<PAGE>
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 Materials Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Integrated Orthopaedics, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Integrated Orthopaedics, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(I)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:/1/
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
/1/ Set forth the amount on which the filing fee is calculated and state how it
was determined.
[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
INTEGRATED ORTHOPAEDICS, INC.
(formerly DRCA Medical Corporation)
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 8, 1997
TO THE STOCKHOLDERS OF INTEGRATED ORTHOPAEDICS, INC.:
The Annual Meeting of Stockholders of Integrated Orthopaedics, Inc. (the
"Company") will be held at the Doubletree Hotel, 2001 Post Oak Boulevard,
Houston, Texas 77056, at 3:30 p.m., local time, May 8, 1997 for the following
purposes:
1. To elect Directors to serve until the 1998 Annual Meeting of Stockholders or
until their successors shall have been duly elected and qualified;
2. To ratify the selection by the Board of Directors of Price Waterhouse as
independent accountants of the Company for the fiscal year ending
December 31, 1997; and
3. To transact such other business as may properly come before the meeting.
Common stockholders of record at the close of business on March 17, 1997 will be
entitled to notice of and vote at the meeting.
By order of the Board of Directors
JEFFERSON R. CASEY, Secretary
Houston, Texas
Dated: April 11, 1997
Please mark, date and sign the enclosed proxy card and return it in the enclosed
addressed envelope at your earliest convenience, thereby saving the Company the
expense of further solicitation of proxies. Stockholders planning to attend the
Annual Meeting in person are requested to mark the appropriate box on the
enclosed Proxy.
<PAGE>
INTEGRATED ORTHOPAEDICS, INC.
3 RIVERWAY, SUITE 1430
HOUSTON, TEXAS 77056
PROXY STATEMENT
1997 ANNUAL MEETING OF STOCKHOLDERS
This proxy statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Integrated Orthopaedics, Inc. (the
"Company") of the enclosed proxy (the "Proxy") to be used at the Company's 1997
Annual Meeting of Stockholders (the "Annual Meeting") and at any adjournments
thereof for the purposes of considering and voting upon the matters set forth in
the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting
is to be held at the Doubletree Hotel, 2001 Post Oak Boulevard, Houston, Texas
77056, at 3:30 p.m., local time, May 8, 1997. This Proxy Statement and the
Proxy were first sent or given to the Company's stockholders on or about April
14, 1997.
Only stockholders of record on March 17, 1997, (the "record date") are entitled
to notice of and to vote at the Annual Meeting and any adjournment thereof.
The Proxy, if properly executed and returned, will be voted (or withheld or
abstained from voting) according to the choices specified therein. The Proxy
will be voted in favor of (i) the election of each nominee for director named
thereon, unless a choice is indicated to withhold authority to vote for such
nominee, and (ii) each proposal described therein unless a choice is indicated
to vote against or to abstain from voting on any specific proposal.
The Proxy may be revoked (i) by providing written notice of such revocation to
Continental Stock Transfer & Trust Company, 2 Broadway, 19th Floor, New York, NY
10004, if such notice is received prior to 5:00 P.M., New York City time on
Wednesday, May 1, 1997, or (ii) by attendance at the meeting and voting in
person.
Stockholders planning to attend the Annual Meeting in person are requested to
mark the appropriate box on the enclosed Proxy.
VOTE REQUIRED
The Common Stock and the Series A Cumulative Convertible Preferred Stock
("Series A Preferred Stock") are the only voting securities of the Company. As
of the record date, there were (i) 5,302,474 shares of Common Stock issued and
5,286,641 shares outstanding, and (ii) 25,226 shares of the Series A Preferred
Stock issued and outstanding. The presence, in person or by proxy, of a
majority of the votes represented by the aggregate of the outstanding shares of
Common Stock and Series A Preferred Stock on the record date is necessary to
constitute a quorum at the meeting. Each holder of Common Stock is entitled to
one vote for each share of Common Stock owned on the record date. Each holder
of Series A Preferred Stock is entitled to approximately 30.49 votes for each
share of Series A Preferred Stock owned on the record date. Assuming the
presence of a quorum, the affirmative vote of the holders of at least a majority
of the votes represented at the Annual Meeting is required for the approval of
Items 1 and 2 set forth in the accompanying Notice. Proxies are being tallied
by Continental Stock Transfer & Trust Company for stockholders who are not
present at the Annual Meeting. A panel of three Judges appointed by the Company
will tabulate the shares which are voted by Proxy and in person at the Annual
Meeting. Abstentions and broker non-votes are counted for the purposes of
determining the presence or absence of a quorum for the transaction of business.
Abstentions are counted in tabulations of the votes cast or proposals presented
to stockholders, whereas broker non-votes are not counted for the purposes of
determining whether a proposal has been approved.
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<PAGE>
ITEM 1
NOMINEES, DIRECTORS AND COMMITTEES
ELECTION OF DIRECTORS
The number of directors elected to the Board can range from two to a maximum
number to be determined by a majority vote of the board of directors as provided
in the Company's Bylaws. At the meeting five directors are to be elected to
hold office until the next annual meeting of shareholders or until the
successors of each shall be qualified. The five nominees are William F.
Donovan, M.D., Jose E. Kauachi, Victor M. Rivera, M.D., Clifford R. Hinkle, and
Ronald E. Pierce. Messrs. Kauachi, Donovan, Rivera and Hinkle are currently
directors of the Company. Unless a choice is specifically indicated on the
enclosed Proxy to withhold authority to vote for a nominee, all shares
represented by proxies which are executed and received prior to the meeting will
be voted for the election of said nominees.
Messrs. Donovan, Kauachi, Rivera, Hinkle and Pierce have each consented to being
named in this proxy statement and have agreed to serve if elected. Although it
is not contemplated that any of these nominees will be unable to serve, if such
a situation arises before or during the meeting, the proxies will be voted for
any nominee who shall be designated by the present Board of Directors to fill
such vacancy.
Appearing below is certain biographical and other information with respect to
each nominee.
NAME AGE POSITION
Jose E. Kauachi 58 Chairman of the Board and
Chief Executive Officer
William F. Donovan, M.D. 54 Director
Victor M. Rivera, M.D. 55 Director
Clifford R. Hinkle 48 Director
Ronald E. Pierce 42 President and Chief Operating
Officer
JOSE E. KAUACHI, (age 58). Mr. Kauachi has served variously as President,
Chairman of the Board, Chief Executive Officer and Treasurer of the Company
since October 1986. Mr. Kauachi received his degree in Mechanical Engineering
Route to Business Administration in 1965 from the University of Texas. Mr.
Kauachi was an independent top management consultant specializing in projects in
the medical field from 1984 through 1987. During this period he assisted start-
up businesses and in the development of existing businesses, including the
founding of the Company in 1986. As a top management consultant Mr. Kauachi
performed management consulting work for the government of Mexico in connection
with overall organization, strategic planning and finance. He also provided
consulting services for Mexican and Spanish companies interested in establishing
and developing business operations in the Southwestern United States. From 1974
through 1976, Mr. Kauachi was Director of the Mexico Division of Financiera de
Nuevo Leon, SA de CV a Mexican investment bank; top management consultant for
McKinsey & Company, Inc., a New York based international top management
consulting firm, from 1972 through 1974; Project Manager for Banamex, a Mexican
banking and industrial group from 1971 through 1972; and, international Credit
Manager with the International Bank of America in San Francisco, California from
1969 to 1971. Mr. Kauachi served as Vice President and General Manager of Carte
Blanche Corporation's credit card operations in Mexico from 1967 to 1969.
Mr. Kauachi has been a Director of the Company since October 1986, served as a
member of the Audit Committee until June 1, 1990, and has served as a member of
the Compensation Committee until April 7, 1997. Mr. Kauachi currently serves as
Chairman of the Board and Chief Executive Officer.
2
<PAGE>
WILLIAM F. DONOVAN M.D., (age 54). Dr. Donovan has been engaged in the private
practice of orthopedic surgery in Houston, Texas for over 22 years. Dr. Donovan
received his B.S. degree from John Carroll University in 1964 and his medical
degree from Loyola-Stritch Medical School, Chicago, Illinois, in 1968. Dr.
Donovan's residency in orthopedic surgery was completed at Northwestern
University in 1973. Dr. Donovan is a member of the American Board of Orthopedic
Surgery, American Academy of Orthopedic Surgery, Houston Orthopedic Society,
Texas Orthopedic Society, Harris County Medical Society, International
Arthroscopy Association, Texas Medical Association, Western Orthopedic
Association, and American Academy of Disability Evaluating Physicians, and is a
Medical Review Officer.
Dr. Donovan has been a Director of the Company since October 1986, served as a
member of the Compensation Committee from election until June 1, 1990, and
served as a member of the Audit Committee until November 14, 1997. Dr. Donovan
served as Chairman of the Board until May 1992. He also serves as the Company's
Medical Director, its primary advisor regarding strategic and operational issues
related to the Company's management of medical practices.
VICTOR M. RIVERA, M.D., (age 55). Dr. Rivera has been engaged in the practice
of neurological medicine for over 24 years. Dr. Rivera received his medical
degree from the National School of Medicine, Mexico in 1965. Dr. Rivera
completed his residency in neurology at Wayne State University, Affiliated
Hospital, Detroit, Michigan and Baylor College of Medicine, Houston, Texas in
1969. Dr. Rivera has served as Director of the Houston Neurological Center
since 1977. He was with the Zimmerman Medical Clinic, Houston, Texas from 1975
to 1977. He served in the Neurology Department of Baylor College of Medicine,
Houston, Texas from 1970 to 1975. Dr. Rivera is a member of the American
Medical Association, American Academy of Neurology, Harris County Medical
Association, Houston Neurological Society, International Rehabilitation Medicine
Association, and the Texas Medical Association.
Dr. Rivera has been a Director since May 1992, has served as a member of the
Audit Committee since election as a director, and has served as a member of the
Compensation and Acquisition Committees since November 14, 1996.
CLIFFORD R. HINKLE (age 48). Mr. Hinkle has served as a director of the Company
since November 1996. Since 1991, Mr. Hinkle has been a director and executive
officer of the Flagler companies, including Flagler Capital Corporation
(President, 1991 present), which provides financial advisory and investment
consulting services, and Flagler Holding, Inc. (Chairman and CEO, 1996
present), a merchant banking company. He was a director of MHI Group, Inc., a
New York Stock Exchange Company, which owned and operated funeral homes and
cemeteries from 1993 until November 1995 when the company was acquired by a
subsidiary of The Loewen Group. Since 1993, he has been a director of
Commercial Net Lease Realty, Inc., a NYSE listed real estate investment trust.
Mr. Hinkle is a director of Prime Succession, Inc. From 1987 to 1991, Mr.
Hinkle was the Executive Director and Chief Investment Officer of the State
Board of Administration of Florida and managed over $40 billion in various trust
funds.
Mr. Hinkle was elected to the board of directors on November 14, 1996 and has
served on the Audit, Compensation and Acquisition Committees since his election
as a director.
RONALD E. PIERCE (age 42). Mr. Pierce has served as President and Chief
Operating Officer of the Company since October 1996. Mr. Pierce received his
Bachelor of Arts and Masters of Science degrees from the State University of New
York in 1976 and 1978, respectively. With over 16 years of healthcare
management experience, Mr. Pierce was recruited to transition the Company to a
specialty focused physician practice management strategy. From 1995 to 1996,
Mr. Pierce was Vice President of Operations at American Oncology Resources, a
leading single specialty physician practice management
3
<PAGE>
company focused on oncology, where he successfully redefined corporate
infrastructure, decentralized operations, created new operating processes, and
implemented same store growth strategies. From 1989 to 1995, Mr. Pierce served
as Vice President at Caremark International, a physician practice management
company now part of MedPartners. From 1980 to 1989, he served in various
management positions at Baxter International and American Hospital Supply
Corporation.
COMMITTEES AND MEETINGS
The Board of Directors held two formal meetings during 1996, The Board also
took action by unanimous written consent on 11 occasions.
The Board of Directors has standing Audit, Compensation and Acquisition
Committees. The 1997 Audit Committee will be composed of Dr. Victor M. Rivera
and Mr. Clifford R. Hinkle. The Compensation Committee is comprised of Dr.
Victor M. Rivera and Clifford R. Hinkle. The Acquisition Committee will be
comprised of Dr. Victor M. Rivera, Clifford R. Hinkle and Ronald E. Pierce.
Audit Committee. The Audit Committee's functions are to monitor and review the
performance of the Company's independent accountants and recommend to the Board
from year to year a firm to be selected as the Company's independent
accountants. The Audit Committee's role also includes reviews of the Company's
policies and procedures with respect to auditing, accounting, and financial
controls, periodic informal meetings with the Company's staff regarding
accounting and financial procedures and recommendations to the Board regarding
methods of control over the audit and accounting functions.
Compensation Committee. The Compensation Committee's functions are to establish
and administer the Company's compensation plans, if it deems appropriate, to
recommend the adoption of new plans or amendments to existing plans, and to
recommend to the Board the salary ranges and other remuneration payable to the
officers and the managerial and technical personnel of the Company. Since Mr.
Kauachi was the only member of the Compensation Committee until November 14,
1996, no formal committee meetings were held. Mr. Kauachi made recommendations
regarding compensation matters as necessary to the Board of Directors and all
matters pertaining to Mr. Kauachi's compensation were approved by unanimous
consent of all other Directors of the Company.
Acquisition Committee. The Acquisition Committee was first formed in November,
1996 and held no formal meetings during 1996.
The Company has no nominating committee or any committee serving a similar
function.
DIRECTORS' COMPENSATION
Except for Dr. Rivera and Mr. Hinkle, no directors receive any compensation for
attendance at Board and Committee meetings. In order to compensate Dr. Rivera
and Mr. Hinkle for their participation on the Board of Directors, the Company
has agreed to issue to each options to acquire 4,000 shares of the Company's
Common Stock at a price of $3.00 per share, such options to vest one-twenty-
fourth per month over the first 24 months of service as a director. All
Directors are entitled to reimbursement for reasonable travel expenses incurred
in attending meetings of the Company's directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH
OF THE INDIVIDUALS NOMINATED FOR ELECTION AS DIRECTOR.
4
<PAGE>
ITEM 2
RATIFICATION OF INDEPENDENT ACCOUNTANTS
Price Waterhouse has been selected by the Board of Directors to serve as the
Company's independent accountants for the fiscal year ending December 31, 1997.
Price Waterhouse is a nationally recognized accounting firm and has acted as the
Company's independent accountants since December 14, 1990. The firm is familiar
with the operations of the Company and has offices easily accessible to those of
the Company.
The Board of Directors recommends that the selection of Price Waterhouse be
ratified by the stockholders. Ratification of the selection of accountants is
not required; however, the Board of Directors is submitting this matter to the
stockholders in order to enhance their participation in this aspect of the
Company's affairs. If the stockholders do not ratify the selection of Price
Waterhouse, this selection of independent accountants will be reconsidered by
the Board of Directors.
A representative of Price Waterhouse is expected to be present at the Annual
Meeting and will have the opportunity to make a statement if he desires to do so
and is expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF THIS
APPOINTMENT.
EXECUTIVE OFFICERS
The following table lists the present executive officers of the Company as of
the date hereof and the capacities in which they serve.
Name of Individual Age Capacity
Jose E. Kauachi 58 Chairman of the Board, and
Chief Executive Officer
Ronald E. Pierce 42 President & Chief Operating
Officer
Jefferson R. Casey 45 Senior Vice President,
Secretary and Treasurer
Kerry N. Lowery 38 Vice President, Development
Biographical information with respect to Mr. Kauachi and Mr. Pierce was
previously described under Item 1. Biographical information with respect to the
other executive officers is as follows:
JEFFERSON R. CASEY (age 45) is presently serving as Senior Vice President,
Secretary, and Treasurer, and has served variously as Executive Vice President
and President since December 3, 1991. Mr. Casey was Vice President, Chief
Financial Officer and on the Board of Directors of Avanti Health Systems, Inc.
from December 19, 1988 until March 15, 1991. Mr. Casey was self-employed as a
management and financial consultant from March 15, 1991 until joining the
Company in December 1991. From November 7, 1979 until December 18, 1988 he
served as Vice President of Finance, Chief Financial Officer with Community
Health Computing, Inc. Mr. Casey was Controller of Arbuckle Electrical
Machinery, Co., Inc. from April 6, 1978 to December 17, 1979, and served as a
Commercial Banking Officer with Houston Citizens Bank & Trust from January 1,
1976 through April 5, 1978. Mr. Casey received a Master of Business
Administration in Finance and a Bachelor of Business Administration in Marketing
from the University of Texas.
5
<PAGE>
KERRY N. LOWERY (age 38) has served as the Vice President, Business Development
since joining the Company in December, 1996. Mr. Lowery served as Director of
Corporate Development for American Oncology Resources (AOR), an oncology single
specialty physician practice management company from December 1994 through
November 1996. From March 1992 until joining AOR, Mr. Lowery served as
President of Primedical Physician Services. The business provided medical staff
development and physician staffing services for hospitals and medical groups.
Prior to forming Primedical, Mr. Lowery served as Chief Marketing Officer of a
hospital in South Texas for Epic Healthcare, a proprietary hospital management
company from June, 1991 until March, 1992. From 1984 until 1991, Mr. Lowery
served as an officer in various capacities with Jackson and Coker, a national
physician staffing and management company. Mr. Lowery received his Bachelor of
Business administration in Accounting from Harding University.
Each officer has been elected to serve until the 1997 Annual Meeting of the
Board of Directors, which will be held May 7, 1997. The Company anticipates
that all of the officers will be re-elected to their positions at that time.
SECURITY OWNERSHIP OF CERTAIN BENEFICAL
OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
On March 17, 1997, there was no person who owned of record, and none were known
to the Company to own beneficially, more than 5% of the Common Stock, except as
set forth below.
Amount and
Name and Address of Nature of Percent
Beneficial Owners Beneficial Owner of Class
----------------- ---------------- ----------
Sharon Ann Donovan 1,101,500 shares (a) 20.8%
Three Riverway, Suite 1430
Houston, Texas 77056
Jose E. Kauachi 1,371,135 shares (b) 25.2%
Three Riverway, Suite 1430
Houston, Texas 77056
Chartwell Capital Investors, L.P. 769,082 shares (c) 12.7%
1610 Independent Square
Jacksonville, Florida 32202
(a) Sharon Ann Donovan, the spouse of William F. Donovan, M.D. (a director of
the Company), disclaims any beneficial ownership with respect to securities
owned by Dr. Donovan.
(b) Represents 1,196,781 shares of Common Stock presently owned, 750 shares of
common stock owned by Mr. Kauachi's wife, and 23,604 shares of common stock
owned by Mr. Kauachi's daughter, 100,000 shares of Common Stock which could
be acquired upon exercise of Warrants by Mr. Kauachi (which warrants are
currently exercisable) and options to purchase 50,000 shares (which options
are currently exercisable). Mr. Kauachi disclaims any beneficial ownership
with respect to securities owned by his wife and daughter.
(c) Represents the shares obtainable upon conversion of 25,226 shares of the
Series A Preferred Stock owned by Chartwell Capital Investors, L.P.
6
<PAGE>
Management Equity Ownership
Listed in the table below are the equity securities beneficially owned as of
March 17, 1997, by directors, certain executive officers and directors and
executive officers as a group and the percent of class represented by the equity
securities owned by each person or group.
Amount and
Name and Address of Nature of Percent
Beneficial Owners Beneficial Owner(a) of Class
----------------- ------------------- --------
William F. Donovan, M.D. 1,354,900 (b) 24.9%
Three Riverway, Suite 1430
Houston, Texas 77056
Jose E. Kauachi 1,371,135 (c) 25.2%
Three Riverway, Suite 1430
Houston, Texas 77056
Victor M. Rivera, M.D. 4,161.52 (d) *
Three Riverway, Suite 1430
Houston, Texas 77056
Ronald E. Pierce. 98,600 1.9%
3 Riverway, Suite 1430
Houston, Texas 77056
Jefferson R. Casey 110,050 (e) 2.0%
Three Riverway, Suite 1430
Houston, Texas 77056
Clifford R. Hinkle 16,002 (f) *
P.O. Box 351
Tallahassee, Florida 32302
Directors and Executive Officers as a 2,954,898(g) 52.0%
group (six persons)
________________________
* Less than one percent
(a) The information as to beneficial ownership has been furnished by the
respective directors and officers. Each person or group has sole voting
and investment power unless otherwise indicated.
(b) Represents 103,450 shares of Common Stock presently owned, 1,101,500 shares
of Common Stock owned by Dr. Donovan's wife, and 100,000 shares of Common
Stock which could be acquired upon exercise of a warrant by Dr. Donovan,
(which warrant is currently exercisable) and options to purchase 50,000
shares (which options are currently exercisable). Dr. Donovan disclaims
any beneficial ownership with respect to shares of Common Stock owned by
Sharon Ann Donovan, his spouse, who has sole voting and investment power as
to such shares.
7
<PAGE>
(c) Represents 1,196,781 shares of Common Stock presently owned, 750 shares of
common stock owned by Mr. Kauachi's wife, and 23,604 shares of common stock
owned by Mr. Kauachi's daughter, 100,000 shares of Common Stock which could
be acquired upon exercise of Warrants by Mr. Kauachi (which warrants are
currently exercisable) and options to purchase 50,000 shares (which options
are currently exercisable). Mr. Kauachi disclaims any beneficial ownership
with respect to securities owned by his wife and daughter.
(d) Represents (a) 500 shares of Common Stock presently owned, (b) 1,661.52
shares of Common Stock (after dilution) which could be acquired upon
exercise of warrants and (c) 2,000 shares obtainable upon the exercise of
options which are exercisable within 60 days after the record date.
(e) Represents 23,800 shares of Common Stock presently owned, and options to
purchase 86,250 shares of Common Stock (which options are currently
exercisable).
(f) Includes (a) 5,000 shares of Common Stock presently owned, (b) 10,000
shares of Common Stock held by Flagler Holdings, Inc. of which Mr. Hinkle
exercises sole voting and dispositive powers and (c) 1,002 shares of Common
Stock obtainable upon the exercise of options which are exercisable within
60 days after the record date.
(g) Represents 2,563,985 shares of Common Stock, options to purchase 789,252
shares of Common Stock, and warrants to purchase 201,661.52 shares of
Common Stock (which options and warrants are exercisable within 60 days).
EXECUTIVE COMPENSATION
********************************************************************************
The following table sets forth all compensation paid, distributed or accrued for
services rendered in all capacities to the Company during the fiscal years ended
December 31, 1996, 1995 and 1994 to the Company's Chief Executive Officer, and
the four most highly compensated executive officers other than the CEO whose
total compensation exceeds $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
(A) (B) (C) (G) (I)
SECURITIES
UNDERLYING
OPTIONS/SARs OTHER
NAME AND PRINCIPLE POSITION YEAR SALARY (#) COMPENSATION
- --------------------------- ---- ------ --- ------------
<S> <C> <C> <C> <C>
Jose E. Kauachi, CEO 1996 $289,688 150,000 $3,230/1/
1995 $267,885 150,000 $4,414/2/
1994 $278,300 100,000 $3,230/3/
Johnny L. Sanders * 1996 $111,815 87,500 $1,200/4/
Sr. Vice President 1995 $111,545 87,500 $ 877/4/
Jefferson R. Casey 1996 $102,524 86,250 $1,068/5/
Sr. Vice President 1995 $ 81,296 86,250 $ 812/5/
1994 $ 69,632 86,250 $ 554/5/
</TABLE>
8
<PAGE>
* Mr. Sanders' employment with the Company terminated on December 31, 1996.
1 Amount of term life insurance premium paid by the Company for the benefit of
Mr. Kauachi.
2 Comprised of $4,196 in term life insurance premium paid for the benefit of
Mr. Kauachi and $218 paid by the Company into Mr. Kauachi's 401(k) account as
an employer matching contribution.
3 Comprised of $2,980 in term life insurance premiums paid for the benefit of
Mr. Kauachi and $250 paid by the Company into Mr. Kauachi's 401(k) account as
an employer matching contribution.
4 Amounts paid by the Company into Mr. Sanders' 401(k) account as an employer
matching contribution.
5 Amounts paid by the Company into Mr. Casey's 401(k) account as an employer
matching contribution.
AGGREGATED EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END (1996)
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs In-the-Money
Held at FY-End (#) Options/SARs at FY-End ($)
Shares
Acquired
on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jose E. Kauachi 0 $0 150,000 0 $412,500 $0
Johnny L. Sanders 0 $0 87,500 0 $146,250 $0
Jefferson R. Casey 0 $0 86,250 0 $145,625 $0
</TABLE>
EXECUTIVE EMPLOYMENT CONTRACTS
Since founding the Company in 1986 with William F. Donovan, M.D., Jose E.
Kauachi has served in various executive capacities without the security of an
employment agreement. On November 15, 1994, the Company entered into an
employment agreement with Mr. Kauachi, to serve as the Company's President and
CEO for a period of three years (plus optional one year renewals). Compensation
during the term of the agreement includes the Company's standard employee
benefits, dependent healthcare benefits, the use of an automobile and cellular
telephone, long-term disability insurance equal to 50% of his base salary, the
cost of a $1,000,000 term life insurance policy, and a base salary of $260,000
per year (which amount will increase annually based on the Consumer Price Index
and which may also be increased at the discretion of the Board of Directors).
Effective November 1, 1995, the Board of Directors voted to increase Mr.
Kauachi's base compensation to $286,000. If Mr. Kauachi's employment is
terminated without cause, he will receive compensation of $230,000, $200,000 and
$150,000, respectively, in each of the three years following his termination.
The Board of Directors may require him to consult with the Company for up to 40
hours and 20 hours per month in each of the first and second years,
respectively, following termination as a condition to receiving this
compensation. Mr. Kauachi has agreed during the term of his employment and for
a period of one year thereafter not to
9
<PAGE>
compete with the Company. The Company may assign this agreement to any
successors or assigns, the definition of which includes but may not be limited
to any person that buys all or substantially all of the Company's assets or at
least 40% of the Company's voting equity, or with which the Company merges or
consolidates. Mr. Kauachi may resign at any time after giving thirty days
written notice to the Company, at the expiration of which all compensation and
benefits payable to him terminate.
On January 22, 1993, the Company entered into an employment agreement with
Johnny L. Sanders, to serve as the Company's Senior Vice President for a period
of three years. Mr. Sanders' employment agreement was amended effective as of
January 22, 1995, and, on January 22, 1995, Mr. Sanders executed a new
employment agreement to be effective on January 22, 1996 (the date upon which
his original employment agreement was to terminate). Pursuant to a Termination
Agreement and Release dated as of December 31, 1996, Mr. Sanders terminated his
employment with the Company effective December 31, 1996. As consideration for
Sanders' agreement to certain restrictive covenant and releases, the Company
agreed to pay Mr. Sanders eleven monthly payments of $10,000 each, continued his
insurance coverage through December 31, 1997, and extended the term during which
Mr. Sanders was eligible to exercise his options to acquire the Company's Common
Stock. Pursuant to such agreement, Mr. Sanders agreed not to compete with the
Company or in the occupational medicine business during the one year period
ending December 31, 1997.
On January 22, 1995, the Company entered into an employment agreement with
Jefferson R. Casey, to serve as the Company's Senior Vice President-Chief
Financial Officer, Secretary, Treasurer and Principal Accounting Officer for a
period of three years. Pursuant to the terms of this employment agreement, Mr.
Casey has agreed to serve for a period of three years (plus optional one year
renewals). Compensation during the term of this agreement includes the
Company's standard benefits, the use of an automobile and cellular telephone,
and a base salary of $82,000 per year, (which amount may increase annually on
January 22 of each year based on the Consumer Price Index depending upon the
Company's performance and which may also be increased at the discretion of the
Board of Directors). If Mr. Casey's employment is terminated without cause
within the first 12 months of the Agreement, he will receive compensation of a
lump sum payment equal to six months' Base Salary as in effect on the date
immediately prior to the effective date of termination. If terminated without
cause within the second 12 months of the Agreement, he will receive compensation
of a lump sum payment equal to four months' Base Salary as in effect on the date
immediately prior to the effective date of termination. If terminated without
cause within the third 12 months of the Agreement, he will receive compensation
of a lump sum payment equal to two months' Base Salary as in effect on the date
immediately prior to the effective date of termination. Mr. Casey has agreed
during the term of his employment and for a period of one year thereafter not to
compete with the Company. The Company may assign this agreement to any
successor or assigns, the definition of which includes but may not be limited to
any person that buys all or substantially all of the Company's assets or at
least 40% of the Company's voting equity, or with which the Company merges or
consolidates. Mr. Casey may resign at any time after giving thirty days written
notice to the Company, at the expiration of which all compensation and benefits
payable to him shall terminate.
********************************************************************************
RELATED PARTY TRANSACTIONS
Relationship to
Party Company Nature and Amount of Interest
- ----- --------------- -----------------------------
Pacati, Inc. Owned by Dr. William Paid $160,623 in 1996 and
Donovan, a Director $210 ,099 in 1995 for rental
and Jose E. Kauachi, and/or leasehold improvement of
Chairman & CEO the 6200 Gulf Freeway building.
The leases were canceled in
October 1996 as a result of
Pacati, Inc.'s sale of the
property to an unrelated party.
10
<PAGE>
William F. Donovan, M.D. Director Effective February 2, 1995, the
Company and Dr. Donovan agreed
to amend his existing 100,000
share warrant (which warrant was
originally granted in
consideration for Dr. Donovan's
personal guarantees of certain
of the Company's debts and lease
agreements) to decrease the
strike price from $3.125 to
$2.125 (the then current market
price of each share underlying
the warrant).
William F. Donovan, M.D. Director In March 1995, the Company
reorganized its Houston
operations whereby substantially
all medical and ancillary
services are provided by a
medical group affiliated with
the Company. In this regard, the
Company assisted in the
formation of a professional
limited liability partnership
named PhysiCare, L.L.P.
("PhysiCare"). Two of the
partners of PhysiCare,
Northshore Orthopedics, P.A.
("NSO") and Occupational
Medicine Associates of Houston,
P.A. ("OMA"), are controlled by
Dr. Donovan. In connection with
the reorganization, the Company
(i) advanced PhysiCare a loan
for up to $1,000,000, which loan
is secured by all of the assets
of PhysiCare (balance at
December 31, 1996 was
approximately $1,000,000), and
(ii) advanced to Dr. Donovan and
NSO collectively a loan of up to
$500,000 which was
collateralized by approximately
$1.3 million of the accounts
receivable of NSO and Donovan
(balance was paid off in
November, 1996).
The Company, either directly or
through PhysiCare, paid NSO
$728,731 in 1996 and $504,878 in
1995 for medical director's fees
and reimbursement for contract
labor, property and equipment
leases, and contracted services.
PhysiCare incurred $5,073,233 in
cost reimbursement and
management fee expenses to a
subsidiary of the Company in
1996.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's directors and executive officers, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC"). Directors, executive officers
and greater than 10% beneficial owners are required by SEC regulation to furnish
the Company with copies of all Section 16(a) Forms 3, 4 and 5 they file. Based
solely upon a review of such Forms 3, 4 and 5 and any amendments thereto
furnished to the Company, and written representations from certain reporting
persons that no Forms 5 were required, the Company believes that all such
applicable filing requirements were complied with by each of the executive
officers, directors and greater than 10% shareholders, except for (i) one report
relating to four transactions for Mr. Kauachi in connection with gifts of
11
<PAGE>
stock to his children and grandchild, (ii) one report relating to three
transactions for Dr. Donovan in connection with gifts of stock to his children,
(iii) one report relating to six purchase transactions for Mr. Pierce, and (iv)
one report relating to one purchase transaction for Mr. Casey. In addition, Mr.
Lowery's initial report on Form 3 was filed late.
OTHER MATTERS
Management is not aware of any other matters to be presented for action at the
meeting. However, if any other matter is properly presented, it is the
intention of the persons named in the enclosed form of proxy to vote in
accordance with their best judgment on such matter.
A copy of the Company's Annual Report for the year ended December 31, 1996,
including audited financial statements, as filed with the Securities and
Exchange Commission as its Annual Report on Form 10-KSB, as amended (except for
exhibits thereto), accompanies this proxy statement. The Annual Report does not
form any part of the material for solicitation of proxies, but contains
important information on the Company's business and financial condition. The
Annual Report contains a list describing all the exhibits thereto and any
exhibit is available to a stockholder upon written request to the President of
the Company at the address of the Company set forth on the first page hereof
accompanied by payment to the Company of $35.00 plus $0.25 per page for each
exhibit requested, which amount represents reasonable expenses incurred by the
Company in furnishing a copy of an exhibit.
The Company will bear the costs of the solicitation of proxies from its
stockholders. In addition to the use of mail, proxies may be solicited by
directors, officers and regular employees of the Company in person or by
telephone or other means of communication. The directors, officers and
employees of the Company will not be compensated additionally for the
solicitation but may be reimbursed for out-of-pocket expenses in connection with
the solicitation. Arrangements are also being made with brokerage houses and
also any other nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of the Company, and the Company will reimburse
the brokers, custodians, nominees and fiduciaries for their reasonable out-of-
pocket expenses.
STOCKHOLDER PROPOSALS
Proposals by stockholders intended to be presented at the 1998 Annual Meeting of
Stockholders must be received by the Company for inclusion in the Company's
Proxy Statement and form of proxy relating to that meeting not later than
January 8, 1998.
BY ORDER OF THE BOARD OF DIRECTORS
JEFFERSON R. CASEY, Secretary
Houston, Texas
April 11, 1997
12
<PAGE>
INTEGRATED ORTHOPAEDICS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Ronald E. Pierce and Jeff R. Casey, each with
full power of substitution, as proxies and authorizes them to vote as
designated below, all shares of Common Stock and Series A Cumulative
Convertible Preferred Stock of Integrated Orthopaedics, Inc. (the "Company")
owned by the undersigned at the Annual Meeting of Stockholders of the Company
to be held at the Doubletree Hotel, 2001 Post Oak Boulevard, Houston, Texas
77056, Thursday, May 8, 1996 at 3:30 p.m. (local time) in Houston, Texas, or
any adjournment thereof.
The undersigned hereby revokes any proxies heretofore given to vote upon or
act with respect to such shares and hereby ratifies and confirms all that said
attorneys, agents, proxies, the substitutes or any of them may lawfully do by
virtue hereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL NOMINEES" IN ITEM 1 AND "FOR"
ITEM 2.
1. ELECTION OF DIRECTORS OF THE COMPANY
[_] FOR all nominees listed below (except as marked to the contrary).
[_] WITHHOLD AUTHORITY to vote for all nominees listed below.
William F. Donovan, M.D. Jose E. Kauachi Ronald E. Pierce
Clifford R. Hinkle Victor M. Rivera, M.D.
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
SUCH NOMINEE'S NAME ON THE SPACE PROVIDED BELOW:
- --------------------- --------------------- ---------------------
2. APPOINTMENT OF PRICE WATERHOUSE as independent accountants of the Company
for the current year.
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the proxies are authorized to vote as they deem
appropriate upon any other matter that properly may come before the meeting or
any adjournment thereof.
(Please sign on reverse side)
This Proxy, when properly executed, will be voted in the manner directed
herein by the stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 and 2. If more than one of the proxies designated hereby shall
be present in person or by substitution at the Annual Meeting, or at any
adjournment thereof, the majority of said proxies present and voting, either in
person or by substitution, shall exercise all the powers herein given.
____________________________________________
____________________________________________
DATED: _______________________________, 1997
Please date, sign exactly as your name
appears hereon and mail this proxy card in
the enclosed envelope. No postage is
required. Where there is more than one
owner, each should sign. When signing as an
attorney, administrator, executor, guardian
or trustee, please add your title as such.
If executed by a partnership, this proxy
should be signed in the partnership name by
an authorized person. If executed by a
corporation, this proxy should be signed by
a duly authorized officer.
[_] Please check this box if you plan on
attending the Annual Meeting.
IMPORTANT: Complete appropriate FORM on reverse
