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]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] 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 t (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:
________________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
________________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
________________________________________________________________________________
(2) Form, Schedule or Registration Statement no.:
________________________________________________________________________________
(3) Filing Party:
________________________________________________________________________________
(4) Date Filed:
________________________________________________________________________________
INTERPORE
CROSS
-------------
INTERNATIONAL
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 17, 2002
The 2002 annual meeting of the stockholders of Interpore International,
Inc. will be held at 9:00 a.m. local time, on May 17, 2002, at our executive
offices at 181 Technology Drive, Irvine, California 92618 for the following
purposes:
1. To elect two Class I Directors to hold office until the annual meeting
of stockholders in the year 2005 and until the election and qualification of
their respective successors; and
2. To approve amendments to our Stock Option Plan for Non-Employee
Directors to (i) increase the number of shares of common stock available for
issuance thereunder by an additional 100,000 shares, from 200,000 to 300,000
shares, (ii) increase the number of shares of common stock subject to the
options automatically granted to each of our non-employee directors on the date
of each annual meeting of our stockholders by an additional 2,500 shares, from
2,500 to 5,000 shares, and (iii) increase the number of shares of common stock
subject to the options automatically granted to each of our non-employee
directors by an additional 500 shares, from 500 to 1,000 shares, for each board
meeting attended by the director, if such director elects in advance to receive
such an option in lieu of cash compensation.
3. To approve an amendment to our Employee Qualified Stock Purchase Plan to
eliminate the one year waiting period requirement for new employees to
participate in the plan.
4. To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on March 29, 2002 will
be entitled to notice of, and to vote at, the 2002 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.
By Order of the Board of Directors,
/s/ Richard L. Harrison
Richard L. Harrison
Secretary
Irvine, California
March 29, 2002
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.
INTERPORE
CROSS
-------------
INTERNATIONAL
181 Technology Drive
Irvine, California 92618
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
May 17, 2002
------------------------------
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 17, 2002 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 listed on the proxy card to the Board
of Directors listed herein, FOR the amendments to our Stock Option Plan for
Non-Employee Directors, and FOR the amendment to our Employee Qualified Stock
Purchase Plan.
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 12, 2002. 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 17,223,071 shares of Common Stock
outstanding at the close of business on the record date, March 29, 2002, 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 29, 2002,
you will be entitled to cast one vote on each matter to be considered at the
meeting. Accordingly, an aggregate of 17,223,071 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,
(i) directors will be elected by a favorable vote of a plurality of the
aggregate votes cast, in person or by proxy, at the meeting, (ii) the proposal
to amend our Stock Option Plan for Non-Employee Directors will be decided by the
affirmative vote of the majority of shares present in person or represented by
proxy at the meeting and entitled to vote, and (iii) the proposal to amend our
Employee Qualified Stock Purchase Plan will be decided by the affirmative vote
of a majority of the outstanding shares of common stock. Accordingly,
abstentions and broker non-votes will have no effect on the outcome of the
1
election of candidates for director, but will have the same effect as votes
against the proposal to amend our Employee Qualified Stock Purchase Plan.
Because abstentions will be counted as shares entitled to vote at the meeting,
abstentions will have the effect of votes against the proposal to amend our
Stock Option Plan for Non-Employee Directors, but broker non-votes will have no
effect on the outcome of this proposal. In addition, a simple majority of the
shares voting may elect all of the directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the amount and percentage of the
outstanding shares of our 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 our 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 8 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 29, 2002. 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 4,500 14,500 *
William A. Eisenecher 14,500 40,375 54,875 *
Daniel A. Funk, M.D. 276,926 21,625 298,551 1.7%
Richard L. Harrison/(3)/ 8,616 178,000 186,616 1.1%
Philip A. Mellinger/(3)/ 26,724 91,115 117,839 *
David C. Mercer/(3)/ 57,416 281,500 338,916 1.9%
Joseph A. Mussey/(3)/ 197,728 110,113 307,841 1.8%
Lewis Parker 162,126 0 162,126 *
M. Ross Simmonds/(3)/ 0 233,000 233,000 1.3%
Robert J. Williams 1,275 21,625 22,900 *
All directors and executive officers
as a group (11 persons) 806,311 1,235,853 2,042,164 11.1%
5% Beneficial Holders:
Kopp Investment Advisors, Inc., et. al./(4)/
7701 France Avenue South, Suite 500
Edina, MN 55435 1,719,130 0 1,719,130 10.0%
Kennedy Capital Management, Inc./(5)/
10829 Olive Blvd.
St. Louis, MO 63141 1,152,600 0 1,152,600 6.7%
_______________
*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 29, 2002, for each person
includes shares subject to options exercisable within 60 days after March
29, 2002, as if such shares were outstanding on March 29, 2002.
(3) Messrs. Harrison, Mellinger, Mercer, Mussey and Simmonds are Named Executive
Officers.
2
(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 705,000 shares and exercises investment
discretion as to an additional 1,014,130 shares. Kopp Investment Advisors is
a wholly-owned subsidiary of Kopp Holding Company. LeRoy C. Kopp is the
owner of an additional 85,000 shares and holds 100% of the outstanding
capital stock of Kopp Holding Company.
(5) Based on Schedule 13G filed by Kennedy Capital Management, Inc.
Proposal 1
ELECTION OF DIRECTORS
Our Board of Directors currently consists of seven 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 I Directors has expired and two nominees for
director are to be elected as Class I Directors. The two nominees are David W.
Chonette and Robert J. Williams, each of whom currently serves as a Class I
Director. The Class II Directors, William A. Eisenecher and Daniel A. Funk,
M.D., have one year remaining on their term of office and the Class III
Directors, David C. Mercer, Joseph A. Mussey and Lewis Parker, 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. As of the date of this proxy
statement, our Board of Directors is not aware of any nominee who is unable or
will decline to serve as a director.
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
2005 Annual Meeting of Stockholders
Name Age Present Position
- ---- --- ----------------
David W. Chonette 66 Director
Robert J. Williams 69 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.
3
Robert J. Williams has been the Chairman of the Board, President and
Chief Executive Officer of Artec, Inc., an Indianapolis-based manufacturer of
disposable anesthesia and respiratory products, since 1988. From 1963 through
1985, Mr. Williams was employed by DePuy Inc., a manufacturer and distributor of
orthopedic devices, and from 1970 through 1985 he served in the capacity of
President.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
Class II -- Term Expiring at the
2003 Annual Meeting of Stockholders
Name Age Present Position
- ---- --- ----------------
William A. Eisenecher 59 Director
Daniel A. Funk, M.D. 46 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.
Class III --Term Expiring at the
2004 Annual Meeting of Stockholders
Name Age Present Position
- ---- --- ----------------
David C. Mercer 60 Chairman of the Board, Chief Executive Officer
and Director
Joseph A. Mussey 53 President, Chief Operating Officer and Director
Lewis Parker 60 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 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.
Lewis Parker operates Lochinvar LLC, a consulting practice specializing
in business turnaround situations. Mr. Parker was Vice President, Chief
Financial Officer and a Director of American OsteoMedix Corporation until its
merger with Interpore in July 2001. Mr. Parker's background also includes having
served as Senior Vice President and President of Kirschner Medical Corporation,
an orthopedic implant manufacturing and sales company that was merged into
Biomet Inc. in 1994.
4
INFORMATION REGARDING THE BOARD OF DIRECTORS
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 2001, the Board of Directors
met five 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. Eisenecher was absent from a Board
of Directors meeting and a Compensation and Stock Option Committee meeting on
the same date.
We have an Audit Committee and a Compensation and Stock Option
Committee. The Audit Committee, which is comprised of Messrs. Eisenecher, Funk,
Chonette and Williams, met one time in 2001. The role of the Audit Committee is
to assist the Board of Directors in its oversight of our financial reporting
process. As set forth in our charter, our management is responsible for our
financial statements, and for maintaining appropriate accounting and financial
reporting principles and policies and internal controls and procedures designed
to assure compliance with accounting standards and applicable laws and
regulations. The independent auditors are responsible for auditing our financial
statements and expressing an opinion as to their conformity with generally
accepted accounting principles. The Audit Committee:
. reviews and discusses with management the audited financial
statements;
. recommends to the Board of Directors the appointment of our
independent auditors for the fiscal year;
. meets with the independent auditors to discuss the scope and
results of their audit examination and the fees related to such
work;
. meets with our internal auditors and financial management to:
. discuss our accounting practices and procedures;
. review the adequacy of our accounting and control systems;
and
. report to the Board any considerations or recommendations
the Audit Committee may have with respect to such matters;
. reviews the audit schedule and considers any issues raised by its
members, the independent public accountants retained to audit our
financial statements, our internal audit staff, or management;
. reviews the independence of the independent public accountants,
and the range of audit and non-audit fees charged by the
independent public accountants; and
. reviews, approves or modifies management recommendations on
corporate financial strategy and policy and, where appropriate,
makes recommendations to the Board of Directors.
Our securities are listed on The Nasdaq Stock Market and are governed
by its listing standards. None of the members of the Audit Committee are
officers or employees of us or any of our subsidiaries.
Messrs. Eisenecher, Funk, Chonette and Williams served on the
Compensation and Stock Option Committee (until August 17, 2001, at which time
Mr. Parker replaced Mr. Williams), which met six times in 2001. Mr. Williams was
re-appointed to the Compensation and Stock Option Committee on January 23, 2002.
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
5
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
5,000 shares (this was increased from 2,500 shares effective August 17, 2001) 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 $2,000 (this
was increased from $1,000 effective August 17, 2001) 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 1,000 shares (this was increased from
500 shares effective August 17, 2001) 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 2001, non-employee directors received options to
purchase 500 shares of Common Stock, in lieu of the Director's Fee, as follows:
exercise price of $4.37 (Chonette, Funk, Williams) and $4.563 (Eisenecher, Funk,
Williams). Non-employee directors received options to purchase 1,000 shares of
Common Stock, in lieu of the Director's Fee, as follows: exercise price of $7.12
(Chonette, Eisenecher, Funk and Williams) and $9.25 (Chonette, Eisenecher, Funk
and Williams). Messrs. Chonette, Eisenecher, Funk and Williams, in connection
with the 2001 Annual Meeting, also received an option to purchase 2,500 shares
of Common Stock at an exercise price of $4.37. Mr. Parker received an option to
purchase 15,000 shares of Common Stock at an exercise price of $5.24 in
connection with his appointment to the Board of Directors, and he received
$4,000 cash in board meeting fees.
6
EXECUTIVE OFFICERS
Our executive officers as of March 29, 2002 were as follows:
Name Age Position
---- --- --------
David C. Mercer 60 Chairman of the Board and Chief Executive Officer
Joseph A. Mussey 53 President and Chief Operating Officer
Richard L. Harrison 45 Senior Vice President, Finance, Chief Financial Officer and Secretary
M. Ross Simmonds 46 Senior Vice President, Sales and Marketing
R. Park Carmon 48 Vice President, Operations
Philip A. Mellinger 38 Vice President, Product Development
Edwin C. Shors, Ph.D 56 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.
7
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, 2001, 2000 and 1999 of those persons who were,
at December 31, 2001, (i) our chief executive officer, (ii) our 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 2001
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 2001 $261,500 $32,688 $14,658 30,000 $ 3,911/(2)/
Chairman and 2000 231,000 28,875 15,023 40,000 3,845/(2)/
Chief Executive Officer 1999 203,002 55,283 16,010 40,000 3,884/(2)/
Joseph A. Mussey 2001 261,500 32,688 15,584 30,000 3,911/(2)/
President and 2000 231,000 28,875 14,752 40,000 3,845/(2)/
Chief Operating Officer 1999 202,231 55,283 14,301 40,000 123,730/(3)/
M. Ross Simmonds 2001 195,000 24,375 15,779 25,000 3,781/(2)/
Senior Vice President, 2000 171,500 21,438 15,902 35,000 3,730/(2)/
Sales and Marketing 1999 150,000 40,849 16,077 35,000 3,171/(2)/
Richard L. Harrison 2001 169,000 21,125 17,612 25,000 3,736/(2)/
Senior Vice President, Finance 2000 149,500 18,688 17,370 35,000 3,694/(2)/
Chief Financial Officer 1999 132,998 36,219 17,715 35,000 3,439/(2)/
and Secretary
Philip A. Mellinger 2001 165,000 20,625 15,813 20,000 3,720/(2)/
Vice President, 2000 149,000 17,875 15,609 30,000 16,570/(4)/
Product Development 1999 122,538 33,496 15,652 30,000 9,628/(4)/
___________________________
(1) Represents the cost of company-provided automobiles, including
reimbursement of taxes.
(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.
(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 and $6,975 in 1999.
8
The following table sets forth certain information with respect to
grants of stock options during 2001 to the Named Executive Officers pursuant to
our 2000 Stock Option Plan:
Option Grants in Last Fiscal Year
Percentage Potential
of Total Realizable Value at
Number of Options Exercise Assumed Annual
Securities Granted to or Base Rates of Stock Price
Underlying Employees Price Appreciation
Options in Fiscal (per Expiration for Option Term/(2)/
---------------------------
Name Granted Year Share) Date 5% 10%
- ---- ------------ ------------ ------------ ------------ -------------------------
David C. Mercer 30,000 7.4% $3.938 1/2/11 $74,298 $188,285
Joseph A. Mussey 30,000 7.4% 3.938 1/2/11 74,298 188,285
M. Ross Simmonds 25,000 6.1% 3.938 1/2/11 61,915 156,904
Richard L. Harrison 25,000 6.1% 3.938 1/2/11 61,915 156,904
Philip A. Mellinger 20,000 4.9% 3.938 1/2/11 49,532 125,523
(1) Represents options granted under our 2000 Option Plan. Under the terms of
the 2000 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 2000
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.
9
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of December 31, 2001
pursuant to our stock 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
Shares Options at Options at
Acquired Fiscal Year End Fiscal Year End/(1)/
------------------- ----------------------------
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
---- -------- -------- ------------- -------------
David C. Mercer 0 $ 0 427,000 / 80,000 $1,634,130 / $ 216,210
Joseph A. Mussey 38,250 158,887 82,613 / 85,000 200,336 / 235,310
M. Ross Simmonds 33,000 202,950 209,250 / 68,750 339,254 / 183,706
Richard L. Harrison 0 0 154,250 / 68,750 361,654 / 183,706
Philip A. Mellinger 6,375 18,512 71,115 / 67,500 227,664 / 196,903
(1) Calculated based on the closing sales price of the Common Stock on The
Nasdaq Stock Market on December 31, 2001 ($8.32), 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 an annual
base salary 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.
10
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, 2001, 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 $256,000 to $267,000,
effective as of July 1, 2001.
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 2001,
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
2001, we accomplished 83% 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
11
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 most of our executive officers
with an automobile on a three-year, closed-end lease. We believe that providing
the executive with the use of an automobile increases the value of the after-tax
compensation of the 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.
Lewis Parker
Robert J. Williams
Date: March 29, 2002
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our Compensation and Stock Option Committee is a current
or former officer or employee of us or any of our subsidiaries. None of our
executive officers served on the board of directors or compensation committee of
any entity which has one or more executive officers serving as members of our
Board of Directors or Compensation and Stock Option Committee.
12
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, 1996 to December 31, 2001. On March 29, 2002 the closing market
price per share of our Common Stock was $11.20, as reported on The Nasdaq Stock
Market.
Total Return to Shareholders
[GRAPH]
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
INTERPORE INTERNATIONAL 100.00 141.18 139.72 185.29 92.66 195.76
NASDAQ U.S. INDEX 100.00 122.48 172.68 320.83 192.98 153.12
NASDAQ MEDICAL DEVICES INDEX 100.00 114.10 127.03 153.85 158.72 174.38
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 2001, or written representations from certain reporting
persons, we believe that during fiscal 2001 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 Philip A.
Mellinger in connection with a gift of shares on December 17, 2001 was not filed
until February 6, 2002.
13
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 assist the Board of Directors in
its oversight of the Company's financial reporting process. Management of the
Company has the primary responsibility for the preparation, presentation and
integrity of 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, 2001 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 and its management
(including whether the independent auditors' provision of information technology
services, if any, and other non-audit service to the Company is compatible with
the auditors' independence).
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, 2001, for filing with the Securities and Exchange Commission.
Robert J. Williams (Chairman)
David W. Chonette
William A. Eisenecher
Daniel A. Funk, M.D.
14
Proposal 2
APPROVAL OF AMENDMENT TO THE
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS OF
INTERPORE INTERNATIONAL, INC.
Our stockholders are being asked to approve amendments to our Stock
Option Plan for Non-Employee Directors (the "Non-Employee Directors Plan") that
will (i) increase the number of shares of common stock available for issuance
thereunder by an additional 100,000 shares, from 200,000 to 300,000 shares, (ii)
increase the number of shares of common stock subject to the options
automatically granted to each of our non-employee directors under the plan on
the date of each annual meeting of our stockholders by an additional 2,500
shares, from 2,500 to 5,000 shares, and (iii) increase the number of shares of
common stock subject to the options automatically granted to our non-employee
directors under the plan by an additional 500 shares, from 500 to 1,000 shares,
for each board meeting attended by the director, if such director elects in
advance to receive such an option in lieu of cash compensation. As of March 29,
2002, 84,500 shares remain available for grant under the Non-Employee Directors
Plan, excluding the 100,000 share increase which is the subject of this
Proposal.
The purpose of these amendments is to ensure that the stock-based
incentive compensation that we use to attract, retain and align the incentives
of our non-employee directors with those of our stockholders remains competitive
in light of the current market for services of highly qualified directors and to
ensure that we will continue to have a sufficient reserve of common stock
available under the Non-Employee Directors Plan to provide our non-employee
directors with the opportunity to acquire a proprietary interest in the Company
pursuant to the exercise of options granted under the Non-Employee Directors
Plan.
The Non-Employee Directors Plan was adopted by the Board of Directors
on April 4, 1995 and approved by our stockholders on May 25, 1995. The
amendments to the Non-Employee Directors Plan that are the subject of this
Proposal were adopted by the Board on August 17, 2001 and November 16, 2001.
The following is a summary of the principal features of the
Non-Employee Directors Plan, as most recently amended. The summary, however,
does not purport to be a complete description of all the provisions of the
Non-Employee Directors Plan. Any stockholder who wishes to obtain a copy of the
actual plan document may do so upon written request to our Secretary at our
principal executive offices in Irvine, California.
Plan Description
The Non-Employee Directors Plan provides for the automatic grant to our
eligible non-employee directors of non-qualified stock options to purchase
shares of our common stock at set times and in set amounts. Our eligible
non-employee directors may also irrevocably elect in advance to receive
non-qualified options in lieu of Directors' Fees. The purpose of the
Non-Employee Directors Plan is to enable us to obtain and retain the services
of, and to motivate, experienced non-employee directors considered essential to
our long-range success, by providing them an opportunity to become owners of our
common stock pursuant to the exercise of options granted under the Non-Employee
Directors Plan. The Non-Employee Directors Plan is not intended to qualify as an
"employee stock purchase plan" under Section 423 of the Code and the options
granted under the Non-Employee Directors Plan are not intended to qualify as
"incentive stock options" under Section 422 of the Code.
Securities Subject to the Non-Employee Directors Plan
Under the Non-Employee Directors Plan, options may be granted covering
up to 300,000 shares of our common stock, which includes the 100,000 share
increase for which stockholder approval is sought under this Proposal. The
Non-Employee Directors Plan provides for appropriate adjustments in the number
and kind of shares subject to the Non-Employee Directors Plan and to outstanding
options in the event of a stock split, stock dividend or certain other similar
changes in our common stock, and in the event of a merger, consolidation or
certain other types of recapitalizations of Interpore International, Inc.
15
Eligibility to Participate; Option Grants
Each member of our Board of Directors who is not also our employee (as
defined under Section 3401(c) of the Code) (and who is not prohibited by law or
the policies of the employer of such person or of any other company on whose
board of directors such person is a member) is eligible to participate in the
Non-Employee Directors Plan upon his or her election or appointment to our Board
of Directors. We presently have five non-employee directors eligible to
participate under the Non-Employee Directors Plan.
Each of our eligible non-employee directors who was a director on May
25, 1995 was granted automatically, as of May 25, 1995, an initial option to
purchase 15,000 shares of our common stock and each person who first becomes a
non-employee director after May 25, 1995 by election or appointment to the Board
will be granted automatically, as of the date of his or her election or
appointment to the Board, an option to purchase 15,000 shares of common stock.
Following such initial grant, each non-employee director will be granted
automatically additional options covering 5,000 shares of our common stock
(which includes the 2,500 share increase for which stockholder approval is
sought under this Proposal) on the date of our Annual Meeting of Shareholders in
each subsequent year following the year in which initial options were granted.
Notwithstanding the foregoing, no options may be granted to a person who is not
reelected to the Board of Directors on the proposed date of grant or is
otherwise not an eligible non-employee director at the time of the proposed
grant.
Eligible non-employee directors may also irrevocably elect six months
in advance to receive non-qualified options covering 1,000 shares of common
stock (which includes the 500 share increase for which stockholder approval is
sought under this Proposal) in lieu of the directors' fees payable to such
non-employee director. The date of grant for options granted in lieu of
directors' fees is the date of the Board Meeting for which the Directors' Fees
are payable or such other date as to which the directors' fees are payable.
Option Price; Option Exercise
The price per share of the common stock subject to each option granted
under the plan shall be 100% of the fair market value (as defined in the plan)
of such shares of common stock on the date the option is granted.
No option may be exercised in whole or in part during the first year
after the option is granted. Thereafter, the options become exercisable in four
cumulative annual installments of 25% of the shares covered by the option per
year for four years. The options terminate upon the earliest of the following:
(i) the expiration of ten years and one day from the date the option was
granted; (ii) except in the case of death or disability (within the meaning of
Section 22(e)(3) of the Code), the expiration of three months from the date of
termination as a non-employee director for any reason, unless the non-employee
director dies within said three-month period; (iii) in the case of disability
(within the meaning of Section 22(e)(3) of the Code), the expiration of one year
from the date of termination as a non-employee director, unless the non-employee
director dies within said one year period; or (iv) the expiration of one year
from the date of the non-employee director's death.
Options granted under the Non-Employee Directors Plan may be exercised
in whole or in part; provided, however, that we will not be required to issue
fractional shares and partial exercises will be with respect to at least 100
shares.
Administration of the Non-Employee Directors Plan
The Non-Employee Directors Plan provides for administration by the
Board of Directors. The Board of Directors is authorized to adopt, amend and
rescind rules relating to the administration of the Non-Employee Directors Plan.
We pay all costs of administering the Non-Employee Directors Plan.
Stock Option Agreements
Options granted under the Non-Employee Directors Plan are evidenced by
written Stock Option Agreements between the non-employee director and us. Stock
Option Agreements may contain restrictions on the transferability of the common
stock acquired pursuant to the exercise of an option granted under the
Non-Employee
16
Directors Plan. Stock Option Agreements must be consistent with the Non-Employee
Directors Plan but need not contain identical provisions.
Exercise of Options
Options are exercisable by written notice to us, specifying the number
of shares to be purchased and accompanied by the payment of the purchase price
for such shares. The option price, plus any applicable tax required to be
withheld, may be paid in cash or by delivery of a full-recourse promissory note
or shares of our common stock (including shares issuable upon exercise of the
option). Shares of the stock tendered in exercise of an option are valued at
their fair market value on the date of delivery to us.
We may provide for the termination of an option upon our dissolution or
liquidation, our merger or consolidation with or into another corporation or the
acquisition of us by another corporation or person. However, in such event, our
Board of Directors may accelerate the exercisability of outstanding options
prior to such event even though the options have not yet become fully
exercisable.
No option granted under the Non-Employee Directors Plan may be assigned
or transferred by the non-employee director, except upon death or pursuant to a
qualified domestic relations order as defined in, and to the extent not
prohibited by, the Code. During the lifetime of the non-employee director, the
option may be exercised only by the non-employee director.
Rights as Shareholder
The non-employee director will not have any rights as a shareholder as
to the shares of common stock subject to an option granted under the
Non-Employee Directors Plan unless all conditions precedent to issuance and
delivery of certificates representing such shares are satisfied.
Amendment, Suspension or Termination
The Non-Employee Directors Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time by the Board of
Directors. However, without the approval of our shareholders given within twelve
months before or after the action by the Board, no action of the Board may
increase the limit on the maximum number of shares which may be issued under the
Non-Employee Directors Plan, modify the eligibility requirements for the
Non-Employee Directors Plan, modify the number of shares which may be granted to
any optionee under the Non-Employee Directors Plan, modify the timing of such
grants of options under the Non-Employee Directors Plan, change the minimum
option price, modify the provisions relating to the exercisability of options,
allow any option to be granted under the Non-Employee Directors Plan at any date
on or after May 25, 2005, or amend or modify the Non-Employee Directors Plan in
a manner requiring shareholder approval under Rule 16b-3 of the Exchange Act. In
addition, the Non-Employee Directors Plan shall not be amended more than once
every six months, other than to comport with changes in the Code or the rules
promulgated thereunder.
Restrictions on Transfer
Non-Employee Directors may not offer or sell the shares of common stock
they acquire upon exercise of options under the plan unless such offers and
sales are made pursuant to an effective Registration Statement under the
Securities Act of 1993, as amended (the "Act"), or pursuant to an appropriate
exemption from the registration requirements of the Act or, if available to the
selling shareholder, within the limitations and subject to conditions set forth
in Rule 144 promulgated under the Act.
Additionally, under Section 16(b) of the Exchange Act, any person who
is a director may be liable to us for profit realized from any purchase and sale
(or any sale and purchase) of any of our equity securities, occurring within a
period of less than six months, irrespective of the intention on the part of
such person in entering into the transaction. The exercise of an option acquired
under the Non-Employee Directors Plan is not considered a purchase under Section
16 of the Exchange Act, provided such option is held for a period of at least
six months following the date of grant of such option. The term "equity
security" may include rights to acquire capital stock upon exercise of warrants
or options or upon conversion of convertible securities, or otherwise.
17
Federal Income Tax Consequences
The income tax consequences of the Non-Employee Directors Plan under
current federal law are summarized below. The discussion is intended to provide
only general information. State and local tax consequences are not discussed.
Holders of options under the Non-Employee Directors Plan do not realize
income for federal income tax purposes as a result of the grant of the option,
but normally realize compensation income upon exercise of the stock option to
the extent that the fair market value of the shares acquired on the date of
exercise of the option exceeds the aggregate option exercise price paid. We are
entitled to a deduction in the same amount at the time of exercise of the
option. Any appreciation in the value of these shares of common stock following
exercise will usually qualify for long-term capital gain treatment if the shares
of common stock are held for more than one year.
However, in the case of the exercise of a non-qualified stock option by
an optionee who has held the option for less than six months, the optionee
generally will realize compensation income only upon the earlier of (i) the
lapse of the six month period from the date of grant of such option, or (ii) the
first day on which the sale of such shares at a profit will not subject the
optionee to suit under Section 16(b) of the Exchange Act. In that case, the
optionee can elect, within thirty (30) days after the exercise of the
non-qualified stock option, to realize compensation income immediately upon the
exercise pursuant to Section 83(b) of the Code.
The tax consequences resulting from the exercise of an option under the
Non-Employee Directors Plan through the delivery of shares of common stock which
are already-owned by the non-employee director are not completely certain. In
published rulings, the Internal Revenue Service has taken the position that (i)
to the extent an equivalent number of shares is acquired, the non-employee
director will not recognize gain and the non-employee director's basis in the
shares acquired upon such exercise is equal to his or her basis in the
surrendered shares, (ii) any additional shares acquired upon such exercise are
compensation to the non-employee director and taxable under the rules described
above and (iii) the non-employee director's basis in any such additional shares
is equal to the fair market value of such shares at the time of the exchange.
A director who elects to receive options in lieu of directors' fees
will be subject to the foregoing rules, and will not realize income until the
date of exercise (or later, under the circumstance described above), if his or
her election to receive options is properly made in advance of the time he or
she renders the services to which the option grant relates. A director who does
not make such election in advance of rendering services will realize ordinary
income upon the date of grant.
Vote
The affirmative vote of a majority of our voting stock present or
represented and entitled to vote at the Annual Meeting is required for approval
of the amendments to the Non-Employee Directors Plan. Abstentions on this
proposal will be counted for purposes of determining the total number of shares
that voted on the proposal and thus will have the effect of a vote against the
proposal. Shares that are not voted by the broker who is the record holder of
the shares (i.e., broker non-votes) and shares that are not voted in other
circumstances in which proxy authority is defective or has been withheld, will
not be deemed to be entitled to vote for purposes of determining whether
stockholder approval of this proposal has been obtained and will have no effect
on the outcome of this proposal.
Should stockholder approval not be obtained, then the proposed share
increases will not be implemented, any options granted on the basis of that
increase will immediately terminate, and no additional options will be granted
on the basis of such share increases.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ADOPTION OF THE
AMENDMENTS TO THE NON-EMPLOYEE DIRECTORS PLAN
18
Proposal 3
APPROVAL OF AMENDMENT TO THE
AMENDED AND RESTATED EMPLOYEE QUALIFIED STOCK PURCHASE PLAN OF
INTERPORE INTERNATIONAL, INC.
Our stockholders are being asked to approve an amendment to our Amended
and Restated Employee Qualified Stock Purchase Plan (the "EQSP Plan") to
eliminate the requirement that new employees complete a one year waiting period
before they are eligible to participate in the EQSP Plan
We believe that the changes to our EQSP Plan will enable us and our
subsidiaries to attract and retain more experienced and capable persons who can
make significant contributions to the further growth and success.
The EQSP was adopted by the Board of Directors on November 13, 1998 and
approved by our stockholders on May 21, 1999. The amendment to the EQSP Plan
that is the subject of this Proposal was adopted by the Board on November 16,
2001.
Description of the EQSP Plan
The following is a description of the material provisions of the EQSP
Plan. The summary that follows is not intended to be complete, and reference
should be made to the EQSP Plan for a complete statement of its terms and
provisions. Copies of the EQSP Plan may be obtained by making written request of
our Secretary at our principal executive offices in Irvine, California.
The EQSP Plan provides for the grant of options to purchase shares of
common stock (through payroll deductions) during six-month offering periods. The
purpose of the EQSP Plan is to assist eligible employees of the company in
acquiring stock ownership pursuant to a plan which is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986, as amended (the "Code").
The EQSP Plan is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended, and is not qualified under
Section 401(a) of the Code. We use the proceeds from the sale of common stock
under the EQSP Plan for general corporate purposes.
Securities Subject to the EQSP Plan
The total number of shares of common stock currently authorized for
issuance under the EQSP Plan is 300,000. The Administrator of the EQSP Plan will
make appropriate adjustments to the aggregate number of shares of Common Stock
subject to the Plan, the number of shares of Common Stock subject to outstanding
options and the price per share thereof in the event of any merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
recapitalization or other change in our corporate structure.
Grant of Options; Offering Period
Participating eligible employees are granted nontransferable six-month
options to purchase shares of common stock. The options are granted on the first
day of a six-month period (the "Date of Grant"), referred to as an "Offering
Period" and are generally automatically exercised on the last day of the
Offering Period (the "Date of Exercise"). Offering Periods are set by the
Administrator and commence on May 1 and November 1 of each year.
Eligibility to Participate
In order to be eligible to participate in the EQSP Plan, an individual
must be, on the first day of any Offering Period:
. customarily employed by us or our subsidiaries for more than 20 hours
per week; and
. customarily employed by us or our subsidiaries for more than five
months during each calendar year.
19
The amendment clarifies that employees of our subsidiaries are eligible
to participate in the EQSP Plan. Directors who are not our employees or
employees of our subsidiaries are not eligible to participate in the EQSP Plan.
Eligibility for options granted under the EQSP Plan is subject to restrictions
imposed by the Code. Refer to Section Eight of the EQSP Plan.
Election to Participate
An eligible employee may enroll in the EQSP Plan by submitting a
completed and executed written payroll deduction authorization form. An
employee's authorization will enroll the employee in the EQSP Plan for each
successive Offering Period until the employee either amends the authorization,
withdraws from participation under the EQSP Plan or ceases to remain eligible to
participate in the EQSP Plan.
Payroll Deductions
Each participating employee elects to reduce the cash compensation
payable by us through payroll deductions by an amount equal to a specified whole
percentage of Base Pay (not to exceed 10%) payable on each payday. "Base Pay"
means the gross pay received as cash compensation for services rendered,
generally excluding overtime payments, sales commission, incentive compensation,
bonuses and other special payments. Payroll deductions may not be changed with
respect to an Offering Period during that Offering Period.
Throughout the Offering Period, we credit the amount of each employee's
payroll deductions to an account established under the EQSP Plan for the
employee. An employee's payroll deductions are generally transferred from this
account to us upon the automatic exercise of the employee's option to purchase
shares of common stock under the EQSP Plan at the end of the Offering Period.
Employees do not receive any interest on payroll deductions credited to their
accounts under the EQSP Plan.
Option Price
Options granted under the EQSP Plan entitle a participating employee to
purchase the number of shares of common stock determined by dividing the
employee's total payroll deductions for the Offering Period by the purchase
price for the shares of common stock, excluding fractional shares, up to a
maximum of 5,000 shares. The purchase price for such common stock equals the
lesser of 85% of the fair market value of such shares of common stock on (i) the
Date of Grant (the first day of the Offering Period), or (ii) the Date of
Exercise (the last day of the Offering Period). For so long as our common stock
is listed as a National Market Issue under the Nasdaq National Market System,
the fair market value of a share of common stock is determined to be the last
sales price on a given date.
Cessation of Participation
An employee will cease to participate in the EQSP Plan when the
employee (i) delivers to us written instructions to terminate their
participation in the EQSP Plan, (ii) resigns or is discharged from employment
with us, (iii) except under certain circumstances, has a leave of absence, or
(iv) dies. Upon cessation of participation by an employee, the employee's
payroll deductions under the EQSP Plan will automatically cease. If a cessation
of participation occurs during the last two weeks of an Offering Period, the
employee's Option will be exercised on the last day of the Offering Period. Upon
cessation of participation at any other time, any balance of payroll deductions
credited to the employee's account under the EQSP Plan will be paid to the
employee in cash in one lump sum as soon as practicable after cessation of
participation, without payment of any interest thereon.
Administration of the EQSP Plan
Our Chief Executive Officer administers the EQSP Plan. We pay all costs
of administering the EQSP Plan. The EQSP Plan provides for the indemnification
of the administrator for liability, loss, costs, damages, attorneys' fees and
other expenses the administrator may incur in connection with administration of
the EQSP Plan.
20
Rights as a Stockholder; Transferability
No participating employee has any rights as a stockholder as to the
shares of common stock covered by an option until such shares have been issued
and delivered to the participating employee or account following the exercise of
such employee's option. No adjustment will be made for dividends or
distributions or other rights for which the record date is prior to the date of
such issuance. No option granted under the EQSP Plan may be assigned or
transferred by the employee, except by will or the laws of descent and
distribution. During the lifetime of the employee, the option may be exercised
only by the employee.
Certain Restrictions on Resale
Shares of common stock issued upon the exercise of options granted
under the EQSP Plan may be subject to restrictions on resale. Participating
employees who are "affiliates" within the meaning of the Securities Act and who
wish to offer or sell these shares must comply with the registration
requirements of the Securities Act, unless an exemption applies.
Amendment and Termination of the EQSP Plan
The Board of Directors may not, without prior stockholder approval,
amend the EQSP Plan so as to increase the maximum number of shares of common
stock subject to the EQSP Plan, change the designation or class of employees
eligible to receive options under the EQSP Plan or amend the EQSP Plan in any
manner which would cause the EQSP Plan to cease to be an employee stock purchase
plan qualified under Section 423(b) of the Code.
Although we expect to continue the EQSP Plan until all shares of the
common stock reserved for issuance under the EQSP Plan have been issued, the
Board of Directors may terminate the EQSP Plan at any time with respect to any
shares not then subject to an option under the EQSP Plan, and except as
indicated above, may modify the EQSP Plan from time to time.
Federal Income Tax Consequences Associated With The EQSP Plan
The EQSP Plan is intended to qualify as an "employee stock purchase
plan," as defined in Section 423 of the Code. A summary of the Federal income
tax aspects of the EQSP Plan are set forth below.
No taxable income will result to an employee on the date options are
granted under the EQSP Plan (i.e., the first day of the Offering Period) or on
the date the options are exercised (i.e., the last day of the Offering Period).
If the employee does not dispose of the shares of common stock purchased upon
exercise of the options within two years after the date on which the options
were granted or within one year after the date on which such shares were
acquired by the employee (the "Holding Period"), or the employee dies while
owning the shares, the employee will be taxed in the year in which the shares
are disposed of, or the year closing with the employee's death, whichever
applies, as follows:
(a) The employee will be subject to ordinary income tax on an
amount equal to the lesser of (i) the excess, if any, of the
fair market value of the shares of common stock on the date on
which they were disposed of or the employee died, over the
amount paid for the shares of common stock, or (ii) the excess
of the fair market value of the shares of Common Stock on the
date the options were granted, over the option price; and
(b) Any further gain realized by the employee on the disposition
of the shares of common stock (after increasing the basis of
these shares of common stock by the amount of ordinary income
realized as described in (a) above) will be taxed as capital
gain.
If the employee disposes of the shares of common stock purchased upon
exercise of the options before the expiration of the Holding Period, the
employee will realize ordinary income, reportable for the year of the
disposition of such shares of common stock, to the extent of the excess of the
fair market value of such shares of common stock on the date on which the
options were exercised, over the option price for such shares of common stock.
Any additional gain realized will be taxable as capital gain. If the common
stock is disposed of before the
21
expiration of the Holding Period and the amount realized is less than the fair
market value of the Common Stock at the time of exercise, the employee will
report (i) ordinary income to the extent of the excess of the fair market value
of such common stock on the date on which the options were exercised, over the
option price for such common stock and (ii) capital loss to the extent the fair
market value of such common stock on the exercise date exceeds the amount
realized on the sale. We are entitled to a tax deduction only to the extent that
an employee realizes ordinary income due to a disposition of the common stock
before the expiration of the Holding Period.
The rules governing the tax treatment of options and an optionee's
receipt of shares in connection with such grants are quite technical. The above
description of tax consequences is necessarily general in nature and does not
purport to be complete. Moreover, statutory provisions are, of course, subject
to change, as are their interpretations, and their application may vary in
individual circumstances. Finally, the tax consequences under applicable state
law may not be the same as under the federal income tax laws.
Required Vote
The affirmative vote of a majority of the outstanding shares of common
stock is required to approve the amendment to the EQSP Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE APPROVAL OF THE AMENDMENT TO THE EQSP PLAN.
22
APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP, our independent auditors for the fiscal
year ended December 31, 2001, 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, 2002. 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 2001 fiscal
year and the reviews of the financial statements included in our Quarterly
Reports on Form 10-Q for the 2001 fiscal year were $94,200.
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 2001 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 2001
fiscal year were $113,110, including audit-related services of $26,050 and
non-audit services of $87,060.
23
STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
We expect to hold our 2003 Annual Meeting of Stockholders on May 16,
2003. All proposals of stockholders intended to be presented at our 2003 Annual
Meeting of Stockholders must be directed to the attention of and received by our
Secretary by December 16, 2002, 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 2003 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, 2003 and no later than March 7, 2003. 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,
Richard L. Harrison
Secretary
Dated: March 29, 2002
24
APPENDIX A
CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF INTERPORE INTERNATIONAL, INC.
PURPOSE AND OBJECTIVES
----------------------
The primary function of the Audit Committee is to assist the Board of
Directors of Interpore International, Inc. (the "Company") in fulfilling its
oversight responsibilities by:
. serving as an independent and objective party to monitor the Company's
financial reporting process and internal control systems;
. reviewing and appraising the audit efforts of the Company's independent
auditors and internal auditing department;
. providing an open avenue of communication among the independent
accountants, financial and senior management, the internal auditing
department, and the Board;
. helping directors to discharge their fiduciary responsibilities
regarding the financial condition of the Company;
. providing an open avenue of communication among the independent
auditors, financial and senior management, the Company's internal
auditing department and the Board of Directors; and
. ensuring the external auditors' independence.
The Audit Committee's responsibility is oversight. Management of the
Company has the responsibility for the Company's financial statements as well as
the Company's financial reporting process, principles and internal controls. The
independent auditor is responsible for performing an audit of the Company's
annual financial statements, expressing an opinion as to the conformity of such
annual financial statements with generally accepted accounting principles,
reviewing the Company's quarterly financial statements and other procedures. It
is recognized that 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, including in respect of auditor independence.
As such, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements fairly present the
Company's financial position and results of operation and are in accordance with
generally accepted accounting principles and applicable laws and regulations.
Each member of the Audit Committee shall be entitled to rely on (i) the
integrity of those persons within the Company and of the professionals and
experts (such as the independent auditor) from which it receives information,
(ii) the accuracy of the financial and other information provided to the Audit
Committee by such persons, professionals or experts absent actual knowledge to
the contrary and (iii) representations made by management or the independent
auditor as to any information technology services of the type described in Rule
2-01(c)(4)(ii) of Regulation S-X and other non-audit services provided by the
outside auditor to the Company.
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. A majority of the members present at any meeting at which a
quorum is present may act on behalf of the Audit Committee.
The members of the Audit Committee shall choose a Chairman.
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate. As part of its job to foster open
communication, the Audit Committee or at least its Chairperson should meet with
the independent auditor and management quarterly to review the Company
financials consistent with Section 2 under the heading "Financial Reporting"
below. In addition, the Audit Committee may meet quarterly with management, the
head of the internal auditing department, if any, and the independent auditors
in separate executive sessions to discuss any matters that the Audit Committee
or each of these groups believe should be discussed privately.
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. Recommend to the Board the selection of the independent auditor,
considering independence and effectiveness, and approve the fees
and other compensation to be paid to the independent auditor. On an
annual basis, the Committee should review and discuss with the
independent auditor all significant relationships the auditor has
with the Company to determine the auditor's independence.
2. Review and evaluate the performance of the independent auditor and
approve any proposed discharge and replacement of the independent
auditor when circumstances warrant. The independent auditor is
responsible to the Board and to the Committee for such independent
auditor's audit or accounting of the financial statements of the
Company.
3. 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.
2
4. Review the experience and qualification of the senior members of
the independent auditor team and the quality control procedures of
the independent auditor.
5. If applicable, the Committee shall consider whether the outside
auditor's provision of (i) information technology services of the
type described in Rule 2-01(c)(4)(ii) of Regulation S-X and (ii)
other non-audit services to the Company is compatible with
maintaining the independence of the outside auditor.
6. Consider the external auditors' audit scope and plan.
7. 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.
8. 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.
9. Review with the external auditors any impact on the financial
statements of any new or proposed changes or initiatives in
accounting principles or regulatory requirements.
10. Consider and review with the external auditors:
(a) The adequacy of the company's internal controls including
computerized information system controls and security.
(b) Any related significant findings and recommendations of the
external auditors together with management's responses thereto.
11. 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 independent auditor, in compliance
with Statement on Auditing Standards No. 61, as amended, the
quarterly financial statements set forth in the Company's Form 10-Q
prior to its filing or prior to the release of earnings. The
Chairperson of the Audit Committee may represent the entire Audit
Committee for the purposes of this review.
3
3. Review with management and the independent auditor any
correspondence with regulators or governmental agencies and any
employee complaints or published reports which raise material
issues regarding the Company's financial statements or accounting
policies.
4. 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.
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.
4
(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.
5
INTERPORE INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 17, 2002
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
17, 2002, 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 W. Chonette and Robert J. Williams to the Board of
Directors of the Company.
[_] FOR BOTH nominees [_] WITHHOLD AUTHORITY
listed above (except as marked to vote for both nominees listed above.
to the contrary).
(Instruction: To WITHHOLD AUTHORITY to vote for any nominee, draw a line
through the nominee's name in the list above.)
2. Proposal to approve amendments to the Company's Stock Option Plan For
Non-Employee Directors to (i) increase the number of shares of
common stock available for issuance thereunder from 200,000 to 300,000
shares, (ii) increase the number of shares of common stock subject to the
options automatically granted to each of our non-employee directors on the
date of each annual meeting of our stockholders from 2,500 to 5,000 shares,
and (iii) increase the number of shares of common stock subject to the
options automatically granted to each of our non-employee directors from
500 to 1,000 shares for each board meeting attended by the director, if
such directors elects in advance to receive such an option in lieu of cash
compensation.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to approve an amendment to the Company's Employee Qualified
Stock Purchase Plan to eliminate the one year waiting period
requirement for new employees to participate in the plan.
[_] FOR [_] AGAINST [_] ABSTAIN
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 , 2002
(SEAL)
_____________________________
Signature
(SEAL)
_____________________________
Signature