            initial Price List and every six months
                            thereafter, with any changes to the Price List to
                            take effect upon delivery of the revised Price
                            List to Medtronic.  New Developed Products may be
                            added to the Price List at any time by 30 day
                            prior written notice to Medtronic.  In the event
                            MacroPore and Medtronic's review of the Price
                            List results in a change to the Transfer Price
                            for any of the Developed Products on the Price
                            List, all such changes will apply to the Transfer
                            Price of future sales and shall not be applied
                            retroactively to previous sales of that Developed
                            Product to Medtronic.  Separate Transfer Prices
                            will be established for sales in the United
                            States and for sales in the international market.
                             The prices for customized products are not
                            included in the Price List but shall be
                            determined in accordance with Section 5.8 herein.

                   (b)      MacroPore will establish the Price List (i) for
                            Developed Products that are Spinal Implants based
                            on [***]of the

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

                            estimated average selling price per unit for each
                            Product, excluding any sales, use or excise tax,
                            freight, duty or insurance included therein and
                            (ii) for Developed Products that are
                            [*************] based on [***] of the estimated
                            average selling price per unit for each Product,
                            excluding any sales, use or excise tax, freight,
                            duty or insurance included therein; provided that
                            in no event shall the Transfer Price for any
                            Developed Product be less than [***] of
                            MacroPore's per unit direct cost of manufacturing.

                   (c)      If Medtronic sells the Developed Product as part
                            of a packaged combination of products or
                            instruments, then Medtronic's sale price of the
                            Developed product shall equal either (i) the
                            respective average net selling price during such
                            period of the same type of Developed Product sold
                            individually, or (ii) the average net selling
                            price during such period for a comparable product
                            (if the same type of Developed Product is not
                            sold individually).

                   (d)      Medtronic and MacroPore agree to keep accurate
                            written records sufficient in detail to enable
                            Medtronic's average selling price and MacroPore's
                            direct cost of manufacturing, respectively, of
                            Developed Products to be determined and verified.
                             Such records for a particular quarter shall be
                            retained for a period of not less than three
                            years.  Upon reasonable notice and during regular
                            business hours, each party shall from time to
                            time (but no more frequently than once annually)
                            make available such records for audit at the
                            other party's expense by independent
                            representatives selected by such other party to
                            verify the accuracy of the reports provided to
                            such other party.  Such representatives shall
                            execute a suitable confidentiality agreement
                            reasonable acceptable to the party whose records
                            are being audited prior to conducting such audit.
                            Such representatives may disclose to such other
                            party only their conclusions regarding the
                            accuracy and completeness of records related
                            thereto, and shall not disclose confidential
                            business information to such other party without
                            the prior written consent of Medtronic.

     2. The Agreement will be amended by inserting Exhibit B immediately
after Exhibit A to the Agreement as soon as Exhibit B becomes available.

     3. Except as amended hereby, the Agreement shall remain unchanged and in
full force and effect.

PORTIONS OF THIS EXHIBIT MARKED AS [***] HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC.

                                    2

     4. This Amendment No. 1 and the Agreement constitute the entire
agreement among the parties hereto with respect to the subject matter hereof,
and supersede any and all prior agreements and undertakings, oral or written,
concerning the subject matter hereof. This Agreement may not be changed or
terminated orally, and may only be changed or terminated by a writing signed
by the party against whom such change or termination is sought.

     5. This Amendment No. 1 may be executed in any number of counterparts
and by facsimile, each of which, when executed, shall be deemed to be an
original and all of which together shall be deemed to be one and the same
instrument.

                              *  *  *  *  *

     IN WITNESS WHEREOF, this Amendment No. 1 has been duly executed by the
parties as of the date first set forth above.

                                            MACROPORE, INC.,
                                            a Delaware corporation

                                            By:      /s/ Charles E. Galetto
                                                     -----------------------
                                            Name:    Charles E. Galetto
                                            Its:     VP - Finance

                                            MEDTRONIC, INC.,
                                            a Minnesota corporation

                                            By:      /s/ Michael D. Ellwein
                                                     -----------------------
                                            Name:    Michael D. Ellwein
                                            Its:     Vice President and Chief
                                                     Development Officer

                                        3

                                                                    EXHIBIT 16.1

June 1, 2001

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Commissioners:

We have read the statements made by MacroPore, Inc. (copy attached), which we
understand will be filed with the Commission, pursuant to Item 14 of Form 10/A,
as part of the Company's Form 10 report dated June 1, 2001. We agree
with the statements concerning our Firm made in Item 14 of such Form 10.

Very truly yours,

/s/ PricewaterhouseCoopers LLP