UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-26538
ENCORE MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 65-0572565
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9800 METRIC BLVD., AUSTIN, TEXAS 78758
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (512) 832-9500
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
$5 Warrant
$7 Warrant
(Title of class)
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of Encore Medical Corporation, computed by reference to the
last sales price of such stock as of March 15, 2001, was $9,661,304.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 15, 2001, the latest practicable date.
Title Outstanding
----- -------------
Common Stock, par value $0.001... 8,854,965
List hereunder the following documents, if incorporated by reference, and
the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
informational statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933:
None.
Amendment No. 1 to Annual Report on Form 10-K
Encore Medical Corporation (the "Company") hereby amends and supplements
its Annual Report on Form 10-K as originally filed by the Company on April 2,
2001 solely for the purpose of setting forth the disclosure required by Part III
of Form 10-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain biographical information concerning each
of the Company's directors and executive officers.
DIRECTORS
The Company's Board of Directors is currently divided into three classes,
each having three-year terms that expire in successive years.
Class I Directors. The term of office of the Company's Class I Directors
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expires at the 2001 annual meeting.
Craig L. Smith, Ph.D.
Dr. Smith was a director of Encore Orthopedics, Inc. ("Encore") from July
1992 until March 1997 and has been President since August 1992. He has served
in these positions for the Company since March 1997. Dr. Smith become an
Executive Vice President of the Company in October 2000. Dr. Smith first joined
Encore as its Vice President of Research and Development in April 1992, with 10
years of experience in the medical device industry. From 1985 to April 1992, he
served as Vice President - Research and Development for Intermedics Orthopedics,
Inc. ("Intermedics"). During this period, his responsibilities included product
design, materials development and qualification, quality assurance, clinical
studies and FDA product approval submissions. Dr. Smith also oversaw major
research programs pertaining to the characterization of hydroxyl-apatite-coated
implants and the characterization of bone growth factors derived from bovine
sources. Dr. Smith serves on the Board of Spinal Dynamics, Inc., a private
company. Prior to his experience with Intermedics, Dr. Smith served from 1982
to 1984 as Vice President-Engineering for Carbomedics, Inc., a manufacturer of
pyrolytic carbon coated heart valve components, and from 1972 to 1982 at General
Atomic Co., where he did work producing and characterizing carbon coatings. Dr.
Smith has a B.S. in Metallurgical Engineering from the University of Washington
(1966) and a Ph.D. in Materials Science from Carnegie Mellon University (1971).
Dr. Smith is 57 years old.
John H. Abeles, M.D.
Dr. Abeles was President, Treasurer and a director of Healthcare
Acquisition Corporation ("HCAC") prior to the merger between Healthcare
Acquisition Inc, a wholly owned subsidiary of HCAC and Encore (the "Merger") and
has served as a Director of the Company since the Merger. From 1971 to 1975,
Dr. Abeles was an executive with several major pharmaceutical companies in the
United Kingdom and the United States, including Sterling Drugs (UK), Pfizer Labs
and USV Pharmaceuticals (a division of Revlon Healthcare). From 1975 to 1980,
he was an analyst in Kidder Peabody's healthcare research department. Since
1980, Dr. Abeles has been President of MedVest Inc., which has provided
consulting services to, and has been active in the founding and financing of,
emerging companies, principally in the
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healthcare industry. Dr. Abeles is currently a member of the Board of Directors
of Oryx Technology Corporation, DUSA Pharmaceuticals, Inc., PharmaPrint
Corporation and I-Flow Corporation. Dr. Abeles earned a M.B., Ch.B. from the
University of Birmingham (England). Dr. Abeles is 56 years old.
Class II Directors. The term of office for the Company's Class II Directors
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expires at the 2002 annual meeting.
Jay M. Haft
Mr. Haft was Chairman of the Board and Secretary of HCAC prior to the
Merger and has served as a Director of the Company since the Merger. Mr. Haft
is a director of numerous public and private corporations, including Robotic
Vision Systems, Inc. (OTC), NCT Group, Inc. (OTC), DUSA Pharmaceuticals, Inc.
(OTC), Oryx Technology Corp. (OTC) and Thrift Management, Inc. (OTC). He is
currently of counsel to Parker Duryee Rosoff & Haft, in New York, New York. He
was previously a senior corporate partner of such firm (1989-1994), and prior to
that a founding partner of Wofsey, Certilman, Haft et al. (1966-1988). He has
served as a member of the Florida Commission for Government Accountability to
the People and is a trustee of Florida International University as well as of
the Wolfsonion Museum. Mr. Haft earned both his B.A. and J.D. degrees from Yale
University. Mr. Haft is 65 years old.
Dennis J. Enright
Mr. Enright was a director of Encore from August 1994 until March 1997 and
became a director of the Company in March 1997. Mr. Enright was employed by 3M
as Staff Vice President-Technology Development and had been with 3M from 1965
until he retired in 1995. Mr. Enright began his career as a product development
engineer in the telecommunications area and then progressed to Technical
Director, General Manager and then Division Vice President, a position in which
he served for 12 years. Mr. Enright was elected to the Carlton Society, an
internal 3M recognition for technical personnel. Mr. Enright has a Bachelor of
Mechanical Engineering from the University of Minnesota (1961) and a Masters of
Business Administration from the University of Minnesota (1968). He has been a
board member of Associated Electronics of Mentor, Ohio; Japan Interconnect
Systems (a joint venture with Nippon Steel), Tokyo, Japan; Precision
Interconnect of Portland, Oregon; and Raycom of Denver, Colorado. Mr. Enright
is 61 years old.
Kenneth W. Davidson
Mr. Davidson became Chief Executive Officer and President of the Company in
October 2000. He became Chairman of the Board of Directors on February 1, 2001.
Mr. Davidson was a director of Encore from November 1996 until March 1997 and
became a director of the Company in March 1997. Mr. Davidson served as
Chairman, President and CEO of Maxxim Medical, Inc. from November 1986 July
2000. Previously, Mr. Davidson held various positions with Intermedics, Inc.,
Baxter Laboratories, and Merck & Co. Mr. Davidson presently serves on the Board
of Directors and is the past President of Operation Rainbow, an international
charity organization. Mr. Davidson also serves on the Board of Directors of
Bovie Medical Corp., a public company involved in electrosurgery. Mr. Davidson
received a Bachelor of Science degree in Biology and Chemistry from Laurentian
University, Sudbury Ontario, Canada. Mr. Davidson is 52 years old.
Class III Directors. The term of office for the Company's Class III Directors
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expires at the 2003 annual meeting.
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Nicholas Cindrich
Mr. Cindrich, who founded Encore in March 1992, served as its President
from March 1992 until August 1992. From August 1992 through August 1994, Mr.
Cindrich was self-employed as a business consultant. From August 1994 to
October 2000, he served as the Chief Executive Officer of Encore and from August
1994 to February 2001 served as Chairman of the Board of Directors of Encore.
From March 1997 to October 2000 he served as the Chief Executive Officer of the
Company and from March 1997 to February 2001 served as Chairman of the Board of
the Company. Mr. Cindrich is currently a consultant to the Company. Mr.
Cindrich has over 25 years of experience in the medical device industry. He
founded Encore after leaving Intermedics where he had served as President from
1984 to 1991. From 1980 to 1984, Mr. Cindrich was the Group Vice President-
Operations for DePuy, Inc. In that position, he headed worldwide operations for
one of the oldest full-line orthopedic companies. From 1969 to 1980, Mr.
Cindrich held a series of positions at Zimmer, Inc., the last of which was Vice
President of Manufacturing. Mr. Cindrich is 69 years old.
Richard O. Martin, Ph.D.
Dr. Martin was a director of Encore from February 1996 until March 1997 and
became a director of the Company in March 1997. Dr. Martin is currently
President of Medtronic Physio-Control, a position he has held since the merger
of Physio-Control and Medtronic in September 1998. Prior to the merger, Dr.
Martin served as Chairman and Chief Executive Officer of Physio-Control
International Corporation, positions that he held since 1991. Prior to joining
Physio-Control, Dr. Martin held a variety of positions culminating as President
and Chief Operating Officer of Intermedics, Inc. of Angelton, Texas. He has
also served as President and Chief Operating Officer of Positron Corporation of
Houston, Texas. Dr. Martin is currently National Chairman of the AeA, the
nation's largest trade association representing the high-tech industry. He is
also immediate past Chairman of the American Heart Association's Northwest
Affiliate. He holds a B.S. in Electrical Engineering from Christian Brothers
College (1962), a M.S. in Electrical Engineering from Notre Dame University
(1964) and a Ph.D. in Electrical/Biomedical Engineering from Duke University
(1970). Dr. Martin also serves on the Board of Directors of Scout Medical
Technologies and Cardio Dynamics, Inc. Dr. Martin is 60 years old.
Joel S. Kanter
Mr. Kanter was a director of HCAC prior to the Merger, and has served as a
Director of the Company since the Merger. Since June 1986, Mr. Kanter has
served as President of Windy City, Inc., a publicly held investment company
specializing in early stage venture capital. From 1991 through 1999, Mr. Kanter
was also President and a Director of Walnut Financial Services, Inc., a venture
capital and financial service firm listed on the Nasdaq National Market. Mr.
Kanter currently serves as a director of several publicly traded companies
including I-Flow Corporation, Magna-Labs, Inc., Mariner Post Acute Network,
Inc., and THCG, Inc. Mr. Kanter earned a B.A. degree from Tulane University.
Mr. Kanter is 44 years old.
EXECUTIVE OFFICERS
Kenneth W. Davidson - Chairman, Chief Executive Officer and President
Mr. Davidson become Chief Executive Officer and President of the Company on
October 2, 2000. He was a director of Encore from November 1996 until March
1997 and became a director of the Company in March 1997. He became Chairman of
the Board of the Company on February 1, 2001. Mr. Davidson served as Chairman,
President and CEO of Maxxim Medical, Inc. from November 1986 to July 2000.
Previously, Mr. Davidson held various positions with Intermedics, Inc., Baxter
Laboratories, and
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Merck & Co. Mr. Davidson presently serves on the Board of Directors and is the
past President of Operation Rainbow, an international charity organization. Mr.
Davidson also serves on the Board of Directors of Bovie Medical Corp., a public
company involved in electrosurgery. Mr. Davidson received a Bachelor of Science
degree in Biology and Chemistry from Laurentian University, Sudbury Ontario,
Canada. Mr. Davidson is 52 years old.
Craig L. Smith, Ph.D., President of Encore and Executive Vice President of the
Company
Dr. Smith was a director of Encore from July 1992 through March 1997 and
has been President since August 1992. He has served in these positions for the
Company since March 1997. Dr. Smith first joined Encore as its Vice President
of Research and Development in April 1992, with 10 years of experience in the
medical device industry. From 1985 to April 1992, he served as Vice President-
Research and Development for Intermedics. During this period, his
responsibilities included product design, materials development and
qualification, quality assurance, clinical studies and FDA product approval
submissions. Dr. Smith also oversaw major research programs pertaining to the
characterization of hydroxyl-apatite coated implants and the characterization of
bone growth factors derived from bovine sources. Prior to his experience with
Intermedics, Dr. Smith served from 1982 to 1984 as Vice President-Engineering
for Carbomedics, Inc., a manufacturer of pyrolytic carbon coated heart valve
components, and from 1972 to 1982 at General Atomic Co., where he did work
producing and characterizing carbon coatings. Dr. Smith serves on the Board of
Spinal Dynamics, Inc., a private company. Dr. Smith has a B.S. in Metallurgical
Engineering from the University of Washington (1966) and a Ph.D. in Materials
Science from Carnegie Mellon University (1971). Dr. Smith is 57 years old.
Jack Cahill, Executive Vice President - Sales and Marketing
Mr. Cahill joined Encore in January 2001 with almost 20 years of prior
experience with Johnson & Johnson in a variety of sales and marketing positions,
including Director of Marketing for Johnson & Johnson Medical, Inc., Director of
Sales for the Medical Specialties Division of Johnson & Johnson Medical, Inc.,
and Director of Sales and Marketing for the Sterile Design Division of Johnson &
Johnson Medical, Inc. In addition, Mr. Cahill has over 7 years of experience
with Maxxim Medical, Inc. as its Executive Vice President of Sales and Marketing
where he oversaw a sales and marketing effort that grew Maxxim from $200 million
in annual sales to almost $700 million in annual sales. Mr. Cahill has a B.A.
from Westminster College (1971). Mr. Cahill is 57 years old.
August Faske, Executive Vice President - Chief Financial Officer
Mr. Faske joined Encore in April 1992 with four years experience in the
orthopedics industry and a total of 24 years experience in finance and
accounting. Prior to joining Encore, he served from 1988 to April 1992 as Vice
President-Finance and Controller for Intermedics. Prior to joining Intermedics,
Mr. Faske was the Manager of Financial Accounting for Cooper Industries, Inc.
and Internal Staff Auditor and Factory Accounting Manager for Hughes Tool
Company. Mr. Faske has a B.B.A. in Accounting from Southwest Texas State
University (1974). He is a Certified Public Accountant and is a member of the
Texas Society of Certified Public Accountants and the American Institute of
Certified Public Accountants. Mr. Faske is 47 years old.
Kathy Wiederkehr, Executive Vice President - Human Resources
Mrs. Wiederkehr joined Encore in 1995 as Director of Human Resources and
was promoted to Vice President-Human Resources in December 1998. Mrs.
Wiederkehr has over 19 years experience in human resources. Prior to Encore,
she was Director, Human Resources, Code Alarm, Inc.-Tessco Division in
Georgetown, Texas from September 1994 to December 1995 and Manager of Human
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Resources for Kewaunee Scientific from May 1991 to September 1994. She has also
worked for Fortune 500 companies including Emerson Electric, Inc. and Cooper
Industries, Inc. Mrs. Wiederkehr has a B.B.A. (with honors) in Marketing from
the University of Texas at Austin (1976) and an M.B.A. (with honors) from the
University of Texas at Austin (1990). Mrs. Wiederkehr is 45 years old.
Harry L. Zimmerman, Executive Vice President - General Counsel
Mr. Zimmerman joined Encore in April 1994 with 12 years of experience in
the private practice of corporate, real estate and tax law. From 1992 to April
1994, Mr. Zimmerman was associated with the law firm of Winstead Sechrest &
Minick, P.C., a law firm based in Texas, where he was responsible for the
corporate, tax and real estate practices. Mr. Zimmerman was a partner in the
law firm of Bissex & Hedricks, P.C. from 1991 to 1992. He has a B.S. (with
honors) in Economics from the Wharton School of the University of Pennsylvania
(1977) and a J.D. (with honors) from the University of Texas School of Law
(1982). He is also licensed as a Certified Public Accountant. Mr. Zimmerman is
45 years old.
Gregory J. Kaseeska, CPIM, Vice President-Operations
Mr. Kaseeska joined Encore in March 1993 as Materials Manager, with
responsibilities for inventory control and production control. He became Vice
President-Operations in March 1998. Prior to arriving in Texas, Mr. Kaseeska
was Materials Manager for Getner Communications Co., Inc. and HGM Medical Laser
Co. both of Salt Lake City, Utah. He had previously served 23 years in the
United States Air Force in the logistics field. He holds an M.S. in Management
from Webster University (1986) and a B.S. in Business and Management from the
University of Maryland (1982). He is also certified in Production and Inventory
Management (CPIM) from the American Production and Inventory Control Society
(APICS). Mr. Kaseeska is 53 years old.
Jess Jackson, Vice President - Sales
Mr. Jackson joined Encore in July, 2000 with over 30 years of experience in
the orthopedic device industry. He worked previously with Zimmer, Inc. for 27
years as a distributor in the Rocky Mountains area with offices in seven states.
Prior to coming to work with Encore, Mr. Jackson worked in sales management with
ODC of Salt Lake City for two years. Mr. Jackson graduated from the University
of Utah with a degree in Entomology in 1964. Mr. Jackson is 65 years old.
J.D. Webb, Jr., Vice President-Research and Development
Mr. Webb joined Encore in April 1992 with nine years orthopedic industry
experience. From 1988 to April 1992, he served as Manager-Engineering,
Director-Product Development and Director-Regulatory and Clinical Affairs at
Intermedics. During that time, his responsibilities included product design and
testing, quality assurance, clinical studies and FDA approval to market. Under
his direction, Intermedics completed several development projects including the
APRII and Collared Revision Hip Systems, the Unicondylar Natural Knee and the
High Tibial Osteotomy System. From 1983 to 1988, Mr. Webb served as Development
Engineer, Senior Development Engineer and Group Development Manager for
Specialty Orthopedic Products at Zimmer, Inc. Mr. Webb holds a B.S. in
Mechanical Engineering and a M.S. in Bioengineering from the University of Utah
(1982 and 1983, respectively). Mr. Webb is 48 years old.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS
Based upon a review of filings with the Securities and Exchange Commission
and written representations that no other reports were required, the Company
believes that all of the Company's directors and executive officers complied
during 1999 with the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, except (i) a Form 4 filed by Mr. Cindrich which was
delinquent due to an administrative oversight.
ITEM 11. EXECUTIVE COMPENSATION
The following report of the Compensation Committee and the performance
graphs included elsewhere in this report should not be deemed filed or
incorporated by reference into any other Company filing under the Securities Act
of 1933 or the Securities Exchange Act of 1934, except to the extent the Company
specifically incorporates this report or the performance graphs by reference
therein.
Report of the Compensation Committee on Executive Compensation
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation for 2000.
What is the Company's philosophy of executive compensation?
The Company's compensation program for executives consists of three key
elements:
. A base salary
. A performance-based annual bonus, and
. Periodic grants of stock options
The Committee believes that this three-part approach best serves the interests
of the Company and its stockholders. It enables the Company to meet the
requirements of the highly competitive environment in which the Company operates
while ensuring that executive officers are compensated in a way that advances
both the short-and long-term interests of stockholders. Under this approach,
compensation for these officers involves a high proportion of pay that is "at
risk" - namely, the annual bonus and stock options. The variable annual bonus
permits individual performance to be recognized on an annual basis, and is
based, in significant part, on an evaluation of the contribution made by the
officer to Company performance. Stock options relate a significant portion of
long-term remuneration directly to stock price appreciation realized by all of
the Company's stockholders.
Base Salary. Base salaries for the Company's executive officers, as well
as changes in such salaries, are set by the Compensation Committee, taking into
account such factors as competitive industry salaries; a subjective assessment
of the nature of the position; the contribution and experience of the officer,
and the length of the officer's service. The Chief Executive Officer reviews
any salary recommendations with the Compensation Committee. The base salary for
the Chief Executive Officer is set by the Compensation Committee.
Annual Bonus. Annual bonuses for 2000 paid to executive officers of the
Company were governed by the Company's Annual Bonus Performance Plan (the "Bonus
Plan"). The Bonus Plan provides for performance-based bonuses for all employees
of the Company who were with the Company
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for at least the last 3 months of 2000. There were no bonuses paid to the
executive officers for the year 2000.
Under the Bonus Plan, every employee is entitled to a bonus if certain
preset income before taxes amounts are achieved. The base bonus is set as a
percentage of an employee's salary and varies based on the employee's position
in the Company. If the targeted earnings are exceeded, then the amount of the
bonus is increased.
Stock Options. Stock option grants may be made to executive officers upon
initial employment, upon promotion to a new, higher level position that entails
increased responsibility and accountability, in connection with the execution of
a new employment agreement, and/or whenever the Compensation Committee or Board
determines option grants are warranted. Using these guidelines, the Chief
Executive Officer recommends the number of options to be granted, within a range
associated with the individual's salary level, and presents this to the
Compensation Committee for review and approval. The Chief Executive Officer may
make recommendations that deviate from the guidelines where he deems it
appropriate. While options typically vest over a four-year period, options
granted to certain executive officers may have shorter vesting periods, or may
vest immediately.
How is the Company's Chief Executive Officer compensated?
As Chief Executive Officer, Mr. Cindrich was compensated during 2000
pursuant to an employment agreement initially entered into in August 1994. The
agreement, which was extended through December 2000, subject to earlier
termination under certain circumstances, provided for an annual base salary of
$224,000. Mr. Cindrich did not earn a bonus for 2000. Mr. Davidson was
compensated during 2000 pursuant to an employment agreement entered into in
October 2000. The agreement, which has a term until December 31, 2003, subject
to earlier termination under certain circumstances, provides for an annual base
salary of $200,000. Mr. Davidson did not earn a bonus for 2000.
How is the Company addressing Internal Revenue Code limits on deductibility of
compensation?
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public corporations for compensation over $1,000,000 paid for any
fiscal year to the corporation's Chief Executive Officer and four other most
highly compensated executive officers as of the end of any fiscal year.
However, the statute exempts qualifying performance-based compensation from the
deduction limit if certain requirements are met. No executive of the Company
receives compensation at a level that would invoke the provision of Section
162(m).
The Board and the Compensation Committee reserve the authority to award
non-deductible compensation in other circumstances as they deem appropriate.
Further, because of ambiguities and uncertainties as to the application and
interpretation of Section 162(m) and the regulations issued thereunder, no
assurance can be given, notwithstanding the Company's efforts, that compensation
intended by the Company to satisfy the requirements for deductibility under
Section 162(m) does in fact do so.
Members of the Compensation Committee:
Joel Kanter
Richard O. Martin
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Compensation Committee Interlocks and Insider Participation
None of the members of the Board's Compensation Committee is or has been an
officer or employee of the Company.
Executive Compensation Summary Table
The following table sets forth information concerning total compensation
earned or paid to the Chief Executive Officer and the four other most highly
compensated executive officers of the Company who served in such capacities as
of December 31, 2000 (the "named executive officers") for services rendered to
the Company during each of the last three years.
How are directors compensated?
Cash Compensation. Each Director is reimbursed his travel expenses for
attending Board meetings. No other cash compensation is paid to the Directors.
Options. Each nonemployee director receives, pursuant to the terms of the
2000 Non-Employee Director Stock Option Plan, a grant, on the date of the annual
meeting for each year, of options to purchase 10,000 shares of Common Stock.
For 2000, Messrs. Davidson, Enright, Haft, and Kanter and Drs. Abeles and Martin
received grants under this plan. Each option grant, vesting in one year and
having a 5-year term, permits the holder to purchase shares at the fair market
value on the date of grant, which was $2.50 in the case of nonemployee director
options granted in 2000.
EXECUTIVE COMPENSATION SUMMARY TABLE*
LONG TERM
ANNUAL COMPENSATION AWARDS
Other annual Securities underlying
Name and principal position Year Salary ($) Bonus ($) compensation options
--------------------------- ---- ---------- --------- ------------ ---------------------
Nick Cindrich 2000 $224,000 $ 0 * 0
Chief Executive Officer (through 1999 $224,000 $ 0 * 75,500
October 1, 2000) 1998 $200,000 $50,000 * 44,500
Kenneth W. Davidson 2000 $ 50,000 $ 0 * 300,000
Chief Executive Officer
(beginning October 2, 2000)
Craig L. Smith 2000 $173,600 $ 0 * 0
President 1999 $173,600 $ 0 * 0
1998 $155,000 $31,000 * 37,000
Kenneth Ludwig, Jr. 2000 $135,000 $ 0 * 0
Vice President - Sales & 1999 $135,000 $ 0 * 0
Marketing/Spine 1998 $125,000 $18,750 * 30,000
Harry L. Zimmerman 2000 $133,200 $ 0 * 0
Executive Vice President - 1999 $133,200 $ 0 * 0
General Counsel 1998 $120,000 $18,000 * 30,000
August Faske 2000 $133,200 $ 0 * 0
Executive Vice President - 1999 $133,200 $ 0 * 0
Chief Financial Officer 1998 $120,000 $18,000 * 30,000
* Amounts totaling less than $50,000 have been omitted and there were no
awards of restricted stock under long-term incentive plans made during the
three-year period ending December 31, 2000.
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Option Grants for Fiscal 2000
The following table sets forth information with respect to option grants to
the named executive officers during 2000 and the potential realizable value of
such option grants:
. The number of shares of Common Stock underlying options granted during
the year;
. The percentage that such options represent of all options granted to
employees during the year;
. The exercise price;
. The expiration date; and
. The hypothetical present value, as of the grant date, of the options
under the option pricing model discussed below.
The hypothetical value of the options as of their date of grant has been
calculated below, using the Black-Scholes option pricing model, as permitted by
the rules of the Securities and Exchange Commission, based upon a set of
assumptions set forth in the footnote to the table. It should be noted that
this model is only one method of valuing options, and the Company's use of the
model should not be interpreted as an endorsement of its accuracy. The actual
value of the options may be significantly different, and the value actually
realized, if any, will depend upon the excess of the market value of the Common
Stock over the option exercise price at the time of exercise.
OPTION GRANTS DURING 2000
% of Total
Options
Granted to Hypothetical
Number of Employees Exercise Value at
Options in Fiscal Price Expiration Grant
Name Granted Year ($/Share) Date (1) Date (2)
---- --------- ----------- ------------ ----------------- --------------
Nick Cindrich 0 0% - - -
Kenneth W. Davidson (3) 300,000 77.1% $1.75 9-30-2010 $312,750
Craig L. Smith 0 0% - - -
Kenneth Ludwig, Jr. 0 0% - - -
Harry L. Zimmerman 0 0% - - -
August Faske 0 0% - - -
(1) The Compensation Committee, which administers the Company's stock option
and incentive plans, has general authority to accelerate, extend or
otherwise modify benefits under option grants in certain circumstances
within overall plan limits, and, with the consent of the affected optionee,
to change the exercise price to a price not less than 100% of the market
value of the stock on the effective date of the amendment. The Committee
has no current intention to exercise that authority with respect to these
options.
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(2) The estimated present value at grant date of options granted during 2000
has been calculated using the Black-Scholes option pricing model, based
upon the following assumptions: estimated time until exercise of 1 year; a
risk-free interest rate of 6.09%, representing the interest rate on a U.S.
Government zero-coupon bond on the date of grant with a maturity
corresponding to the estimated time until exercise; a volatility rate of
79.0%; and a dividend yield of 0%. The approach used in developing the
assumptions upon which the Black-Scholes valuation was done is consistent
with the requirements of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation."
(3) These do not include the 10,000 options awarded to Mr. Davidson in May 2000
for serving as a non-employee member of the Board of Directors.
Option Exercises and Values for 2000
The table below sets forth the following information with respect to option
exercises during 2000 by each of the named executive officers and the status of
their options at December 31, 2000:
. The number of shares of Common Stock acquired upon exercise of options
during 2000;
. The aggregate dollar value realized upon the exercise of such options;
. The total number of exercisable and non-exercisable stock options held
at December 31, 2000; and
. The aggregate dollar value of in-the-money exercisable options at
December 31, 2000.
AGGREGATED OPTION EXERCISES DURING 2000
AND
OPTION VALUES ON DECEMBER 31, 2000
Shares Number of securities under- Value of unexercised
Acquired Value lying unexercised options at Acquired in-the-money
On Realized December 31, 2000 options
Exercise Upon Exercisable Unexercisable December 31, 2000(1)
Name of Option Exercise ----------- ------------- Exercisable Unexercisable
---- --------- -------- ----------- -------------
Nick Cindrich -0- -0- 323,919 -0- $ -0- $-0-
Kenneth W. Davidson -0- -0- 110,108 235,000 $ -0- $-0-
Craig L. Smith -0- -0- 399,389 -0- $198,200 $-0-
Kenneth Ludwig, Jr. -0- -0- 298,090 -0- $166,675 $-0-
Harry L. Zimmerman -0- -0- 305,025 -0- $ -0- $-0-
August Faske -0- -0- 326,905 -0- $198,200 $-0-
(1) Values are calculated by subtracting the exercise price from the fair
market value of the underlying Common Stock. For purposes of this
table, fair market value is deemed to be $1.53, the closing Common
Stock price reported on the Nasdaq National Market on December 29,
2000.
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PERFORMANCE CHART
The following chart shows a comparison of the cumulative total stockholder
return among the Company, the NASDAQ CRSP Index and a peer group comprised of
other small and micro-cap orthopedic companies (Arthrocare Corp., Biomet Inc.,
Bionx Implants, Inc., Exactech Inc., Interpore International, Inc., Orthologic
Corp., Osteotech Inc., Stryker Corp., and Sulzer Medica):(1)
3/96 12/96 12/97 12/98 12/99 12/00
------ ------ ------ ------ ------ ------
Encore Medical Corporation 100.00 113.89 87.49 62.49 50.69 34.02
NASDAQ US 100.00 117.94 144.45 203.71 378.56 227.77
Peer Group 100.00 92.10 114.34 151.48 168.76 236.48
(1) The total return on investment (change in year end stock price plus
reinvested dividends) assumes $100 invested on March 8, 1996 (the date
of the IPO for the Company), in the Company, in the NASDAQ CRSP Index,
and in each of the peer group companies.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited financial
statements with the Company's management.
2. The Audit Committee has discussed with PricewaterhouseCoopers LLP, the
Company's independent accountants, the matters required to be discussed by SAS
61 (Communication with Audit Committees).
3. The Audit Committee has received the written disclosures and the letter
from PricewaterhouseCoopers LLP required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and has
discussed with PricewaterhouseCoopers LLP their independence.
4. Based on the review and discussion referred to in paragraphs (1) through
(3) above, the Audit Committee recommended to the Board of Directors of the
Company, and the Board has approved, that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, for filing with the Securities and Exchange Commission.
Dennis Enright (chair)
Jay Haft
John Abeles
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
STOCK OWNERSHIP
The Company knows of only five persons (or entities) that are, as of
March 15, 2001, the beneficial owners of more than five percent of the Company's
common stock, par value $0.001 per share (the "Common Stock"). They are:
Name and Address Number of Percent of
of Beneficial Owner Shares Class
Nick Cindrich(1) 1,238,885 13.99%
9800 Metric Blvd.
Austin, TX 78758
CF Holdings, Ltd.(2) 1,191,177 13.45%
2628 Barton Hills Drive
Austin, TX 78704
Sandor Turanyi 693,395 7.83%
3323 McCue Road, #1012
Houston, TX 77056
Lois Turanyi 570,895 6.45%
7733 Louis Pasteur Dr., #306
San Antonio, TX 78229
Medica Holding AG 780,362 8.81%
Erlenstrasse 4b
Rotkreuz 6343
Switzerland
(1) Includes Common Stock owned by CF Holdings, Ltd., of which Mr. Cindrich is
a significant shareholder of the corporate general partner and a limited
partner. Mr. Cindrich disclaims beneficial ownership of Common Stock held
by CF Holdings, Ltd., except to the extent of his pecuniary interest
therein.
(2) Includes Common Stock owned beneficially by Mr. Nick Cindrich.
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The following table shows the Common Stock ownership of (i) the Company's
directors, (ii) the executive officers of the Company named in the Summary
Compensation Table below, and (iii) the directors and executive officers of the
Company as a group, in each case as of March 15, 2001.
Aggregate Number of Acquirable Percent of
Shares Beneficially within Shares
Name Owned(1) 60 days(2) Outstanding
---- ------- ---------- -----------
Nick Cindrich 1,238,885 214,152 16.02%
Craig L. Smith 36,282 399,389 4.71%
Harry L. Zimmerman 0 305,025 3.33%
August Faske 6,992 326,905 3.64%
Kenneth W. Davidson 0 185,108 2.05%
Kenneth Ludwig 11,307 298,090 3.38%
Dennis Enright 30,941 43,324 *
John Abeles 296,931 194,500 5.43%
Jay Haft 141,250 235,000 4.14%
Joel Kanter 82,500 30,000 1.27%
Richard Martin 8,880 31,333 *
All Directors and
executive officers as 1,876,357 2,714,885 39.68%
a group (16 persons)
* Represents less than 1% of the Company's outstanding Common Stock.
(1) The number of shares shown includes shares that are individually or jointly
owned, as well as shares over which the individual has either sole or
shared investment or voting authority. Certain of the Company's directors
and executive officers disclaim beneficial ownership of some of the shares
included in the table, as follows:
A. Mr. Cindrich is a significant owner of the corporate general partner
and is a limited partner of CF Holdings, Ltd. and disclaims beneficial
ownership of Common Stock held by CF Holdings, Ltd. except to the
extent of his pecuniary interest therein.
B. Dr. Abeles' stock is held by Northlea Partners, Ltd., a limited
partnership of which Dr. Abeles is the general partner and the Abeles
Family Trust is the sole limited partner. Dr. Abeles has sole voting
and investment power with respect to such shares.
C. Mr. Kanter's shares include 32,500 shares owned by Windy City, Inc.
and 50,000 shares owned by the Kanter Family Foundation, a charitable
not-for-profit corporation. Mr. Kanter is the President and a member
of the Board of Directors for both Windy City, Inc. and the Kanter
Family Foundation and has sole voting and investment control over said
securities. Mr. Kanter disclaims any and all beneficial ownership of
securities owned by either corporation.
(2) Reflects the number of shares that could be purchased by exercise of
options or warrants available at March 15, 2001 or within 60 days
thereafter under the Company's stock option plans or warrants granted.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ENCORE MEDICAL CORPORATION
April 27, 2001
By: /s/ Kenneth W. Davidson
-------------------------------
Kenneth W. Davidson
Chairman of the Board, Chief
Executive Officer and President
April 27, 2001
By: /s/ August Faske
-------------------------------
August Faske
Chief Financial Officer
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