SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
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Check the appropriate box:
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[_] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to(S)240.14a-11(c) or (S)240.14a-12
Interpore International, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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[LOGO] INTERPORE CROSS INTERNATIONAL
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 18, 2001
The 2001 annual meeting of the stockholders of Interpore International,
Inc. will be held at 9:00 a.m. local time, on May 18, 2000, at our executive
offices at 181 Technology Drive, Irvine, California 92618 for the following
purposes:
1. To elect two Class III Directors to hold office until the annual
meeting of stockholders in the year 2004 and until the election and
qualification of their respective successors; and
2. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on March 30, 2001
will be entitled to notice of, and to vote at, the 2001 annual meeting and any
adjournment thereof.
Management welcomes your attendance at the annual meeting. Whether or
not you expect to attend the annual meeting in person, please complete, sign,
date and promptly return the enclosed proxy in the accompanying postage-paid
envelope. The prompt return of your proxy will save expenses involved in further
communication. Your proxy will not affect your right to vote in person in the
event you attend the annual meeting. Failure to return a properly executed proxy
card or to vote in person at the annual meeting will have the same effect as a
vote against the proposals.
By Order of the Board of Directors,
/s/ RICHARD L. HARRISON
Richard L. Harrison
Secretary
Irvine, California
March 30, 2001
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY
AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
[LOGO] INTERPORE CROSS INTERNATIONAL
181 Technology Drive
Irvine, California 92618
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
May 18, 2001
------------------------------
PROXY STATEMENT
------------------------------
SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors
of Interpore International, Inc. for use at the annual meeting of stockholders
to be held at our executive offices located at 181 Technology Drive, Irvine,
California 92618, on May 18, 2001 at 9:00 a.m. local time, and at any and all
adjournments or postponements thereof.
All shares represented by each properly executed, unrevoked proxy
received in time for the meeting will be voted in the manner specified therein.
If the manner of voting is not specified in an executed proxy, the proxy will be
voted FOR the election of the two nominees to the Board of Directors listed
herein.
You have the power to revoke your proxy at any time before it is voted.
A proxy may be revoked by delivering a written notice of revocation to our
Secretary, by presenting a later-dated proxy, or by attendance at the meeting
and voting in person.
This proxy statement is being mailed to our stockholders on or about
April 11, 2001. We will pay for the expense of soliciting proxies. Expenses
include reimbursement paid to brokerage firms and others for their expenses
incurred in forwarding solicitation material regarding the meeting to beneficial
owners of the voting stock. Solicitation of proxies will be made by mail.
Further solicitation of proxies may be made by telephone or oral communication
by our regular employees, who will not receive additional compensation for such
solicitation.
OUTSTANDING SHARES AND VOTING RIGHTS
Only if you held any of the 14,422,899 shares of Common Stock
outstanding at the close of business on the record date, March 30, 2001, will
you be entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof. For each share of Common Stock you held on March 30, 2001,
you will be entitled to cast one vote on each matter to be considered at the
meeting. Accordingly, an aggregate of 14,422,899 votes may be cast on each
matter to be considered at the meeting.
In order to constitute a quorum and to transact business at the meeting,
a majority of the outstanding shares on the record date must be represented at
the meeting. Shares represented by proxies that reflect abstentions or "broker
non-votes" (i.e., shares held by a broker or nominee which are represented at
the meeting, but not empowered to vote on a particular proposal) will be counted
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum. Assuming a quorum is present, directors will be elected by
a favorable vote of a plurality of the aggregate votes cast, in person or by
proxy, at the meeting. Accordingly, abstentions and broker non-votes will have
no effect on the outcome of the election of candidates for director. In
addition, a simple majority of the shares voting may elect all of the directors.
1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the amount and percentage of the
outstanding shares of the Common Stock, which, according to the information
supplied to us, are beneficially owned by (1) each person who, to our knowledge
based exclusively on Schedules 13G filed with the Securities and Exchange
Commission, is the beneficial owner of more than 5% of the outstanding Common
Stock, (2) each person who is currently a director, two of whom are also
nominees for election as a director, (3) each Named Executive Officer, as
defined on page six hereof, and (4) all current directors and executive officers
as a group. Except for information based on Schedules 13G, as indicated in the
footnotes, beneficial ownership is stated as of March 30, 2001. Except to the
extent indicated in the footnotes to the following table, to our knowledge, the
person or entity listed has sole voting or dispositive power to the shares which
are deemed beneficially owned by such person or entity.
Total Percent of
Options Outstanding Shares of
Outstanding Exercisable Common Stock Common Stock
Name and Address Common Within Beneficially Beneficially
of Beneficial Owner/(1)/ Stock 60 Days Owned Owned/(2)/
- ------------------- ----------- ----------- ------------ ------------
Directors/Nominees and Named
Executive Officers:
David W. Chonette 10,000 0 10,000 *
William A. Eisenecher 6,000 49,000 55,000 *
Daniel A. Funk, M.D. 284,376 26,675 311,051 2.2%
Richard L. Harrison/(3)/ 6,221 150,500 156,721 1.1%
Philip A. Mellinger/(3)/ 30,724 67,490 98,214 *
David C. Mercer/(3)/ 25,000 422,500 447,500 3.0%
Joseph A. Mussey/(3)/ 188,066 122,238 310,304 2.1%
M. Ross Simmonds/(3)/ 13,000 238,500 251,500 1.7%
Robert J. Williams 1,275 24,125 25,400 *
All directors and executive
officers as a group (11 persons) 615,662 1,319,528 1,935,190 12.3%
5% Beneficial Holders:
Kopp Investment Advisors, Inc., et. al./(4)/
7701 France Avenue South, Suite 500
Edina, MN 55435 1,254,700 0 1,254,700 8.7%
Kennedy Capital Management, Inc../(5)/
10829 Olive Blvd.
St. Louis, MO 63141 1,019,800 0 1,019,800 7.1%
Dimensional Fund Advisors Inc./(6)/
1299 Ocean Avenue, 11/th/ Floor
Santa Monica, CA 90401 758,400 0 758,400 5.3%
- -------------------------------------
*less than 1%
(1) The address of the directors and officers listed in this table is 181
Technology Drive, Irvine, California 92618.
(2) Percentage of beneficial ownership as of March 30, 2001, for each person
includes shares subject to options exercisable within 60 days after March
30, 2001, as if such shares were outstanding on March 30, 2001.
(3) Messrs. Harrison, Mellinger, Mercer, Mussey and Simmonds are Named
Executive Officers.
(4) Based on Schedule 13G filed by Kopp Investment Advisors, Inc. on behalf
of Kopp Investment Advisors, Inc., Kopp Holding Company and LeRoy C. Kopp.
Kopp Investment Advisors is the owner of 430,000 shares and exercises
investment discretion as to an additional 824,700 shares. Kopp Investment
Advisors is a wholly-owned subsidiary of Kopp Holding Company. LeRoy C.
Kopp holds 100% of the outstanding capital stock of Kopp Holding Company.
2
(5) Based on Schedule 13G filed by Kennedy Capital Management, Inc.
(6) Based on Schedule 13G filed by Dimensional Fund Advisors Inc.
Proposal 1
ELECTION OF DIRECTORS
Our Board of Directors currently consists of six members. Our
Certificate of Incorporation provides for the classification of the Board of
Directors into three classes, as nearly equal in number as possible, with
staggered terms of office. The Certificate of Incorporation also provides that
upon the expiration of the term of office for a class of directors, nominees for
such class will be elected for a term of three years or until their successors
are duly elected and qualified.
The term of the Class III Directors has expired and two nominees for
director are to be elected as Class III Directors. The two nominees are David C.
Mercer and Joseph A. Mussey, each of whom currently serves as a Class III
Director. The Class I Directors, David W. Chonette and Robert J. Williams, have
one year remaining on their term of office and the Class II Directors, William
A. Eisenecher and Daniel A. Funk, M.D., have two years remaining on their term
of office.
Required Vote
Assuming a quorum is present, directors will be elected by a favorable
vote of a plurality of the aggregate votes cast, in person or by proxy, at the
meeting. Accordingly, abstentions and broker non-votes will have no effect on
the outcome of the election of candidates for director. Unless otherwise
instructed, the shares represented by the proxies will be voted FOR the election
of the two nominees named below as directors. Although it is anticipated that
each nominee will be able to serve as a director, should any nominee become
unavailable to serve, the proxies will be voted for such other person or persons
as may be designated by our Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE ELECTION OF EACH NOMINEE TO THE BOARD OF DIRECTORS.
Information Regarding Directors
The information set forth below as to each nominee for director has been
furnished to us by the respective nominees:
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
For a Three-Year Term Expiring at the
2004 Annual Meeting of Stockholders
Name Age Present Position
- ---- --- ----------------
David C. Mercer 59 Chairman of the Board, Chief Executive Officer
and Director
Joseph A. Mussey 52 President, Chief Operating Officer and Director
David C. Mercer has served as Chairman of our Board of Directors since
April 1997, as Chief Executive Officer since March 1992 and also served as
President from March 1992 through May 1998. Mr. Mercer was President,
Orthopaedic Division, of Kirschner Medical Corporation, a manufacturer of
orthopedic devices, from October 1988 through March 1992, and Senior Vice
President, Marketing, Orthopaedic Implant Division of Zimmer, Inc., a
manufacturer of orthopedic devices, from April 1986 through October 1988. From
April 1983 to April 1986, he was President of Aspen Labs, Inc., the arthroscopic
and electrosurgical product subsidiary of Zimmer, Inc.
Joseph A. Mussey has served as President and Chief Operating Officer
since May 1998. Mr. Mussey had served as President and Chief Executive Officer
of Cross Medical Products, Inc., our wholly-owned subsidiary, from November 1991
through May 1998, as President from April 1991 through November 1991, and as
Vice President
3
and Chief Financial Officer from August 1990 through April 1991. Mr. Mussey was
previously Executive Vice President of the Process Automation Business of
Combustion Engineering, Inc., a division of Asea Brown Boveri from 1987 until
joining Cross in August 1990. From 1984 to 1987, he was Vice President,
Operations of the Engineered Systems and Controls Group of Combustion
Engineering.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
Class I -- Term Expiring at the
2002 Annual Meeting of Stockholders
Name Age Present Position
---- --- ----------------
David W. Chonette 65 Director
Robert J. Williams 68 Director
David W. Chonette is an Advisor to Versant Ventures, a venture capital
firm investing in companies in the medical devices, healthcare services,
bio-pharmaceuticals and eHealth areas. Prior to Versant Ventures, Mr. Chonette
was a general partner with Brentwood Venture Capital, which he joined in 1986.
Mr. Chonette's background also includes having served as the President of the
Edwards Division of American Hospital Supply Corporation (now Baxter
International) prior to Brentwood. The board of directors unanimously voted to
appoint Mr. Chonette to the board as a director to serve the unexpired term of
G. Bradford Jones, who resigned from the board in November 2000 to pursue other
interests. Mr. Jones stated that he had no disagreements with the board of
directors, but wished to reduce his outside board commitments.
Robert J. Williams has been the Chairman of the Board, President and
Chief Executive Officer of Artec, Inc. since 1988. Artec is an
Indianapolis-based manufacturer of disposable anesthesia and respiratory
products.
Class II --Term Expiring at the
2003 Annual Meeting of Stockholders
Name Age Present Position
- ---- --- ----------------
William A. Eisenecher 58 Director
Daniel A. Funk, M.D. 45 Director
William A. Eisenecher is a business consultant. From 1987 to 1993, Mr.
Eisenecher was the President and Chief Executive Officer of Rehabilitation
Technologies, Inc.
Daniel A. Funk, M.D. is an orthopedic surgeon in private practice. Dr.
Funk obtained his Medical Doctor degree from the University of Cincinnati in
1981 and completed a five year residency in Orthopedic Surgery at The Mayo
Clinic in 1986. Dr. Funk served as a member of the Technical Advisory Board of
Cross from 1984 through 1990 and as the Medical Advisor of Cross from 1990 to
1998.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 2000, the Board of Directors
met six times. All incumbent directors attended all meetings of the Board of
Directors and all meetings held by all committees of the Board of Directors on
which that director served, except that Mr. Jones was absent from one Board of
Directors meeting.
We have an Audit Committee and a Compensation and Stock Option
Committee. The Audit Committee, which was comprised of Messrs. Eisenecher, Funk,
Jones and Williams (until Mr. Chonette was appointed to replace Mr. Jones on
November 17, 2000) met two times in 2000. The Audit Committee's responsibilities
include: (1) recommending the selection of our independent public auditors to
the Board of Directors, (2) consulting with the independent auditors with regard
to the plan and scope of audit, (3) reviewing, in consultation with the
independent
4
auditors, their report of audit or proposed report of audit, and the
accompanying management letter, if any, and (4) consulting with the independent
auditors and management with regard to the adequacy of internal controls.
Messrs. Eisenecher, Funk, Jones and Williams served on the Compensation
and Stock Option Committee (until Mr. Chonette was appointed to replace Mr.
Jones on November 17, 2000), which met six times in 2000. The Compensation and
Stock Option Committee reviews and approves executive salaries, considers awards
to be granted under our incentive bonus plan, administers stock option grants
under our stock option plans and performs other related functions upon request
of the Board of Directors.
Board Compensation and Benefits
The Stock Option Plan for Non-Employee Directors (the "Non-Employee
Directors Plan") provides for the automatic grant of non-qualified stock options
to purchase shares of Common Stock to eligible non-employee directors. On May
25, 1995, under the terms of the Non-Employee Directors Plan, each director who
was not an employee was automatically granted an initial option to purchase
15,000 shares of Common Stock, effective as of May 25, 1995, at an exercise
price of $5.75 per share. Non-employee directors who are first appointed or
elected to the Board of Directors after May 25, 1995 are automatically granted
an initial option to purchase 15,000 shares of Common Stock, effective on the
date of election or appointment to the Board of Directors. In addition to the
initial grant, non-employee directors are automatically granted options to
purchase 2,500 shares on the date of the annual meeting of stockholders in every
year following the initial grant to such director, provided that the director is
re-elected at the meeting if such director's term is expiring.
Each non-employee director is entitled to be paid a fee of $1,000 per
Board meeting attended in person (or by phone if a regularly scheduled meeting)
or for a committee meeting attended in person if on a date where a full Board
meeting is not being held (the "Directors' Fee"). Alternatively, pursuant to an
irrevocable election made at least six months prior to the Board meeting date, a
non-employee director may elect to automatically receive non-qualified stock
options under the Non-Employee Directors Plan covering 500 shares of Common
Stock in lieu of the Directors' Fee. The price per share of Common Stock subject
to each option granted under the plan is 100% of the closing price of the Common
Stock on the Nasdaq Stock Market on the day prior to such meeting. The options
become exercisable in four cumulative annual installments of 25% of the shares
covered by the option, commencing with the first anniversary from the date of
grant.
During fiscal year 2000, non-employee directors received options to
purchase 500 shares of Common Stock, in lieu of the Director's Fee, as follows:
exercise price of $4.563 (Eisenecher, Funk, Williams), $8.188 (Eisenecher, Funk,
Williams), $9.50 (Eisenecher, Funk, Jones, Williams) and $12.125 (Eisenecher,
Funk, Jones, Williams). Messrs. Eisenecher, Funk, Jones and Williams, in
connection with the 2000 Annual Meeting, also received an option to purchase
2,500 shares of Common Stock at an exercise price of $9.50. Mr. Chonette
received an option to purchase 15,000 shares of Common Stock at an exercise
price of $4.563, in connection with his appointment to the Board of Directors.
5
EXECUTIVE OFFICERS
Our executive officers as of March 30, 2001 were as follows:
Name Age Position
- ---- --- --------
David C. Mercer 59 Chairman of the Board and Chief Executive
Officer
Joseph A. Mussey 52 President and Chief Operating Officer
Richard L. Harrison 44 Senior Vice President, Finance, Chief
Financial Officer and Secretary
M. Ross Simmonds 45 Senior Vice President, Sales and Marketing
R. Park Carmon 47 Vice President, Operations
Philip A. Mellinger 37 Vice President, Product Development
Edwin C. Shors, Ph.D 55 Vice President, Research and New Technology
For a description of the business background of Messrs. Mercer and
Mussey, see "Proposal 1 - Election of Directors."
Richard L. Harrison has served as Senior Vice President, Finance, Chief
Financial Officer and Secretary since May 1998, and as Vice President, Finance,
Chief Financial Officer and Secretary from November 1994 through May 1998. Prior
to joining us, Mr. Harrison worked for Kirschner Medical Corporation, a
manufacturer of orthopaedic devices, in a variety of financial positions
starting in 1987, most recently as Corporate Controller from February 1992
through October 1994. Mr. Harrison is a Certified Public Accountant.
M. Ross Simmonds has served as Senior Vice President, Sales and
Marketing, since May 1998, as Vice President, Sales and Marketing from August
1991 through May 1998, and from December 1989 through August 1991, he served as
Director of Sales and Marketing. From September 1988 through October 1989, Mr.
Simmonds served as Vice President, Sales and Marketing for Implant Technology,
Inc., a manufacturer of reconstructive hip implants. From November 1985 through
August 1988, he served as Regional Manager, National Sales Manager and Trauma
Group Marketing Manager for Kirschner Medical Corporation.
R. Park Carmon has served as our Vice President, Operations since August
2000. From January 1996 through August 2000, Mr. Carmon worked for Edwards
Lifesciences Cardiovascular Resources, formerly Perfusion Services of Baxter
Healthcare Corporation, as Director of Materiel Services and Director of
Logistics. From 1981 and until it was acquired by Baxter in January 1996, Mr.
Carmon worked for PSICOR, Inc., holding various positions including Regional
Manager, Division President and Vice President.
Philip A. Mellinger, has served as Vice President, Product Development
since the Merger with Cross in May 1998. Prior to the Merger, Mr. Mellinger was
the Vice President, Research and Development for Cross from January 1997 to May
1998. From 1987 to January 1997, Mr. Mellinger was employed by Cross in its
research and development department. Prior to 1987, Mr. Mellinger attended
Northwestern University, where he received his Bachelor of Science degree in
Biomedical and Mechanical Engineering.
Edwin C. Shors, Ph.D, has served as Vice President, Research and New
Technology since May 1998, and as Vice President, Research and Development from
1983 to May 1998. Dr. Shors was Executive Vice President from 1978 to 1983,
during which time he was responsible for establishing the manufacturing
procedures, animal evaluations and clinical trials leading to the FDA approval
and marketing of coralline hydroxyapatite. Prior to joining us, he was Director
of the Thoracic and Cardiovascular Laboratory at Harbor/UCLA Medical Center. Dr.
Shors obtained a Masters in Biology and a Doctorate in Physiology and Biophysics
from the University of Southern California.
6
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual
and long-term compensation for services rendered to us in all capacities for the
fiscal years ended December 31, 2000, 1999 and 1998 of those persons who were,
at December 31, 2000, (i) the chief executive officer, (ii) the other four most
highly compensated executive officers whose annual salary and bonuses exceeded
$100,000 or (iii) any other executive officer who would have qualified under
sections (i) or (ii) of this paragraph but for the fact that the individual was
not serving as an executive officer of the registrant at the end of the 2000
fiscal year (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term
--------------------------------- ---------
Compensation
------------
Awards
Other ------
Annual Securities All Other
Compen- Underlying Compen-
Name and Principal Position Year Salary Bonus sation/(1)/ Options sation
- --------------------------- ------ ---------- --------- ----------- -------------- -----------
David C. Mercer 2000 $231,000 $28,875 $15,023 40,000 $ 3,845/(2)/
Chairman and Chief 1999 203,002 55,283 16,010 40,000 3,884/(2)/
Executive Officer 1998 192,502 24,063 16,034 0 3,801/(2)/
Joseph A. Mussey 2000 231,000 28,875 14,752 40,000 3,845/(2)/
President and Chief 1999 202,231 55,283 14,301 40,000 123,730/(3)/
Operating Officer 1998 191,807 40,389 7,933 32,113 34,667/(3)/
M. Ross Simmonds 2000 171,500 21,438 15,902 35,000 3,730/(2)/
Senior Vice President, 1999 150,000 40,849 16,077 35,000 3,171/(2)/
Sales and Marketing 1998 142,500 17,813 15,524 0 3,171/(2)/
Richard L. Harrison 2000 149,500 18,688 17,370 35,000 3,694/(2)/
Senior Vice President, 1999 132,998 36,219 17,715 35,000 3,439/(2)/
Finance, Chief Financial 1998 124,372 15,547 17,689 0 3,415/(2)/
Officer and Secretary
Philip A. Mellinger 2000 149,000 17,875 15,609 30,000 16,570/(4)/
Vice President, 1999 122,538 33,496 15,652 30,000 9,628/(4)/
Product Development 1998 104,539 21,218 9,456 43,825 42,833/(4)/
__________________________________
(1) Represents the cost of company-provided automobiles, including
reimbursement of taxes. Also includes automobile allowance to Mssrs.
Mussey and Mellinger in 1998.
(2) Represents contributions to our retirement savings plan and payments made
by our company for term-life insurance premiums.
(3) Represents contributions to our retirement savings plan and payments made
by our company for term-life insurance premiums. Also includes the cost of
company-paid relocation expenses, including reimbursement of taxes, of
$119,635 in 1999 and $31,832 in 1998.
(4) Represents contributions to our retirement savings plan and payments made
by our company for term-life insurance premiums. Also includes the cost of
company-paid relocation expenses, including reimbursement of taxes, of
$12,898 in 2000, $6,975 in 1999 and $41,296 in 1998.
7
The following table sets forth certain information with respect to
grants of stock options during 2000 to the Named Executive Officers pursuant to
our 1995 Stock Option Plan:
Option Grants in Last Fiscal Year
Potential
Percentage Realizable Value at
of Total Assumed Annual
Number of Options Exercise Rates of Stock Price
Securities Granted to or Base Appreciation
Underlying Employees Price for Option Term/(2)/
Options in Fiscal (per Expiration ----------------------
Name Granted Year Share) Date 5% 10%
- ---- ----------- ---------- ---------- ---------- ----------------------
David C. Mercer 40,000 8.2% $7.875 1/3/10 $198,102 $502,029
Joseph A. Mussey 40,000 8.2% 7.875 1/3/10 198,102 502,029
M. Ross Simmonds 35,000 7.2% 7.875 1/3/10 173,339 439,275
Richard L. Harrison 35,000 7.2% 7.875 1/3/10 173,339 439,275
Philip A. Mellinger 30,000 6.1% 7.875 1/3/10 148,576 376,522
_______________________________
(1) Represents options granted under our 1995 Option Plan. Under the terms of
the 1995 Option Plan, the Compensation and Stock Option Committee retains
discretion, subject to certain restrictions, to modify the terms of
outstanding options and to reprice outstanding options. No option is
exercisable during the first year after such option is granted. Each
option becomes exercisable in four equal annual installments. The exercise
price of shares of the Common Stock subject to options granted under the
1995 Option Plan is set by the Compensation and Stock Option Committee;
provided, however, that the price of shares of the Common Stock subject to
an incentive stock option must be at least 100% of the fair market value
of the shares of the Common Stock on the date the option is granted.
(2) Assumed annual rates of stock price appreciation for illustrative purposes
only. Actual stock prices will vary from time to time based upon market
factors and our financial performance. No assurance can be given that such
rates will be achieved.
8
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of December 31, 2000
pursuant to the Option Plans:
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Shares Fiscal Year End Fiscal Year End/(1)/
Acquired ----------------- ----------------------
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
---- -------- -------- ------------- -------------
David C. Mercer 0 $ 0 397,250 / 79,750 $470,774 / $ 0
Joseph A. Mussey 19,125 49,580 102,238 / 80,000 0 / 0
M. Ross Simmonds 0 0 216,250 / 69,750 47,454 / 0
Richard L. Harrison 0 0 128,250 / 69,750 0 / 0
Philip A. Mellinger 5,100 37,188 52,490 / 72,500 3,760 / 3,760
(1) Calculated based on the closing sales price of the Common Stock on The
Nasdaq Stock Market on December 31, 2000 ($3.938), minus the exercise
price of the option, multiplied by the number of shares to which the
option relates.
Employment Agreements, Termination of Employee and Change in Control
Arrangements; Indemnification Agreements
We have Employment Agreements with each of our executive officers.
Pursuant to the Employment Agreements, each of the officers receive annual base
salaries as determined from time to time by the Board of Directors. In addition,
the executives are entitled to receive incentive compensation, including bonuses
and stock options pursuant to the terms of the plans adopted by the Board of
Directors at their sole discretion. In the event of a change in control, each of
the executives will be entitled to receive an amount equal to approximately two
times the executive's current annual base salary and bonus, to be paid out over
a period of twenty-four months. The Employment Agreements also provide each of
the executives with insurance, vacation and sick leave benefits.
The Employment Agreements provide that employment of each of the
executives is "at-will" and may be terminated by us at any time. If the
executive is terminated by us without cause, we will continue to pay the
executive his basic salary and provide fringe benefits at the level in place at
the termination date for 12 months and will provide outplacement services at a
cost to us not to exceed the executive's basic salary for one month. We may
terminate payment of the basic salary, fringe benefits and outplacement services
during the severance period if the executive accepts other employment or is in
breach of the non-competition and confidentiality obligations of the Employment
Agreement.
We have also entered into Indemnification Agreements with our executive
officers and directors providing for indemnification of such persons to the
fullest extent authorized, permitted or allowed by law.
9
Compensation and Stock Option Committee Report on Executive Compensation
General Philosophy. The Compensation and Stock Option Committee reviews
and determines salaries, bonuses and all other elements of the compensation
packages offered to the executive officers, including its Chief Executive
Officer, and establishes our general compensation policies.
We desire to attract, motivate and retain high quality employees who
will enable us to achieve our short- and long-term strategic goals and values.
We participate in a high-growth environment where substantial competition exists
for skilled employees. Our ability to attract, motivate and retain high caliber
individuals is dependent in large part upon the compensation packages we offer.
We believe that our executive compensation programs should reflect our
financial and operating performance. In addition, individual contribution to our
success should be supported and rewarded.
Our executive compensation has been based on four primary components:
base salary, incentive bonus, long-term incentives in the form of stock options
and an executive automobile program. The Committee believes that these incentive
components have maintained annual executive compensation at competitive levels
and have provided an effective means of retaining, motivating and rewarding high
quality management.
Under the 1993 Omnibus Budget Reconciliation Act ("OBRA"), income tax
deductions of publicly-traded companies in tax years beginning on or after
January 1, 1994 may be limited to the extent total compensation (including base
salary, annual bonus, stock option exercises and non-qualified benefits) for
certain executive officers exceeds $1 million (less the amount of any "excess
parachute-payments" as defined in Section 280G of the Code) in any one year.
Under OBRA, the deduction limit does not apply to payments which qualify as
"performance-based." To qualify as "performance-based," compensation payments
must be based solely upon the achievement of objective performance goals and
made under a plan that is administered by a committee of outside directors. In
addition, the material terms of the plan must be disclosed to and approved by
stockholders, and the compensation committee must certify that the performance
goals were achieved before payments can be made. The Committee attempts to
design our compensation programs to conform with the OBRA legislation and
related regulations so that total compensation paid to any employee will not
exceed $1 million in any one year, except for compensation payments which
qualify as "performance-based." We may, however, pay compensation which is not
deductible in limited circumstances when sound management so requires.
Base Salary. Base salary for each of the executive officers, including
the Chief Executive Officer, is targeted at the average salaries paid for such
positions by competitive medical device companies of similar size, with
additional consideration given to biotech companies for selected positions.
Industry and custom surveys are used to establish competitive practices.
Salaries for executives are reviewed by the Committee on an annual basis and may
be adjusted at that time based on our performance, the Committee's assessment of
the individual's contribution to our operations and changes in competitive pay
levels. Effective as of July 1, 2000, the base salaries of the executive
officers, including the Chief Executive Officer, were evaluated and adjusted
according to the factors discussed above including a review of the market pay
trends. Mr. Mercer's base salary was increased from $206,000 to $256,000,
effective as of July 1, 2000.
Incentive Bonus Plan. In an effort to encourage and reward operating
performance on an annual basis, all employees, including executive officers but
excluding those employees compensated by commission or some other form of bonus
compensation, are eligible for annual bonuses. Target bonus awards for each
position, expressed as a percent of base salary ranging from 5% to 25%, were
established by surveying awards paid by competitive companies of similar size.
The target bonus awards vary by employment level, with the target award for the
executive officers established at 25% of base salary. For fiscal year 2000,
actual bonus awards could have ranged from 0% to 150% of the targeted award,
based upon actual performance against targeted objectives. Bonus awards are
based upon our actual operating results as compared to targeted annual operating
results approved by the Committee at the beginning of each fiscal year. For
2000, we accomplished 81% of our targeted operating results, and therefore, the
actual bonus awards were computed at 50% of the targeted awards.
Long Term Incentives. We offer our executives and other key employees
long-term incentives primarily through stock option grants under our stock
option plans. Stock option grants are intended to motivate executives to
10
improve long-term stock performance, and thus are tied directly to stockholders'
interests. Stock options are granted at the prevailing market price on the date
of grant and will, thus, only have value if our stock price rises. Stock options
generally vest over four years. The Compensation and Stock Option Committee
administers the plan and determines which employees are to receive option grants
and the number of options to be granted.
Executive Automobile Program. We provide each of our executive officers
with an automobile on a three-year, closed-end lease. We believe that providing
each executive with the use of an automobile increases the value of the
after-tax compensation of each executive to more competitive levels.
This report has been provided by the Compensation and Stock Option
Committee:
David W. Chonette
William A. Eisenecher
Daniel A. Funk, M.D.
Robert J. Williams
Date: March 30, 2001
The above report of the Compensation and Stock Option Committee will not
be deemed to be incorporated by reference to any filing by us under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that we specifically incorporate the same by reference.
11
Company Performance
The following line graph compares the annual cumulative total
stockholder return of our Common Stock against the cumulative total return of
the Nasdaq U.S. Index and the Nasdaq Medical Devices Index for the period from
December 31, 1995 to December 31, 2000. On March 30, 2001 the closing market
price per share of our Common Stock was $4.188, as reported on The Nasdaq Stock
Market.
Total Return to Stockholders
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
-------------------------------------------------------------------------------
Interpore International 100.00 82.93 117.07 115.86 153.66 76.84
Nasdaq U.S. Index 100.00 123.04 150.69 212.51 394.92 237.62
Nasdaq Medical Devices Index 100.00 93.68 107.29 120.12 145.65 151.14
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), requires the directors and executive officers, and persons who
own more than 10% of a registered class of the equity securities, to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC") and The Nasdaq Stock Market. Such
persons are required by SEC regulations to furnish us with copies of all Section
16(a) forms they file.
Based solely on our review of copies of such forms received by us with
respect to fiscal 2000, or written representations from certain reporting
persons, we believe that during fiscal 2000 all of our directors and executive
officers and persons who own more than 10% of the Common Stock complied with the
reporting requirements of Section 16(a), except that a Form 4 for Joseph A.
Mussey in connection with an exercise of options on June 30, 2000 was not filed
until January 9, 2001.
12
AUDIT COMMITTEE REPORT
The Audit Committee of the Company's Board of Directors is comprised of
independent directors as required by the listing standards of the Nasdaq
National Market. The members of the Audit Committee are David W. Chonette,
William A. Eisenecher, Daniel A. Funk, M.D., and Robert J. Williams. The Audit
Committee operates pursuant to a written charter adopted by the Board of
Directors, a copy of which is attached to this Proxy Statement as Appendix A.
The role of the Audit Committee is to oversee the Company's financial
reporting process on behalf of the Board of Directors. Management of the Company
has the primary responsibility for the Company's financial statements as well as
the Company's financial reporting process, principles and internal controls. The
independent auditors are responsible for performing an audit of the Company's
financial statements and expressing an opinion as to the conformity of such
financial statements with generally accepted accounting principles.
In this context, the Audit Committee has reviewed and discussed the
audited financial statements of the Company as of and for the year ended
December 31, 2000 with management and the independent auditors. The Audit
Committee has discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees), as currently in effect. In addition, the Audit Committee has
received the written disclosures and the letter from the independent auditors
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), as currently in effect, and it has discussed
with the auditors their independence from the Company.
The members of the Audit Committee are not engaged in the accounting or
auditing profession and, consequently, are not experts in matters involving
auditing or accounting. In the performance of their oversight function, the
members of the Audit Committee necessarily relied upon the information,
opinions, reports and statements presented to them by management of the Company
and by the independent auditors. As a result, the Audit Committee's oversight
and the review and discussions referred to above do not assure that management
has maintained adequate financial reporting processes, principles and internal
controls, that the Company's financial statements are accurate, that the audit
of such financial statements has been conducted in accordance with generally
accepted auditing standards or that the Company's auditors meet the applicable
standards for auditor independence.
Based on the reports and discussions described above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, for filing with the Securities and Exchange Commission.
Robert J. Williams (Chairman)
David W. Chonette
William A. Eisenecher
Daniel A. Funk, M.D.
13
APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP, our independent auditors for the fiscal
year ended December 31, 2000, was selected by the Board of Directors, upon
recommendation of the Audit Committee, to act in the same capacity for the
fiscal year ending December 31, 2001. Neither the firm nor any of its members
has any relationship with us nor any of our affiliates except in the firm's
capacity as our auditor.
Representatives of Ernst & Young LLP are expected to be present at the
meeting and will have the opportunity to make statements if they so desire and
respond to appropriate questions from the stockholders.
Audit Fees
The aggregate fees billed for professional services rendered by Ernst &
Young LLP for the audit of our annual financial statements for the 2000 fiscal
year and the reviews of the financial statements included in our Quarterly
Reports on Form 10-Q for the 2000 fiscal year were $80,000.
Financial Information Systems Design and Implementation Fees
Ernst & Young LLP did not render any professional services to us of the
type described in Rule 2-01(c)(4)(ii) of Regulation S-X during the 2000 fiscal
year.
All Other Fees
The aggregate fees billed for services rendered by Ernst & Young LLP,
other than fees for the services referenced under the captions "Audit Fees" and
"Financial Information Systems Design and Implementation Fees," during the 2000
fiscal year were $162,775, including audit-related services of $108,805 and
non-audit services of $53,970.
14
STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
We expect to hold our 2002 Annual Meeting of Stockholders on May 17,
2002. All proposals of stockholders intended to be presented at our 2002 Annual
Meeting of Stockholders must be directed to the attention of and received by our
Secretary by December 17, 2001, if they are to be considered for possible
inclusion in the Proxy Statement and form of proxy used in connection with such
meeting. Any such proposal must comply with the requirements of Rule 14a-8
promulgated under the Exchange Act. Also, our Bylaws provide that for a
stockholder proposal (including nomination of a person for election to the Board
of Directors) to be acted upon by our stockholders at the 2002 Annual Meeting of
Stockholders, the stockholder must provide written notice to the attention of
our Secretary no later than 70 days prior to the first anniversary of this
Annual Meeting and no sooner than 90 days prior to the first anniversary of this
Annual Meeting, subject to certain exceptions specified in the Bylaws. Thus,
subject to those exceptions, such notice must be delivered to our Secretary no
sooner than February 17, 2002 and no later than March 9, 2002. This notice must
contain the information required by our Bylaws. A copy of our Bylaws may be
obtained from our Secretary.
The address of our Secretary is 181 Technology Drive, Irvine, California
92618-Attention: Corporate Secretary.
OTHER MATTERS
As of the date of this Proxy Statement the Board of Directors knows of
no other matters which may be presented for consideration at the meeting.
However, if any other matter is presented properly for consideration and action
at the meeting, or any adjournment or postponement thereof, it is intended that
the Proxies will be voted with respect thereto in accordance with the best
judgment and in the discretion of the proxy holders.
By Order of the Board of Directors,
/s/ RICHARD L. HARRISON
Richard L. Harrison
Secretary
Dated: March 30, 2001
15
APPENDIX A
CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF INTERPORE INTERNATIONAL, INC.
PURPOSE AND OBJECTIVES
----------------------
The Audit Committee is a committee of the Board of Directors which will
make such examinations as are necessary to monitor the corporate financial
reporting and the internal and external audits of Interpore International, Inc.,
a Delaware corporation and its subsidiaries (the "Company"), and to provide to
the Board of Directors the results of its examinations and recommendations
derived therefrom, to outline to the Board improvements made, or to be made, in
internal accounting controls, to nominate independent auditors, and to provide
to the Board such additional information and materials as it may deem necessary
to assist the Board in fulfilling its fiduciary responsibilities and making the
Board aware of significant financial matters that require Board attention.
The objectives of the Audit Committee are as follows:
. to help directors discharge their fiduciary responsibilities
regarding the financial condition of the Company
. to provide communication between directors and external auditors
. to ensure the external auditors' independence
. to maintain the credibility and objectivity of financial reports
In addition, the Audit Committee will undertake those specific duties
and responsibilities listed below and such other duties as the Board of
Directors from time to time prescribe.
CONSTITUTION
------------
In 1987, the NASDAQ national market system adopted rules that require
each NASDAQ national market system company to establish and maintain an Audit
Committee. In 1999, NASDAQ amended its Audit Committee rules, requiring that
Audit Committees have a minimum of three members and be comprised of independent
directors only.
The Audit Committee of the Company shall be comprised of such number of
members not less than three as is determined from time to time by the Board of
Directors. All members of the Audit Committee shall be independent directors of
the Company.
The members of the Audit Committee will be selected from the members of
the Board of Directors who are not employees of the Company. The Board of
Directors shall provide for alternate Audit Committee members who shall be
entitled to attend committee meetings in the absence of the members of the
Audit Committee.
Members of the Audit Committee shall be able to read and understand
fundamental financial statements, including a company's balance sheet, income
statement, and cash flow statement (or shall be able to do so within a
reasonable time after appointment to the Audit Committee).
At least one member of the Audit Committee must have past employment
experience in finance or accounting, requisite professional certification in
accounting, or any other comparable experience or background which results in
the individual's financial sophistication.
A quorum of the Audit Committee shall be a majority of the members of
the Audit Committee.
The members of the Audit Committee shall choose a Chairman.
The Audit Committee shall meet at least two (2) times per year or more
frequently as circumstances require. The Audit Committee may ask members of
management or others to attend the meeting and provide pertinent information as
necessary.
The Audit Committee will meet separately with the Chief Executive
Officer and the Chief Financial Officer of the Company at least annually to
review the financial affairs of the Company. The Audit Committee will meet with
the external auditors of the Company, at such times as it deems appropriate, to
review the external auditor's examination and management report.
The external auditors shall be ultimately accountable to the Audit
Committee and the Board of Directors.
RESPONSIBILITIES
----------------
In meeting their responsibilities, the Audit Committee should address
each of the following matters:
External Auditors
-----------------
1. Together with the Board of Directors, select, evaluate, and where
appropriate, replace the external auditor (or nominate the
external auditor to be proposed for shareholder approval in any
proxy.
2. Approve the compensation for external auditors, as negotiated by
management.
3. Notify the external auditor that the external auditor's ultimate
accountability is to the Audit Committee and the Board of
Directors.
4. Confirm and ensure the independence of the external auditor.
(a) Obtain from the external auditors a formal written
statement delineating all relationships between the
auditor and the Company, consistent with Independence
Standards Board Standard No. 1.
(b) Actively engage in a dialogue with the external auditor
with respect to any disclosed relationships or services
that may impact the objectivity and independence of the
auditor.
(c) Take, or recommend that the full Board of Directors take,
appropriate action to oversee the independence of the
outside auditor.
5. Consider the external auditors' audit scope and plan.
6. Consider with management and the external auditors the rationale
for employing audit firms other than the principal external
auditors on financial accounting and reporting issues.
7. Review with the external auditors the coordination of audit
effort to assure completeness of coverages reduction of redundant
efforts, and the effective use of audit resources.
8. Review with the external auditors any impact on the financial
statements of any new or proposed changes in accounting
principles or regulatory requirements.
9. Consider and review with the external auditors:
(a) The adequacy of the Company's internal controls including
computerized information system controls and security.
2
(b) Any related significant findings and recommendations of
the external auditors together with management's responses
thereto.
10. Meet with the external auditors in executive session to discuss
any matters that the committee members or the external auditors
believe should be discussed privately with the Audit Committee.
Financial Reporting
-------------------
1. Review with management and the external auditors at the
completion of the annual examination:
(a) The Company's annual financial statements and related
footnotes.
(b) The external auditors' audit of the financial statements
and their report thereon.
(c) Any significant changes required in executing the external
auditor's audit plan.
(d) Any serious difficulties or disputes with management
encountered during the course of the audit.
(e) Other matters related to the conduct of the audit which
are to be communicated to the committee under generally
accepted auditing standards.
(f) Nature of management advisory services (including fees)
provided by the independent public accountant during the
year under audit.
2. Review with management and the external auditors any public
interim financial reporting.
3. Review filings with SEC or other regulatory bodies which contain
the Company's financial statements and consider whether the
information contained in these documents is consistent with the
information contained in the financial statements.
General Responsibilities
------------------------
1. Review, assess, and if necessary, update the Audit Committee's
charter annually.
2. Review and make recommendations to the Board regarding approval
of any conflicts of interest between management and the Company.
3. Inquire of management and the external auditors about the
significant risks or exposures and assess the steps management
has taken to minimize such risk to the Company.
4. Review policies and procedures with respect to the senior
officers' expense accounts.
5. Review legal and regulatory matters that may have a material
impact on the financial statements.
6. Meet with management in executive session to discuss any matters
that the committee members or management believes should be
discussed privately with the Audit Committee.
7. Report committee actions to the board of directors with such
recommendations as the committee may deem appropriate.
8. The Audit Committee shall have the power to conduct or authorize
investigations into any matter within the Audit Committee's scope
of responsibilities. The Audit Committee shall be empowered to
retain independent counsel, accountants, or others to assist it
in the conduct of any investigation.
3
9. The Audit Committee will perform such other functions as assigned
by law, the Company's charter or bylaws, or the Board of
Directors.
In addition to the above responsibilities, the Audit Committee will
undertake such other duties as the Board of Directors delegates to it, and will
report, at least annually, to the Board regarding the Committee's examinations
and recommendations.
REPORTS
-------
1. The Audit Committee will report its summaries of recommendations
to the Board which will be incorporated as a part of the minutes
of the Board of Directors meeting at which those recommendations
are presented.
2. The Audit Committee will prepare an annual "Audit Committee
Report" for inclusion in the Company's annual meeting proxy
statement, stating the following:
(a) Whether the Audit Committee has reviewed and assessed the
audited financial statements with management.
(b) Whether the Audit Committee has discussed with the
external auditors the matters required to be discussed by
SAS 61.
(c) Whether the Audit Committee has received written
disclosures from the independent auditors required by
Independence Standards Board Standard No. 1, and has
discussed with the auditors the auditors' independence.
(d) Whether, based on its discussions with management and the
auditors, the Audit Committee recommended to the Board of
Directors that the financial statements be included in the
Annual Report on Form 10-K.
MINUTES
-------
The Audit Committee will maintain written minutes of its meetings, which
minutes will be filed with the minutes of the meetings of the Board of
Directors.
4
INTERPORE INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 18, 2001
The undersigned hereby appoints David C. Mercer and Richard L. Harrison, and
each of them, as proxies, each with the power to appoint his substitute, and
hereby authorizes either of them to act and to vote at the annual meeting of
stockholders of Interpore International, Inc. (the "Company") to be held on May
18, 2001, and at any adjournments thereof, as indicated upon all matters
referred to on this proxy card and described in the Proxy Statement for the
meeting, and, in their discretion, upon any other matters which may properly
come before the meeting.
1. Elect both David C. Mercer and Joseph A. Mussey to the
Board of Directors of the Company.
[_] FOR BOTH nominees listed above [_] WITHHOLD AUTHORITY to vote for
(except as marked to the contrary). both nominees listed above.
(Instruction: To WITHHOLD AUTHORITY to vote for any nominee, draw a line
through the nominee's name in the list above.)
SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED IN ACCORDANCE
WITH INSTRUCTIONS APPEARING ON THIS PROXY CARD AND IN THE DISCRETION OF THE
PROXY HOLDERS AS TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.
IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED FOR PROPOSAL 1.
Please sign as name(s) appears on
this proxy card, and date this
proxy card. If a joint account,
each joint owner must sign. If
signing for a corporation or
partnership as agent, attorney or
fiduciary, indicate the capacity in
which you are signing.
Dated: May , 2001
(SEAL)
____________________________________
Signature
(SEAL)
____________________________________
Signature