<PAGE>
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 to (S)240.14a-11(c) or (S)240.14a-12
Interpore International, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
<PAGE>
[LOGO OF INTERPORE CROSS INTERNATIONAL]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 19, 2000
The 2000 annual meeting of the stockholders of Interpore International,
Inc. will be held at 9:00 a.m. local time, on May 19, 2000, at our executive
offices at 181 Technology Drive, Irvine, California 92618 for the following
purposes:
1. To elect two Class II Directors to hold office until the annual meeting
of stockholders in the year 2003 and until the election and qualification of
their respective successors;
2. To consider and vote upon a proposal to approve the adoption of the
2000 Equity Participation Plan of Interpore International, Inc. (the "2000
Plan") which would provide for the issuance of options to purchase up to
1,000,000 shares of Common Stock; and
3. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on April 14, 2000 will
be entitled to notice of, and to vote at, the 2000 annual meeting and any
adjournment thereof.
Management welcomes your attendance at the annual meeting. Whether or not
you expect to attend the annual meeting in person, please complete, sign, date
and promptly return the enclosed proxy in the accompanying postage-paid
envelope. The prompt return of your proxy will save expenses involved in further
communication. Your proxy will not affect your right to vote in person in the
event you attend the annual meeting. Failure to return a properly executed
proxy card or to vote in person at the annual meeting will have the same effect
as a vote against the proposals.
By Order of the Board of Directors,
Richard L. Harrison
Secretary
Irvine, California
April 14, 2000
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.
<PAGE>
[LOGO OF INTERPORE CROSS INTERNATIONAL]
181 Technology Drive
Irvine, California 92618
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
May 19, 2000
______________________________
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 19, 2000 at 9:00 a.m. local time, and at any and all
adjournments or postponements thereof.
All shares represented by each properly executed, unrevoked proxy received
in time for the meeting will be voted in the manner specified therein. If the
manner of voting is not specified in an executed proxy, the proxy will be voted
FOR the election of the two nominees to the Board of Directors listed herein,
and the approval and adoption of the 2000 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
20, 2000. 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 13,789,683 shares of Common Stock outstanding
at the close of business on the record date, April 14, 2000, 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 April 14,
2000, you will be entitled to cast one vote on each matter to be considered at
the meeting. Accordingly, an aggregate of 13,789,683 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. Directors will be elected by a favorable vote of a
majority of the aggregate votes present, in person or by proxy, at the meeting.
Accordingly, neither abstentions, nor broker non-votes, will affect the election
of candidates receiving the majority of votes. In addition, a simple majority
of the shares voting may elect all of the directors. The proposal to approve
and adopt the 2000 Plan also requires the affirmative vote of a majority of the
aggregate votes present, in person or by proxy, at the meeting. Accordingly,
proxies reflecting abstentions as to this proposal will be treated as votes
against the 2000 Plan. Broker non-votes,
1
<PAGE>
however, will be treated as unvoted for purposes of this proposal, and thus will
not be counted as votes for or against the 2000 Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the amount and percentage of the outstanding
shares of the Common Stock, which, according to the information supplied to us,
are beneficially owned by (1) each person who, to our knowledge based
exclusively on Schedules 13G filed with the Securities and Exchange Commission,
is the beneficial owner of more than 5% of the outstanding Common Stock, (2)
each person who is currently a director, two of whom are also nominees for
election as a director, (3) each Named Executive Officer, as defined on page 7
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 April 14, 2000. 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.
<TABLE>
<CAPTION>
Percent of Shares
Options Total Outstanding of Common Stock
Outstanding Exercisable Common Stock Beneficially
Name and Address of Beneficial Owner(1) Common Stock Within 60 Days Beneficially Owned Owned(2)
- ------------------------------------ ------------------------------------------------------------------------------------
Directors/Nominees and Named Executive Officers:
<S> <C> <C> <C> <C>
William A. Eisenecher 4,500 46,125 50,625 *
William A. Franklin, Jr.(3) 31,000 173,000 204,000 1.5%
Daniel A. Funk, M.D. 284,376 23,925 308,301 2.2%
Richard L. Harrison(3) 5,319 122,750 128,069 *
G. Bradford Jones 88,042 25,625 113,667 *
Philip A. Mellinger 30,724 42,490 73,214 *
David C. Mercer(3) 25,000 389,000 414,000 2.9%
Joseph A. Mussey(3) 187,937 116,363 304,300 2.2%
Edwin C. Shors, Ph.D. 51,000 195,750 246,750 1.8%
Maxwell R. Simmonds(3) 33,000 210,750 243,750 1.7%
Robert J. Williams 1,275 21,375 22,650 *
All directors and executive officers 742,173 1,367,153 2,109,326 13.9%
as a group (11 persons)
5% Beneficial Holders:
John Hancock Advisers, Inc.(4) 1,446,980 0 1,446,980 10.5%
101 Huntington Avenue
Boston, MA 02199
Heartland Advisors, Inc.(5) 835,400 0 835,400 6.1%
789 North Water Street
Milwaukee, WI 53202
</TABLE>
- ------------------------------------------------
*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 April 14, 2000, for each person
includes shares subject to options exercisable within 60 days after April
14, 2000, as if such shares were outstanding on April 14, 2000.
(3) Messrs. Franklin, Harrison, Mercer, Mussey and Simmonds are Named Executive
Officers.
(4) Based on Schedule 13G filed by John Hancock Advisers, Inc.
(5) Based on Schedule 13G filed by Heartland Advisors, Inc.
2
<PAGE>
Proposal 1
ELECTION OF DIRECTORS
Our Board of Directors currently consists of six members. Our Certificate
of Incorporation provides for the classification of the Board of Directors into
three classes, as nearly equal in number as possible, with staggered terms of
office. The Certificate of Incorporation also provides that upon the expiration
of the term of office for a class of directors, nominees for such class will be
elected for a term of three years or until their successors are duly elected and
qualified.
The term of the Class II Directors has expired and two nominees for
director are to be elected as Class II Directors. The two nominees are William
A. Eisenecher and Daniel A. Funk, M.D., each of whom currently serves as a Class
II Director. The Class III Directors, David C. Mercer and Joseph A. Mussey,
have one year remaining on their term of office and the Class I Directors, G.
Bradford Jones and Robert J. Williams, have two years remaining on their term of
office.
Required Vote
Directors will be elected by the affirmative vote of a majority of the
aggregate votes present and entitled to vote, in person or by proxy, at the
meeting. Abstentions or broker non-votes as to the election of directors will
not affect the election of the candidates receiving the majority of votes.
Unless otherwise instructed, the shares represented by the proxies will be voted
FOR the election of the two nominees named below as directors. Although it is
anticipated that each nominee will be able to serve as a director, should any
nominee become unavailable to serve, the proxies will be voted for such other
person or persons as may be designated by our Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE ELECTION OF EACH NOMINEE TO THE BOARD OF DIRECTORS.
Information Regarding Directors
The information set forth below as to each nominee for director has been
furnished to us by the respective nominees:
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
For a Three-Year Term Expiring at the
2003 Annual Meeting of Stockholders
<TABLE>
<CAPTION>
Name Age Present Position
---- --- ----------------
<S> <C> <C>
William A. Eisenecher 57 Director
Daniel A. Funk, M.D. 44 Director
</TABLE>
William A. Eisenecher is a business consultant. From 1987 to 1993, Mr.
Eisenecher was the President and Chief Executive Officer of Rehabilitation
Technologies, Inc. He is also a director of several privately-held companies.
Daniel A. Funk, M.D. is the Orthopedic Service Line Director for The Health
Alliance of Cincinnati, Ohio as well as a practicing partner in the firm of
Reconstructive Orthopedics and Sportsmedicine. 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 Cross's Technical Advisory Board of Cross Medical
Products, Inc. ("Cross"), our wholly-owned subsidiary, from 1984 through 1990
and as the Medical Advisor of Cross from 1990 to 1998.
3
<PAGE>
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
Class III -- Term Expiring at the
2001 Annual Meeting of Stockholders
<TABLE>
<CAPTION>
Name Age Present Position
---- --- ----------------
<S> <C> <C>
David C. Mercer 58 Chairman of the Board, Chief Executive Officer and Director
Joseph A. Mussey 51 President, Chief Operating Officer and Director
</TABLE>
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 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.
Class II --Term Expiring at the
2002 Annual Meeting of Stockholders
<TABLE>
<CAPTION>
Name Age Present Position
---- --- ----------------
<S> <C> <C>
G. Bradford Jones 45 Director
Robert J. Williams 67 Director
</TABLE>
G. Bradford Jones is a founding General Partner of Redpoint Ventures, a
venture capital fund which invests in Internet communications, media and
commerce companies. Prior to founding Redpoint Ventures in 1999, Mr. Jones was
a General Partner with Brentwood Venture Capital, which he joined in 1981. Mr.
Jones also currently serves on the board of directors of Onyx Acceptance
Corporation, a specialized consumer finance company, Stamps.com, an Internet
postage company, Digital Island, a global e-Business delivery network, and
several privately held companies. Mr. Jones received a B.S. in Chemistry from
Harvard University, a M.S. degree in Physics from Harvard University and a
J.D./M.B.A. from Stanford University.
Robert J. Williams has been the Chairman of the Board, President and Chief
Executive Officer of Artec, Inc. since 1988. Artec is an Indianapolis-based
manufacturer of disposable anesthesia and respiratory products.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 1999, the Board of Directors met
five times. In 1999, 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.
We have an Audit Committee and a Compensation and Stock Option Committee.
Messrs. Eisenecher, Funk, Jones, and Williams served on the Audit Committee,
which met one time. The Audit Committee's responsibilities include: (1)
recommending the selection of our independent public auditors to the Board of
Directors, (2) consulting with the independent auditors with regard to the plan
and scope of audit, (3) reviewing, in consultation with the independent
auditors, their report of audit or proposed report of audit, and the
accompanying management letter, if any, and (4) consulting with the independent
auditors and management with regard to the adequacy of internal controls.
4
<PAGE>
Messrs. Eisenecher, Funk, Jones and Williams served on the Compensation and
Stock Option Committee, which met six times. 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
the our stock option plans and performs other related functions upon request of
the Board of Directors.
Board Compensation and Benefits
The Stock Option Plan for Non-Employee Directors (the "Non-Employee
Directors Plan") provides for the automatic grant of non-qualified stock options
to purchase shares of Common Stock to eligible non-employee directors. On May
25, 1995, under the terms of the Non-Employee Directors Plan, each director who
was not an employee was automatically granted an initial option to purchase
15,000 shares of Common Stock, effective as of May 25, 1995, at an exercise
price of $5.75 per share. Non-employee directors who are first appointed or
elected to the Board of Directors after May 25, 1995 will be automatically
granted an initial option to purchase 15,000 shares of Common Stock, effective
on the date of election or appointment to the Board of Directors. In addition
to the initial grant, non-employee directors are automatically granted options
to purchase 2,500 shares on the date of the annual meeting of stockholders in
every year following the initial grant to such director, provided that the
director is re-elected at the meeting if such director's term is expiring.
Each non-employee director is entitled to be paid a fee of $1,000 per Board
meeting attended in person (or by phone if a regularly scheduled meeting) or for
a committee meeting attended in person if on a date where a full Board meeting
is not being held (the "Directors' Fee"). Alternatively, pursuant to an
irrevocable election made at least six months prior to the Board meeting date, a
non-employee director may elect to automatically receive non-qualified stock
options under the Non-Employee Directors Plan covering 500 shares of Common
Stock in lieu of the Directors' Fee. The price per share of Common Stock
subject to each option granted under the plan is 100% of the closing price of
the Common Stock on The Nasdaq Stock Market on the day prior to such meeting.
The options become exercisable in four cumulative annual installments of 25% of
the shares covered by the option, commencing with the first anniversary from the
date of grant.
During fiscal year 1999, each non-employee director received four options
to purchase 500 shares of Common Stock per option, in lieu of the Director's
Fee, with exercise prices of $4.406, $4.875, $5.688 and $6.75. Each non-
employee director also received an option to purchase 2,500 shares of Common
Stock, at an exercise price of $4.406, in connection with the 1999 annual
meeting.
5
<PAGE>
EXECUTIVE OFFICERS
Our executive officers as of April 14, 2000 were as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David C. Mercer 58 Chairman of the Board and Chief Executive Officer
Joseph A. Mussey 51 President and Chief Operating Officer
Richard L. Harrison 43 Senior Vice President, Finance, Chief Financial Officer and
Secretary
Maxwell R. Simmonds 44 Senior Vice President, Sales and Marketing
William A. Franklin, Jr. 54 Vice President, Operations
Philip A. Mellinger 36 Vice President, Product Development
Edwin C. Shors, Ph.D 54 Vice President, Research and New Technology
</TABLE>
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.
Maxwell R. 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.
William A. Franklin, Jr. has served as Vice President, Operations since
August 1994 and as Vice President, Quality Assurance and Regulatory Affairs from
February 1992 to August 1994. Mr. Franklin was Director, Quality Assurance, of
Allergan Optical, an ophthalmic products manufacturing division of Allergan,
Inc., from December 1988 through October 1991, and Vice President, Quality
Assurance and Regulatory Affairs, of Quest Medical, Inc., a medical device
manufacturer, from March 1983 through October 1988.
Philip A. Mellinger, has served as Vice President, Product Development
since the Merger with Cross in May 1998. Prior to the Merger, Mr. Mellinger was
the Vice President, Research and Development for Cross from January 1997 to May
1998. From 1987 to January 1997, Mr. Mellinger was employed by Cross in its
research and development department. Prior to 1987, Mr. Mellinger attended
Northwestern University, where he received his Bachelor of Science degree in
Biomedical and Mechanical Engineering.
Edwin C. Shors, Ph.D, has served as Vice President, Research and New
Technology since May 1998, and as Vice President, Research and Development from
1983 to May 1998. Dr. Shors was Executive Vice President from 1978 to 1983,
during which time he was responsible for establishing the manufacturing
procedures, animal evaluations and clinical trials leading to the FDA approval
and marketing of coralline hydroxyapatite. Prior to joining us, he was Director
of the Thoracic and Cardiovascular Laboratory at Harbor/UCLA Medical Center.
Dr. Shors obtained a Masters in Biology and a Doctorate in Physiology and
Biophysics from the University of Southern California.
6
<PAGE>
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, 1999, 1998 and 1997 of those persons who were,
at December 31, 1999, (i) the chief executive officer, (ii) the other four most
highly compensated executive officers whose annual salary and bonuses exceeded
$100,000 or (iii) any other executive officer who would have qualified under
sections (i) or (ii) of this paragraph but for the fact that the individual was
not serving as an executive officer of the registrant at the end of the 1999
fiscal year (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term
---------------------------------- ---------
Compensation
------------
Awards
Other ------
Annual Securities All Other
Compen- Underlying Compen-
Name and Principal Position Year Salary Bonus sation Options sation(1)
- --------------------------- ----- ---------- --------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
David C. Mercer 1999 $203,002 $55,283 $ 16,010(2) 40,000 $3,884
Chairman and 1998 192,502 24,063 16,034(2) 0 3,801
Chief Executive Officer 1997 180,000 45,000 15,261(2) 39,000 468
Joseph A. Mussey 1999 202,231 55,283 133,936(3) 40,000 4,095
President and 1998 191,807 40,389 35,365(4) 32,113 7,235
Chief Operating Officer 1997 170,000 78,516 0 25,500 8,594
Maxwell R. Simmonds 1999 150,000 40,849 16,077(2) 35,000 3,171
Senior Vice President, 1998 142,500 17,813 15,524(2) 0 3,171
Sales and Marketing 1997 135,000 27,000 15,204(2) 34,000 468
Richard L. Harrison 1999 132,998 36,219 17,715(2) 35,000 3,439
Senior Vice President, Finance 1998 124,372 15,547 17,689(2) 0 3,415
Chief Financial Officer 1997 115,000 23,000 17,485(2) 34,000 468
and Secretary
William A. Franklin, Jr. 1999 123,000 33,496 19,947(2) 30,000 2,690
Vice President, Operations 1998 116,250 14,531 20,032(2) 10,000 2,690
1997 110,000 22,000 19,379(2) 34,000 468
</TABLE>
(1) Represents contributions to our retirement savings plan, payments made by
our company for term-life insurance premiums, and automobile allowance to
Mr. Mussey in 1997 and 1998.
(2) Represents the cost of company-provided automobiles, including reimbursement
of taxes.
(3) Represents the cost of company-provided automobile, including reimbursement
of taxes, of $14,301, and the cost of company-paid relocation expenses of
$119,635.
(4) Represents the cost of company-provided automobile, including reimbursement
of taxes, of $3,533, and the cost of company-paid relocation expenses,
including reimbursement of taxes, of $31,832.
7
<PAGE>
The following table sets forth certain information with respect to grants
of stock options during 1999 to the Named Executive Officers pursuant to our
1995 Stock Option Plan:
Option Grants in Last Fiscal Year
<TABLE>
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%
-------- --------
<S> <C> <C> <C> <C> <C> <C>
David C. Mercer 40,000 9.8% $4.75 01/20/09 $119,490 $302,811
Joseph A. Mussey 40,000 9.8% 4.75 01/20/09 119,490 302,811
Maxwell R. Simmonds 35,000 8.5% 4.75 01/20/09 104,554 264,960
Richard L. Harrison 35,000 8.5% 4.75 01/20/09 104,554 264,960
William A. Franklin, Jr. 30,000 7.3% 4.75 01/20/09 89,617 227,108
</TABLE>
(1) Represents options granted under our 1995 Option Plan. Under the terms of
the 1995 Option Plan, the Compensation and Stock Option Committee retains
discretion, subject to certain restrictions, to modify the terms of
outstanding options and to reprice outstanding options. No option is
exercisable during the first year after such option is granted. Each option
becomes exercisable in four equal annual installments. The exercise price of
shares of the Common Stock subject to options granted under the 1995 Option
Plan is set by the Compensation and Stock Option Committee; provided,
however, that the price of shares of the Common Stock subject to an
incentive stock option must be at least 100% of the fair market value of the
shares of the Common Stock on the date the option is granted.
(2) Assumed annual rates of stock price appreciation for illustrative purposes
only. Actual stock prices will vary from time to time based upon market
factors and our financial performance. No assurance can be given that such
rates will be achieved.
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of December 31, 1999
pursuant to the Option Plans:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at Fiscal Year End(1)
Shares Value Fiscal Year End
Acquired Realized ------------------------ ----------------------------
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- ---- ------------- ---------------- --------------------- --------------------------
<S> <C> <C> <C> <C>
David C. Mercer 0 $ 0 367,750 / 69,250 $1,339,750 / 174,875
Joseph A. Mussey 22,313 99,723 106,363 / 55,000 266,229 / 175,625
Maxwell R. Simmonds 0 0 191,250 / 59,750 332,500 / 152,375
Richard L. Harrison 0 0 103,250 / 59,750 202,000 / 152,375
William A. Franklin, Jr. 0 0 152,250 / 60,750 151,500 / 158,875
</TABLE>
(1) Calculated based on the closing sales price of the Common Stock on The
Stock Market on December 31, 1999 (i.e. $7.875), minus the exercise
price of the option, multiplied by the number of shares to which the option
relates.
8
<PAGE>
Employment Agreements, Termination of Employee and Change in Control
Arrangements; Indemnification Agreements
We have Employment Agreements with each of our executive officers.
Pursuant to the Employment Agreements, each of the officers receive annual base
salaries as determined from time to time by the Board of Directors. In
addition, the executives are entitled to receive incentive compensation,
including bonuses and stock options pursuant to the terms of the plans adopted
by the Board of Directors at their sole discretion. In the event of a change in
control, each of the executives will be entitled to receive an amount equal to
approximately two times the executive's current annual base salary and bonus, to
be paid out over a period of twenty-four months. The Employment Agreements also
provide each of the executives with insurance, vacation and sick leave benefits.
The Employment Agreements provide that employment of each of the executives
is "at-will" and may be terminated by us at any time. If the executive is
terminated by us without cause, we will continue to pay the executive his basic
salary and provide fringe benefits at the level in place at the termination date
for 12 months and will provide outplacement services at a cost to us not to
exceed the executive's basic salary for one month. We may terminate payment of
the basic salary, fringe benefits and outplacement services during the severance
period if the executive accepts other employment or is in breach of the non-
competition and confidentiality obligations of the Employment Agreement.
We have also entered into Indemnification Agreements with our executive
officers and directors providing for indemnification of such persons to the
fullest extent authorized, permitted or allowed by law.
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.
9
<PAGE>
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 products 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, 1999, 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 $200,000 to $206,000,
effective as of July 1, 1999.
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 1999,
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
1999, we accomplished 108.9% of our targeted operating results, and therefore,
the actual bonus awards were computed at 108.9% 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
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, composed of Messrs. Eisenecher, Jones, Funk and Williams, administers
the plan and determines which employees are to receive option grants and the
number of options to be granted.
Executive Automobile Program. We provide each of our executive officers
with an automobile on a three-year, closed-end lease. We believe that providing
each executive with the use of an automobile increases the value of the after-
tax compensation of each executive to more competitive levels.
This report has been provided by the Compensation and Stock Option
Committee:
William A. Eisenecher
Daniel A. Funk, M.D.
G. Bradford Jones
Robert J. Williams
Date: April 14, 2000
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.
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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,
1994 to December 31, 1999. On April 14, 2000 the closing market price per share
of our Common Stock was $8.75, as reported on The Nasdaq Stock Market.
<TABLE>
<CAPTION>
Proxy Graph Data
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BONZ 100.00 66.13 54.84 77.42 76.62 101.61
Nasdaq US 100.00 141.33 173.89 213.07 300.25 542.43
Nasdaq Medical Devices,
Instruments and Supplies,
Manufacturers and Distributers
Stocks 100.00 151.76 142.16 162.86 182.44 221.94
</TABLE>
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 1999, or written representations from certain reporting
persons, we believe that during fiscal 1999 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 Daniel A.
Funk, M.D. in connection with an exercise of options on October 18, 1999 was not
filed until December 28, 1999.
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Proposal 2
Approval of the Adoption of the 2000 Equity Incentive Plan
of Interpore International, Inc.
The Board unanimously recommends that stockholders approve the adoption of
the 2000 Equity Incentive Plan of Interpore International, Inc. (the "2000
Plan"). The 2000 Plan was adopted by the Board on February 18, 2000, subject to
stockholder approval. The purposes of the 2000 Plan are to attract and retain
the best available personnel for positions of substantial responsibility, to
provide additional incentive to our employees, consultants, and directors and to
promote the success of our business.
The 2000 Plan authorizes the grant to our employees of options that qualify
as incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). The 2000 Plan also authorizes the grant to our
employees, consultants, and non-employee directors of non-qualified stock
options, stock purchase rights, stock appreciation rights ("SARs") and other
awards ("Awards").
The principal features of the 2000 Plan are summarized below, but the
summary is qualified by reference to the 2000 Plan itself which is contained in
Appendix "A."
Securities Subject to the 2000 Plan
The shares of stock subject to the 2000 Plan shall be Common Stock of
Interpore International, Inc. Under the terms of the 2000 Plan, the aggregate
number of shares of Common Stock subject to options, stock purchase rights, SARs
and other Awards will be no more than 1,000,000. In addition, the maximum
number of shares which may be subject to options, stock purchase rights, SARs
and other Awards granted under the 2000 Plan to any individual in any calendar
year may not exceed 600,000, with such limitation only applying subsequent to
the fulfillment of certain conditions as defined in the 2000 Plan. The Board or
a committee of the Board appointed to administer the 2000 Plan (the
"Administrator") shall have the authority in its discretion to appropriately
adjust:
. the aggregate number of shares of Common Stock subject to the 2000 Plan;
. the number and kind of shares of Common Stock subject to outstanding
options, stock purchase rights, SARs and other Awards; and
. the price per share of outstanding options, stock purchase rights, SARs
and other Awards;
if there is any stock dividend, stock split, recapitalization, or other
subdivision, combination or reclassification of shares of Common Stock.
Shares subject to expired or canceled options will be available for future
grant or sale under the 2000 Plan. In addition, shares which are delivered to
Interpore by an optionee or withheld by us upon the exercise of an Award in
payment of the exercise price may again be optioned, granted or awarded under
the 2000 Plan. No shares may be optioned, granted or awarded under the 2000
Plan, however, if such action would cause an incentive stock option to fail to
qualify as an "incentive stock option" under Section 422 of the Code.
Awards Under the 2000 Plan
The 2000 Plan provides that the Administrator may grant or issue stock
options, SARs, restricted stock, deferred stock, dividend equivalents,
performance awards, stock payments and other stock related benefits, or any
combination thereof. Each Award will be set forth in a separate agreement with
the person receiving the Award and will indicate the type, terms and conditions
of the Award.
Nonqualified Stock Options ("NQSOs") will provide for the right to purchase
Common Stock at a specified price which, except with respect to NQSOs intended
to qualify as performance-based compensation under Section 162(m) of the Code,
may be less than fair market value on the date of grant (but not less than the
lesser of par value
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<PAGE>
or 85% of the fair market value on the date of grant), and usually will become
exercisable (in the discretion of the Administrator) in one or more installments
after the grant date, subject to the satisfaction of individual or company
performance criteria established by the Administrator. NQSOs may be granted for
any term specified by the Administrator.
Incentive Stock Options ("ISOs") will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained in
the Code. Among such restrictions, ISOs must have an exercise price not less
than the fair market value of a share of Common Stock on the date of grant, may
only be granted to employees, must expire within a specified period of time
following the optionee's termination of employment, and must be exercised within
ten years after the date of grant; but may be subsequently modified to
disqualify them from treatment as ISOs. In the case of an ISO granted to an
individual who owns (or is deemed to own) at least 10% of the total combined
voting power of all of our classes of stock, the 2000 Plan provides that the
exercise price must be at least 110% of the fair market value of a share of
Common Stock on the date of grant and the ISO must expire no later than the
fifth anniversary of the date of its grant.
Restricted Stock may be sold to participants at various prices and made
subject to such restrictions as may be determined by the Administrator.
Restricted stock, typically, may be repurchased by us at the original purchase
price if the conditions or restrictions are not met. In general, restricted
stock may not be sold, or otherwise hypothecated or transferred except to
certain permitted transferees as set forth in the 2000 Plan, until restrictions
are removed or expire. Purchasers of restricted stock, unlike recipients of
options, will have voting rights and will receive dividends prior to the time
when the restrictions lapse.
Deferred Stock may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on performance criteria
established by the Administrator. Like restricted stock, deferred stock may not
be sold, or otherwise hypothecated or transferred except to certain permitted
transferees as set forth in the 2000 Plan, until vesting conditions are removed
or expire. Unlike restricted stock, deferred stock will not be issued until the
deferred stock Award has vested, and recipients of deferred stock generally will
have no voting or dividend rights prior to the time when vesting conditions are
satisfied.
Stock Appreciation Rights may be granted in connection with stock options
or other Awards, or separately. SARs granted by the Administrator in connection
with stock options or other Awards typically will provide for payments to the
holder based upon increases in the price of our Common Stock over the exercise
price of the related option or other Awards, but alternatively may be based upon
criteria such as book value. Except as required by Section 162(m) of the Code
with respect to an SAR intended to qualify as performance-based compensation as
described in Section 162(m) of the Code, there are no restrictions specified in
the 2000 Plan on the exercise of SARs or the amount of gain realizable
therefrom, although restrictions may be imposed by the Administrator in the SAR
agreements. The Administrator may elect to pay SARs in cash or in Common Stock
or in a combination of both.
Dividend Equivalents represent the value of the dividends per share paid by
us, calculated with reference to the number of shares covered by the stock
options, SARs or other Awards held by the participant.
Performance Awards may be granted by the Administrator to employees or
consultants based upon, among other things, the contributions, responsibilities
and other compensation of the particular employee or consultant. Generally,
these Awards will be based upon specific performance criteria and may be paid in
cash or in Common Stock or in a combination of both. Performance Awards may
include "phantom" stock awards that provide for payments based upon increases in
the price of our Common Stock over a predetermined period. Performance Awards
may also include bonuses granted by the Administrator and which may be payable
in cash or in Common Stock or in a combination of both.
Stock Payments may be authorized by the Administrator in the form of shares
of Common Stock or an option or other right to purchase Common Stock as part of
a deferred compensation arrangement in lieu of all or any part of compensation,
including bonuses, that would otherwise be payable in cash to the key employee
or consultant.
The Administrator may designate key employees as "Section 162(m)
Participants," whose compensation for a given fiscal year may be subject to the
limit on deductible compensation imposed by Section 162(m) of the Code. The
Administrator may grant to Section 162(m) Participants restricted stock,
deferred stock, SARs, dividend
13
<PAGE>
equivalents, performance awards and stock payments that vest or become
exercisable upon the attainment of company performance criteria which are
related to one or more of the following performance goals: (i) net income; (ii)
pre-tax income; (iii) operating income; (iv) cash flow; (v) earnings per share;
(vi) earnings before interest, taxes, depreciation and amortization, (vii)
return on equity, (viii) return on invested capital or assets, (ix) cost
reductions or savings and (x) the market price of a share of our Common Stock.
Grant and Terms of Options
The Administrator shall have the authority under the 2000 Plan to
determine:
. the number of shares subject to option grants to employees, consultants,
and directors;
. whether the option grants are ISOs or NQSOs; and
. the terms and conditions of the option grants.
The Administrator may not grant an ISO under the 2000 Plan to any person
who owns more than 10% of the total combined voting power of all classes of our
stock (a "10% Owner") unless the stock option conforms to the applicable
provisions of Section 422 of the Code. Only our employees may be granted ISOs
under the 2000 Plan. Employees, consultants, and directors may receive NQSOs
and stock purchase rights under the 2000 Plan. Each option will be evidenced by
a written option agreement.
The exercise price for the shares of Common Stock subject to each option
will be specified in each option agreement. The Administrator shall set the
exercise price at the time the option is granted. In certain instances, the
exercise price is also subject to additional rules as follows:
. In the case of options intended to qualify as performance-based
compensation, or as ISOs, the exercise price may not be less than the
fair market value for the shares of Common Stock subject to such option
on the date the option is granted.
. In the case of ISOs granted to a 10% Owner, the exercise price may not
be less than 110% of the fair market value of the shares of Common Stock
subject to such option on the date the option is granted.
For purposes of the 2000 Plan, the fair market value of a share of Common
Stock as of a given date shall be (a) the closing price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any (or as reported on any composite index which includes such
principal exchange), on the trading day previous to such date, or if shares were
not traded on the trading day previous to such date, then on the next preceding
date on which a trade occurred, or (b) if Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, the closing
price of a share of Common Stock on the NASDAQ or the successor quotation system
on which shares of Common Stock are then trading, if any, on the trading day
previous to such date, or if shares were not traded on the trading day previous
to such date, then on the next preceding date on which a trade occurred; or (c)
if Common Stock is not publicly traded on an exchange and not quoted on NASDAQ
or a successor quotation system, the fair market value of a share of Common
Stock as established by the Administrator acting in good faith.
Term and Vesting of Options
The term of an option shall be set by the Administrator. In the case of an
ISO, the term of the option may not be longer than 10 years from the date the
ISO is granted, or if granted to a 10% Owner, five years from the date of the
grant. Except as limited by the requirements of Section 422 of the Code, the
Administrator may extend the term of any outstanding option in connection with
any termination of employment or the consulting relationship with an optionee,
or amend any other term or condition of the outstanding option relating to the
termination of an optionee.
14
<PAGE>
An option is exercisable when it vests. Each option agreement will contain
the period during which the right to exercise the option in whole or in part
vests in the optionee. At any time after the grant of an option, the
Administrator may accelerate the period during which an option vests. No
portion of an option which is unexercisable at an optionee's termination of
employment, termination of consulting relationship or termination of
directorship will subsequently become exercisable, except as may be otherwise
provided by the Administrator either in the agreement relating to the stock
option or by action following the grant of the option.
Exercise of Options
An option may be exercised for any vested portion of the shares subject to
the option until the option expires. Only whole shares of Common Stock may be
purchased. An option may be exercised by delivering to our Secretary a written
or electronic notice of exercise on a form provided by us, together with full
cash payment for the shares in the form of cash or a check payable to Interpore
in the amount of the aggregate option exercise price. However, the
Administrator may in its discretion:
. allow a delay in payment up to 30 days from the date an option is
exercised;
. allow payment through the delivery of shares of Common Stock which have
been owned by the optionee for at least six months;
. subject to certain timing requirements, allow payment through the
surrender of shares of Common Stock which would otherwise be issuable on
exercise of the option;
. allow payment through the delivery of property of any kind which
constitutes good and valuable consideration;
. allow payment by delivery of a full recourse promissory note to us in a
form and with terms prescribed by the Administrator;
. allow payment through the delivery of a notice that the optionee has
placed a market sell order with a broker with respect to shares of
Common Stock then issuable on exercise of the option, and that the
broker has been directed to pay a sufficient portion of the net proceeds
of the sale to us in satisfaction of the option exercise price; or
. allow payment through any combination of the foregoing.
Eligibility
Our employees and consultants are eligible to receive Awards under the 2000
Plan. The Administrator determines which of our employees and consultants will
be granted Awards No person is entitled to participate in the 2000 Plan as a
matter of right. Only those employees and consultants who are selected to
receive grants by the Administrator may participate in the 2000 Plan.
Independent non-employee directors are also eligible to receive option grants
under the 2000 Plan.
Administration of the 2000 Plan
All decisions, determinations and interpretations of the Administrator
shall be final and binding on all holders. The Administrator has the power to:
. construe and interpret the terms of the 2000 Plan and Awards granted
pursuant to the 2000 Plan;
. adopt rules for the administration, interpretation and application of
the 2000 Plan that are consistent with the 2000 Plan; and
. interpret, amend or revoke any of the newly adopted rules of the 2000
Plan.
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<PAGE>
Awards not Transferable
Awards may not be sold, pledged, transferred, or disposed of in any manner
other than to certain permitted transferees as provided for in the 2000 Plan and
by will or by the laws of descent and distribution and may be exercised, during
the lifetime of the holder, only by the holder or such permitted transferees.
Certain Restrictions on Resale
Employees, officers and directors who are "affiliates" of Interpore as
defined by the rules and regulations under the Securities Act of 1933 may offer
or sell the shares of Common Stock they acquire upon exercise of their options
under the 2000 Plan only if they make such offers and sales:
. pursuant to an effective registration statement under the Securities Act
of 1933;
. pursuant to an appropriate exemption from the registration requirements
of the Securities Act of 1933; or
. within the limitations and subject to the conditions set forth in Rule
144 under the Securities Act of 1933.
Amendment and Termination of the 2000 Plan
The Board may not, without prior stockholder approval:
. amend the 2000 Plan so as to increase the number of shares of stock that
may be issued under the 2000 Plan; or
. extend the term of the 2000 Plan.
The 2000 Plan will be in effect for 10 years after the date the 2000 Plan
is approved by the stockholders, unless the Board terminates the 2000 Plan at an
earlier date. The Board may terminate the 2000 Plan at any time with respect to
any shares not then subject to an option under the 2000 Plan. Except as
indicated above, the Board may also modify the 2000 Plan from time to time.
Federal Income Tax Consequences Associated with the 2000 Plan
The following is a general summary under current law of the material
federal income tax consequences to participants in the 2000 Plan. This summary
deals with the general tax principles that apply and is provided only for
general information. Some kinds of taxes, such as state and local income taxes,
are not discussed. Tax laws are complex and subject to change and may vary
depending on individual circumstances and from locality to locality. The
summary does not discuss all aspects of income taxation that may be relevant in
light of a holder's personal investment circumstances. This summarized tax
information is not tax advice.
Non-Qualified Stock Options
For federal income tax purposes, if an optionee is granted NQSOs under the
2000 Plan, the optionee will not have taxable income on the grant of the option,
nor will we be entitled to any deduction. Generally, on exercise of NQSOs the
optionee will recognize ordinary income, and we will be entitled to a deduction,
in an amount equal to the difference between the option exercise price and the
fair market value of the Common Stock on the date of exercise. The optionee's
basis for the stock for purposes of determining gain or loss on subsequent
disposition of such shares generally, will be the fair market value of the
Common Stock on the date the optionee exercises the option. Any subsequent gain
or loss will be generally taxable as capital gains or losses.
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<PAGE>
Incentive Stock Options
There is no taxable income to an optionee when an optionee is granted an
ISO or when that option is exercised. However, the amount by which the fair
market value of the shares at the time of exercise exceeds the option price will
be an "item of adjustment" for the optionee for purposes of the alternative
minimum tax. Gain realized by the optionee on the sale of an ISO is taxable at
capital gains rates, and no tax deduction is available to us, unless the
optionee disposes of the shares within (1) two years after the date of grant of
the option or (2) within one year of the date the shares were transferred to the
optionee. If the shares of Common Stock are sold or otherwise disposed of
before the end of the one-year and two-year periods specified above, the
difference between the option exercise price and the fair market value of the
shares on the date of the option's exercise will be taxed at ordinary income
rates, and we will be entitled to a deduction to the extent the optionee must
recognize ordinary income. If such a sale or disposition takes place in the
year in which the optionee exercise the option, the income the optionee
recognizes upon sale or disposition of the shares will not be considered income
for alternative minimum tax purposes. Otherwise, if the optionee sells or
otherwise disposes the shares before the end of the one-year and two-year
periods specified above, the maximum amount that will be included as alternative
minimum tax income is the gain, if any, the optionee recognizes on the
disposition of the shares.
An ISO exercised more than three months after an optionee terminates
employment, other than by reason of death or disability, will be taxed as a
NQSO, and the optionee will have been deemed to have received income on the
exercise taxable at ordinary income rates. We will be entitled to a tax
deduction equal to the ordinary income, if any, realized by the optionee.
Stock Appreciation Rights
No taxable income is generally recognized upon the receipt of an SAR, but
upon exercise of the SAR the fair market value of the shares (or cash in lieu of
shares) received generally will be taxable as ordinary income to the recipient
in the year of such exercise. We generally will be entitled to a compensation
deduction for the same amount which the recipient recognizes as ordinary income.
Restricted Stock and Deferred Stock
An employee to whom restricted or deferred stock is issued generally will
not recognize taxable income upon such issuance and we generally will not then
be entitled to a deduction. However, when restrictions on shares of restricted
stock lapse, such that the shares are no longer subject to a substantial risk of
forfeiture, the employee generally will recognize ordinary income and we
generally will be entitled to a deduction for an amount equal to the excess of
the fair market value of the shares at the date such restrictions lapse over the
purchase price therefor. Similarly, when deferred stock vests and is issued to
the employee, the employee generally will recognize ordinary income and we
generally will be entitled to a deduction for the amount equal to the fair
market value of the shares at the date of issuance.
Dividend Equivalents
A recipient of a dividend equivalent award generally will not recognize
taxable income at the time of grant, and we will not be entitled to a deduction
at that time. When a dividend equivalent is paid, the participant generally
will recognize ordinary income, and we will be entitled to a corresponding
deduction.
Performance Awards
A participant who has been granted a performance award generally will not
recognize taxable income at the time of grant, and we will not be entitled to a
deduction at that time. When an award is paid, whether in cash or Common Stock,
the participant generally will recognize ordinary income, and we will be
entitled to a corresponding deduction.
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Stock Payments
A participant who receives a stock payment in lieu of a cash payment that
would otherwise have been made will generally be taxed as if the cash payment
has been received, and we generally will be entitled to a deduction for the same
amount.
Deferred Compensation
Participants who defer compensation generally will recognize no income,
gain or loss for federal income tax purposes when NQSOs are granted in lieu of
amounts otherwise payable, and we will not be entitled to a deduction at that
time. When and to the extent such NQSOs are exercised, the rules regarding
NQSOs outlined above will generally apply.
Section 162(m) of the Code
In general, under Section 162(m), income tax deductions of publicly-held
corporations may be limited to the extent total compensation (including base
salary, annual bonus, stock option exercises and non-qualified benefits paid)
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. However, under Section 162(m), the deduction limit does not apply to
certain "performance-based compensation" established by an independent
compensation committee which is adequately disclosed to, and approved by,
stockholders. In particular, stock options and SARs will satisfy the
"performance-based compensation" exception if the awards are made by a
qualifying compensation committee, the 2000 Plan sets the maximum number of
shares that can be granted to any person within a specified period and the
compensation is based solely on an increase in the stock price after the grant
date (i.e. the option exercise price is equal to or greater than the fair market
value of the stock subject to the award on the grant date). Performance or
incentive awards granted under the 2000 Plan may qualify as "qualified
performance-based compensation" for purposes of Section 162(m) if such awards
are granted or vest upon the preestablished objective performance goals
described above.
We have attempted to structure the 2000 Plan in such a manner that the
Committee can determine the terms and conditions of stock options, SARs and
performance and incentive awards granted thereunder such that remuneration
attributable to such awards will not be subject to the $1,000,000 limitation.
We have not, however, requested a ruling from the Internal Revenue Service or an
opinion of counsel regarding this issue. This discussion will neither bind the
Internal Revenue Service nor preclude the Internal Revenue Service from adopting
a contrary position.
Required Vote
The affirmative vote of a majority of votes cast on this proposal to adopt
the 2000 Plan is required to approve this proposal, provided that a quorum is
present.
The Board of Directors recommends a vote "for" the proposal to approve the
adoption of the 2000 Equity Incentive Plan of Interpore International, Inc.
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APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The firm of Ernst & Young LLP, our independent accountants for the fiscal
year ended December 31, 1999, 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, 2000. 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.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
We expect to hold our 2001 Annual Meeting of Stockholders on May 18, 2001.
All proposals of stockholders intended to be presented at our 2001 Annual
Meeting of Stockholders must be directed to the attention of our Secretary, at
our address set forth on the first page of this Proxy Statement, by December 18,
2000, if they are to be considered for possible inclusion in the Proxy Statement
and form of proxy used in connection with such meeting. In addition, our Bylaws
provide for notice procedures to recommend a person for nomination as a Director
and to propose business to be considered by stockholders at a meeting. Copies
of our Bylaws may be obtained from our 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: April 14, 2000
19
<PAGE>
THE 2000 EQUITY PARTICIPATION PLAN
OF
INTERPORE INTERNATIONAL, INC.
Interpore International, Inc., a Delaware corporation, has adopted the
2000 Equity Participation Plan of Interpore International, Inc. (the "Plan"),
effective May 19, 2000, for the benefit of its eligible employees, consultants
and directors.
The purposes of the Plan are as follows:
(1) To provide an additional incentive for directors, key Employees
and Consultants (as such terms are defined below) to further the growth,
development and financial success of the Company by personally benefiting
through the ownership of Company stock and/or rights which recognize such
growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, key Employees and Consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.
ARTICLE I.
DEFINITIONS
1.1. General. Wherever the following terms are used in the Plan they
-------
shall have the meanings specified below, unless the context clearly indicates
otherwise.
1.2. Administrator. "Administrator" shall mean the entity that
-------------
conducts the general administration of the Plan as provided herein. With
reference to the administration of the Plan with respect to Options granted to
Independent Directors, the term "Administrator" shall refer to the Board. With
reference to the administration of the Plan with respect to any other Award, the
term "Administrator" shall refer to the Committee unless the Board has assumed
the authority for administration of the Plan generally as provided in Section
10.1.
1.3. Award. "Award" shall mean an Option, a Restricted Stock award, a
-----
Performance Award, a Dividend Equivalents award, a Deferred Stock award, a Stock
Payment award or a Stock Appreciation Right which may be awarded or granted
under the Plan (collectively, "Awards").
1.4. Award Agreement. "Award Agreement" shall mean a written
---------------
agreement executed by an authorized officer of the Company and the Holder which
shall contain such terms and conditions with respect to an Award as the
Administrator shall determine, consistent with the Plan.
1.5. Award Limit. "Award Limit" shall mean 600,000 shares of Common
-----------
Stock, as adjusted pursuant to Section 11.3 of the Plan.
1.6. Board. "Board" shall mean the Board of Directors of the
-----
Company.
1.7. Code. "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
1.8. Committee. "Committee" shall mean the Compensation and Stock
---------
Option Committee of the Board, or another committee or subcommittee of the
Board, appointed as provided in Section 10.1.
1.9. Common Stock. "Common Stock" shall mean the common stock of
------------
the Company, par
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value $.01 per share, and any equity security of the Company issued or
authorized to be issued in the future, but excluding any preferred stock and any
warrants, options or other rights to purchase Common Stock.
1.10. Company. "Company" shall mean Interpore International, Inc.,
-------
a Delaware corporation.
1.11. Consultant. "Consultant" shall mean any consultant or adviser
----------
if:
(a) the consultant or adviser renders bona fide services to the
Company;
(b) the services rendered by the consultant or adviser are not in
connection with the offer or sale of securities in a capital-raising transaction
and do not directly or indirectly promote or maintain a market for the Company's
securities; and
(c) the consultant or adviser is a natural person who has
contracted directly with the Company to render such services.
1.12. Deferred Stock. "Deferred Stock" shall mean Common Stock
--------------
awarded under Article VIII of the Plan.
1.13. Director. "Director" shall mean a member of the Board.
--------
1.14. Dividend Equivalent. "Dividend Equivalent" shall mean a right
-------------------
to receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VIII of the Plan.
1.15. DRO. "DRO" shall mean a domestic relations order as defined
---
by the Code or Title I of the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder.
1.16. Employee. "Employee" shall mean any officer or other employee
--------
(as defined in accordance with Section 3401(c) of the Code) of the Company, or
of any corporation which is a Subsidiary.
1.17. Exchange Act. "Exchange Act" shall mean the Securities
------------
Exchange Act of 1934, as amended.
1.18. Fair Market Value. "Fair Market Value" of a share of Common
-----------------
Stock as of a given date shall be (a) the closing price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any (or as reported on any composite index which includes such
principal exchange), on the trading day previous to such date, or if shares were
not traded on the trading day previous to such date, then on the next preceding
date on which a trade occurred, or (b) if Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, the closing
price of a share of Common Stock on the NASDAQ or the successor quotation system
on which shares of Common Stock are then trading, if any, on the trading day
immediately prior to such date, or if shares of Common Stock were not traded on
the trading day immediately prior to such date, then on the next preceding date
on which a trade occurred; or (c) if Common Stock is not publicly traded on an
exchange and not quoted on NASDAQ or a successor quotation system, the Fair
Market Value of a share of Common Stock as established by the Administrator
acting in good faith.
1.19. Holder. "Holder" shall mean a person who has been granted or
------
awarded an Award.
1.20. Incentive Stock Option. "Incentive Stock Option" shall mean
----------------------
an option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Administrator.
1.21. Independent Director. "Independent Director" shall mean a
--------------------
member of the Board who is not an Employee of the Company.
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1.22. Non-Qualified Stock Option. "Non-Qualified Stock Option"
--------------------------
shall mean an Option which is not designated as an Incentive Stock Option by the
Administrator.
1.23. Option. "Option" shall mean a stock option granted under
------
Article IV of the Plan. An Option granted under the Plan shall, as determined
by the Administrator, be either a Non-Qualified Stock Option or an Incentive
Stock Option; provided, however, that Options granted to Independent Directors
-------- -------
and Consultants shall be Non-Qualified Stock Options.
1.24. Performance Award. "Performance Award" shall mean a cash
-----------------
bonus, stock bonus or other performance or incentive award that is paid in cash,
Common Stock or a combination of both, awarded under Article VIII of the Plan.
1.25. Performance Criteria. "Performance Criteria" shall mean the
--------------------
following business criteria with respect to the Company, any Subsidiary or any
division or operating unit: (a) net income, (b) pre-tax income, (c) operating
income, (d) cash flow, (e) earnings per share, (f) return on equity, (g) return
on invested capital or assets, (h) cost reductions or savings, (i) funds from
operations, (j) appreciation in the fair market value of Common Stock and (k)
earnings before any one or more of the following items: interest, taxes,
depreciation or amortization.
1.26. Plan. "Plan" shall mean the 2000 Equity Participation Plan of
----
Interpore International, Inc.
1.27. Restricted Stock. "Restricted Stock" shall mean Common Stock
----------------
awarded under Article VII of the Plan.
1.28. Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
----------
under the Exchange Act, as such Rule may be amended from time to time.
1.29. Section 162(m) Participant. "Section 162(m) Participant"
---------------------------
shall mean any key Employee designated by the Administrator as a key Employee
whose compensation for the fiscal year in which the key Employee is so
designated or a future fiscal year may be subject to the limit on deductible
compensation imposed by Section 162(m) of the Code.
1.30. Securities Act. "Securities Act" shall mean the Securities Act
--------------
of 1933, as amended.
1.31. Stock Appreciation Right. "Stock Appreciation Right" shall
------------------------
mean a stock appreciation right granted under Article IX of the Plan.
1.32. Stock Payment. "Stock Payment" shall mean (a) a payment in
-------------
the form of shares of Common Stock, or (b) an option or other right to purchase
shares of Common Stock, as part of a deferred compensation arrangement, made in
lieu of all or any portion of the compensation, including without limitation,
salary, bonuses and commissions, that would otherwise become payable to a key
Employee or Consultant in cash, awarded under Article VIII of the Plan.
1.33. Subsidiary. "Subsidiary" shall mean any corporation in an
----------
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
1.34. Substitute Award. "Substitute Award" shall mean an Option
----------------
granted under this Plan upon the assumption of, or in substitution for,
outstanding equity awards previously granted by a company or other entity in
connection with a corporate transaction, such as a merger, combination,
consolidation or acquisition of property or stock; provided, however, that in no
event shall the term "Substitute Award" be construed to refer to an award made
in connection with the cancellation and repricing of an Option.
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<PAGE>
1.35. Termination of Consultancy. "Termination of Consultancy"
--------------------------
shall mean the time when the engagement of a Holder as a Consultant to the
Company or a Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, by resignation, discharge, death or
retirement; but excluding terminations where there is a simultaneous
commencement of employment with the Company or any Subsidiary. The
Administrator, in its absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Consultancy, including, but not
by way of limitation, the question of whether a Termination of Consultancy
resulted from a discharge for good cause, and all questions of whether a
particular leave of absence constitutes a Termination of Consultancy.
Notwithstanding any other provision of the Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate a Consultant's service at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
1.36. Termination of Directorship. "Termination of Directorship"
---------------------------
shall mean the time when a Holder who is an Independent Director ceases to be a
Director for any reason, including, but not by way of limitation, a termination
by resignation, failure to be elected, death or retirement. The Board, in its
sole and absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Directorship with respect to Independent
Directors.
1.37. Termination of Employment. "Termination of Employment" shall
-------------------------
mean the time when the employee-employer relationship between a Holder and the
Company or any Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (a) terminations where
there is a simultaneous reemployment or continuing employment of a Holder by the
Company or any Subsidiary, (b) at the discretion of the Administrator,
terminations which result in a temporary severance of the employee-employer
relationship, and (c) at the discretion of the Administrator, terminations which
are followed by the simultaneous establishment of a consulting relationship by
the Company or a Subsidiary with the former employee. The Administrator, in its
absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of limitation,
the question of whether a Termination of Employment resulted from a discharge
for good cause, and all questions of whether a particular leave of absence
constitutes a Termination of Employment; provided, however, that, with respect
-------- -------
to Incentive Stock Options, unless otherwise determined by the Administrator in
its discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Section.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
----------------------
(a) The shares of stock subject to Awards shall be Common Stock,
initially shares of the Company's Common Stock, par value $.01 per share.
The aggregate number of such shares which may be issued upon exercise of
such Options or rights or upon any such awards under the Plan shall not
exceed 1,000,000. The shares of Common Stock issuable upon exercise of
such Options or rights or upon any such awards may be either previously
authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Awards,
granted under the Plan to any individual in any calendar year shall not
exceed the Award Limit. To the extent required by Section 162(m) of the
Code, shares subject to Options which are canceled continue to be counted
against the Award Limit.
2.2. Add-back of Options and Other Rights. If any Option, or other
------------------------------------
right to acquire shares of
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<PAGE>
Common Stock under any other Award under the Plan, expires or is canceled
without having been fully exercised, or is exercised in whole or in part for
cash as permitted by the Plan, the number of shares subject to such Option or
other right but as to which such Option or other right was not exercised prior
to its expiration, cancellation or exercise may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Furthermore, any
shares subject to Awards which are adjusted pursuant to Section 11.3 and become
exercisable with respect to shares of stock of another corporation shall be
considered cancelled and may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Shares of Common Stock which are
delivered by the Holder or withheld by the Company upon the exercise of any
Award under the Plan, in payment of the exercise price thereof or tax
withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any shares of Restricted Stock are
surrendered by the Holder or repurchased by the Company pursuant to Section 7.4
or 7.5 hereof, such shares may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be optioned, granted or
awarded if such action would cause an Incentive Stock Option to fail to qualify
as an incentive stock option under Section 422 of the Code.
ARTICLE III.
GRANTING OF AWARDS
3.1. Award Agreement. Each Award shall be evidenced by an Award
---------------
Agreement. Award Agreements evidencing Awards intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code. Award Agreements
evidencing Incentive Stock Options shall contain such terms and conditions as
may be necessary to meet the applicable provisions of Section 422 of the Code.
3.2. Provisions Applicable to Section 162(m) Participants.
----------------------------------------------------
(a) The Committee, in its discretion, may determine whether an
Award is to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code.
(b) Notwithstanding anything in the Plan to the contrary, the
Committee may grant any Award to a Section 162(m) Participant, including
Restricted Stock the restrictions with respect to which lapse upon the
attainment of performance goals which are related to one or more of the
Performance Criteria and any performance or incentive award described in
Article VIII that vests or becomes exercisable or payable upon the
attainment of performance goals which are related to one or more of the
Performance Criteria.
(c) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect
to any Award granted under Articles VII and VIII which may be granted to
one or more Section 162(m) Participants, no later than ninety (90) days
following the commencement of any fiscal year in question or any other
designated fiscal period or period of service (or such other time as may be
required or permitted by Section 162(m) of the Code), the Committee shall,
in writing, (i) designate one or more Section 162(m) Participants, (ii)
select the Performance Criteria applicable to the fiscal year or other
designated fiscal period or period of service, (iii) establish the various
performance targets, in terms of an objective formula or standard, and
amounts of such Awards, as applicable, which may be earned for such fiscal
year or other designated fiscal period or period of service and (iv)
specify the relationship between Performance Criteria and the performance
targets and the amounts of such Awards, as applicable, to be earned by each
Section 162(m) Participant for such fiscal year or other designated fiscal
period or period of service. Following the completion of each fiscal year
or other designated fiscal period or period of service, the Committee shall
certify in writing whether the applicable performance targets have been
achieved for such fiscal year or other designated fiscal period or period
of service. In determining the amount earned by a Section 162(m)
Participant, the Committee shall have the right to reduce (but not to
increase) the amount payable at a given level of performance to take into
account additional factors that the Committee may deem relevant to the
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assessment of individual or corporate performance for the fiscal year or
other designated fiscal period or period of service.
(d) Furthermore, notwithstanding any other provision of the Plan
or any Award which is granted to a Section 162(m) Participant and is
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall be subject to any additional
limitations set forth in Section 162(m) of the Code (including any
amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as performance-
based compensation as described in Section 162(m)(4)(C) of the Code, and
the Plan shall be deemed amended to the extent necessary to conform to such
requirements.
3.3. Limitations Applicable to Section 16 Persons. Notwithstanding
--------------------------------------------
any other provision of the Plan, the Plan, and any Award granted or awarded to
any individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive rule
under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of
the Exchange Act) that are requirements for the application of such exemptive
rule. To the extent permitted by applicable law, the Plan and Awards granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule.
3.4. Consideration. In consideration of the granting of an Award
-------------
under the Plan, the Holder shall agree, in the Award Agreement, to remain in the
employ of (or to consult for or to serve as an Independent Director of, as
applicable) the Company or any Subsidiary for a period of at least one year (or
such shorter period as may be fixed in the Award Agreement or by action of the
Administrator following grant of the Award) after the Award is granted (or, in
the case of an Independent Director, until the next annual meeting of
stockholders of the Company).
3.5. At-Will Employment. Nothing in the Plan or in any Award
------------------
Agreement hereunder shall confer upon any Holder any right to continue in the
employ of, or as a Consultant for, the Company or any Subsidiary, or as a
director of the Company, or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge any Holder at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in a written employment
agreement between the Holder and the Company and any Subsidiary.
ARTICLE IV.
GRANTING OF OPTIONS TO EMPLOYEES,
CONSULTANTS AND INDEPENDENT DIRECTORS
4.1. Eligibility. Any Employee or Consultant selected by the
-----------
Committee pursuant to Section 4.4(a)(i) shall be eligible to be granted an
Option. Each Independent Director of the Company shall be eligible to be
granted Options at the times and in the manner set forth in Section 4.5.
4.2. Disqualification for Stock Ownership. No person may be granted
------------------------------------
an Incentive Stock Option under the Plan if such person, at the time the
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any then existing Subsidiary or parent corporation (within the meaning of
Section 422 of the Code) unless such Incentive Stock Option conforms to the
applicable provisions of Section 422 of the Code.
4.3. Qualification of Incentive Stock Options. No Incentive Stock
----------------------------------------
Option shall be granted to any person who is not an Employee.
4.4. Granting of Options to Employees and Consultants.
------------------------------------------------
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(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of the Plan:
(i) Determine which Employees are key Employees and select
from among the key Employees or Consultants (including Employees or
Consultants who have previously received Awards under the Plan) such
of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected key
Employees or Consultants;
(iii) Subject to Section 4.3, determine whether such
Options are to be Incentive Stock Options or Non-Qualified Stock
Options and whether such Options are to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options,
consistent with the Plan; provided, however, that the terms and
-------- -------
conditions of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall
include, but not be limited to, such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the
Code.
(b) Upon the selection of a key Employee or Consultant to be
granted an Option, the Committee shall instruct the Secretary of the
Company to issue the Option and may impose such conditions on the grant of
the Option as it deems appropriate.
(c) Any Incentive Stock Option granted under the Plan may be
modified by the Committee, with the consent of the Holder, to disqualify
such Option from treatment as an "incentive stock option" under Section 422
of the Code.
4.5. Options in Lieu of Cash Compensation. Options may be granted
------------------------------------
under the Plan to Employees and Consultants in lieu of cash bonuses which would
otherwise be payable to such Employees and Consultants and to Independent
Directors in lieu of directors' fees which would otherwise be payable to such
Independent Directors, pursuant to such policies which may be adopted by the
Administrator from time to time.
ARTICLE V.
TERMS OF OPTIONS
5.1. Option Price. The price per share of the shares subject to each
------------
Option granted to Employees and Consultants shall be set by the Committee;
provided, however, that such price shall be no less than the par value of a
- -------- -------
share of Common Stock, unless otherwise permitted by applicable state law, and:
(a) in the case of Options intended to qualify as performance-
based compensation as described in Section 162(m)(4)(C) of the Code, such
price shall not be less than 100% of the Fair Market Value of a share of
Common Stock on the date the Option is granted;
(b) in the case of Incentive Stock Options such price shall not
be less than 100% of the Fair Market Value of a share of Common Stock on
the date the Option is granted (or the date the Option is modified,
extended or renewed for purposes of Section 424(h) of the Code);
(c) in the case of Incentive Stock Options granted to an
individual then owning (within the meaning of Section 424(d) of the Code)
more than 10% of the total combined voting power of all classes of stock of
the Company or any Subsidiary or parent corporation thereof (within the
meaning of
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Section 422 of the Code), such price shall not be less than 110% of the
Fair Market Value of a share of Common Stock on the date the Option is
granted (or the date the Option is modified, extended or renewed for
purposes of Section 424(h) of the Code).
5.2. Option Term. The term of an Option granted to an Employee or
-----------
consultant shall be set by the Committee in its discretion; provided, however,
-------- -------
that, in the case of Incentive Stock Options, the term shall not be more than
ten (10) years from the date the Incentive Stock Option is granted, or five (5)
years from the date the Incentive Stock Option is granted if the Incentive Stock
Option is granted to an individual then owning (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation thereof
(within the meaning of Section 422 of the Code). Except as limited by
requirements of Section 422 of the Code and regulations and rulings thereunder
applicable to Incentive Stock Options, the Committee may extend the term of any
outstanding Option in connection with any Termination of Employment or
Termination of Consultancy of the Holder, or amend any other term or condition
of such Option relating to such a termination.
5.3. Option Vesting
--------------
(a) The period during which the right to exercise, in whole or in
part, an Option granted to an Employee or a Consultant vests in the Holder
shall be set by the Committee and the Committee may determine that an
Option may not be exercised in whole or in part for a specified period
after it is granted; provided, however, that, unless the Committee
-------- -------
otherwise provides in the terms of the Award Agreement or otherwise, no
Option shall be exercisable by any Holder who is then subject to Section 16
of the Exchange Act within the period ending six months and one day after
the date the Option is granted. At any time after grant of an Option, the
Committee may, in its sole and absolute discretion and subject to whatever
terms and conditions it selects, accelerate the period during which an
Option granted to an Employee or Consultant vests.
(b) No portion of an Option granted to an Employee or Consultant
which is unexercisable at Termination of Employment or Termination of
Consultancy, as applicable, shall thereafter become exercisable, except as
may be otherwise provided by the Committee either in the Award Agreement or
by action of the Committee following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock
with respect to which "incentive stock options" (within the meaning of
Section 422 of the Code, but without regard to Section 422(d) of the Code)
are exercisable for the first time by a Holder during any calendar year
(under the Plan and all other incentive stock option plans of the Company
and any parent or subsidiary corporation, within the meaning of Section 422
of the Code) of the Company, exceeds $100,000, such Options shall be
treated as Non-Qualified Options to the extent required by Section 422 of
the Code. The rule set forth in the preceding sentence shall be applied by
taking Options into account in the order in which they were granted. For
purposes of this Section 5.3(c), the Fair Market Value of stock shall be
determined as of the time the Option with respect to such stock is granted.
5.5. Substitute Awards.
-----------------
Notwithstanding the foregoing provisions of this Article V to the
contrary, in the case of an Option that is a Substitute Award, the price per
share of the shares subject to such Option may be less than the Fair Market
Value per share on the date of grant, provided, that the excess of:
--------
(a) the aggregate Fair Market Value (as of the date such
Substitute Award is granted) of the shares subject to the Substitute Award;
over
(b) the aggregate exercise price thereof; does not exceed the
excess of;
(c) the aggregate fair market value (as of the time immediately
preceding the transaction
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giving rise to the Substitute Award, such fair market value to be
determined by the Committee) of the shares of the predecessor entity that
were subject to the grant assumed or substituted for by the Company; over
(d) the aggregate exercise price of such shares.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1. Partial Exercise. An exercisable Option may be exercised in
----------------
whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Administrator may require that, by the terms of the
Option, a partial exercise be with respect to a minimum number of shares.
6.2. Manner of Exercise. All or a portion of an exercisable Option
------------------
shall be deemed exercised upon delivery of all of the following to the Secretary
of the Company or his office:
(a) A written notice complying with the applicable rules
established by the Administrator stating that the Option, or a portion
thereof, is exercised. The notice shall be signed by the Holder or other
person then entitled to exercise the Option or such portion of the Option;
(b) Such representations and documents as the Administrator, in
its absolute discretion, deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act and any other federal
or state securities laws or regulations. The Administrator may, in its
absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation,
placing legends on share certificates and issuing stop-transfer notices to
agents and registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 11.1 by any person or persons other than the Holder, appropriate
proof of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, the Administrator, may in its discretion (i) allow a delay in
payment up to thirty (30) days from the date the Option, or portion
thereof, is exercised; (ii) allow payment, in whole or in part, through the
delivery of shares of Common Stock which have been owned by the Holder for
at least six months, duly endorsed for transfer to the Company with a Fair
Market Value on the date of delivery equal to the aggregate exercise price
of the Option or exercised portion thereof; (iii) allow payment, in whole
or in part, through the surrender of shares of Common Stock then issuable
upon exercise of the Option having a Fair Market Value on the date of
Option exercise equal to the aggregate exercise price of the Option or
exercised portion thereof; (iv) allow payment, in whole or in part, through
the delivery of property of any kind which constitutes good and valuable
consideration; (v) allow payment, in whole or in part, through the delivery
of a full recourse promissory note bearing interest (at no less than such
rate as shall then preclude the imputation of interest under the Code) and
payable upon such terms as may be prescribed by the Administrator; (vi)
allow payment, in whole or in part, through the delivery of a notice that
the Holder has placed a market sell order with a broker with respect to
shares of Common Stock then issuable upon exercise of the Option, and that
the broker has been directed to pay a sufficient portion of the net
proceeds of the sale to the Company in satisfaction of the Option exercise
price, provided that payment of such proceeds is then made to the Company
--------
upon settlement of such sale; or (vii) allow payment through any
combination of the consideration provided in the foregoing subparagraphs
(ii), (iii), (iv), (v) and (vi). In the case of a promissory note, the
Administrator may also prescribe the form of such note and the security to
be given for such note. The Option may not be exercised, however, by
delivery of a promissory note or by a loan from the Company when or where
such loan or other extension of credit is prohibited by law.
A-9
<PAGE>
6.3. Conditions to Issuance of Stock Certificates. The Company
--------------------------------------------
shall not be required to issue or deliver any certificate or certificates for
shares of stock purchased upon the exercise of any Option or portion thereof
prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of
such shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Administrator shall, in its absolute
discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Administrator shall, in its
absolute discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Administrator may establish from time to time
for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax, which in the
discretion of the Administrator may be in the form of consideration used by
the Holder to pay for such shares under Section 6.2(d).
6.4. Rights as Stockholders. Holders shall not be, nor have any of
----------------------
the rights or privileges of, stockholders of the Company in respect of any
shares purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
Holders.
6.5. Ownership and Transfer Restrictions. The Administrator, in its
-----------------------------------
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Award Agreement and may be referred to on the certificates evidencing such
shares. The Holder shall give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(a) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Holder or (b) one year after the transfer of such shares to such
Holder.
6.6. Limitations on Exercise of Options Granted to Independent
---------------------------------------------------------
Directors. No Option granted to an Independent Director may be exercised to any
- ---------
extent by anyone after the first to occur of the following events:
(a) The expiration of twelve (12) months from the date of the
Holder's death;
(b) the expiration of twelve (12) months from the date of the
Holder's Termination of Directorship by reason of his permanent and total
disability (within the meaning of Section 22(e)(3) of the Code);
(c) the expiration of three (3) months from the date of the
Holder's Termination of Directorship for any reason other than such
Holder's death or his permanent and total disability, unless the Holder
dies within said three-month period; or
(d) The expiration of ten (10) years from the date the Option was
granted.
6.7. Additional Limitations on Exercise of Options. Holders may be
---------------------------------------------
required to comply with any timing or other restrictions with respect to the
settlement or exercise of an Option, including a window-period limitation, as
may be imposed in the discretion of the Administrator.
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<PAGE>
ARTICLE VII.
AWARD OF RESTRICTED STOCK
7.1. Eligibility. Subject to the Award Limit, Restricted Stock may
-----------
be awarded to any Employee who the Committee determines is a key Employee or any
Consultant who the Committee determines should receive such an Award.
7.2. Award of Restricted Stock
-------------------------
(a) The Committee may from time to time, in its absolute
discretion:
(i) Determine which Employees are key Employees and select
from among the key Employees or Consultants (including Employees or
Consultants who have previously received other awards under the Plan)
such of them as in its opinion should be awarded Restricted Stock; and
(ii) Determine the purchase price, if any, and other terms
and conditions applicable to such Restricted Stock, consistent with
the Plan.
(b) The Committee shall establish the purchase price, if any, and
form of payment for Restricted Stock; provided, however, that such purchase
-------- -------
price shall be no less than the par value of the Common Stock to be
purchased, unless otherwise permitted by applicable state law. In all
cases, legal consideration shall be required for each issuance of
Restricted Stock.
(c) Upon the selection of a key Employee or Consultant to be
awarded Restricted Stock, the Committee shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on
the issuance of such Restricted Stock as it deems appropriate.
7.3. Rights as Stockholders. Subject to Section 7.4, upon delivery
----------------------
of the shares of Restricted Stock to the escrow holder pursuant to Section 7.6,
the Holder shall have, unless otherwise provided by the Committee, all the
rights of a stockholder with respect to said shares, subject to the restrictions
in his Award Agreement, including the right to receive all dividends and other
distributions paid or made with respect to the shares; provided, however, that
-------- -------
in the discretion of the Committee, any extraordinary distributions with respect
to the Common Stock shall be subject to the restrictions set forth in Section
7.4.
7.4. Restriction. All shares of Restricted Stock issued under the
-----------
Plan (including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Award Agreement, be
subject to such restrictions as the Committee shall provide, which restrictions
may include, without limitation, restrictions concerning voting rights and
transferability and restrictions based on duration of employment with the
Company, Company performance and individual performance; provided, however,
-------- -------
that, unless the Committee otherwise provides in the terms of the Award
Agreement or otherwise, no share of Restricted Stock granted to a person subject
to Section 16 of the Exchange Act shall be sold, assigned or otherwise
transferred until at least six months and one day have elapsed from the date on
which the Restricted Stock was issued, and provided, further, that, except with
-------- -------
respect to shares of Restricted Stock granted to Section 162(m) Participants, by
action taken after the Restricted Stock is issued, the Committee may, on such
terms and conditions as it may determine to be appropriate, remove any or all of
the restrictions imposed by the terms of the Award Agreement. Restricted Stock
may not be sold or encumbered until all restrictions are terminated or expire.
If no consideration was paid by the Holder upon issuance, a Holder's rights in
unvested Restricted Stock shall lapse, and such Restricted Stock shall be
surrendered to the Company without consideration, upon Termination of Employment
or, if applicable, upon Termination of Consultancy with the Company; provided,
--------
however, that the Committee in its sole and absolute discretion may provide that
- -------
such rights shall not lapse in the event of a Termination of Employment
following a "change of ownership or control" (within the meaning of Treasury
Regulation Section 1.162-27(e)(2)(v) or any successor
A-11
<PAGE>
regulation thereto) of the Company or because of the Holder's death or
disability; provided, further, except with respect to shares of Restricted Stock
-------- -------
granted to Section 162(m) Participants, the Committee in its sole and absolute
discretion may provide that no such lapse or surrender shall occur in the event
of a Termination of Employment, or a Termination of Consultancy, without cause
or following any change in control of the Company or because of the Holder's
retirement, or otherwise.
7.5. Repurchase of Restricted Stock. The Committee shall provide in
------------------------------
the terms of each individual Award Agreement that the Company shall have the
right to repurchase from the Holder the Restricted Stock then subject to
restrictions under the Award Agreement immediately upon a Termination of
Employment or, if applicable, upon a Termination of Consultancy between the
Holder and the Company, at a cash price per share equal to the price paid by the
Holder for such Restricted Stock; provided, however, that the Committee in its
-------- -------
sole and absolute discretion may provide that no such right of repurchase shall
exist in the event of a Termination of Employment following a "change of
ownership or control" (within the meaning of Treasury Regulation Section 1.162-
27(e)(2)(v) or any successor regulation thereto) of the Company or because of
the Holder's death or disability; provided, further, that, except with respect
-------- -------
to shares of Restricted Stock granted to Section 162(m) Participants, the
Committee in its sole and absolute discretion may provide that no such right of
repurchase shall exist in the event of a Termination of Employment or a
Termination of Consultancy without cause or following any change in control of
the Company or because of the Holder's retirement, or otherwise.
7.6. Escrow. The Secretary of the Company or such other escrow
------
holder as the Committee may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed
under the Award Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed.
7.7. Legend. In order to enforce the restrictions imposed upon
------
shares of Restricted Stock hereunder, the Committee shall cause a legend or
legends to be placed on certificates representing all shares of Restricted Stock
that are still subject to restrictions under Award Agreements, which legend or
legends shall make appropriate reference to the conditions imposed thereby.
7.8. Section 83(b) Election. If a Holder makes an election under
----------------------
Section 83(b) of the Code, or any successor section thereto, to be taxed with
respect to the Restricted Stock as of the date of transfer of the Restricted
Stock rather than as of the date or dates upon which the Holder would otherwise
be taxable under Section 83(a) of the Code, the Holder shall deliver a copy of
such election to the Company immediately after filing such election with the
Internal Revenue Service.
ARTICLE VIII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, DEFERRED STOCK, STOCK PAYMENTS
8.1. Eligibility. Subject to the Award Limit, one or more
-----------
Performance Awards, Dividend Equivalents, awards of Deferred Stock, and/or Stock
Payments may be granted to any Employee whom the Committee determines is a key
Employee or any Consultant whom the Committee determines should receive such an
Award.
8.2. Performance Awards. Any key Employee or Consultant selected by
------------------
the Committee may be granted one or more Performance Awards. The value of such
Performance Awards may be linked to any one or more of the Performance Criteria
or other specific performance criteria determined appropriate by the Committee,
in each case on a specified date or dates or over any period or periods
determined by the Committee. In making such determinations, the Committee shall
consider (among such other factors as it deems relevant in light of the specific
type of award) the contributions, responsibilities and other compensation of the
particular key Employee or Consultant.
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<PAGE>
8.3. Dividend Equivalents.
--------------------
(a) Any key Employee or Consultant selected by the Committee may
be granted Dividend Equivalents based on the dividends declared on Common
Stock, to be credited as of dividend payment dates, during the period
between the date a Stock Appreciation Right, Deferred Stock or Performance
Award is granted, and the date such Stock Appreciation Right, Deferred
Stock or Performance Award is exercised, vests or expires, as determined by
the Committee. Such Dividend Equivalents shall be converted to cash or
additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee.
(b) Any Holder of an Option who is an Employee or Consultant
selected by the Committee may be granted Dividend Equivalents based on the
dividends declared on Common Stock, to be credited as of dividend payment
dates, during the period between the date an Option is granted, and the
date such Option is exercised, vests or expires, as determined by the
Committee. Such Dividend Equivalents shall be converted to cash or
additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee.
(c) Any Holder of an Option who is an Independent Director
selected by the Board may be granted Dividend Equivalents based on the
dividends declared on Common Stock, to be credited as of dividend payment
dates, during the period between the date an Option is granted, and the
date such Option is exercised, vests or expires, as determined by the
Board. Such Dividend Equivalents shall be converted to cash or additional
shares of Common Stock by such formula and at such time and subject to such
limitations as may be determined by the Board.
(d) Dividend Equivalents granted with respect to Options intended
to be qualified performance-based compensation for purposes of Section
162(m) of the Code shall be payable, with respect to pre-exercise periods,
regardless of whether such Option is subsequently exercised.
8.4. Stock Payments. Any key Employee or Consultant selected by the
--------------
Committee may receive Stock Payments in the manner determined from time to time
by the Committee. The number of shares shall be determined by the Committee and
may be based upon the Performance Criteria or other specific performance
criteria determined appropriate by the Committee, determined on the date such
Stock Payment is made or on any date thereafter.
8.5. Deferred Stock. Any key Employee or Consultant selected by the
--------------
Committee may be granted an award of Deferred Stock in the manner determined
from time to time by the Committee. The number of shares of Deferred Stock
shall be determined by the Committee and may be linked to the Performance
Criteria or other specific performance criteria determined to be appropriate by
the Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee. Common Stock underlying a Deferred Stock
award will not be issued until the Deferred Stock award has vested, pursuant to
a vesting schedule or performance criteria set by the Committee. Unless
otherwise provided by the Committee, a Holder of Deferred Stock shall have no
rights as a Company stockholder with respect to such Deferred Stock until such
time as the Award has vested and the Common Stock underlying the Award has been
issued.
8.6. Term. The term of a Performance Award, Dividend Equivalent,
----
award of Deferred Stock and/or Stock Payment shall be set by the Committee in
its discretion.
8.7. Exercise or Purchase Price. The Committee may establish the
--------------------------
exercise or purchase price of a Performance Award, shares of Deferred Stock, or
shares received as a Stock Payment; provided, however, that such price shall not
-------- -------
be less than the par value for a share of Common Stock, unless otherwise
permitted by applicable state law.
8.8. Exercise Upon Termination of Employment, Termination of
-------------------------------------------------------
Consultancy or Termination of Directorship. A Performance Award, Dividend
- ------------------------------------------
Equivalent, award of Deferred Stock and/or Stock Payment is
A-13
<PAGE>
exercisable or payable only while the Holder is an Employee, Consultant or
Independent Director, as applicable; provided, however, that the Administrator
-------- -------
in its sole and absolute discretion may provide that the Performance Award,
Dividend Equivalent, award of Deferred Stock and/or Stock Payment may be
exercised or paid subsequent to a Termination of Employment following a "change
of control or ownership" (within the meaning of Section 1.162-27(e)(2)(v) or any
successor regulation thereto) of the Company; provided, further, that except
-------- -------
with respect to Performance Awards granted to Section 162(m) Participants, the
Administrator in its sole and absolute discretion may provide that Performance
Awards may be exercised or paid following a Termination of Employment or a
Termination of Consultancy without cause, or following a change in control of
the Company, or because of the Holder's retirement, death or disability, or
otherwise.
8.9. Form of Payment. Payment of the amount determined under Section
---------------
8.2 or 8.3 above shall be in cash, in Common Stock or a combination of both, as
determined by the Committee. To the extent any payment under this Article VIII
is effected in Common Stock, it shall be made subject to satisfaction of all
provisions of Section 6.3.
ARTICLE IX.
STOCK APPRECIATION RIGHTS
9.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right
----------------------------------
may be granted to any key Employee or Consultant selected by the Committee. A
Stock Appreciation Right may be granted (a) in connection and simultaneously
with the grant of an Option, (b) with respect to a previously granted Option, or
(c) independent of an Option. A Stock Appreciation Right shall be subject to
such terms and conditions not inconsistent with the Plan as the Committee shall
impose and shall be evidenced by an Award Agreement.
9.2. Coupled Stock Appreciation Rights.
---------------------------------
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related
to a particular Option and shall be exercisable only when and to the extent
the related Option is exercisable.
(b) A CSAR may be granted to the Holder for no more than the
number of shares subject to the simultaneously or previously granted Option
to which it is coupled.
(c) A CSAR shall entitle the Holder (or other person entitled to
exercise the Option pursuant to the Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the
extent then exercisable pursuant to its terms) and to receive from the
Company in exchange therefor an amount determined by multiplying the
difference obtained by subtracting the Option exercise price from the Fair
Market Value of a share of Common Stock on the date of exercise of the CSAR
by the number of shares of Common Stock with respect to which the CSAR
shall have been exercised, subject to any limitations the Committee may
impose.
9.3. Independent Stock Appreciation Rights.
-------------------------------------
(a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An
ISAR shall be exercisable in such installments as the Committee may
determine. An ISAR shall cover such number of shares of Common Stock as
the Committee may determine; provided, however, that unless the Committee
-------- -------
otherwise provides in the terms of the ISAR or otherwise, no ISAR granted
to a person subject to Section 16 of the Exchange Act shall be exercisable
until at least six months have elapsed from (but excluding) the date on
which the Option was granted. The exercise price per share of Common
Stock subject to each ISAR shall be set by the Committee. An ISAR is
exercisable only while the Holder is an Employee or Consultant; provided
that the Committee may determine that the ISAR may be exercised subsequent
to Termination of Employment or Termination of Consultancy without cause,
or following a Change in Control of the Company, or because of the Holder's
retirement, death or disability, or otherwise.
A-14
<PAGE>
(b) An ISAR shall entitle the Holder (or other person entitled to
exercise the ISAR pursuant to the Plan) to exercise all or a specified
portion of the ISAR (to the extent then exercisable pursuant to its terms)
and to receive from the Company an amount determined by multiplying the
difference obtained by subtracting the exercise price per share of the ISAR
from the Fair Market Value of a share of Common Stock on the date of
exercise of the ISAR by the number of shares of Common Stock with respect
to which the ISAR shall have been exercised, subject to any limitations the
Committee may impose.
9.4. Payment and Limitations on Exercise.
-----------------------------------
(a) Payment of the amounts determined under Section 9.2(c) and
9.3(b) above shall be in cash, in Common Stock (based on its Fair Market
Value as of the date the Stock Appreciation Right is exercised) or a
combination of both, as determined by the Committee. To the extent such
payment is effected in Common Stock it shall be made subject to
satisfaction of all provisions of Section 6.3 above pertaining to Options.
(b) Holders of Stock Appreciation Rights may be required to
comply with any timing or other restrictions with respect to the settlement
or exercise of a Stock Appreciation Right, including a window-period
limitation, as may be imposed in the discretion of the Committee.
ARTICLE X.
ADMINISTRATION
10.1. Compensation and Stock Option Committee. The Compensation and
---------------------------------------
Stock Option Committee (or another committee or a subcommittee of the Board
assuming the functions of the Committee under the Plan) shall consist solely of
two or more Independent Directors appointed by and holding office at the
pleasure of the Board, each of whom is both a "non-employee director" as defined
by Rule 16b-3 and an "outside director" for purposes of Section 162(m) of the
Code. Appointment of Committee members shall be effective upon acceptance of
appointment. Committee members may resign at any time by delivering written
notice to the Board. Vacancies in the Committee may be filled by the Board.
10.2. Duties and Powers of Committee. It shall be the duty of the
------------------------------
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall have the power to interpret the Plan and
the Award Agreements, and to adopt such rules for the administration,
interpretation, and application of the Plan as are consistent therewith, to
interpret, amend or revoke any such rules and to amend any Award Agreement
provided that the rights or obligations of the Holder of the Award that is the
subject of any such Award Agreement are not affected adversely. Any such grant
or award under the Plan need not be the same with respect to each Holder. Any
such interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan except with respect to matters
which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or
rules issued thereunder, are required to be determined in the sole discretion of
the Committee. Notwithstanding the foregoing, the full Board, acting by a
majority of its members in office, shall conduct the general administration of
the Plan with respect to Options and Dividend Equivalents granted to Independent
Directors.
10.3. Majority Rule; Unanimous Written Consent. The Committee shall
----------------------------------------
act by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
10.4. Compensation; Professional Assistance; Good Faith Actions.
---------------------------------------------------------
Members of the Committee shall receive such compensation for their services as
members as may be determined by the Board. All expenses
A-15
<PAGE>
and liabilities which members of the Committee incur in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers, or other persons. The Committee, the Company and the
Company's officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board in good
faith shall be final and binding upon all Holders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or Awards, and all members of the Committee and the Board
shall be fully protected by the Company in respect of any such action,
determination or interpretation.
10.5. Delegation of Authority to Grant Awards. The Committee may,
---------------------------------------
but need not, delegate from time to time some or all of its authority to grant
Awards under the Plan to a committee consisting of one or more members of the
Committee or of one or more officers of the Company; provided, however, that the
Committee may not delegate its authority to grant Awards to individuals (i) who
are subject on the date of the grant to the reporting rules under Section 16(a)
of the Exchange Act, (ii) who are Section 162(m) Participants or (iii) who are
officers of the Company who are delegated authority by the Committee hereunder.
Any delegation hereunder shall be subject to the restrictions and limits that
the Committee specifies at the time of such delegation of authority and may be
rescinded at any time by the Committee. At all times, any committee appointed
under this Section 10.5 shall serve in such capacity at the pleasure of the
Committee.
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1. Not Transferable. No Award under the Plan may be sold,
----------------
pledged, assigned or transferred in any manner other than by will or the laws of
descent and distribution or, subject to the consent of the Administrator,
pursuant to a DRO, unless and until such Award has been exercised, or the shares
underlying such Award have been issued, and all restrictions applicable to such
shares have lapsed. No Award or interest or right therein shall be liable for
the debts, contracts or engagements of the Holder or his successors in interest
or shall be subject to disposition by transfer, alienation, anticipation,
pledge, encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect,
except to the extent that such disposition is permitted by the preceding
sentence.
During the lifetime of the Holder, only he may exercise an Option or
other Award (or any portion thereof) granted to him under the Plan, unless it
has been disposed of with the consent of the Administrator pursuant to a DRO.
After the death of the Holder, any exercisable portion of an Option or other
Award may, prior to the time when such portion becomes unexercisable under the
Plan or the applicable Award Agreement, be exercised by his personal
representative or by any person empowered to do so under the deceased Holder's
will or under the then applicable laws of descent and distribution.
11.2. Amendment, Suspension or Termination of the Plan. Except as
------------------------------------------------
otherwise provided in this Section 11.2, the Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Administrator. However, without approval of the Company's
stockholders given within twelve months before or after the action by the
Administrator, no action of the Administrator may, except as provided in Section
11.3, increase the limits imposed in Section 2.1 on the maximum number of shares
which may be issued under the Plan. No amendment, suspension or termination of
the Plan shall, without the consent of the Holder alter or impair any rights or
obligations under any Award theretofore granted or awarded, unless the Award
itself otherwise expressly so provides. No Awards may be granted or awarded
during any period of suspension or after termination of the Plan, and in no
event may any Incentive Stock Option be granted under the Plan after the first
to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted
by the Board; or
A-16
<PAGE>
(b) The expiration of ten years from the date the Plan is
approved by the Company's stockholders under Section 11.4.
11.3. Changes in Common Stock or Assets of the Company, Acquisition
-------------------------------------------------------------
or Liquidation of the Company and Other Corporate Events.
- --------------------------------------------------------
(a) Subject to Section 11.3 (d), in the event that the
Administrator determines that any dividend or other distribution (whether
in the form of cash, Common Stock, other securities, or other property),
recapitalization, reclassification, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, liquidation, dissolution, or sale, transfer, exchange or other
disposition of all or substantially all of the assets of the Company, or
exchange of Common Stock or other securities of the Company, issuance of
warrants or other rights to purchase Common Stock or other securities of
the Company, or other similar corporate transaction or event, in the
Administrator's sole discretion, affects the Common Stock such that an
adjustment is determined by the Administrator to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to an Award,
then the Administrator shall, in such manner as it may deem equitable,
adjust any or all of
(i) the number and kind of shares of Common Stock (or
other securities or property) with respect to which Awards may be
granted or awarded (including, but not limited to, adjustments of the
limitations in Section 2.1 on the maximum number and kind of shares
which may be issued and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or
other securities or property) subject to outstanding Awards, and
(iii) the grant or exercise price with respect to any
Award.
(b) Subject to Sections 11.3(b)(vii) and 11.3(d), in the event of
any transaction or event described in Section 11.3(a) or any unusual or
nonrecurring transactions or events affecting the Company, any affiliate of
the Company, or the financial statements of the Company or any affiliate,
or of changes in applicable laws, regulations, or accounting principles,
the Administrator, in its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, either by the terms of the Award or
by action taken prior to the occurrence of such transaction or event and
either automatically or upon the Holder's request, is hereby authorized to
take any one or more of the following actions whenever the Administrator
determines that such action is appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the Plan or with respect to any Award under the Plan, to
facilitate such transactions or events or to give effect to such changes in
laws, regulations or principles:
(i) To provide for either the purchase of any such Award
for an amount of cash equal to the amount that could have been
attained upon the exercise of such Award or realization of the
Holder's rights had such Award been currently exercisable or payable
or fully vested or the replacement of such Award with other rights or
property selected by the Administrator in its sole discretion;
(ii) To provide that the Award cannot vest, be exercised or
become payable after such event;
(iii) To provide that such Award shall be exercisable as to
all shares covered thereby, notwithstanding anything to the contrary
in Section 5.3 or 5.4 or the provisions of such Award;
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<PAGE>
(iv) To provide that such Award be assumed by the successor
or survivor corporation, or a parent or subsidiary thereof, or shall
be substituted for by similar options, rights or awards covering the
stock of the successor or survivor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices; and
(v) To make adjustments in the number and type of shares of
Common Stock (or other securities or property) subject to outstanding
Awards, and in the number and kind of outstanding Restricted Stock or
Deferred Stock and/or in the terms and conditions of (including the
grant or exercise price), and the criteria included in, outstanding
options, rights and awards and options, rights and awards which may be
granted in the future.
(vi) To provide that, for a specified period of time prior
to such event, the restrictions imposed under an Award Agreement upon
some or all shares of Restricted Stock or Deferred Stock may be
terminated, and, in the case of Restricted Stock, some or all shares
of such Restricted Stock may cease to be subject to repurchase under
Section 7.5 or forfeiture under Section 7.4 after such event.
(c) Subject to Sections 11.3(d), 3.2 and 3.3, the Administrator
may, in its discretion, include such further provisions and limitations in
any Award, agreement or certificate, as it may deem equitable and in the
best interests of the Company.
(d) With respect to Awards which are granted to Section 162(m)
Participants and are intended to qualify as performance-based compensation
under Section 162(m)(4)(C), no adjustment or action described in this
Section 11.3 or in any other provision of the Plan shall be authorized to
the extent that such adjustment or action would cause such Award to fail to
so qualify under Section 162(m)(4)(C), or any successor provisions thereto.
No adjustment or action described in this Section 11.3 or in any other
provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of
the Code. Furthermore, no such adjustment or action shall be authorized to
the extent such adjustment or action would result in short-swing profits
liability under Section 16 or violate the exemptive conditions of Rule 16b-
3 unless the Administrator determines that the Award is not to comply with
such exemptive conditions. The number of shares of Common Stock subject to
any Award shall always be rounded to the next whole number.
(e) Notwithstanding the foregoing, in the event that the Company
becomes a party to a transaction that is intended to qualify for "pooling
of interests" accounting treatment and, but for one or more of the
provisions of this Plan or any Award Agreement would so qualify, then this
Plan and any Award Agreement shall be interpreted so as to preserve such
accounting treatment, and to the extent that any provision of the Plan or
any Award Agreement would disqualify the transaction from pooling of
interests accounting treatment (including, if applicable, an entire Award
Agreement), then such provision shall be null and void. All determinations
to be made in connection with the preceding sentence shall be made by the
independent accounting firm whose opinion with respect to "pooling of
interests" treatment is required as a condition to the Company's
consummation of such transaction.
(f) The existence of the Plan, the Award Agreement and the Awards
granted hereunder shall not affect or restrict in any way the right or
power of the Company or the shareholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or other change
in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of stock or of options, warrants or
rights to purchase stock or of bonds, debentures, preferred or prior
preference stocks whose rights are superior to or affect the Common Stock
or the rights thereof or which are convertible into or exchangeable for
Common Stock, or the dissolution or liquidation of the company, or any sale
or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
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<PAGE>
11.4. Approval of Plan by Stockholders. The Plan will be submitted
--------------------------------
for the approval of the Company's stockholders within twelve months after the
date of the Board's initial adoption of the Plan. Awards may be granted or
awarded prior to such stockholder approval, provided that such Awards shall not
be exercisable nor shall such Awards vest prior to the time when the Plan is
approved by the stockholders, and provided further that if such approval has not
been obtained at the end of said twelve-month period, all Awards previously
granted or awarded under the Plan shall thereupon be canceled and become null
and void. In addition, if the Board determines that Awards other than Options
or Stock Appreciation Rights which may be granted to Section 162(m) Participants
should continue to be eligible to qualify as performance-based compensation
under Section 162(m)(4)(C) of the Code, the Performance Criteria must be
disclosed to and approved by the Company's stockholders no later than the first
stockholder meeting that occurs in the fifth year following the year in which
the Company's stockholders previously approved the Performance Criteria.
11.5. Tax Withholding. The Company shall be entitled to require
---------------
payment in cash or deduction from other compensation payable to each Holder of
any sums required by federal, state or local tax law to be withheld with respect
to the issuance, vesting, exercise or payment of any Award. The Administrator
may in its discretion and in satisfaction of the foregoing requirement allow
such Holder to elect to have the Company withhold shares of Common Stock
otherwise issuable under such Award (or allow the return of shares of Common
Stock) having a Fair Market Value equal to the sums required to be withheld.
Notwithstanding any other provision of the Plan, the number of shares of Common
Stock which may be withheld with respect to the issuance, vesting, exercise or
payment of any Award (or which may be repurchased from the Holder of such Award
within six months after such shares of Common Stock were acquired by the Holder
from the Company) in order to satisfy the Holder's federal and state income and
payroll tax liabilities with respect to the issuance, vesting, exercise or
payment of the Award shall be limited to the number of shares which have a Fair
Market Value on the date of withholding or repurchase equal to the aggregate
amount of such liabilities based on the minimum statutory withholding rates for
federal and state tax income and payroll tax purposes that are applicable to
such supplemental taxable income.
11.6. Loans. The Committee may, in its discretion, extend one or
-----
more loans to key Employees in connection with the exercise or receipt of an
Award granted or awarded under the Plan, or the issuance of Restricted Stock or
Deferred Stock awarded under the Plan. The terms and conditions of any such
loan shall be set by the Committee.
11.7. Forfeiture Provisions. Pursuant to its general authority to
---------------------
determine the terms and conditions applicable to Awards under the Plan, the
Administrator shall have the right to provide, in the terms of Awards made under
the Plan, or to require a Holder to agree by separate written instrument, that
(a) (i) any proceeds, gains or other economic benefit actually or constructively
received by the Holder upon any receipt or exercise of the Award, or upon the
receipt or resale of any Common Stock underlying the Award, must be paid to the
Company, and (ii) the Award shall terminate and any unexercised portion of the
Award (whether or not vested) shall be forfeited, if (b)(i) a Termination of
Employment, Termination of Consultancy or Termination of Directorship occurs
prior to a specified date, or within a specified time period following receipt
or exercise of the Award, or (ii) the Holder at any time, or during a specified
time period, engages in any activity in competition with the Company, or which
is inimical, contrary or harmful to the interests of the Company, as further
defined by the Administrator or (iii) the Holder incurs a Termination of
Employment, Termination of Consultancy or Termination of Directorship for cause.
11.8. Effect of Plan Upon Options and Compensation Plans. The
--------------------------------------------------
adoption of the Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in the Plan shall be
construed to limit the right of the Company (a) to establish any other forms of
incentives or compensation for Employees, Directors or Consultants of the
Company or any Subsidiary or (b) to grant or assume options or other rights or
awards otherwise than under the Plan in connection with any proper corporate
purpose including but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation,
partnership, limited liability company, firm or association.
11.9. Compliance with Laws. The Plan, the granting and vesting of
--------------------
Awards under the Plan and
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<PAGE>
the issuance and delivery of shares of Common Stock and the payment of money
under the Plan or under Awards granted or awarded hereunder are subject to
compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and Awards granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.
11.10. Titles. Titles are provided herein for convenience only and
------
are not to serve as a basis for interpretation or construction of the Plan.
11.11. Governing Law. The Plan and any agreements hereunder shall be
-------------
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
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<PAGE>
INTERPORE INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 19, 2000
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
19, 2000, 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.
[X] Please mark your votes as in this example.
1. Elect both William A. Eisenecher and Daniel A. Funk, M.D. to the Board of
Directors of the Company.
[_] FOR BOTH nominees listed [_] WITHHOLD AUTHORITY
above (except as marked to the to vote for both nominees listed above.
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 the adoption of the 2000 Equity Participation Plan of
Interpore International, Inc. which would provide for the issuance of
options to purchase up to 1,000,000 shares of Common Stock of the Company.
[_] 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 PROPOSALS 1
AND 2.
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 , 2000
(SEAL)
____________________________________
Signature
(SEAL)
____________________________________
Signature
