<PAGE> 1
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 (AMENDMENT NO. )
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 to sec. 240.14a-11(c) or sec. 240.14a-12
INTEGRATED ORTHOPAEDICS, 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)(l) 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:
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(4) Date Filed:
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<PAGE> 2
INTEGRATED ORTHOPAEDICS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 8, 2000
To the Stockholders of Integrated Orthopaedics, Inc.:
The Annual Meeting of Stockholders of Integrated Orthopaedics, Inc. (the
"Company") will be held at the corporate headquarters at 1800 West Loop South,
Suite 1030, Houston, Texas 77027, at 8:30 a.m., local time, June 8, 2000 for the
following purposes:
1. To elect one Director by vote of the Common Stockholders and Series A
Preferred Stockholders to serve until the 2001 Annual Meeting of
Stockholders or until his successor shall have been duly elected and
qualified;
2. To elect three Directors by vote of the Series B Preferred Stockholders
to serve until the 2001 Annual Meeting of Stockholders or until their
successors shall have been duly elected and qualified;
3. To ratify the selection by the Board of Directors of Ernst & Young LLP
as independent accountants of the Company for the fiscal year ending
December 31, 2000; and
4. To transact such other business as may properly come before the
meeting.
Common stockholders, Series A Preferred stockholders, and Series B Preferred
stockholders of record at the close of business on April 19, 2000 will be
entitled to notice of and to vote at the meeting.
By order of the Board of Directors
Laurie H. Gutierrez , Secretary
Houston, Texas
Dated: May 1, 2000
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> 3
INTEGRATED ORTHOPAEDICS, INC.
1800 West Loop South, Suite 1030
Houston, TX 77027
PROXY STATEMENT
2000 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 2000
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 corporate headquarters at 1800 West Loop South, Suite1030,
Houston, Texas 77027, at 8:30 a.m., local time, June 8, 2000. This Proxy
Statement and the Proxy were first sent or given to the Company's stockholders
on or about May 1, 2000.
Only stockholders of record on April 19, 2000 (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 Tuesday, June 6, 2000, 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, par value $.001 (the "Common Stock"), the Series A
Cumulative Convertible Preferred Stock ("Series A Preferred Stock") and the
Series B Convertible Non-Redeemable Preferred Stock ("Series B Preferred Stock")
are the only voting securities of the Company. As of the record date, there were
(i) 6,557,454 shares of Common Stock issued, 6,496,540 shares outstanding and
60,914 shares held in the treasury, (ii) 25,226 shares of Series A Preferred
Stock issued and outstanding, and (iii) 307,020 shares of Series B Preferred
Stock issued and outstanding.
VOTE BY COMMON STOCKHOLDERS AND SERIES A PREFERRED STOCKHOLDERS
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 for the purpose of electing one nominee for director, Messr.
Kauachi (the "Common Nominee"). For the election of the Common Nominee and any
matter that may properly come before the meeting on which the Common
stockholders and Series A Preferred stockholders are entitled to vote, each
holder of Common Stock is entitled to one vote for each share of Common Stock
owned on the record date.
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<PAGE> 4
Each holder of Series A Preferred Stock is entitled to approximately 121.69
votes for each share of Series A Preferred Stock owned on the record date (in
aggregate, 3,069,867 votes). Assuming the presence of a quorum for purposes of
voting on the Common Nominee, the affirmative vote of the holders of at least a
majority of the votes represented at the Annual Meeting and eligible to vote
thereon is required for the election of the common nominee.
VOTE BY SERIES B PREFERRED STOCKHOLDERS
The presence, in person or by proxy, of a majority of the votes
represented by the aggregate of the outstanding shares of Series B Preferred
Stock on the record date is necessary to constitute a quorum at the meeting for
the purpose of electing three of the four nominees for director, Messrs. Gruber,
Hancock and Wolfson (collectively, the "Series B Nominees"). For the election of
the Series B Nominees and any matter that may properly come before the meeting
on which the Series B Preferred stockholders are entitled to vote, each holder
of Series B Preferred Stock is entitled to approximately 92.60 votes for each
share of Series B Preferred Stock owned on the record date (in aggregate,
28,563,086 votes). 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 and eligible to vote thereon is required for the election of the Series
B Nominees.
OTHER MATTERS AND VOTING REQUIREMENTS
Holders of the Common Stock, Series A Preferred Stock (on an "as
converted" basis) and the Series B Preferred Stock (on an "as converted" basis)
are eligible to vote on any matters other than Items 1 and 2 set forth in the
accompanying Notice that may properly come before the meeting. Proxies
representing Common Stock are being tallied by Continental Stock Transfer &
Trust Company for stockholders who are not present at the Annual Meeting.
Proxies representing Series A Preferred Stock and Series B Preferred Stock are
being tallied by the 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.
ELECTION OF DIRECTORS
NOMINEES, DIRECTORS AND COMMITTEES
The four persons named below, all of whom are presently directors of the
Company, have been nominated for election as directors of the Company. One of
the directors, the Common Nominee, is to be elected by the holders of Common
Stock and the holders of Series A Preferred Stock (on an as converted basis).
Three directors, the Series B Nominees, are to be elected by the holders of
Series B Preferred Stock voting separately as a class. 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 as provided in the Company's Bylaws. At the Annual
Meeting, four directors are to be elected to hold office until the next annual
meeting of stockholders or until the successors of each shall be qualified. The
Common Nominee is Jose E. Kauachi. The three Series B Nominees are Steven B.
Gruber, Mark A. Wolfson and Scott J. Hancock. 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. Kauachi, Gruber, Wolfson, and Hancock 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 Annual Meeting, the proxies will be voted
for any nominee who shall be designated by the present Board to fill such
vacancy.
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<PAGE> 5
Appearing below is certain biographical and other information with respect to
each nominee.
NAME AGE POSITION
COMMON NOMINEE
Jose E. Kauachi 61 Chairman of the Board
SERIES B NOMINEES
Steven B. Gruber 42 Director
Mark A. Wolfson 47 Director
Scott J. Hancock 41 Director
COMMON NOMINEE
JOSE E. KAUACHI, a founder of the Company, serves as Chairman of the Board and
has served as a director since October 1986. From June 1999 to present he has
served as interim President of the Company. From October 1986 to December 1997,
Mr. Kauachi served as President, Chairman of the Board and Chief Executive
Officer of the Company. From 1984 to 1987, he was a consultant to various
healthcare related companies, including Mexican and Spanish companies interested
in establishing and developing business operations in the Southwestern United
States. Prior thereto, he held various senior management positions with
companies in the investment and banking industries, including the Mexican
Division of Financiera de Nuevo Leon, SA de CV, Banamex, International Bank of
America and Carte Blanche Corporation. Mr. Kauachi received his degree in
Mechanical Engineering Route to Business Administration in 1965 from the
University of Texas.
SERIES B NOMINEES
STEVEN B. GRUBER has served as a director of the Company since February 1999. He
has served as a Vice President of Keystone, Inc. since 1992 and a managing
partner of Oak Hill Capital Management, Inc., investment advisor to Oak Hill
Capital Partners, L.P. since 1998. Mr. Gruber co-founded and serves as a
co-managing partner of Insurance Partners, L.P., and as a management partner of
the management company for Acadia Partners, L.P. He serves on the board of Grove
Worldwide, LLC, Grove Holdings, LLC, Superior National Insurance Group, Inc.,
American Skiing Company and Reliant Building Products, Inc. Prior to joining
Keystone, Inc., Mr. Gruber was a managing director and co-head of High Yield
Securities at Lehman Brothers and a managing director of its Merchant Banking
Group. Mr. Gruber holds an MBA from the University of Chicago Graduate School of
Business where he was a Merrill Fellow, and a BA degree from the University of
Michigan. Mr. Gruber is a member of the Board of the Children's Museum of
Manhattan.
MARK A. WOLFSON has served as a director of the Company since December 1997. He
has served as a Vice President of Keystone, Inc. since 1995 and a managing
partner of Oak Hill Capital Management, Inc. since 1998. He serves on the Board
of Directors of Investment Technology Group, Oreck Corp., Da Vinci I Corp.,
Caribbean Restaurants, Financial Engines, Inc. and eGain Communications, Inc.
Mr. Wolfson holds the title of Professor at the Stanford Graduate School of
Business, where he has been a faculty member since 1977, including a three-year
term as Associate Dean. He has also taught at the Harvard Business School and
the University of Chicago and has been a Visiting Scholar at the Sloan School of
Management at Massachusetts Institute of Technology and the Hoover Institution
at Stanford University. Mr. Wolfson has been a Research Associate at the
National Bureau of Economic Research since 1988 and serves on the Steering
Committee of the Center for Economic Policy Research at Stanford University.
SCOTT J. HANCOCK has served as a director of the Company since December 1997. He
has served as a Vice President of Keystone, Inc. since 1996, a principal of
Arbor Investors, L.L.C. from 1996 to 1998 and a partner of Oak Hill Capital
Management, Inc. from 1998 to present, where he invests equity capital,
primarily in the healthcare industry. From 1993 until 1996, Mr. Hancock was with
Bain Capital, Inc. where he made private equity investments in the healthcare,
information technology and software industries. He holds a BS degree from the
University of California, Berkeley and an MBA from Stanford Graduate School of
Business.
4
<PAGE> 6
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH
OF THE INDIVIDUALS NOMINATED FOR ELECTION AS DIRECTOR.
COMMITTEES AND MEETINGS
The Board of Directors held five formal meetings during 1999. The Board also
took action by unanimous written consent on fifteen occasions.
The Board of Directors has standing Audit, Compensation, and Acquisition
Committees. During 1999, each such committee was comprised of Messrs. Clifford
R. Hinkle, Mark A. Wolfson and Scott J. Hancock.
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. The Audit Committee
met one time during 1999.
COMPENSATION COMMITTEE. The Compensation Committee's functions are to establish
and to administer the Company's compensation plans, 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, managerial, and
technical personnel of the Company. The Committee made recommendations regarding
compensation matters as necessary to the Board. All matters were approved by
unanimous consent of all other directors of the Company. The Compensation
Committee met one time during 1999.
The Company has no nominating committee or any committee serving a similar
function.
RATIFICATION OF INDEPENDENT ACCOUNTANTS
Ernst & Young, LLP has been selected by the Board to serve as the Company's
independent accountants for the fiscal year ending December 31, 2000. Ernst &
Young, LLP is a nationally recognized accounting firm.
The Board of Directors recommends that the selection of Ernst & Young, LLP be
ratified by the stockholders. Ratification of the selection of accountants is
not required; however, the Board 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 Ernst & Young, LLP, this
selection of independent accountants will be reconsidered by the Board.
By unanimous written consent on February 3, 1999, the Company's Board of
Directors dismissed the firm of PricewaterhouseCoopers LLP as the Company's
principal accountant and engaged the accounting firm of Ernst & Young, LLP as
principal accountant to audit the Company's financial statements for the year
ended December 31, 1998. During the two fiscal years ended December 31, 1997 and
the subsequent interim period preceding the dismissal, there were no
disagreements with PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of
PricewaterhouseCoopers LLP would have caused them to make reference thereto in
their report on the financial statements for such years. PricewaterhouseCoopers
LLP's report on the financial statements of the Company for such years contained
no adverse opinion or disclaimer of opinion. Neither such opinion was qualified
or modified as to uncertainty, audit scope or accounting principles.
5
<PAGE> 7
A representative of Ernst & Young, LLP is expected to be present at the Annual
Meeting and will have the opportunity to make a statement if he/she desires to
do so and is expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG, LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
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 61 Interim President
Douglas P. Badertscher 45 Senior Vice President, Chief Operating Officer
Laurie H. Gutierrez 33 Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
DOUGLAS P. BADERTSCHER, has served as Senior Vice President and Chief Operating
Officer since joining the Company on May 1, 1999. Prior to joining the Company,
Mr. Badertscher was President and Chief Operating Officer of Pendulum Practice
Management Company from March 1997 to April 1999. From January 1994 to April
1997, Mr. Badertscher was President and Chief Executive Officer of Medical
Transition Resources which provided consulting services regarding merger and
acquisitions to physician practice management companies, independent practice
associations, and management services organizations. Mr. Badertscher was
educated at Ouachita Baptist University and Williams College where he studied
psychology and sociology.
LAURIE H. GUTIERREZ, CPA, has served as Senior Vice President, Chief Financial
Officer ("CFO"), Treasurer and Secretary since joining the Company on September
7, 1999. Ms. Gutierrez was Controller/Senior Director of Finance of Memorial
Sisters of Charity Health Plans ("MSCH") from January 1996 through April 1999.
MSCH provided managed care, indemnity, third-party administrator, and rental
network products throughout southwest and southeast Texas. Prior thereto, Ms.
Gutierrez was a health care manager at Ernst & Young LLP. She began her
professional career at Ernst & Young LLP in 1988. Ms. Gutierrez holds a Bachelor
of Business Administration with a major in Accounting.
Biographical information with respect to Mr. Kauachi was previously described
under "Election of Directors".
Each executive officer has been elected to serve until the Annual Meeting, which
will be held June 8, 2000. The Company anticipates that all officers will be
re-elected to their positions at that time.
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<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICAL
OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
On April 19, 2000, 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 and Series
B Preferred Stock, except as set forth below. Ownership of the Series A
Preferred Stock is included in the Common Stock column below because the holders
of the Series A Preferred Stock will vote with the holders of Common Stock with
respect to the election of directors at the Annual Meeting.
<TABLE>
<CAPTION>
COMMON STOCK SERIES B PREFERRED STOCK
---------------------------------- ------------------------------
AMOUNT AND AMOUNT AND
NAME AND ADDRESS OF NATURE OF PERCENT NATURE OF PERCENT
BENEFICIAL OWNERS BENEFICIAL OWNER OF CLASS BENEFICIAL OWNER OF CLASS
----------------- ---------------- -------- ---------------- --------
<S> <C> <C> <C> <C>
Sharon Ann Donovan 1,162,850 shares (a) 17.76% - -
11430 I-10 East Freeway
Suite 360
Houston, Texas 77029
Jose E. Kauachi 1,213,287 shares (b) 18.53% - -
P.O. Box 1846/1847
Edwards, Colorado 81632
Chartwell Capital Investors, L.P. 3,069,867 shares (c) 32.09% - -
1610 Independent Square
Jacksonville, Florida 32202
FW Integrated Orthopaedics
Investors I, LP 14,376,418 shares (d) 69.19% 153,510 50%
201 Main Street, Suite 3100
Ft. Worth, Texas 76102
FW Integrated Orthopaedics 14,376,418 shares (e) 69.19% 153,510 50%
Investors II, LP
201 Main Street, Suite 3100
Ft. Worth, Texas 76102
</TABLE>
-------------------------
(a) Includes 1,028,500 shares owned directly and 84,350 shares and an
option to purchase 50,000 shares owned by William F. Donovan, M.D., the
spouse of Sharon Ann Donovan. Sharon Ann Donovan disclaims any
beneficial ownership with respect to securities owned by Dr. Donovan.
(b) Represents 1,162,537 shares directly owned, 750 shares owned by Mr.
Kauachi's wife and an option to purchase 50,000 shares, which option is
currently exercisable. Mr. Kauachi disclaims any beneficial ownership
with respect to securities owned by his wife.
(c) Represents the shares obtainable upon conversion of (i) 25,226 shares
of the Series A Preferred Stock and (ii) 7,928 shares of Series A
Preferred Stock that may be issued related to accrued unpaid dividends
as of April 19, 2000.
(d) Represents 94,875 shares owned directly and 14,281,543 shares
obtainable upon conversion of (i) 153,510 shares of the Series B
Preferred Stock and (ii) 730 shares of Series B Preferred Stock that
may be issued related to accrued unpaid dividends as of April 19, 2000.
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<PAGE> 9
(e) Represents 94,875 shares owned directly and 14,281,543 shares
obtainable upon conversion of (i) 153,510 shares of the Series B
Preferred Stock and (ii) 730 shares of Series B Preferred Stock that
may be issued related to accrued unpaid dividends as of April 19, 2000.
MANAGEMENT EQUITY OWNERSHIP
Listed in the table below are the equity securities beneficially owned as of
April 19, 2000, by directors, named 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.
<TABLE>
<CAPTION>
COMMON STOCK SERIES B PREFERRED STOCK
------------------------------------ --------------------------------
AMOUNT AND AMOUNT OF
NAME AND ADDRESS OF NATURE OF PERCENT NATURE OF PERCENT
BENEFICIAL OWNERS BENEFICIAL OWNER (a) OF CLASS BENEFICIAL OWNER OF CLASS
----------------- -------------------- -------- ---------------- --------
<S> <C> <C> <C> <C>
Jose E. Kauachi 1,213,287 (b) 18.53% -- --
P.O. Box 1846/1847
Edwards, Colorado 81632
Clifford R. Hinkle 27,000 (c) * -- --
P.O. Box 351
Tallahassee, Florida 32302
Scott J. Hancock 12,000 (d) * -- --
201 Main Street, Suite 3100
Ft. Worth, Texas 76102
Mark A. Wolfson 12,000 (e) * -- --
201 Main Street, Suite 3100
Ft. Worth, Texas 76102
Steven B. Gruber --
201 Main Street, Suite 3100
Ft. Worth, Texas 76102
Directors and Executive Officers 1,454,287 (f) 21.47% -- --
as a group (eight persons)
</TABLE>
------------------------
* Less than one percent
(a) The information as to beneficial ownership has been furnished by the
respective directors and named executive officers. Each person or group
has sole voting and investment power unless otherwise indicated.
(b) Represents 1,162,537 shares directly owned, 750 shares owned by Mr.
Kauachi's wife and an option to purchase 50,000 shares, which option is
currently exercisable. Mr. Kauachi disclaims any beneficial ownership
with respect to securities owned by his wife.
(c) Includes 5,000 shares directly owned, 10,000 shares owned by Flagler
Holdings, Inc. of which Mr. Hinkle exercises sole voting and
dispositive powers and an option to purchase 12,000 shares, which
option is currently exercisable.
(d) Includes an option to purchase 12,000 shares, which option is currently
exercisable.
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<PAGE> 10
(e) Includes an option to purchase 12,000 shares, which option is currently
exercisable.
(f) Represents 1,178,287 shares owned and options to purchase 276,000
shares, which options are exercisable within 60 days of April 19, 2000.
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, 1999, 1998, and 1997 to each person who served as an executive
officer in 1999 and whose total compensation exceeded $100,000 (the "Named
Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
SECURITIES
UNDERLYING
OPTIONS/SARS OTHER
NAME AND PRINCIPLE POSITION YEAR SALARY BONUS (#) COMPENSATION
======================================================================================================================
<S> <C> <C> <C> <C> <C>
Ronald E. Pierce, 1999 $128,035 $413,605(3)
Former President and CEO 1998 $250,000 -- $ 1,085(1)
1997 $188,462 350,000 $ 288(2)
Jose E. Kauachi 1999 $-0-4
Interim President
Gerald Wicker 1999 $112,928 $50,000 200,000 $274,213(5)
Former Chief Financial 1998 $ 12,981
Officer
</TABLE>
1) Amount paid by the Company to purchase $1.0 million dollar term life
insurance for the beneficiary of the Named Executive Officer.
2) Amount paid by the Company into 401(k) account as an employer matching
contribution.
3) $1,085 represents premium paid by the Company to purchase $1.0 Million
dollar term life insurance for the beneficiary on the Named Executive
Officer. $412,520 represents payments related to the termination of
executive officer's employment.
4) Mr. Kauachi did not receive any compensation for services rendered as
interim President, but did receive compensation as a Director. See
"Director Compensation".
5) $3,380 represents premium paid by the Company to purchase $1.0 Million
dollar term life insurance for the beneficiary on the Named Executive
Officer. $270,833 represents payments related to the termination of the
executive officer's employment.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY
HELD AT FY-END (#) OPTIONS/SARS AT FY-END ($)
-------------------------------------------------------------------------
SHARES
ACQUIRED
ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Ronald E. Pierce 0 $0 0 0 $0 $0
Jose E. Kauachi 0 $0 50,000 0 $0 $0
Gerald Wicker 0 $0 0 0 $0 $0
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR MARKET PRICE
OPTIONS/SARS EMPLOYEES IN BASE PRICE DATE OF GRANT EXPIRATION
NAME GRANTED # FISCAL YEAR ($/SH) ($/SH) DATE
============================ ==================================================================================================
<S> <C> <C> <C> <C> <C>
Ronald E. Pierce 0 0% $0.0 $0.0 -
Jose E. Kauachi 0 0% $0.0 $0.0 -
Gerald Wicker 0 0% $0.0 $0.0 -
</TABLE>
EXECUTIVE EMPLOYMENT CONTRACTS
On December 12, 1997, the Company entered into an agreement with Ronald E.
Pierce to serve as the Company's President and Chief Executive Officer for a
period of three years. Compensation during the term of the agreement included a
base salary of $250,000 per year, all Company benefits, participation in the
Company's bonus plan, eligibility for stock options under the Company's stock
option plan, paid medical insurance for immediate family members, long-term
disability insurance coverage equal to one-half of base salary, and a $1.0
million dollar life insurance policy. If the agreement was terminated by the
Company without cause, base salary and the value of benefits would be paid to
Mr. Pierce through the expiration date of the agreement; provided however, if
such termination without cause occurred after July 1, 1999, payment of the same
would be made in a lump sum and would include payments due through a point in
time that is the later of one year from the date of termination without cause or
the expiration date of the agreement. If the agreement was terminated without
cause, all options then granted to Mr. Pierce would become immediately vested
and Mr. Pierce would have 90 days following the date of termination during which
to exercise all such options. Mr. Pierce agreed not to compete with the Company
for a period of one-year following termination of the agreement. Mr. Pierce
resigned from the Company on May 24, 1999. See "Related Party Transactions".
10
<PAGE> 12
On November 30, 1998, the Company entered into an agreement with Gerald R.
Wicker to serve as the Company's Chief Financial Officer for a period of three
years. Compensation during the term of the agreement included a base salary of
$225,000 per year increasing $25,000 for each subsequent year for the duration
of his term, all Company benefits, participation in the Company's bonus plan,
eligibility for stock options under the Company's stock option plan, paid
medical insurance for immediate family members, long-term disability insurance
coverage equal to one-half of base salary, a $1.0 million dollar life insurance
policy, and relocation expenses up to $100,000. If the agreement was terminated
by the Company without cause, base salary and the value of benefits would be
paid to Mr. Wicker through the greater of the expiration date of the agreement
or one-year after the effective date of the termination. If the agreement was
terminated without cause, all options then granted to Mr. Wicker would become
immediately vested and Mr. Wicker would have 90 days following the date of
termination during which to exercise all such options. Mr. Wicker agreed not to
compete with the Company for a period of one-year following termination of the
agreement. Mr. Wicker resigned from the Company on July 1, 1999. See "Related
Party Transactions".
DIRECTORS' COMPENSATION
All directors receive compensation for their services as Company's directors.
Directors receive cash compensation of $5,000 annually plus $1,000 for each
board meeting actually attended. When first elected to the Board, these
directors are granted options to purchase 12,000 shares of the Company's Common
Stock at an exercise price equal to the fair market value of the Company's
Common Stock as of the date of their election. These options vest 1,000 shares
per month over the first twelve months of service as a director and are
exercisable only during such time as the optionee is serving as a Company's
director. All such options are vested. All directors are entitled to
reimbursement for reasonable travel expenses incurred in attending meetings of
the Company's directors.
RELATED PARTY TRANSACTIONS
In May 1999, pursuant to an agreement entered into between the Company and Mr.
Ronald Pierce in conjunction with his resignation as President and Chief
Executive Officer, the Company paid Mr. Pierce $412,520. Additionally, the
Company accelerated vesting of options granted to Mr. Pierce to purchase 350,000
and 150,000 shares of Common Stock at $5.125 and $3.25 per share, respectively.
Mr. Pierce had until August 22, 1999 to exercise such options at which time any
portion that was not exercised was forfeited and canceled. All of the options
were forfeited and cancelled.
In July 1999, pursuant to an agreement entered into between the Company and Mr.
Gerald Wicker in conjunction with his resignation as Chief Financial Officer,
the Company paid Mr. Wicker $270,833. Additionally, the Company accelerated
vesting of options granted to Mr. Wicker to purchase 200,000 shares of Common
Stock at $3.1875 per share. Mr. Wicker had until September 28, 1999 to exercise
such option at which time any portion that was not exercised was forfeited and
canceled. All of the options were forfeited and cancelled.
11
<PAGE> 13
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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.
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, 1999,
including audited financial statements, as filed with the SEC as its Annual
Report on Form 10-KSB (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 regarding 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 2001 Annual Meeting of
Stockholders and included in the Company's Proxy Statement and form of proxy
relating to that meeting must be received by the Company not later than December
13, 2000. Proposals intended to be presented at that meeting but not included in
the Proxy Statement and form a proxy must be received by the Company not later
than March 14, 2001.
BY ORDER OF THE BOARD OF DIRECTORS
Laurie H. Gutierrez, Secretary
Houston, Texas
May 1, 2000
<PAGE> 14
INTEGRATED ORTHOPAEDICS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jose E. Kauachi and Laurie Hill Gutierrez,
each with full power of substitution, as proxies and authorizes each of them,
acting individually, 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 Shareholders
of the Company to be held at the Corporate headquarters at 1800 West Loop South,
Suite 1030 Houston, Texas 77027, Thursday, June 8, 2000 at 8:30 a.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" PROPOSAL 1.
1. ELECTION OF DIRECTORS OF THE COMPANY
[ ] FOR the nominee listed below.
[ ] WITHHOLD AUTHORITY to vote for the nominee listed below.
Jose E. Kauachi
2. Voting on Item 2 is reserved to the holders of the Company's Series B
Preferred Stock
3. Ratification of the appointment of ERNST & YOUNG, LLP as independent
accountants of the Company for the current year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. 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)
<PAGE> 15
INTEGRATED ORTHOPAEDICS, INC.
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 3. 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.
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DATED: , 2000
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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
