SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant X
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Check the appropriate box:
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Section 240.14a-12
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ORTHOFIX INTERNATIONAL N.V.
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(Name of Registrant as Specified In Its Charter)
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(Name of Persons(s) Filing Proxy Statement, if other than the registrant)
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Orthofix International N.V.
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
AND
PROXY STATEMENT
Meeting Date:
June 29, 2004
at 11:00 a.m. (local time)
Meeting Place:
Orthofix International N.V.
7 Abraham de Veerstraat
Curacao, Netherlands Antilles
Dear Shareholders:
We will hold the Annual General Meeting of Shareholders on Tuesday,
June 29, 2004, at 11:00 a.m. at Orthofix's offices, 7 Abraham de Veerstraat,
Curacao, Netherlands Antilles.
This booklet includes the notice of annual general meeting and the
proxy statement. The proxy statement describes the business that we will conduct
at the meeting.
Your vote is important. Please refer to the proxy card or other voting
instructions included with these proxy materials for information on how to vote
by proxy or in person.
Sincerely,
/s/ CHARLES W. FEDERICO
Charles W. Federico
Chief Executive Officer
May , 2004
NOTICE AND PROXY STATEMENT
for Shareholders of
ORTHOFIX INTERNATIONAL N.V.
7 Abraham de Veerstraat
Curacao, Netherlands Antilles
for
ANNUAL GENERAL MEETING OF SHAREHOLDERS
to be held on Tuesday, June 29, 2004
This Notice and the accompanying Proxy Statement are being furnished to
the Shareholders of Orthofix International N.V., a Netherlands Antilles
corporation ("Orthofix"), in connection with the forthcoming Annual General
Meeting of Shareholders, and the solicitation of proxies by the Board of
Directors of Orthofix from holders of outstanding shares of common stock, par
value $0.10 per share, of Orthofix for use at the Annual General Meeting and at
any adjournment thereof.
Time, Date and Place of Annual General Meeting
Notice is hereby given that the Annual General Meeting will be held on
June 29, 2004 at 11:00 a.m., local time, at Orthofix's offices, 7 Abraham de
Veerstraat, Curacao, Netherlands Antilles.
Purpose of the Annual Meeting
1. Election of Board of Directors. Shareholders will be asked to
consider, and, if thought fit, approve a resolution to elect the following
persons to the Board of Directors of Orthofix: Robert Gaines-Cooper, Edgar
Wallner, Peter Clarke, Jerry Benjamin, Frederik Hartsuiker, Alberto d'Abreu de
Paulo, Peter Hewett, John Littlechild, Charles Federico, James Gero and Walter
von Wartburg. The Board of Directors recommends that shareholders vote FOR the
proposal to elect the foregoing persons to the Board of Directors of Orthofix.
2. Approval of Orthofix International N.V. 2004 Long-Term Incentive
Plan (the "Long-Term Incentive Plan"). Shareholders will be asked to consider,
and, if thought fit, approve a resolution of the Board of Directors to approve
the Long-Term Incentive Plan. The Board of Directors recommends that
shareholders vote FOR the proposal as stated above.
3. Approval of Increase in Maximum Number of Shares of Common Stock
Available for Issuance and Other Amendments to Articles of Association.
Shareholders will be asked to consider, and, if thought fit, approve a
resolution of the Board of Directors to approve amendments to the Articles of
Association of Orthofix to:
a. increase the maximum number of shares of common stock available for
issuance from 30,000,000 to 50,000,000 and
b. make other changes recommended by the Board of Directors as described
in Proposal 3(b) and reflected in Appendix III.
The Board of Directors recommends that shareholders vote FOR the
proposals as stated above.
4. Approval of Financial Statements for the Year Ended December 31,
2003. Shareholders will be asked to consider, and, if thought fit, approve the
balance sheet and income statement at and for the year ended December 31, 2003.
The Board of Directors recommends that shareholders vote FOR the proposal to
approve the balance sheet and income statement at and for the year ended
December 31, 2003.
5. Ratification of the Selection of Ernst & Young LLP. Shareholders
will be asked to consider, and, if thought fit, approve a resolution to ratify
the selection of Ernst & Young LLP as independent auditors for Orthofix and its
subsidiaries for the fiscal year ending December 31, 2004. The Board of
Directors recommends that shareholders vote FOR the proposal to ratify the
selection of Ernst & Young LLP as independent auditors.
6. Miscellaneous. Shareholders will be asked to transact such other
business as may come before the Annual General Meeting or any adjournment
thereof.
Please read a detailed description of proposals 1 through 5 stated
above beginning on page 23 of the proxy statement.
Shareholders Entitled to Vote
All record holders of shares of Orthofix common stock at the close of
business on May 10, 2004 (the "Record Date") have been sent this notice and will
be entitled to vote at the Annual General Meeting. Each record holder on such
date is entitled to cast one vote per share of common stock.
Documents Available for Inspection
A copy of the financial statements for the year ended December 31, 2003
and a copy of the draft deed of amendment to the Articles of Association of
Orthofix have been filed at the offices of Orthofix at 7 Abraham de Veerstraat,
Curacao, Netherlands Antilles, and are available for inspection by shareholders
until the conclusion of the Annual General Meeting.
By Order of the Board of Directors
/s/ PETER W. CLARKE
Peter W. Clarke
Secretary
May , 2004
TABLE OF CONTENTS
About Voting...................................................................1
Who can vote..........................................................1
Quorum, vote required.................................................1
Proxies .............................................................1
Voting is confidential................................................1
The costs of soliciting these proxies and who will pay them...........2
Obtaining an Annual Report on Form 10-K...............................2
The voting results....................................................2
Whom to call if you have any questions................................2
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholders..................................................3
Who are the largest owners of Orthofix common stock...................3
Common stock owned by Orthofix's directors and executive officers.....5
Section 16(a) Beneficial Ownership Reporting Compliance...............6
Information about Directors....................................................7
The Board of Directors................................................7
The Committees of the Board...........................................7
Code of Ethics........................................................8
Shareholder Communication with the Board of Directors.................8
Nomination of Directors...............................................9
Director Compensation.................................................9
Certain Relationships and Related Transactions.......................10
Report of the Audit Committee.................................................11
Executive Compensation........................................................12
The Executive Officers...............................................12
Executive Compensation Summary.......................................14
Stock Options........................................................15
Option Exercises and Year-End Option Values..........................15
Equity Compensation Plan Information.................................16
Executive Employment Agreements......................................17
Indebtedness of Management...........................................19
Compensation Committee Interlocks and Insider Participation..........19
Report of the Compensation Committee..........................................20
Performance Graph.............................................................22
Proposal 1: Election of Directors............................................23
Directors Standing for Election......................................23
Proposal 2: Approval of Orthofix International N.V. 2004 Long-Term
Incentive Plan.......................................................26
Proposal 3: Approval of Increase in Maximum Number of Shares of Common
Stock Available for Issuance and Other Amendments to Articles of
Association..........................................................30
Proposal 4: Approval of Financial Statements for the Year
Ended December 31, 2003..............................................33
Proposal 5: Ratification of the Selection of Ernst & Young LLP as
Independent Auditors for 2004........................................34
Principal Accountant Fees and Services...............................34
Change in Accountants................................................35
Information About Shareholder Proposals.......................................36
PROXY STATEMENT FOR THE ORTHOFIX INTERNATIONAL N.V.
2004 ANNUAL GENERAL MEETING OF SHAREHOLDERS
THIS PROXY STATEMENT AND THE ENCLOSED PROXY ARE BEING MAILED TO SHAREHOLDERS ON
OR ABOUT MAY , 2004.
ABOUT VOTING
Who can vote
All record holders of shares of Orthofix common stock at the close of
business on May 10, 2004 (the "Record Date") have been sent this notice and will
be entitled to vote at the Annual General Meeting. Each record holder on such
date is entitled to cast one vote per share of common stock. On May 4, 2004,
there were 15,230,962 shares of Orthofix common stock outstanding.
Quorum, vote required
The presence, in person or by proxy, of the holders of fifty percent
(50%) of the shares of Orthofix common stock outstanding on the Record Date
shall be considered a quorum at the Annual General Meeting. An absolute majority
of the votes cast will be required in order to approve the proposals before the
Annual General Meeting, except that the directors shall be elected by a
plurality of the votes cast. Abstentions and "broker non-votes" are counted as
shares that are present and entitled to vote on the proposal for purposes of
determining the presence of a quorum, but abstentions and broker non-votes will
not have any effect on the outcome of voting on the proposals. A broker
"non-vote" occurs when a broker holding shares for a beneficial owner does not
vote on a particular proposal because the broker does not have discretionary
voting power for that particular item and has not received instructions from the
beneficial owner.
Proxies
This Proxy Statement is being furnished to holders of shares of
Orthofix common stock in connection with the solicitation of proxies by and on
behalf of the Board of Directors of Orthofix for use at the Annual General
Meeting.
All shares of Orthofix common stock that are represented at the Annual
General Meeting by properly executed proxies received prior to or at the Annual
General Meeting and which are not revoked, will be voted at the Annual General
meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated on a properly executed proxy, such proxy will be
voted in favor of each of the proposals. The Board of Directors of Orthofix does
not know of any other matters that are to be presented for consideration at the
Annual General Meeting.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (1)
filing with Orthofix, at or before the taking of the vote at the Annual General
Meeting, a written notice of revocation bearing a later date than the proxy, or
(2) duly executing a subsequent proxy relating to the same shares of Orthofix
common stock and delivering it to Orthofix before the Annual General Meeting.
Attending the Annual General Meeting will not in and of itself constitute a
revocation of a proxy. Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to: Orthofix International N.V., 7 Abraham
de Veerstraat, Curacao, Netherlands Antilles, at or before the taking of the
vote at the Annual General Meeting.
Voting is confidential
We maintain a policy of keeping all the proxies, ballots and voting
tabulations confidential.
1
The costs of soliciting these proxies and who will pay them
We will pay all the costs of soliciting these proxies. Although we are
mailing these proxy materials, our directors and employees may also solicit
proxies by telephone, by fax or other electronic means of communication, or in
person. We will reimburse banks, brokers, nominees and other fiduciaries for the
expenses they incur in forwarding the proxy materials to you. Georgeson
Shareholder is assisting us with the solicitation of proxies for a fee of $6,000
plus out-of-pocket expenses.
Obtaining an Annual Report on Form 10-K
We have filed our Annual Report on Form 10-K for the year ended
December 31, 2003 with the U.S. Securities and Exchange Commission. Our Form
10-K contains information that is not included in our Annual Report that we are
sending you with this proxy statement. Our Form 10-K is available on our website
at www.orthofix.com. If you would like to receive a copy of our Form 10-K, we
will send you one without charge. Please write to:
Investor Relations
Orthofix International N.V.
10115 Kincey Ave., Suite 250
Huntersville, NC 28078
Attention: Ms. Pat Fitzgerald
You may also contact Ms. Fitzgerald at (704) 948-2600 or at
patfitzgerald@orthofix.com.
The voting results
We will publish the voting results in our Form 10-Q for the second
quarter of 2004, which we will file with the SEC in August 2004. You will also
be able to find the Form 10-Q on our website at www.orthofix.com.
Whom to call if you have any questions
If you have any questions about the annual meeting, voting or your
ownership of Orthofix common stock, please contact Thomas Hein, CFO, at (704)
948-2600 or at tomhein@orthofix.com.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDERS
Who are the largest owners of Orthofix common stock
The following table shows each person, or group of affiliated persons,
who beneficially owns, directly or indirectly, at least 5% of Orthofix common
stock as of December 31, 2003. Our information is based on reports filed with
the SEC by each of the firms or individuals listed in the table below. You may
obtain these reports from the SEC.
The percent of class figure for the common stock is based on 14,980,010
shares of our common stock outstanding as of December 31, 2003, other than with
respect to Mr. Robert Gaines-Cooper for which information is given and
calculations are made as of April 15, 2004. Except as otherwise indicated, each
shareholder has sole voting and dispositive power with respect to the shares
indicated.
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Amount and Nature of Percent
Name and Address Beneficial Ownership of Class
of Beneficial Owner
FMR Corp. ......................................... 2,133,147 (1) 14.2%
82 Devonshire Street
Boston, MA 02109
Robert Gaines-Cooper .............................. 620,200 (2) 4.0%
Orthofix International N.V. 873,000 (3) 5.7%
7 Abraham de Veerstraat
Curacao, Netherlands Antilles
Federated Investors, Inc. ......................... 1,177,860 (4) 7.9%
Federated Investors Tower
Pittsburgh, PA 15222-3779
Kayne Anderson Rudnick Investment
Management, LLC ................................. 973,913 (5) 6.5%
1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067
Wellington Management Company, LLP ................ 873,590 (6) 5.8%
75 State Street
Boston, MA 02109
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(1) Based on an amendment to a Schedule 13G filed on February 17, 2004 by
FMR Corp., a parent holding company, Edward C. Johnson 3d, Abigail P.
Johnson, Fidelity Management and Research Company, Fidelity Low Priced
Stock Fund and Fid Diversified International. FMR Corp. reported sole
voting power with respect to 94,347 of the reported shares and sole
dispositive power with respect to all of the reported shares. Fidelity
Management & Research Company ("Fidelity"), an investment adviser and
wholly owned subsidiary of FMR Corp., is the beneficial owner of
2,039,647 of the reported shares. Fidelity Management Trust Company, a
bank and a wholly-owned subsidiary of FMR Corp., is the beneficial
owner of 80,300 of the reported shares. Edward C. Johnson, Chairman of
FMR. Corp., and FMR Corp., through their control of Fidelity and
Fidelity Management Trust Company, each have sole power to dispose of
the shares beneficially owned by the Fidelity funds and Fidelity
Management Trust Company, and sole voting power with respect to the
shares beneficially owned by Fidelity Management Trust Company. The
power to vote the shares beneficially owned by the Fidelity funds
resides with the Board of Trustees of the Fidelity funds. Fidelity
International Limited ("FIL"), an investment adviser and former
subsidiary of Fidelity and FMR Corp., is the beneficial owner of, and
has sole voting and dispositive power with respect to, 13,200 of the
reported shares.
(2) Amount consists of 432,700 shares owned directly and 187,500 currently
exercisable stock options.
3
(3) Amount shown consists of 693,000 shares owned by a trust in which Mr.
Gaines-Cooper has an indirect interest and 180,000 shares owned by LMA
International S.A. A trust, of which Mr. Gaines-Cooper is a settlor,
owns a 40% interest in LMA International S.A.
(4) Based on an amendment to a Schedule 13G filed on February 13, 2004 by
Federated Investors, Inc., a parent holding company, Voting Shares
Irrevocable Trust and John F. Donahue, Rhodora J. Donohue and J.
Christopher Donahue, collectively, as the Trustees of the Voting Shares
Irrevocable Trust. Federated Investors, Inc., Voting Shares Irrevocable
Trust and the Trustees reported sole voting and dispositive power with
respect to, and disclaimed beneficial ownership of, the reported
shares. We have not attempted to independently verify any of the
foregoing information, which is based solely upon the information
contained in the Schedule 13G/A.
(5) Based on an amendment to a Schedule 13G filed on February 10, 2004 by
Kayne Anderson Rudnick Investment Management, LLC, an investment
advisor. Kayne Anderson Rudnick Investment Management, LLC reported
sole voting and dispositive power with respect to the reported shares.
We have not attempted to independently verify any of the foregoing
information, which is based solely upon the information contained in
the Schedule 13G/A.
(6) Based on an amendment to a Schedule 13G filed on February 12, 2004 by
Wellington Management Company, LLP, an investment advisor. Wellington
Management Company, LLP reported shared voting power with respect to
646,140 of the reported shares and shared dispositive power with
respect to all of the reported shares. We have not attempted to
independently verify any of the foregoing information, which is based
solely upon the information contained in the Schedule 13G/A.
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Common stock owned by Orthofix's directors and executive officers
The following table sets forth the beneficial ownership of our common
stock, including stock options currently exercisable and exercisable within 60
days, as of April 15, 2004 by each director, each nominee for director, each
executive officer listed in the Summary Compensation Table and all directors and
executive officers as a group. The percent of class figure is based on
15,227,362 shares of our common stock outstanding as of April 15, 2004. All
directors and executive officers as a group beneficially owned 2,957,281 shares
of Orthofix common stock as of such date. Unless otherwise indicated, the
beneficial owners exercise sole voting and/or investment power over their
shares.
------------------------------------------------------ ------------------------------------------- -------------------
Name of Director or Amount and Nature Percent
Executive Officer of Beneficial Ownership of Class
Robert Gaines-Cooper .............................. 620,200 (1) 4.0%
873,000 (2) 5.7%
Edgar Wallner ..................................... 436,100 (3) 2.8%
Charles Federico .................................. 254,591 (4) 1.6%
Thomas Hein ....................................... 48,121 (5) *
Peter Clarke ...................................... 200,000 (6) 1.3%
Gary Henley ....................................... 51,000 (7) *
Galvin Mould ...................................... 10,000 (8) *
Bradley R. Mason .................................. 170,754 (9) 1.1%
Jerry Benjamin .................................... 69,282 (10) *
Alberto d'Abreu de Paulo........................... 12,000 (11) *
Frederik Hartsuiker ............................... 18,500 (12) *
Peter Hewett ...................................... 97,300 (13) *
John Littlechild .................................. 45,861 (14) *
James Gero ........................................ 50,572 (15) *
Walter von Wartburg (16)........................... -0- -0-
Directors and executive officers
as a group (15 persons)......................... 2,957,281 18.2%
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* Represents less than one percent.
(1) Amount shown consists of 432,700 shares owned directly and 187,500
currently exercisable stock options.
(2) Amount shown consists of 693,000 shares owned by a trust in which Mr.
Gaines-Cooper has an indirect interest, and 180,000 shares owned by LMA
International S.A. A trust, of which Mr. Gaines-Cooper is a settlor,
owns a 40% interest in LMA International S.A.
5
(3) Amount shown consists of 45,000 shares owned directly, 142,500
currently exercisable stock options, and 248,600 shares owned
indirectly.
(4) Amount shown consists of 3,691 shares owned directly, 250,000 currently
exercisable stock options, and 900 shares owned indirectly.
(5) Amount consists of 621 shares owned directly and 47,500 currently
exercisable stock options.
(6) Amount consists of 200,000 currently exercisable stock options.
(7) Amount consists of 50,000 currently exercisable stock options and 1,000
shares owned indirectly.
(8) Amount consists of 10,000 currently exercisable stock options.
(9) Amount consists of 170,754 shares owned indirectly.
(10) Amount consists of 59,282 shares owned directly and 10,000 currently
exercisable stock options.
(11) Amount consists of 2,000 shares owned directly and 10,000 currently
exercisable stock options.
(12) Amount consists of 8,500 shares owned directly and 10,000 currently
exercisable stock options.
(13) Amount consists of 24,000 shares owned directly and 73,300 currently
exercisable stock options.
(14) Amount consists of 35,861 shares owned directly and 10,000 currently
exercisable stock options.
(15) Amount consists of 25,572 shares owned directly and 25,000 currently
exercisable stock options.
(16) Mr. von Wartburg is a new nominee for director.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that our insiders--our directors, executive officers, and
greater-than-10% shareholders--file reports with the SEC on their initial
beneficial ownership of Orthofix common stock and any subsequent changes. They
must also provide us with copies of the reports.
To our knowledge, based solely on a review of the copies of such
reports furnished to us and, with respect to our officers and directors, written
representations that no other reports were required, during the fiscal year
ended December 31, 2003, all Section 16(a) filing requirements applicable to our
officers, directors and greater-than-ten-percent beneficial owners were complied
with except as follows: Mr. Wallner reported on a Form 4 filed on May 21, 2003,
shares of common stock he acquired indirectly on May 9, 2003, and Messrs.
Benjamin, Brown, d'Abreu de Paulo, Federico, Gero, Hartsuiker, Hein and Henley
reported on Form 4s filed on August 26, 2003, option grants to purchase shares
of our common stock that they received on August 6, 2003, and Mr. Littlechild
reported on a Form 4 filed on August 27, 2003, an option grant to purchase
shares of our common stock that he received on August 6, 2003.
In making the above statements, we have relied on the written
representations of our directors and officers and copies of the reports that
have been filed with the SEC.
6
INFORMATION ABOUT DIRECTORS
The Board of Directors
The Board of Directors oversees the business of Orthofix and monitors
the performance of management. The directors keep themselves informed by
discussing matters with the Chief Executive Officer, other key executives and
our principal external advisers by reading the reports and other materials that
we send them regularly and by participating in Board and committee meetings.
The directors are elected at the annual general meeting of shareholders
by a plurality of the votes cast, in person or by proxy by the shareholders.
Because we are required by Netherlands Antilles law to hold the annual general
meeting in the Netherlands Antilles, we do not have a policy regarding director
attendance at the annual general meeting. Last year, Mr. d'Abreu d'Paulo
attended the annual general meeting. Our Articles of Association provide that
the Board of Directors shall consist of not less than seven and no more than
fifteen directors, the exact number to be determined by the annual general
meeting of shareholders.
Our Board usually meets four times per year in regularly scheduled
meetings, but will meet more often if necessary. The Board met eight times
during 2003. All directors attended at least 75% of the Board meetings and
meetings of the committees of which they were members. The Board has determined
that the following directors and nominee are independent under Nasdaq Rule 4200:
Messrs. Gero, Benjamin, d'Abreu de Paulo, Littlechild, Hartsuiker and von
Wartburg.
The Committees of the Board
We have three standing committees: the Audit Committee, the
Compensation Committee and the Nominating Committee.
The Audit Committee
Our Audit Committee is a separately-designated standing audit committee
established in accordance with section 3(a)(38)(A) of the Securities Exchange
Act of 1934, as amended. The Audit Committee is responsible for the appointment,
compensation and oversight of our independent auditors, approves the scope of
the annual audit by the independent auditors, reviews audit findings and
accounting policies, assesses the adequacy of internal controls and risk
management and reviews and approves Orthofix's financial disclosures. The
Committee also meets privately, outside the presence of Orthofix management,
with the independent auditors. The Audit Committee's Report for 2003 is printed
below at page 11.
The Board has adopted a written charter for the Audit Committee, a copy
of which was attached as an appendix to our 2003 proxy statement.
The Committee met five times during 2003.
Messrs. Benjamin, Hartsuiker and d'Abreu de Paulo currently serve as
members of the Committee. Mr. Benjamin serves as Chairman of the Committee.
Under the current rules of the Nasdaq and pursuant to Item 7(d)(3)(iv) of
Schedule 14A under the Securities Exchange Act of 1934, as amended, Messrs.
Benjamin and d'Abreu de Paulo are independent. Although Mr. Hartsuiker is
considered independent under Nasdaq Rule 4200, our board of directors has
determined that he does not meet the criteria for independence for audit
committee members as set forth in the recently promulgated Nasdaq Rule
4350(d)(2). As a result, Mr. Hartsuiker will be stepping down from the Audit
Committee as of the date of the annual general meeting and will be replaced by
one of our independent directors who meets the requirements of Nasdaq Rule
4350(d)(2). Our Board of Directors has determined that Mr. Benjamin is an "audit
committee financial expert" in accordance with current SEC rules.
7
The Compensation Committee
The Compensation Committee establishes and approves all elements of
compensation for the executive officers. Each year, as the SEC requires, the
Compensation Committee will report to you on executive compensation. The
Compensation Committee's Report on Executive Compensation for 2003 is printed
below, starting at page 20.
The Compensation Committee administers the Staff Share Option Plan
(including the Performance Accelerated Stock Option program), the Executive
Share Option Plan and the Employee Stock Purchase Plan, and will administer the
Long-Term Incentive Plan upon its adoption, and has sole authority for awards
under such plans. The Compensation Committee evaluates existing and proposed
employee benefit plans and may approve of plan changes. The Compensation
Committee is also responsible for periodically reviewing Orthofix's plans
regarding succession of senior management.
The Compensation Committee met four times during 2003.
The Compensation Committee acts under a written charter adopted by the
Board of Directors.
Messrs. Littlechild and Gero currently serve as members of the
Compensation Committee, and each satisfies the independent director standards as
defined by current Nasdaq rules and the qualification standards of Section
162(m) of the U.S. Internal Revenue Code of 1986, as amended, and Section 16 of
the Securities Exchange Act of 1934, as amended. Mr. Littlechild serves as
Chairman of the Compensation Committee.
The Nominating Committee
The Nominating Committee assists the Board in identifying qualified
individuals to become Board members, determining the composition of the Board of
Directors and its Committees, monitoring a process to assess Board effectiveness
and developing Director compensation policy.
The Nominating Committee met four times in 2003 and will meet at least
twice annually, and more frequently as circumstances dictate. Committee meetings
and communications shall be either in person or by conference telephone call.
The Board has adopted a written charter for the Nominating Committee, a
copy of which is attached as Appendix I to this proxy statement.
Messrs. Benjamin, d'Abreu de Paulo, Hartsuiker, Littlechild and Gero
currently serve as members of the Committee. Mr. Gero serves as Chairman of the
Committee. All of the members of the Nominating Committee are independent as
defined by current Nasdaq rules.
Code of Ethics
We have adopted a code of ethics to comply with SEC and Nasdaq rules.
Our code of ethics applies to our directors, officers and employees worldwide,
including our Chief Executive Officer and Chief Financial Officer. A copy of our
Code of Ethics was filed as an exhibit to our 2003 annual report on Form 10-K.
Shareholder Communication with the Board of Directors
To facilitate the ability of shareholders to communicate with our
Board of Directors, we have established an electronic mailing address and a
physical mailing address to which communications may be sent:
boardofdirectors@orthofix.com, or The Board of Directors, c/o Mr. James F. Gero,
Director, Orthofix International N.V., 10115 Kincey Avenue, Suite 250,
Huntersville, NC 28078.
Mr. Gero reviews all correspondence addressed to the Board of Directors
and regularly presents to the Board a summary of all such correspondence and
forwards to the Board or individual directors, as the case may be, copies of all
8
correspondence that, in the opinion of Mr. Gero, deals with the functions of the
Board or committees thereof or that he otherwise determines requires their
attention. Examples of communications that would be logged, but not
automatically forwarded, include solicitations for products and services or
items of a personal nature not relevant to us or our shareholders. Directors may
at any time review the log of all correspondence received by Orthofix that is
addressed to members of the Board and request copies of any such correspondence.
Nomination of Directors
As provided in its charter, the Nominating Committee identifies and
recommends to the Board nominees for election or re-election to the Board and
will consider nominations submitted by shareholders. The Nominating Committee
charter is attached as Appendix I to this proxy statement.
The Nominating Committee seeks to create a Board of Directors that is
strong in its collective diversity of skills and experience with respect to
finance, leadership, business operations and industry knowledge. The Nominating
Committee reviews with the Board of Directors, on an annual basis, the current
composition of the Board of Directors in light of the characteristics of
independence, age, skills, experience and availability of service to our company
of its members and of anticipated needs. If necessary, we will retain a third
party to assist us in identifying or evaluating any potential nominees for
director. When the Nominating Committee reviews a potential new candidate, they
look specifically at the candidate's qualifications in light of the needs of the
Board of Directors at that time given the then current mix of director
attributes.
Generally, in nominating director candidates, the Nominating Committee
strives to nominate directors that exhibit high standards of ethics, integrity,
commitment and accountability. In addition, all nominations attempt to ensure
that the Board of Directors shall encompass a range of talent, skills and
expertise sufficient to provide sound guidance with respect to our operations
and activities.
Under our Nominating Committee guidelines, directors must inform the
Chairman of the Board and the Chair of the Nominating Committee in advance of
accepting an invitation to serve on another public company board. In addition,
no director may sit on the Board of Directors, or beneficially own more than 1%
of the outstanding equity securities, of any of our competitors in our principal
lines of business. The Board of Directors has not established any term limits to
an individual's membership as a director.
To recommend a nominee, a shareholder shall give notice to the Board of
Directors, at our registered address c/o Mr. James F. Gero, Director, Orthofix
International N.V., 10115 Kincey Avenue, Suite 250, Huntersville, NC 28078. This
notice should include the candidate's brief biographical description, a
statement of the qualifications of the candidate, taking into account the
qualification requirements set forth above and the candidate's signed consent to
be named in the proxy statement and to serve as a director if elected. The
notice must be given not later than 180 days before the first anniversary of the
last Annual General Meeting of Shareholders. Once we receive the recommendation,
we will contact the candidate and request that he or she provide us with
additional information about the candidate's independence, qualifications and
other information that would assist the Nominating Committee in evaluating the
candidate, as well as certain information that must be disclosed about the
candidate in our proxy statement, if nominated. Candidates must respond to our
inquiries within the time frame provided in order to be considered for
nomination by the Nominating Committee.
The Nominating Committee did not pay any fees to any third party to
assist us in identifying or evaluating any potential nominees for director
during 2003. The Nominating Committee has not received any nominations for
director from shareholders for the 2004 Annual General Meeting of Shareholders.
Director Compensation
Directors who are our employees do not receive fees for service on the
Board of Directors or any Board committee. During 2003, each of our non-employee
directors received an annual retainer fee of approximately $55,000 for their
services. The Audit Committee chair received an additional annual fee of $10,000
for his service. Each of the Nominating Committee and Compensation Committee
chairs received an additional annual fee of $5,000 for their services.
9
In addition, we grant options from time to time to our non-employee
directors under our equity compensation plans. The decision to grant options to
non-employee directors will be reviewed by the Board of Directors on an annual
basis.
We reimburse our directors for travel and other related expenses
incurred in connection with the business of Orthofix, including attending
shareholder meetings, meetings of the Board of Directors or any Board committee.
Mr. Peter Hewett, a non-employee director, also serves as a consultant
to the Company and as Chairman of Orthofix Inc.'s Board of Directors. In this
capacity, he provides consulting and advisory services, at such times and on
such special projects, as we request. Mr. Hewett reports directly to the Board
of Directors in connection with these consulting and advisory services. In 2003,
we paid $128,675 in consulting fees to Mr. Hewett, which is in addition to his
director fees. We also reimbursed Mr. Hewett for travel and other related
expenses incurred in connection with the performance of such consulting and
advisory services. In 2004, Mr. Hewett will receive a fee of $1,500 per day for
each day of requested consulting and advisory services, in addition to his
director fees.
Certain Relationships and Related Transactions
Certain of our directors own beneficial interests in LMA International
S.A., or LMA. Mr. Gaines-Cooper is the Chairman of LMA and is the settlor of a
trust which owns 40% of LMA. Mr. Peter Clarke and Mr. Peter Hewett serve as
directors of Laryngeal Mask North America, a subsidiary of LMA. LMA, which owns
the distribution rights in Italy to the Laryngeal Mask (used to administer
anesthesia) produced by The Laryngeal Mask Company Ltd., has awarded the
distribution rights for the Laryngeal Mask in Italy to D.M.O. S.r.l, a
subsidiary of Orthofix International.
Effective January 14, 2003, we completed a Share Purchase Agreement to
acquire the remaining 48% minority interest in our United Kingdom distribution
company, Intavent Orthofix Limited (IOL). We purchased the 48% interest from
Intavent Limited (Intavent) for a cash purchase price of $20,450,000. IOL
distributes Orthofix products, Laryngeal Mask products and other orthopedic
products. Concurrent with the completion of the Share Purchase Agreement, we
completed a Distribution Agreement with Intavent and a Guarantee Agreement with
LMA International S.A. (LMA) for the supply of Laryngeal Mask products in the
United Kingdom, Ireland and Channel Islands for an initial period of seven
years. Mr. Robert Gaines-Cooper, Chairman of Orthofix, is a settlor of trusts,
which own a 30% interest in Intavent and a 40% interest in LMA. IOL has been and
will continue to be a consolidated subsidiary of Orthofix.
Arrow Medical Limited (Arrow) supplies impads for use with the A-V
Impulse System to Novamedix Distribution Limited, a wholly owned subsidiary of
Orthofix. LMA owns a 27% interest in Arrow. Mr. Gaines-Cooper is the Chairman of
LMA and is the settlor of a trust which owns 40% of LMA. Mr. Wallner is the
settlor of a trust which owns a 10% interest in Arrow. In 2003, Novamedix
purchased $5.6 million from Arrow for the supply of impads.
Inter Medical Supplies, a wholly owned subsidiary of Orthofix, which
manufactures Orthofix products, rents facilities in the Seychelles from LMA
under a three year lease which started in 2002. The annual rent paid to LMA is
approximately $65,000.
In 2003, Verona Controllo Qualita provided quality control and
logistics services to Orthofix S.r.l. and Inter Medical Supplies Limited
(Seychelles), wholly owned subsidiaries of Orthofix. LMA owns a 50% interest in
Verona Controllo Qualita. Mr. Gaines-Cooper is the Chairman of LMA and is the
settlor of a trust that owns 40% of LMA. In 2003, Orthofix purchased $0.3
million from Verona Controllo Qualita for quality control, goods and logistics
services. In March 2004, Orthofix S.r.l terminated its relationship with Verona
Controllo Qualita for quality control and logistics services.
10
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of Orthofix is responsible for providing
independent, objective oversight of Orthofix's accounting functions, internal
controls and risk management. The Audit Committee recommends the selection of
the independent auditors to the Board. The Audit Committee operates under a
written charter adopted by the Board of Directors, which was filed as an
appendix to our 2003 proxy statement.
Management is responsible for Orthofix's internal controls and
financial reporting process. The independent auditors are responsible for
performing an independent audit of Orthofix's consolidated financial statements
in accordance with auditing standards generally accepted in the United States
and to issue a report thereon. The Audit Committee's responsibility is to
monitor and oversee these processes. The Committee relies without independent
verification on the information provided to it and on the representations made
by management and the independent auditors.
We held five meetings during fiscal 2003. The meetings were designed,
among other things, to facilitate and encourage communication among the
Committee, management and Orthofix's independent auditors, Ernst & Young LLP. We
discussed with Ernst & Young LLP the overall scope and plans for their audit. We
met with Ernst & Young LLP, with and without management present, to discuss the
results of their examinations and their evaluations of Orthofix's internal
controls.
We have reviewed and discussed the audited consolidated financial
statements for the fiscal year ended December 31, 2003 with management and Ernst
& Young LLP. We also discussed with management and Ernst & Young LLP the process
used to support certifications by Orthofix's Chief Executive Officer and Chief
Financial Officer that are required by the SEC and the Sarbanes-Oxley Act of
2002 to accompany Orthofix's periodic filings with the SEC.
We also discussed with Ernst & Young LLP matters required to be
discussed with audit committees under generally accepted auditing standards,
including, among other things, matters related to the conduct of the audit of
Orthofix's consolidated financial statements and the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees).
Ernst & Young LLP also provided to us the written disclosures and the
letter required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and we discussed with them their
independence from Orthofix. When considering Ernst & Young LLP's independence,
we considered whether their provision of services to Orthofix beyond those
rendered in connection with their audit of Orthofix's consolidated financial
statements was compatible with maintaining their independence. We also reviewed,
among other things, the audit and non-audit services performed by, and the
amount of fees paid for such services to, Ernst & Young LLP.
Based upon the review and discussions referred to above, we recommended
to the Board of Directors, and the Board of Directors has approved, that
Orthofix's audited financial statements be included in Orthofix's Annual Report
on Form 10-K for the fiscal year ended December 31, 2003. We also recommended
the selection of Ernst & Young LLP as Orthofix's independent auditors for 2004
and, based on that recommendation, the Board has selected Ernst & Young LLP as
Orthofix's independent auditors for 2004.
We have been advised by Ernst & Young LLP that neither the firm, nor
any member of the firm, has any financial interest, direct or indirect, in
Orthofix or its subsidiaries.
The Audit Committee
Jerry C. Benjamin, Chairman
Alberto C d'Abreu de Paulo
Frederik K.J. Hartsuiker
11
EXECUTIVE COMPENSATION
The Executive Officers
The following are the biographies of Orthofix's current executive
officers.
Charles Federico Chief Executive Officer, President and Director
Mr. Federico, 55, became a Director of Orthofix
International N.V. in October 1996 and was the President
of Orthofix Inc. from October 1996 to January 1, 2002.
On January 1, 2001, Mr. Federico succeeded Mr. Wallner
as President and Chief Executive Officer of Orthofix
International. From 1985 to 1996, Mr. Federico was the
President of Smith & Nephew Endoscopy (formerly Dyonics,
Inc.). From 1981 to 1985, Mr. Federico served as Vice
President of Dyonics, initially as Director of Marketing
and subsequently as General Manager. Previously, he held
management and marketing positions with General Foods
Corporation, Air Products Corporation, Puritan Bennett
Corporation and LSE Corporation.
Robert Gaines-Cooper Chairman of the Board of Directors
Mr. Gaines-Cooper, 66, became Chairman of Orthofix
International N.V. in 1989 and has been a Director of
Orthofix International since our formation in 1987. He
is Managing Director of Chelle Medical Ltd-Seychelles.
Mr. Gaines-Cooper is also Chairman of LMA International
S.A., Jersey, Channel Islands.
Edgar Wallner Vice Chairman and Director
Mr. Wallner, 67, became a Director and President and
Chief Executive Officer of Orthofix International N.V.
in October 1987. Mr. Wallner resigned as President and
Chief Executive Officer on January 1, 2001, succeeding
Mr. Hewett as Vice Chairman on that date. From 1978
until 1987, Mr. Wallner was Vice President of European
Operations for EBI, now a subsidiary of Biomet. From
1973 until 1978, he was Vice President of Marketing for
Hydron Europe Inc., a soft contact lens manufacturer.
Prior to 1973, Mr. Wallner spent 15 years with The Boots
Company Ltd., a multinational pharmaceutical company.
Gary Henley Senior Vice President and President, Americas Division
Mr. Henley, 55, joined Orthofix International N.V. in
January 1997 as Senior Vice President. On January 1,
2002, Mr. Henley succeeded Mr. Federico as President of
Orthofix Americas Division. Prior to joining Orthofix,
Mr. Henley was President of Smith and Nephew Video
Division from 1987 until 1996. Mr. Henley was founder
and President of Electronic Systems Inc. from 1975 to
1984 and CeCorp Inc. from 1984 until 1987.
Thomas Hein Chief Financial Officer
Mr. Hein, 56, became the Chief Financial Officer of
Orthofix International N.V. on July 1, 2002. For the
prior three years, Mr. Hein had been the Chief Financial
Officer of Orthofix Inc., our wholly owned U.S.
subsidiary. From 1996 to 1999, Mr. Hein was the Chief
Financial Officer for Prime Vision Health Inc., a
diversified healthcare services company. From 1988 to
1996, Mr. Hein was V.P. of Finance and Chief Financial
Officer of MDT Corporation, a sterilization and hospital
capital equipment company. Previously, he held financial
management positions with Metheus Corporation, Memorex
Corporation and Kaiser Aetna. Mr. Hein is a CPA.
12
Galvin Mould Vice President and President, International Division
Mr. Mould, 58, became Vice President and President of
the International Division of Orthofix International
N.V. on January 1, 2004. He is also a Director of
Intavent Ltd., Novamedix, Orthosonics Ltd., Orthofix AG
and Oped AG, which are subsidiaries or investments of
Orthofix International N.V. He joined Orthofix in 1995
as Managing Director of Intavent Orthofix Ltd. Prior to
joining Orthofix, Mr. Mould served in several Director
of Sales and Marketing Positions in the healthcare
market.
Bradley R. Mason Vice President and President, Breg, Inc.
Mr. Mason, 49, became a Vice President of Orthofix
International N.V. in December 2003 upon the acquisition
of Breg, Inc. He is also the President of Breg, Inc.,
which he founded in 1989 with six other principal
shareholders. Mr. Mason has over 20 years in the medical
device industry, some of which were spent with dj
Orthopedics (formally DonJoy) where he was a founder and
held the position of Executive Vice President. Mr. Mason
is the named inventor on 35 issued patents in the
orthopedic product arena with several other patents
pending.
13
Executive Compensation Summary
The following table sets forth the compensation paid or accrued by us
during the fiscal years ended December 31, 2003, 2002 and 2001 to, or on behalf
of, our chief executive officer and our four most highly compensated executive
officers as of December 31, 2003. We refer to these officers collectively as the
"named executive officers."
----------------------------------------------------------------------------------------------------------------------------
Summary Compensation Table
Annual Compensation
Number of
Other Annual Shares
Compensation Underlying All Other
Name and Principal Position Year Salary Bonus (1) Options Compensation
Charles Federico ................... 2003 $450,944 $171,755 -0- 30,000 $11,355 (2)
Chief Executive Officer and President 2002 450,640 40,000 -0- -0- 9,450
2001 437,810 150,000 -0- -0- 9,424
Robert Gaines-Cooper ............... 2003 200,625 -0- -0- -0- -0-
Chairman of the Board 2002 260,813 -0- -0- -0- -0-
2001 321,000 80,250 -0- -0- -0-
Edgar Wallner ...................... 2003 183,718 -0- -0- -0- -0-
Vice Chairman 2002 256,826 -0- -0- -0- -0-
2001 324,680 79,200 -0- -0- -0-
Gary Henley......................... 2003 269,673 133,000 -0- 10,000 8,603 (3)
Senior Vice President and President, 2002 256,965 45,126 -0- -0- 7,327
Americas Division 2001 219,710 88,000 -0- -0- 7,249
Thomas Hein ........................ 2003 239,099 100,000 -0- 10,000 8,979 (4)
Chief Financial Officer 2002 213,980 53,900 -0- 12,500 7,249
2001 188,826 76,072 $83,486 (5) 7,500 7,186
----------------------------------------------------------------------------------------------------------------------------
(1) Excludes perquisites and other personal benefits unless the aggregate
amount of such annual compensation exceeded $50,000 or 10% of the total
of annual salary and bonus reported for the named executive officer.
(2) Amount shown consists of $8,000 for contributions to vested and
unvested accounts attributable under the Company's defined contribution
plans and $3,355 for insurance premiums paid by, or on behalf of, the
Company with respect to term life insurance.
(3) Amount shown consists of $8,000 for contributions to vested and
unvested accounts attributable under the Company's defined contribution
plans and $603 for insurance premiums paid by, or on behalf of, the
Company with respect to term life insurance.
(4) Amount shown consists of $8,000 for contributions to vested and
unvested accounts attributable under the Company's defined contribution
plans and $979 for insurance premiums paid by, or on behalf of, the
Company with respect to term life insurance.
(5) Amount shown consists of $2,228 for long-term disability premiums,
$10,800 for car allowance, and $70,458 for relocation expenses.
14
Stock Options
The following table contains information regarding option grants by us
to our named executive officers during the year ended December 31, 2003.
----------------------------------------------------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
Individual Grants
--------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to Employees Exercise or Grant Date
Options/SARs in Base Price Expiration Present
Name Granted(1) Fiscal Year ($/Share)(2) Date Value(3)
Charles Federico .......... 30,000 6.7 32.18 8/6/13 $286,827
Robert Gaines-Cooper ...... -0- -0- -0- -0- -0-
Edgar Wallner ............. -0- -0- -0- -0- -0-
Gary Henley ............... 10,000 2.2 32.18 8/6/13 $95,609
Thomas Hein ............... 10,000 2.2 32.18 8/6/13 $95,609
------------------------------- ----------------- ----------------------- -------------- ------------- ---------------
(1) All option grants to the named executive officers were made pursuant to
our Staff Share Option Plan and have a ten-year term. All options will
vest and become exercisable on August 6, 2006.
(2) All options were granted to the named executive officers at an exercise
price equal to the fair market value of the underlying stock on the
date of grant.
(3) This estimated hypothetical value is based on a Black-Scholes option
pricing valuation model in accordance with SEC rules. We used the
following assumptions in estimating this value: expected option term,
4.5 years; risk-free interest rate, 3.5%; expected volatility, 35%; and
an expected dividend yield of 0%.
Option Exercises and Year-End Option Values
The following table provides information about the number of our shares
of common stock issued upon the exercise of options by our named executive
officers during the year ended December 31, 2003, and the value realized by our
named executive officers. The table also provides information about the number
and value of our options held by our named executive officers at December 31,
2003.
------------------------------------------------------------------------------------------------------------------------------------
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
Number of
Shares Number of Securities Underlying Value of Unexercised In-the-
Acquired on Value Unexercised Options at Fiscal Money Options at Fiscal Year
Name Exercise(#) Realized($) Year End(#) End($)(1)
Exercisable Unexercisable Exercisable Unexercisable
Charles Federico ......... -0- -0- 265,000 130,000 9,055,400 3,614,500
Robert Gaines-Cooper...... 275,000 2,596,000 100,000 87,500 3,110,500 2,721,688
Edgar Wallner............. -0- -0- 100,000 87,500 3,110,500 2,721,688
Gary Henley .............. 30,000 454,810 50,000 60,000 1,555,250 1,723,250
Thomas Hein .............. -0- -0- 40,000 30,000 1,337,950 547,600
------------------------------ ----------------- -------------- ----------------- ----------------- --------------- ----------------
(1) Based on the closing price of common stock, as reported on the Nasdaq
National Market, at December 31, 2003, which was $48.98 per share.
15
Equity Compensation Plan Information
We maintain three equity compensation plans, the Staff Share Option
Plan (including the Performance Accelerated Stock Option program), the Executive
Share Option Plan and the Employee Stock Purchase Plan, which have been approved
by our shareholders. There are currently no more shares available for issuance
under the Executive Share Option Plan or the Performance Accelerated Stock
Option program. We have also granted inducement stock option awards (described
below) that have not been approved by our shareholders.
The following table provides aggregate information regarding the shares
of our common stock that may be issued upon the exercise of options, warrants
and rights under all of our equity compensation plans as of December 31, 2003.
The table does not include information about the proposed 2004 Long-Term
Incentive Plan, which has not yet been approved by our shareholders and under
which no grants have been made. In addition, the table does not include shares
subject to outstanding options and warrants that we have assumed in mergers and
other acquisitions. Footnote 1 to the table sets forth the total number of
shares of common stock issuable upon the exercise of options and warrants
granted under plans assumed in mergers and outstanding at December 31, 2003, and
the weighted average exercise price of those options. We cannot grant additional
awards under those plans.
------------------------------------ -------------------------- --------------------------- --------------------------
(c)
Number of Securities
(a) (b) Remaining Available for
Future Issuance Under
Number of Securities to Weighted-Average Exercise Equity Compensation
Be Issued upon Exercise Price of Outstanding Plans (Excluding
of Outstanding Options, Options, Warrants and Securities Reflected in
Plan Category(1) Warrants and Rights Rights Column (a))
------------------------------------ -------------------------- --------------------------- --------------------------
Equity Compensation Plans Approved 1,819,629 (2) $19.67 413,158 (3)
by Security Holders
------------------------------------ -------------------------- --------------------------- --------------------------
Equity Compensation Plans Not 200,000 (4) $38.00 0
Approved by Security Holders
------------------------------------ -------------------------- --------------------------- --------------------------
Total 2,019,629 $21.48 413,158
------------------------------------ -------------------------- --------------------------- --------------------------
(1) The table does not include information for equity compensation plans we
assumed in mergers and other acquisitions. As of December 31, 2003, a
total of 31,873 shares of common stock was issuable upon the exercise
of options and warrants assumed in mergers and other acquisitions,
including 6,054 shares issuable upon the exercise of options and
warrants granted under plans assumed in connection with our acquisition
of American Medical Electronics Inc., and 25,819 shares issuable upon
the exercise of warrants granted under plans assumed in connection with
our acquisition of Kinesis Medical Inc. The weighted average exercise
price of all options and warrants granted under plans assumed in
mergers and other acquisitions and outstanding at December 31, 2003,
was $30.39. We cannot grant additional awards under these assumed
plans.
(2) Options were granted pursuant to the following plans: the Staff Share
Option Plan (including the Performance Accelerated Stock Option
program) and the Executive Share Option Plan. As mentioned above, there
are currently no more shares available for issuance under the Executive
Share Option Plan or the Performance Accelerated Stock Option program.
(3) Includes 255,845 shares available for issuance pursuant to the Employee
Stock Purchase Plan and 157,313 shares available for grant under the
Staff Share Option Plan.
(4) On December 30, 2003, in conjunction with the acquisition of Breg,
Inc., we granted inducement stock option awards to two key executives
of Breg, Inc. These option grants were not approved by shareholders,
and were granted in reliance on the NASD exception to shareholder
approval for equity grants to new hires. The exercise price of $38.00
per share represents the fair market value of our common stock on
November 20, 2003, which was the date we announced the agreement to
acquire Breg, Inc. The inducement grants
16
include both service-based and performance-based vesting provisions.
Under the service-based provisions, subject to the continued
employment of the executive, the inducement grants become 100%
non-forfeitable and exercisable on the fourth anniversary of the
grant date. Vesting of a portion of the options under the inducement
agreement will be accelerated if certain stock price targets are
achieved. The performance-based vesting provisions generally provide
for the vesting of one-fifth of the inducement grants for each $5.00
increase in the price of our common stock above $40.00 per share.
The total number of shares eligible for the accelerated vesting on
an annual basis is limited to 25% of the number of shares subject to
the inducement grants with a cumulative carryover for the unvested
portion of shares eligible for accelerated vesting for each of the
prior years. Prior to the expiration of the term of the options,
only one-half of the vested options can be exercised in any one
year.
Executive Employment Agreements
Executive Employment Agreement for Charles Federico
On July 1, 2001, we entered into an employment agreement with Mr.
Charles W. Federico under which Mr. Federico serves as our President and Chief
Executive Officer. The initial three-year term of the agreement ends on July 1,
2004, and automatically renews for successive one-year periods, unless either
party notifies the other party of its intention not to renew the agreement
within the requisite time period. Mr. Federico is entitled to the base salary
and bonus as determined by our Board of Directors. For 2003, Mr. Federico
received a base salary of $450,944 and a bonus of $171,755. Mr. Federico is also
eligible to participate in all employee benefit plans, programs and arrangements
in effect for senior executives.
If Mr. Federico is terminated without cause or resigns for good reason
(as such terms are defined in his employment agreement) during the term of the
agreement, he is entitled to convert his current position with us to a
consultancy for the remainder of the then-existing term of employment, and
receive a consulting fee of at least $50,000 per year. Upon a change in control
of the Company, Mr. Federico agrees to remain employed for at least six months
from the effective date of such change in control, unless his employment is
terminated earlier by the Company. During the three-month period immediately
following such six-month period, Mr. Federico may terminate his employment for
good reason and convert his agreement into a consulting agreement as described
above. The employment agreement contains a non-solicitation of employees and
customers provision that extends through the third anniversary of Mr. Federico's
termination of employment, a non-competition provision that remains in effect
for so long as Mr. Federico is employed by us and a confidentiality provision
that lasts indefinitely.
Employment Agreements for Edgar Wallner and Robert Gaines-Cooper
On July 1, 1999, we entered into employment agreements with Messrs.
Edgar Wallner and Robert Gaines-Cooper. Mr. Wallner originally served as our
President and Chief Executive Officer until January 1, 2001 when he resigned as
President and Chief Executive Officer and began serving as our Deputy Chairman
of the Board of Directors under the same employment agreement. Mr. Wallner
currently serves as Vice Chairman, and Mr. Gaines-Cooper serves as the Chairman
of the Board of Directors.
The initial three-year term of these agreements ended on July 1, 2002,
but these agreements have been subject to automatic renewal for successive
one-year periods since that time. We have notified each of Messrs. Wallner and
Gaines-Cooper of our intention not to extend their respective agreements beyond
the term currently in effect. Therefore, the employment agreements with Messrs.
Wallner and Gaines-Cooper will terminate as of July 1, 2004. Following the
termination of these employment agreements, Mr. Wallner will continue to serve
as Vice Chairman, and Mr. Gaines-Cooper will continue to serve as the Chairman
of the Board of Directors.
The agreements provide that the executives are entitled to base
salaries and bonuses as determined by our Board of Directors. For 2003, Mr.
Wallner received a base salary of $183,718 and a bonus of $0 and Mr.
Gaines-Cooper received a base salary of $200,625 and a bonus of $0. Messrs.
Wallner and Gaines-Cooper are also eligible to participate in all employee
benefit plans, programs and arrangements in effect for senior executives.
17
The effects of a termination without cause, a resignation for good
reason or a change of control on Messrs. Wallner and Gaines-Cooper's service
with the Company would be substantially similar to those described above for Mr.
Federico. In addition, the agreements contain a non-solicitation of employees
and customers provision that extends through the third anniversary of the
executive's respective termination of employment, a non-competition provision
that remains in effect for so long as the executive is employed by us and a
confidentiality provision that lasts indefinitely.
Executive Employment Agreements for Thomas Hein, Gary Henley and
Bradley Mason
We entered into employment agreements with Mr. Hein and Mr. Henley,
effective as of March 1, 2003. We also entered into an employment agreement with
Mr. Mason, which became effective on December 30, 2003. Mr. Hein serves as the
Chief Financial Officer, Mr. Henley serves as the President of Orthofix Americas
Division and Mr. Mason serves as the President of Breg, Inc. The initial term of
each agreement is two years, but each agreement will be automatically renewed
for two successive one-year periods unless either party notifies the other party
of its intention not to renew within the requisite time period. Under the
agreements, the executives are entitled to base salaries and bonuses as
determined by our Board of Directors. The agreements provide annual base
salaries of at least $231,000 for Mr. Hein, $270,000 for Mr. Henley and $250,000
for Mr. Mason, which may only be decreased if such decrease is a result of a
general reduction (on the same percentage basis) affecting the base salaries of
substantially all other executive officers. For 2003, the base salaries of each
of Messrs. Hein and Henley were $239,099 and $269,673, respectively. In
addition, for 2003, Messrs. Hein and Henley received annual bonuses of $100,000
and $133,000, respectively. Mr. Mason's employment agreement provides that he
was granted an inducement stock option award to purchase 150,000 shares of
common stock in accordance with the terms and conditions specified in the
Performance Accelerated Stock Option Inducement Agreement, which is described
below.
If an executive is terminated without cause, he is entitled to receive
a lump sum payment equal to: (1) the average of his base salary at the highest
rate in effect in the 90-day period immediately before the termination and his
base salary for the year preceding the termination and (2) the average of his
annual bonuses for the two years prior to the year in which the termination
occurs. Upon a resignation for good reason (as such term is defined in the
agreements), the executive is entitled to half the amount that he would receive
had he been terminated without cause. In addition, the executives will be
entitled to continuation of their welfare benefits for up to one year following
their termination without cause or resignation for good reason. Similarly, any
stock options held by the executives will remain outstanding for at least one
year following a termination without cause and six months following a
resignation for good reason (provided, however, that the inducement stock award
granted to Mr. Mason will be governed by the terms and conditions of the
applicable Performance Accelerated Stock Option Inducement Agreement). We are
also obliged to provide the executives with reimbursement for outplacement
services of up to $20,000 upon a termination without cause or resignation for
good reason.
If there is a change in control of the Company, (1) the agreements
automatically extend for one year from the date of the change in control (unless
the then current term is greater than one year), (2) all stock options and stock
appreciation rights will vest automatically (provided, however, that the
inducement stock award granted to Mr. Mason will be governed by the terms and
conditions of the applicable Performance Accelerated Stock Option Inducement
Agreement) and (3) any forfeiture provisions included in the executives'
restricted stock awards will immediately lapse. In addition, in the event that
any of the executives is terminated without cause or resigns for good reason
following a change in control, the individual is entitled to receive a lump sum
payment equal to: (1) the greater of (a) the average of his base salary at the
highest rate in effect in the 90-day period immediately before the termination
and his base salary for the year preceding the termination and (b) the average
of his base salary in effect immediately before the change in control and his
base salary for the year preceding the change in control; (2) the greater of (x)
the average of his annual bonuses for the two years before the year in which the
termination occurs and (y) the average of his annual bonuses for the two years
before the year in which the change in control occurs and (3) the executive's
annual automobile allowance. The agreements also provide that, in the event that
any payments made to the executive constitute "excess parachute payments" under
Section 280G of the Internal Revenue Code of 1986, as amended, then the amounts
to be paid to the executives will be reduced so that no excess parachute
payments exist.
18
The agreements contain a non-competition provision that lasts for one
year following a termination of employment for any reason, and confidentiality
and assignment of inventions provisions that last indefinitely. In addition, Mr.
Mason's agreement contains a nonsolicitation of clients, customers and employees
provision that lasts for two years following a termination of employment for any
reason.
Performance Accelerated Stock Option Inducement Agreement with Bradley Mason
On December 30, 2003, in conjunction with the acquisition of Breg,
Inc., Mr. Mason was granted an inducement stock option award pursuant to a
Performance Accelerated Stock Option Inducement Agreement. The exercise price of
$38.00 per share represents the fair market value of our common stock on
November 20, 2003, which was the date we announced the agreement to acquire
Breg, Inc. The inducement grant includes both service-based and
performance-based vesting provisions. Under the service-based provisions,
subject to the continued employment of Mr. Mason, the inducement grant becomes
100% non-forfeitable and exercisable on the fourth anniversary of the grant
date. Vesting of a portion of the options under the inducement agreement will be
accelerated if certain stock price targets are achieved. The performance-based
vesting provisions generally provide for the vesting of one-fifth of the
inducement grant for each $5.00 increase in the price of our common stock above
$40.00 per share. The total number of shares eligible for the accelerated
vesting on an annual basis is limited to 25% of the number of shares subject to
the inducement grant with a cumulative carryover for the unvested portion of
shares eligible for accelerated vesting for each of the prior years. Prior to
the expiration of the term of the options, only one-half of the vested options
can be exercised in any one year.
Indebtedness of Management
On January 10, 2002 we entered into full-recourse loans with Charles
Federico and Gary Henley, each with a principal amount of $145,200. The loans
were entered into to assist the executives in purchasing shares of OrthoRx Inc.
common stock. Each loan has an annual interest rate of 3.97%, compounded
annually and matures on the earlier of (1) January 10, 2007 and (2) the date
that the executive ceases to be our employee, officer or director. The loans are
secured by stock pledge agreements covering shares of OrthoRx Inc. common stock
owned by Messrs. Federico and Henley. As of December 31, 2003, no payments had
been made on either of the loans, and the aggregate amount outstanding under
each of the loans was $156,958 including accrued interest.
Compensation Committee Interlocks and Insider Participation
During 2003, the Compensation Committee of our Board of Directors
consisted of two members, John W. Littlechild and James F. Gero. Both Mr.
Littlechild and Mr. Gero satisfy the independent director standards as defined
by current Nasdaq rules and are "independent directors" for purpose of Rule
162(m) of the U.S. Internal Revenue Code of 1986, as amended, and are
"non-employee directors" for purposes of Section 16 of the Securities Exchange
Act of 1934, as amended. No interlocking relationship, as defined in the
Securities Exchange Act of 1934, as amended, exists between our Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other entity.
Mr. Peter Hewett, a non-employee director, serves as a consultant to
the Company and as Chairman of Orthofix Inc.'s Board of Directors. In this
capacity, he provides consulting and advisory services, at such times and on
such special projects, as we request. Mr. Hewett reports directly to the Board
of Directors in connection with these consulting and advisory services. In 2003,
we paid $128,675 in consulting fees to Mr. Hewett, which is in addition to his
director fees. We also reimbursed Mr. Hewett for travel and other related
expenses incurred in connection with the performance of such consulting and
advisory services. In 2004, Mr. Hewett will receive a fee of $1,500 per day for
each day of requested consulting and advisory services, in addition to his
director fees.
19
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee is responsible for advising on and
administering our compensation policies. The Committee has overall
responsibility for evaluating and making recommendations to the Board of
Directors regarding the compensation of directors, executive officers (including
our chief executive officer) and key employees, compensation under our equity
incentive plans and other compensation policies and programs. The Compensation
Committee acts under a written charter adopted by the Board of Directors.
In 2003, the Compensation Committee of the Board of Directors was
composed of Messrs. Littlechild and Gero, each of whom is an independent,
non-employee, non-affiliated director. The Compensation Committee furnished the
following report on executive compensation for 2003:
Compensation Philosophy
The Compensation Committee believes that executive compensation
programs should be designed to attract, retain and motivate executive officers
and key employees, while enhancing and increasing shareholder value. We
accomplish this through incentive compensation plans that link executive and
staff compensation to our overall Company performance, thereby aligning their
interests with the interests of our shareholders.
Our compensation program for our executive officers and key employees
consists of three major components: (1) annual salary; (2) performance-based
incentives in the form of bonuses; and (3) long-term equity-based incentives.
Long-term equity-based compensation for executive officers and key employees is
in the form of stock options that have been granted under our Executive Share
Option Plan and our Staff Share Option Plan (including the Performance
Accelerated Stock Option program). There are currently no more shares available
for issuance under the Executive Share Option Plan or the Performance
Accelerated Stock Option program. The Compensation Committee engaged an outside
consulting firm in 2003 to undertake a review of our compensation program.
Annual Salary
The Compensation Committee makes annual determinations with respect to
executives' salaries. In making these decisions, the Compensation Committee
reviews each executive's performance, the market compensation levels for
comparable positions, our performance goals and objectives and other relevant
information. In addition, the Compensation Committee determines what portion of
an executive's compensation should be in the form of salary, performance-based
bonus and equity-based compensation.
Performance-Based Incentives
The Compensation Committee believes that a portion of the compensation
for each executive should be in the form of annual performance-based incentives.
Short-term incentives, such as the annual bonus programs instituted by the
Company, tie executive compensation to Company financial performance as well as
individual performance in specified areas. The Compensation Committee
establishes Company-wide performance goals and targets at the beginning of each
fiscal year. An executive's annual cash bonus is determined in part on his or
her individual performance and contribution to the furtherance and achievement
of the Company's objectives.
Long-Term Incentives
The goal of our equity incentive plans is to create an ownership
interest in the Company in order to align the interests of executives with
shareholders, to more closely tie executive compensation to Company performance,
and to create long-term performance and service incentives for executives and
key employees. Pursuant to our Staff Share Option Plan, stock options may be
granted to our employees, including our executive officers, our directors, and
certain other persons directly or indirectly related to our business. Employee
grants under our Staff Share Option Plan are based on the employee's performance
and his or her anticipated contributions to the achievement of our goals and
objectives. Effective January 1, 1999, certain of our executives were granted
Performance Accelerated Stock Options, which include both service-based and
performance-based vesting provisions, pursuant to
20
our Staff Share Option Plan. The exercise price for these options is $17.875,
the price of shares of our common stock on the date this agreement was approved
by our shareholders. The Performance Accelerated Stock Options became 100%
non-forfeitable and exercisable on January 1, 2004, which was the fifth
anniversary of the grant date.
The Compensation Committee approved the 2004 Long-Term Incentive Plan
and believes that the approval of the plan is essential to our continuing
ability to make equity-based awards to our officers, employees, directors and
consultants.
Compliance with Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), limits the deductibility of compensation payments to
our named executive officers in excess of $1 million per year per person, unless
certain requirements are met. To the extent that it is practicable and
consistent with our executive compensation philosophy, we intend to comply with
Section 162(m) of the Internal Revenue Code. Compensation paid to the named
executive officers has historically not exceeded deductibility limits under
Section 162(m) of the Internal Revenue Code. If compliance with Section 162(m)
of the Internal Revenue Code conflicts with our compensation philosophy or is
determined not to be in the best interest of our stockholders, the compensation
committee will abide by our compensation philosophy.
Chief Executive Officer Compensation
The base salary for Mr. Charles Federico, our President and Chief
Executive Officer, was $450,944 for 2003 and his annual cash bonus was $171,755.
For a description of the employment agreement for Mr. Federico, see "Executive
Employment Agreements - Charles Federico" above. In determining the incentive
compensation awards for Mr. Federico, the Compensation Committee considered both
our performance, as measured by specific targets and performance objectives, as
well as Mr. Federico's leadership role in the achievement of these targets and
objectives.
The Compensation Committee
John W. Littlechild, Chairman
James F. Gero
21
PERFORMANCE GRAPH
The graph below compares the five-year total return to shareholders
for Orthofix common stock with the comparable return of two indexes: the NASDAQ
Stock Market and NASDAQ stocks for surgical, Medical, and Dental Instruments and
Supplies.
The graph assumes that you invested $100 in Orthofix common stock
and in each of the indexes on December 31, 1998. Points on the graph represent
the performance as of the last business day of each of the years indicated.
Comparison of Five-Year Cumulative Total Returns
Performance Graph for Orthofix International N.V.
[Object omitted]
------------------------------------------------------------------------------------------------------------------------------------
Legend
Symbol CRSP Total Returns Index for: 12/1998 12/1999 12/2000 12/2001 12/2002 12/2003
[] Orthofix International N.V. 100.0 102.2 136.6 265.0 201.1 349.9
---------
* Nasdaq Stock Market (US & Foreign) 100.0 185.4 111.8 88.7 61.3 91.7
---------
^ NASDAQ Stocks (SIC 3840-3849 US Companies) 100.0 121.1 124.9 137.2 111.1 164.3
Surgical, Medical, and Dental Instruments and Supplies
---------
Notes:
A. The lines represent monthly index levels derived from
compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the market
capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on 12/31/1998.
--------------------------------------------------------------------------------
Prepared by CRSP (www.crsp.uchicago.edu), Center for research in
Security Prices, Graduate School of Business, The University of
Chicago. Used with permission. All rights reserved.
None of the Report of the Compensation Committee, the Report of the
Audit Committee or the Performance Graph shall be deemed incorporated by
reference by any general statement incorporating this proxy statement into any
filing under the Securities Act of 1933, as from time to time in effect, or
under the Securities Exchange Act of 1934, as from time to time in effect,
except to the extent that the Company specifically incorporates this information
by reference and shall not otherwise be deemed filed under such acts.
22
PROPOSAL 1: ELECTION OF DIRECTORS
The current term of office for all of our directors expires at the 2004
annual general meeting. The Board of Directors proposes that the following
nominees, all of whom except Mr. von Wartburg are currently serving as
directors, be re-elected or, in the case or Mr. von Wartburg, elected for a new
term of one year and/or until their successors have been elected.
We know of no reason why any nominee may be unable to serve as a
director. If any nominee is unable to serve, your proxy may vote for another
nominee proposed by the Board, or the Board may reduce the number of directors
to be elected. If any director resigns, dies or is otherwise unable to serve out
his term, or the Board increases the number of directors, the Board may fill the
vacancy until the next annual general meeting.
Directors Standing for Election
Charles W. Federico Chief Executive Officer, President and
Director
Mr. Federico, age 55, became a Director of
Orthofix International N.V. in October 1996
and was the President of Orthofix Inc. from
October 1996 to January 1, 2002. On January
1, 2001, Mr. Federico succeeded Mr. Wallner
as President and Chief Executive Officer of
Orthofix International. From 1985 to 1996,
Mr. Federico was the President of Smith &
Nephew Endoscopy (formerly Dyonics, Inc.).
From 1981 to 1985, Mr. Federico served as
Vice President of Dyonics, initially as
Director of Marketing and subsequently as
General Manager. Previously, he held
management and marketing positions with
General Foods Corporation, Air Products
Corporation, Puritan Bennett Corporation and
LSE Corporation.
Robert Gaines-Cooper Chairman of the Board of Directors
Mr. Gaines-Cooper, 66, became Chairman of
Orthofix International N.V. in 1989 and has
been a Director of Orthofix International
since our formation in 1987. He is Managing
Director of Chelle Medical Ltd-Seychelles.
Mr. Gaines-Cooper is also Chairman of LMA
International S.A., Jersey, Channel Islands.
Edgar Wallner Vice Chairman and Director
Mr. Wallner, 67, became a Director and
President and Chief Executive Officer of
Orthofix International N.V. in October 1987.
Mr. Wallner resigned as President and Chief
Executive Officer on January 1, 2001,
succeeding Mr. Hewett as Vice Chairman on
that date. From 1978 until 1987, Mr. Wallner
was Vice President of European Operations for
EBI, now a subsidiary of Biomet. From 1973
until 1978, he was Vice President of
Marketing for Hydron Europe Inc., a soft
contact lens manufacturer. Prior to 1973, Mr.
Wallner spent 15 years with The Boots Company
Ltd., a multinational pharmaceutical company.
Peter W. Clarke Director
Mr. Clarke, 62, became a Director and
Secretary of Orthofix International N.V. in
March 1992 and was the Chief Financial
Officer of Orthofix International N.V. from
January 1988 to June 30, 2002, at which time
he was succeeded by Mr. Hein in that
position. From 1985 to 1987, he was Financial
Controller of EBI Medical Systems Ltd., a
United Kingdom subsidiary of EBI.
23
Peter J. Hewett Director
Mr. Hewett, 68, was the Deputy Group Chairman
of Orthofix International N.V. between March
1998 and December 2000. He is Chairman of the
Board of Orthofix Inc. He has been a
non-executive Director of Orthofix
International N.V. since March 1992.
Previously, Mr. Hewett served as the Managing
Director of Caradon Plc, Chairman of the
Engineering Division, Chairman and President
of Caradon Inc., Caradon Plc's U.S.
subsidiary and a member of the Board of
Directors of Caradon Plc of England. In
addition, he was responsible for Caradon
Plc's worldwide human resources function, and
the development of its acquisition
opportunities.
Jerry C. Benjamin Director
Mr. Benjamin, 63, became a non-executive
Director of Orthofix International N.V. in
March 1992. He has been a General Partner of
Advent Venture Partners, a venture capital
management firm in London, since 1985. Mr.
Benjamin is currently a Director for a number
of private health care companies.
James F. Gero Director
Mr. Gero, 59, became a non-executive Director
of Orthofix International N.V. in February
1998. Mr. Gero became a Director of AME in
1990 and served subsequently as a Director of
Orthofix Inc. He will succeed Mr.
Gaines-Cooper as Chairman of Orthofix
International N.V. in 2005. He is the
Chairman and Chief Executive Officer of
Sierra Technologies Inc. and a Director of
each of Intrusion, Inc. and Drew Industries
Inc., and Chairman of Thayer Aerospace.
Frederik K. J. Hartsuiker Director
Mr. Hartsuiker, 63, became a non-executive
Director of Orthofix International N.V. in
March 1992 and has been a Director of
Orthofix International B.V. since 1987. Mr.
Hartsuiker is a Director of New Amsterdam
Cititrust B.V. in The Netherlands.
John W. Littlechild Director
Mr. Littlechild, 52, became a non-executive
Director of Orthofix International N.V. in
1987. He has served as a General Partner of
each of HealthCare Ventures' funds, a U.S.
venture capital fund, since 1991. From 1985
to 1991, he was a Senior Vice President of
Advent International Corporation. Mr.
Littlechild is a Director of NitroMed, Inc.
and Dyax, Inc. as well as other privately
held HealthCare portfolio companies.
Alberto C d'Abreu de Paulo Director
Mr. d'Abreu de Paulo, 65, became a
non-executive Director of Orthofix
International N.V. in March 1992 and has been
associated with Orthofix since its formation
in 1987 as the President and Managing
Director of First Independent Trust (Curacao)
N.V., a director of Orthofix until February
28, 1992. Mr. d'Abreu de Paulo is a tax
attorney in private practice and a member of
the Audit Court of the Netherlands Antilles.
24
Walter P. von Wartburg Director
Mr. von Wartburg, 64, is being nominated for
Director of Orthofix International N.V. for
the first time this year. He is an attorney
and has practiced privately in his own law
firm in Basel, Switzerland since 1999,
specializing in life sciences law. Mr. von
Wartburg has also been a Professor of
administrative law and public health policy
at the Saint Gall Graduate School of
Economics in Switzerland for 25 years.
Previously, he held top management positions
with Ciba Pharmaceuticals and Novartis at
their headquarters in Basel, Switzerland. In
addition, Mr. von Wartburg currently serves
as a director on the board of Nymox
Pharmaceutical Corporation.
The Board recommends that you vote "FOR" the election of all nominees for
director.
25
PROPOSAL 2: APPROVAL OF ORTHOFIX INTERNATIONAL N.V. 2004 LONG-TERM INCENTIVE
PLAN
Our Board of Directors of the Company has recommended and asks that you
approve the Orthofix International N.V. 2004 Long-Term Incentive Plan (the
"Long-Term Incentive Plan"). Our Board adopted the Long-Term Incentive Plan on
April 15, 2004, subject to shareholder approval. We propose the approval of the
Long-Term Incentive Plan to ensure that we have a sufficient number of shares of
our common stock available for equity-based awards that we expect to make to
eligible individuals over the next several years. There are currently no more
shares of our common stock available for issuance under our Executive Share
Option Plan or our Performance Accelerated Stock Option program, and there are
only approximately 157,313 shares of our common stock available under our Staff
Share Option Plan for future awards. We believe that the ability to make
equity-based awards is an essential part of our compensation program and we
would be at a significant disadvantage with respect to our competitors if we
were unable to offer equity-based awards to our officers, employees, directors
and consultants.
The following is a general description of the material features of the
Long-Term Incentive Plan. A copy of the Long-Term Incentive Plan is attached as
Appendix II to this proxy statement.
Purposes and Eligibility
The purposes of the Long-Term Incentive Plan are to provide an
incentive to certain officers, employees, directors and consultants of Orthofix
International N.V. (which we refer to as the "Company") and its subsidiaries to
increase their interests in the Company's success by offering them an
opportunity to obtain a proprietary interest in the Company through the grant of
equity-based awards. As of April 15, 2004, we estimate that approximately 988
individuals are eligible to receive awards under the Long-Term Incentive Plan.
Number of Shares of Common Stock Subject to the Long-Term Incentive Plan
The maximum number of shares of our common stock that may be issued
pursuant to awards under the Long-Term Incentive Plan, subject to the
anti-dilution provisions, will be the aggregate of 2,000,000 shares, the number
of shares of our common stock previously authorized but not reserved for options
under our Staff Share Option Plan as of the date the Long-Term Incentive Plan is
approved by shareholders, and any shares corresponding to an award, or portion
thereof, under our Staff Share Option Plan that are forfeited or expire for any
reason without having been exercised or settled after the date the Long-Term
Incentive Plan is approved. Shares issued upon exercise of awards may be either
authorized and unissued shares or shares held by the Company in its treasury.
Special Limits on Stock Options, Restricted Share Units, Performance Share
Units, Stock Appreciation Rights and Other Awards
The number of shares of common stock that, in the aggregate, may be
subject to nonqualified stock options or stock appreciation rights with an
exercise price that is below fair market value on the date of grant or on the
date the exercise price is fixed and awards payable in shares of our common
stock (including restricted share units and performance share units) under the
Long-Term Incentive Plan is limited to 400,000 shares.
The number of shares of common stock subject to stock options that may
be awarded to any participant in any calendar year is limited to 200,000 shares
(with a carryover of any unused portion to future years). In addition, the
number of shares of common stock subject to restricted share units, performance
share units, stock appreciation rights or other awards that may be awarded to
any participant in any calendar year is limited to 200,000 shares (with a
carryover of any unused portion to future years). These maximum individual
limits are required to satisfy requirements under Section 162(m) of the Internal
Revenue Code of 1986, as amended (which we refer to as the "Code").
Administration
The Compensation Committee of our Board of Directors (or such other
committee appointed by our Board to administer the Long-Term Incentive Plan)
(which we refer to as the "Committee") administers the Long-Term
26
Incentive Plan, and among other powers, it selects participants from among
eligible individuals, determines the number of shares of our common stock that
will be subject to each award or the cash amount payable in connection with an
award, and determines the terms and conditions of awards. Subject to certain
limitations, the Committee may from time to time delegate some or all of its
authority to one or more of its members or persons other than its members.
Awards under the Long-Term Incentive Plan
Generally
The Long-Term Incentive Plan authorizes the following awards: stock
options, stock appreciation rights, restricted share units, performance share
units and other forms of equity-based or equity-related awards that the
Committee determines to be consistent with the purposes of the Long-Term
Incentive Plan and the interests of the Company. The Committee determines
vesting, exercisability, payment and other restrictions that apply to an award.
The Committee has the authority to determine the effect, if any, that a
participant's termination of service or a change in control of the Company will
have on an award. The Committee may determine whether any award is intended to
be "performance-based compensation" as that term is used in Section 162(m) of
the Code.
Stock Options
Stock options may be either nonqualified stock options or incentive
stock options (within the meaning of Section 422 of the Code). The exercise
price of a nonqualified stock option generally may not be less than 100% of the
fair market value per share on the date of grant. However, the Committee may
elect to grant a nonqualified stock option with an exercise price that is below
fair market value on the date of grant or the date the exercise price is fixed,
subject to the limitation described above. Participants may pay the exercise
price of a stock option in any form approved by the Committee at the time of
grant. The Committee establishes a vesting schedule for each stock option at the
time of grant, as well as the term of such option, which under the Long-Term
Incentive Plan cannot exceed ten years from the date the option was granted.
The Long-Term Incentive Plan provides for certain conditions that apply
to incentive stock options in accordance with the applicable requirements of
Section 422 of the Code and the regulations thereunder. For example, the
exercise price per share of an incentive stock option may not be less than 100%
of the fair market value per share on the date of grant or on the date the
exercise price is fixed.
Stock Appreciation Rights
Stock appreciation rights entitle a participant to receive, upon
satisfaction of certain conditions, an amount equal to the excess, if any, of
the fair market value on the date of exercise of the number of shares of our
common stock for which the stock appreciation right is exercised over the
exercise price for such stock appreciation right. The exercise price of a stock
appreciation right generally may not be less than 100% of the fair market value
per share on the date of grant. However, the Committee may elect to grant a
stock appreciation right with an exercise price that is below fair market value
on the date of grant or the date the exercise price is fixed, subject to the
limitation described above. At the discretion of the Committee, the Committee
may make payments to a participant upon exercise of a stock appreciation right
in cash, shares of our common stock or a combination of cash and stock. The
Committee may grant stock appreciation rights alone or together with stock
options.
Restricted Share Units
The Committee has the authority to grant restricted share units to
participants pursuant to the Long-Term Incentive Plan. A restricted share unit
generally represents the right of the participant to receive one or more shares
of our common stock, subject to the terms and conditions established by the
Committee, in consideration of the participant's employment with the Company or
any of its subsidiaries. If and when these terms and conditions are satisfied
and any forfeiture provisions lapse, the restricted share units will, at the
discretion of the Committee, become shares of our common stock owned by the
respective participant or be payable in cash, shares of our
27
common stock or a combination of cash and stock, with a value equal to the fair
market value of the shares at the time of payment.
Performance Share Units
The Committee has the authority to grant performance share units to
participants pursuant to the Long-Term Incentive Plan. A performance share unit
generally entitles a participant to receive, subject to terms and conditions
established by the Committee, a target number of shares of our common stock
based upon the achievement of performance targets over a performance period.
Performance share units are subject to conditions of vesting and time of payment
as the Committee may determine. At the discretion of the Committee, performance
share units will be settled through the delivery of shares of our common stock,
cash or a combination of cash and stock, with a value equal to the fair market
value of the shares as of the last day of the applicable performance period.
Other Equity Awards
The Committee has the authority to specify the terms and provisions of
other forms of equity-based or equity-related awards not described above that
the Committee determines to be consistent with the purposes of the Long-Term
Incentive Plan and the interests of the Company. These awards may provide for
cash payments based in whole or in part on the value (or future value) of shares
of our common stock, for the acquisition (or future acquisition) of shares of
our common stock, or for any combination thereof.
Amendment and Termination of Long-Term Incentive Plan
Our Board of Directors may amend or terminate the Long-Term Incentive
Plan at any time. However, we must obtain stockholder approval to:
o increase the maximum number of shares issuable under the plan, or
o reduce the exercise price of a stock option or stock appreciation
right, except for changes effected under the anti-dilution provisions.
Also, we may not amend or terminate the Long-Term Incentive Plan without a
participant's consent if it would adversely affect the participant's rights to
previously-granted awards.
Certain U.S. Federal Income Tax Consequences
The federal income tax consequences of issuing and exercising stock
options under the Long-Term Incentive Plan may be summarized as follows:
Nonqualified Stock Options
The grant of a nonqualified stock option has no immediate federal
income tax effect. The participant will not recognize any taxable income and we
will not receive a tax deduction.
When the participant exercises the option, the participant will
recognize ordinary income in an amount equal to the excess of the fair market
value of the shares of our common stock on the date of exercise over the
exercise price. We are required to withhold tax on the amount of income
recognized. We will receive a tax deduction equal to the amount of income
recognized.
When the participant sells the shares of our common stock obtained from
exercising a nonqualified stock option, any gain or loss will be taxed as a
capital gain or loss (long-term or short-term, depending on how long the shares
have been held). Certain additional rules apply if the exercise price for an
option is paid in shares previously owned by the participant.
28
Incentive Stock Options
When a participant is granted an incentive stock option, or when the
participant exercises the incentive stock option, the participant will generally
not recognize taxable income (except for purposes of the alternative minimum
tax) and we will not receive a tax deduction.
If the participant holds the shares of our common stock for at least
two years from the date of grant, and one year from the date of exercise, then
any gain or loss will be treated as long-term capital gain or loss. If, however,
the shares are disposed of during this period, the option will be treated as a
nonqualified stock option. We will only receive a tax deduction if the shares
are disposed of during this period. The deduction will be equal to the amount of
taxable income the participant recognizes.
New Plan Benefits under the Long-Term Incentive Plan
No grants have been made under the Long-Term Incentive Plan.
Furthermore, because awards under the Long-Term Incentive Plan are determined by
the Committee in its sole discretion, we cannot determine the benefits or
amounts that will be received or allocated in the future under the Long-Term
Incentive Plan.
The Board recommends that you vote "FOR" the approval of the
Orthofix International N.V. 2004 Long-Term Incentive Plan.
29
PROPOSAL 3: APPROVAL OF INCREASE IN MAXIMUM NUMBER OF SHARES OF
COMMON STOCK AVAILABLE FOR ISSUANCE AND OTHER AMENDMENTS TO ARTICLES OF
ASSOCIATION
Our Board of Directors has approved and recommended for submission to
the shareholders an amendment in full to Orthofix International N.V.'s Articles
of Association. A marked copy of the Articles of Association as proposed to be
amended is attached as Appendix III to this proxy statement, and reference is
made to that appendix for the complete text of the provisions of the Articles of
Association.
The Board adopted the amendment in full to the Articles of Association
on April 15, 2004, subject to shareholder approval. The revisions to the
Articles of Association are intended to provide the company with additional
flexibility and were prompted in part by changes in Netherlands Antilles
corporate law, which became effective March 1, 2004. As a result of these
changes, several provisions in the current Articles of Association of Orthofix
International N.V. have become obsolete or are no longer necessary. The new
Netherlands Antilles corporate laws provide greater flexibility in constructing
the Articles of Association. The following summarizes the principal changes to
be effected by the proposed amendment in full:
Proposal 3(a): Increase in Maximum Number of Shares of Common Stock Available
for Issuance
The most significant of the proposed amendments approved by the Board
is an amendment to the Articles of Association to increase the maximum number of
shares of common stock available for issuance from 30,000,000 shares to
50,000,000 shares. The Board believes it is in the best interest of the
stockholders to increase the number of shares to provide sufficient availability
of shares for issuance from time to time for purposes which the Board may
determine to be in Orthofix International N.V.'s best interest. These purposes
could include stock splits and stock dividends, providing shares for awards
under employee incentive plans, possible future acquisitions and other general
corporate purposes. We have no current plans to pursue any of these transactions
and issue additional shares. However, the Board believes it will be advantageous
to enable the company to act promptly with respect to investment or acquisition
opportunities without the expense or delay involved in convening a special
stockholder meeting to authorize additional shares, which may be issued in
connection with such opportunities. As of May 4, 2004, there were 15,230,962
shares of our common stock issued and outstanding, and an additional 1,953,232
shares were reserved for issuance under our stock option plans. If this
amendment to the Articles of Association is adopted and the authorized common
stock is increased to 50,000,000 shares, the Board of Directors would not
anticipate obtaining further shareholder approval prior to issuing any of the
newly authorized shares, unless required by the Articles of Association,
Netherlands Antilles law or the rules of the SEC or Nasdaq.
The issuance of additional shares of common stock without further
stockholder approval may, among other things, have a dilutive effect on earnings
per share and on equity of the present holders of common stock and their voting
rights. Holders of the common stock of the company have no preemptive rights.
While the Board believes it advisable to increase the maximum number of
shares of common stock available for issuance for the reasons set forth above,
the Board realizes that the increase in the number of available shares of common
stock could be used for anti-takeover purposes as Orthofix International N.V.
could issue additional shares to make more difficult or discourage an attempt to
acquire control of Orthofix International N.V. Orthofix International N.V. is
not aware of any effort to accumulate its securities or obtain control by means
of a tender offer, proxy contest or otherwise. The amendment is being proposed
to provide additional flexibility to finance growth.
The amendment to increase the authorized common stock will be voted on
as a separate Proposal 3(a) on the proxy card, while the amendment in full to
make all other proposed changes to the Articles of Association will be voted on
as Proposal 3(b).
Proposal 3(b): Other Amendments to Articles of Association
The other proposed amendments to the Articles of Association can be
categorized into two types of changes: (i) amendments that we are voluntarily
adopting in order to either take advantage of the flexibility provided by the
recent changes in Netherlands Antilles law or to update and clarify certain
provisions of the Articles of
30
Association, which has not been amended since 1995 and (ii) amendments required
in order to comply with the recent changes in Netherlands Antilles law.
The amendments we are voluntarily electing to adopt are as follows:
o The description of the purpose of the company would be amended
to clarify the scope of activities that can be conducted by
the company to reflect the company's current business model in
light of the recent acquisition of Breg, Inc.
o The provisions relating to the circumstances under which the
Board of Directors may fill a vacancy on the Board would be
clarified to provide that in the event a director resigns, the
Board of Directors may fill the vacancy created thereby until
the next annual meeting, allowing the company to maintain a
full membership on the Board and its Committees at all times.
o Under Netherlands Antilles law, the shareholders are required
to approve the company's financial statements. The provision
in our Articles of Association stating that the adoption of
the financial statements by the shareholders has the effect of
acquitting and discharging the Board of Directors for their
actions with respect to such financial statements would be
deleted. The adoption of the financial statements no longer
has this effect under Netherlands Antilles law. As a result,
we believe it is appropriate from a corporate governance
perspective to delete this provision from our Articles of
Association as well.
o The provision regarding the agenda for the annual meeting
would be revised to set forth with more specificity the
matters that are to be discussed at the financial statements,
including (i) a report by the Board on the business of the
company and the administration thereof conducted during the
preceding fiscal year; (ii) submission of the financial
statements for approval; (iii) election of the Board of
Directors; (iv) ratification of the appointment of the
company's accountants; and (v) the introduction of any other
necessary related items of business.
o The provision requiring that books and records must remain in
the custody of a liquidator or designated custodian for 30
years after the liquidation would be revised to state that
such books and records need only remain in the custody of a
liquidator or custodian for 10 years. Netherlands Antilles law
now provides more flexibility with regard to the required
length of retention of books and records after a liquidation
and we believe it is more practical to retain such records for
10 years.
o The methods for giving notice for special board meetings and
for appointing proxies to act at a meeting of the Board of
Directors would be expanded to provide for e-mail and telefax
communications.
o The official version of the Articles of Association would be
prepared in English rather than Dutch, as it is no longer a
requirement of Netherlands Antilles law that the articles be
prepared in Dutch. We believe that the presentation of the
articles in English is more practical given that it is the
more commonly spoken language.
The amendments required by Netherlands Antilles law are as follows:
o The provision relating to the transfer of the company's
domicile to another jurisdiction must be deleted, as the
corresponding provisions relating to transfer of domicile in
the Netherlands Antilles law have been repealed and the
provision contained in the Articles of Association which
referred to this repealed law is no longer appropriate.
o The provision requiring that 20% of the company's authorized
capital must remain outstanding must be deleted. Netherlands
Antilles corporate law no longer recognizes the term
"authorized capital", and, as a result, no longer requires
that a certain amount of a company's authorized capital remain
outstanding.
31
o The provision regarding the maintenance of a shareholders
register must be revised to require additional information in
the register, including the date of acquisition of the shares,
as the requirements under Netherlands Antilles corporate law
for the maintenance of a shareholders register have become
more detailed.
o The provision relating to the procedures to effect transfers
of shares must be revised, as a result of changes in
Netherlands Antilles law, to provide that such transfers be
made by a deed of transfer between parties or, when shares are
listed on a stock exchange, pursuant to the rules of that
stock exchange.
o The provision regarding the notice of the Annual Meeting must
be revised to provide that such notice be given not less than
12 days prior to the date of the annual meeting, rather than
10 days, in accordance with the new requirements of
Netherlands Antilles corporate law. We have elected to require
that the notice be given not less than 15 days prior to the
meeting in order to provide more time to shareholders to
review and respond to the materials relating to the Annual
Meeting.
o The provision requiring that the financial statements be
prepared within eight months after the end of the fiscal year
and submitted to the shareholders for approval must be revised
as a result of changes in the Netherlands Antilles corporate
law. The provision must now provide that the shareholders may
extend this eight-month period for up to an additional six
months.
In connection with the foregoing amendments, a vote in favor of either
or both of Proposal 3(a) and Proposal 3(b) will include a power of attorney to
each lawyer of STvB Advocaten (Curacao) N.V., Netherlands Antilles counsel to
the company, to execute and file in the Netherlands Antilles the notarial deed
of amendment effectuating the foregoing amendments, as approved by the
shareholders.
The Board recommends that you vote "FOR" the approval of
the amendment in full to the Articles of Association, including
(a) the amendment to increase the maximum number of shares of
common stock available for issuance and (b) the other proposed
amendments to the Articles of Association.
32
PROPOSAL 4: APPROVAL OF FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,
2003
Shareholders will be asked to consider, and, if thought fit, approve
the balance sheet and income statement at and for the year ended December 31,
2003.
Pursuant to Article 116 of Book 2 Civil Code of the Netherlands
Antilles, the Board of Directors is required to draw up the company's balance
sheet and income statement within eight months after the end of the fiscal year
and to submit the same to the general meeting of shareholders for approval.
A copy of the company's balance sheet and income statement at and for
the year ended December 31, 2003 is included in our Annual Report, a copy of
which accompanies this proxy statement, and in our Annual Report on Form 10-K
for the year ended December 31, 2003 filed with the SEC. If you would like
additional copies of our Annual Report or a copy of our Annual Report on Form
10-K, please contact our Investor Relations department.
The Board of Directors recommends that you vote
"FOR" the proposal to approve the balance sheet and income
statement at and for the year ended December 31, 2003.
33
PROPOSAL 5: RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP
AS INDEPENDENT AUDITORS FOR 2004
We are asking you to ratify the Board's selection of Ernst & Young LLP
as independent auditors for 2004. The Audit Committee recommended the selection
of Ernst & Young LLP to the Board. Ernst & Young LLP has served as the
independent auditors of Orthofix since 2002. They have unrestricted access to
the Audit Committee to discuss audit findings and other financial matters.
We do not anticipate that representatives of Ernst & Young LLP will be
at the annual meeting. The work performed by Ernst & Young LLP during 2003 and
2002 and the related fees are set forth below.
The Board recommends that you vote "FOR"
ratification of the selection of Ernst & Young
LLP as independent auditors for 2004.
Principal Accountant Fees and Services
The following table sets forth by category of service the total fees
for services performed by Ernst & Young LLP during the fiscal years ended
December 31, 2003 and December 31, 2002:
2003 2002
------ ------
Audit Fees.................................................................... $638,312 $502,640
Audit-Related Fees............................................................ 200,396 15,000
Tax Fees...................................................................... 1,048,725 129,678
All Other Fees................................................................ 7,912 0
--------- --------
Total.................................................................... $1,895,345 $647,318
Audit Fees
Audit fees in 2003 and 2002 consisted of the aggregate fees, including
expenses, billed in connection with the audit of our annual consolidated
financial statements, quarterly reviews, statutory audits of our subsidiaries
and accounting consultations on audit matters.
Audit-Related Fees
Audit-related fees in 2003 and 2002 were for acquisition-related due
diligence services, employee benefit plan audits and accounting consultations. A
substantial portion of the increase in audit-related fees in 2003 from 2002 was
due to acquisition-related due diligence services in connection with our
December 2003 acquisition of Breg, Inc.
Tax Fees
Tax fees in 2003 and 2002 related to services for tax compliance, tax
planning and tax advice. The increase in tax fees in 2003 from 2002 was due to
tax consulting services related to our acquisition of Breg, Inc.
All Other Fees
The remaining fees paid to Ernst & Young LLP in 2003 were related to
access to professional reference materials and publications.
34
Pre-Approval Policies and Procedures
The Audit Committee approves all audit, audit-related services, tax
services and other services provided by Ernst & Young LLP. Any services provided
by Ernst & Young LLP that are not specifically included within the scope of the
audit must be either (i) pre-approved by the entire Audit Committee in advance
of any engagement or (ii) pre-approved by the Chairman of the Audit Committee
pursuant to authority delegated to him by the other independent members of the
Audit Committee, in which case the Audit Committee is then informed of his
decision. Under the Sarbanes-Oxley Act of 2002, these pre-approval requirements
are waived for non-audit services where (i) the aggregate of all such services
is no more than 5% of the total amount paid to the external auditors during the
fiscal year in which such services were provided, (ii) such services were not
recognized at the time of the engagement to be non-audit services and (iii) such
services are approved by the Audit Committee prior to the completion of the
audit engagement. In 2003, less than 2% of the fees paid to Ernst & Young LLP
for non-audit services were approved pursuant to the above exception.
In making its recommendation to appoint Ernst & Young LLP as our
independent auditor for the fiscal year ending December 31, 2004, the Audit
Committee has considered whether the services provided by Ernst & Young LLP are
compatible with maintaining the independence of Ernst & Young LLP and has
determined that such services do not interfere with that firm's independence in
the conduct of its auditing function.
Change in Accountants
On February 15, 2002, we announced the selection of Ernst & Young LLP
as new independent accountants to audit our financial statements for the year
ending December 31, 2002. The selection was based upon the recommendation of our
Audit Committee and approval of the Board of Directors. Ernst & Young LLP
replaced PricewaterhouseCoopers, or PwC, our previous accounting firm. During
2001, PwC concluded that it had violated the auditor independence rules of the
Securities and Exchange Commission, or SEC, by providing bookkeeping services to
a subsidiary of Orthofix International, and reported this violation to the SEC.
The SEC permitted PwC to complete its audit of our financial statements for the
year ending December 31, 2001, but did not permit PwC to remain as our
independent accountants for the year ending December 31, 2002. Accordingly, PwC
resigned upon completion of its audit of the financial statements for the year
ended December 31, 2001.
The report of PwC on our consolidated financial statements for the year
ended December 31, 2001 contained no adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope, or accounting
principle. In addition, in connection with the audit of our consolidated
financial statements for the year ended December 31, 2001, and through June 25,
2002, there were no disagreements between Orthofix and PwC on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
PwC would have caused PwC to make reference thereto in its reports on our
consolidated financial statements for such years.
We furnished the above disclosure to PwC prior to filing this proxy
statement with the SEC and PwC agreed that such disclosure was correct and
complete.
35
INFORMATION ABOUT SHAREHOLDER PROPOSALS
If you wish to submit a proposal to be included in our 2005 proxy
statement pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as
amended, we must receive your written proposal on or before January 12, 2005.
Please address your proposals to: Peter Clarke, Secretary, Orthofix
International N.V., 7 Abraham de Veerstraat, Curacao, Netherlands Antilles.
Pursuant to Rule 14a-4(c)(1) under the Securities Exchange Act of 1934,
as amended, our proxy holders may use discretionary authority to vote with
respect to shareholder proposals presented in person at the 2005 annual general
meeting if the shareholder making the proposal has not notified Orthofix by
March 28, 2005 of its intent to present a proposal at the 2005 annual general
meeting.
36
Appendix I
NOMINATING COMMITTEE CHARTER
ORTHOFIX INTERNATIONAL N.V.
NOMINATING COMMITTEE CHARTER
Purpose
The Committee is established by the Board of Directors for the
following purposes: (i) assisting the Board by actively identifying individuals
qualified to become Board members and (ii) recommending to the Board the
director nominees for election at the next annual meeting of stockholders.
Composition
1. Members. The Committee shall consist of as many members as the
Board shall determine, but in any event not fewer than three
members. The members of the Committee shall be appointed annually
by the Board upon the recommendation of the Committee.
2. Qualifications. Each member of the Committee shall meet all
applicable independence and other requirements of law and the
Nasdaq Stock Market, Inc.
3. Chair. The Chair of the Committee shall be appointed by the Board
upon the recommendation of the Committee.
4. Removal and Replacement. The members of the Committee may be
removed or replaced, and any vacancies on the Committee shall be
filled, by the Board upon the recommendation of the Committee.
Operations
1. Meetings. The Chair of the Committee, in consultation with the
Committee members, shall determine the schedule and frequency of
the Committee meetings, provided that the Committee shall meet at
least two times per year.
2. Agenda. The Chair of the Committee shall develop and set the
Committee's agenda, in consultation with other members of the
Committee, the Board and management. The agenda and information
concerning the business to be conducted at each Committee meeting
shall, to the extent practical, be communicated to the members of
the Committee sufficiently in advance of each meeting to permit
meaningful review.
3. Report to Board. The Committee shall report its actions to the
Board at the next regularly scheduled Board meeting after such
action was taken and shall submit to the Board the minutes of its
meetings.
4. Assessment of Charter. The Committee shall conduct an annual
assessment of the adequacy of this Charter on an annual basis and
recommend any changes to the Board.
Authority and Duties
1. The Committee shall identify and recommend to the Board nominees
for election or re-election to the Board, or for appointment to
fill any vacancy that is anticipated or has arisen on the Board,
in accordance with the criteria, policies and principles set forth
in this Charter. The Committee shall report to the Board
periodically on the status of these efforts. The Committee shall
review candidates for the Board recommended by stockholders. The
invitation to join the Board shall be extended by the Chair of the
Board.
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2. The Committee shall review with the Board, on an annual basis, the
current composition of the Board in light of the characteristics
of independence, age, skills, experience and availability of
service to the Company of its members and of anticipated needs.
The Committee shall establish and review with the Board the
appropriate skills and characteristics required of Board members.
3. The Committee shall, upon a significant change in a director's
principal occupation, review, as appropriate and in light of the
then current Board policies, the continued Board membership of
such director.
4. The Committee shall identify and recommend to the Board the names
of directors to serve as members of the Audit Committee, the
Compensation Committee, as well as the Committee itself. In
addition, the Committee shall recommend to the Board a member of
each of the aforementioned committees to serve as Chair.
5. The Committee shall establish policies for new director
orientation and establish policies for the continued education of
directors already on the Board.
6. The Committee shall conduct a review of director's affiliations
and transactions that could raise conflict of interest issues.
7. The Committee shall periodically review the size and structure of
the Board.
The foregoing list of duties is not exhaustive, and the Committee may,
in addition, perform such other functions as may be necessary or appropriate for
the performance of its duties. The Committee shall have the power to delegate
its authority and duties to subcommittees or individual members of the Committee
as it deems appropriate.
The Committee shall have full access to all Company books, records,
facilities and personnel. The Committee may retain search firms or advisors to
identify director candidates and may also retain counsel or other advisors, in
its sole discretion. The Committee shall be given the resources, and shall
determine the funding requirements, for the payment of compensation to such
search firm and any advisers employed by the Committee, and the payment of the
ordinary administrative expenses of the Committee that are necessary or
appropriate in carrying out its duties. The Committee shall have sole authority
to retain and terminate such search firms or advisors and to review and approve
such search firm's or advisor's fees and other retention terms.
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Appendix II
2004 LONG-TERM INCENTIVE PLAN
ORTHOFIX INTERNATIONAL N.V.
2004 LONG-TERM INCENTIVE PLAN
1. Purposes of the Plan
The purposes of the Plan are to provide an incentive to certain
officers, employees, directors and consultants of the Company and its
Subsidiaries to increase their interest in the Company's success by offering
them an opportunity to obtain a proprietary interest in the Company through the
grant of equity-based awards.
2. Definitions and Rules of Construction
(a) Definitions. For purposes of the Plan, the following capitalized
words shall have the meanings set forth below:
"Award" means an Option, Restricted Share Unit, Performance
Share Unit, Stock Appreciation Right or Other Award granted by the
Committee pursuant to the terms of the Plan.
"Award Document" means an agreement, certificate or other type
or form of document or documentation approved by the Committee which
sets forth the terms and conditions of an Award. An Award Document may
be in written, electronic or other media, may be limited to a notation
on the books and records of the Company and, unless the Committee
requires otherwise, need not be signed by a representative of the
Company or a Participant.
"Board" means the Board of Directors of the Company.
"CEO" means the Chief Executive Officer of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board or
such other committee appointed by the Board to administer the Plan.
"Common Shares" means the Common Shares of the Company, par
value $0.10 per share, or such other class of shares or other
securities as may be applicable under Section 13(b) of the Plan.
"Company" means Orthofix International N.V. or any successor
to substantially all of its business.
"Discounted Option" means a Nonqualified Stock Option or a
Stock Appreciation Right with an exercise price that is below Fair
Market Value per share on the date of grant (or, if the exercise price
is not fixed on the date of grant, on such date as the exercise price
is fixed).
"Effective Date" means the date on which the Plan is approved
by the shareholders of the Company.
"Eligible Individual" means an individual described in Section
4(a) of the Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
II-1
"Fair Market Value" means, with respect to a Common Share, the
fair market value thereof as of the relevant date of determination, as
determined in accordance with a valuation methodology approved by the
Committee.
"Incentive Stock Option" means an Option that is intended to
comply with the requirements of Section 422 of the Code or any
successor provision thereto.
"Nonqualified Stock Option" means an Option that is not
intended to comply with the requirements of Section 422 of the Code or
any successor provision thereto.
"Option" means an Incentive Stock Option or Nonqualified Stock
Option granted pursuant to Section 7 of the Plan.
"Other Award" means any form of Award other than an Option,
Restricted Share Unit, Performance Share Unit or Stock Appreciation
Right granted pursuant to Section 11 of the Plan.
"Participant" means an Eligible Individual who has been
granted an Award under the Plan.
"Performance Period" means the period established by the
Committee and set forth in the applicable Award Document over which
Performance Targets are measured.
"Performance Share Unit" means a right to receive a Target
Number of Common Shares (or cash, if applicable) payable at the end of
a Performance Period, subject to the Participant's continued employment
and the achievement of the applicable Performance Targets, granted
pursuant to Section 9 of the Plan.
"Performance Target" means the targets established by the
Committee and set forth in the applicable Award Document.
"Plan" means the Orthofix International N.V. 2004 Long-Term
Incentive Plan as described herein.
"Prior Plan" means the Orthofix International N.V. Staff Share
Option Plan.
"Restricted Share Unit" means a right to receive a Common
Share (or cash, if applicable) in the future, subject to time vesting
and the Participant's continued employment with the Company, granted
pursuant to Section 8 of the Plan.
"Stock Appreciation Right" means a right to receive all or
some portion of the appreciation on Common Shares granted pursuant to
Section 10 of the Plan.
"Subsidiary" means (i) a domestic or foreign corporation or
other entity with respect to which the Company, directly or indirectly,
has the power, whether through the ownership of voting securities, by
contract or otherwise, to elect at least a majority of the members of
such corporation's board of directors or analogous governing body or
(ii) any other domestic or foreign corporation or other entity in which
the Company, directly or indirectly, has an equity or similar interest
and which the Committee designates as a Subsidiary for purposes of the
Plan. For purposes of determining eligibility for the grant of
Incentive Stock Options under the Plan, the term "Subsidiary" shall be
defined in the manner required by Section 424(f) of the Code.
"Target Number" means the target number of Common Shares
established by the Committee and set forth in the applicable Award
Document.
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(b) Rules of Construction. The masculine pronoun shall be deemed to
include the feminine pronoun and the singular form of a word shall be deemed to
include the plural form, unless the context requires otherwise. Unless the text
indicates otherwise, references to sections are to sections of the Plan.
3. Administration
(a) Committee. The Plan shall be administered by the Committee, which
shall have full power and authority, subject to the express provisions hereof,
to:
(i) select the Participants from the Eligible Individuals;
(ii) grant Awards in accordance with the Plan;
(iii) determine the number of Common Shares subject to each
Award or the cash amount payable in connection with an Award;
(iv) determine the terms and conditions of each Award,
including, without limitation, those related to term, vesting,
forfeiture, payment, settlement, exercisability, Performance Periods,
Performance Targets, Target Numbers, and the effect, if any, of a
Participant's termination of employment with the Company or any of its
Subsidiaries or a change in control of the Company, and including the
authority to amend the terms and conditions of an Award after the
granting thereof to a Participant in a manner that is not, without the
consent of the Participant, prejudicial to the rights of such
Participant in such Award;
(v) specify and approve the provisions of the Award Documents
delivered to Participants in connection with their Awards;
(vi) construe and interpret any Award Document delivered under
the Plan;
(vii) prescribe, amend and rescind rules and procedures
relating to the Plan;
(viii) employ such legal counsel, independent auditors and
consultants as it deems desirable for the administration of the Plan
and to rely upon any opinion or computation received therefrom;
(ix) vary the terms of Awards to take account of tax,
securities law and other regulatory requirements of foreign
jurisdictions; and
(x) make all other determinations and take any other action
desirable or necessary to interpret, construe or implement properly the
provisions of the Plan or any Award Document.
(b) Plan Construction and Interpretation. The Committee shall have full
power and authority, subject to the express provisions hereof, to construe and
interpret the Plan.
(c) Determinations of Committee Final and Binding. All determinations
by the Committee in carrying out and administering the Plan and in construing
and interpreting the Plan shall be final, binding and conclusive for all
purposes and upon all persons interested herein.
(d) Delegation of Authority. The Committee may designate one or more of
its members or persons other than its members to carry out its responsibilities
under such conditions or limitations as it may set, except that the Committee
may not delegate its authority with regard to Awards (including decisions
concerning the timing, pricing and amount of Common Shares subject to an Award)
granted to Eligible Individuals (i) who are officers or directors for purposes
of Section 16(b) of the Exchange Act or (ii) whose compensation for such fiscal
year may be subject to the limit on deductible compensation pursuant to Section
162(m) of the Code.
(e) Liability of Committee. No member of the Board or Committee, the
CEO, or any officer or employee of the Company to whom any duties or
responsibilities are delegated hereunder shall be liable for any
II-3
action or determination made in connection with the operation, administration or
interpretation of the Plan and the Company shall indemnify, defend and hold
harmless each such person from any liability arising from or in connection with
the Plan, except where such liability results directly from such person's fraud,
willful misconduct or failure to act in good faith. In the performance of its
responsibilities with respect to the Plan, the Committee shall be entitled to
rely upon information and advice furnished by the Company's officers, the
Company's accountants, the Company's counsel and any other party the Committee
deems necessary, and no member of the Committee shall be liable for any action
taken or not taken in reliance upon any such advice.
(f) Action by the Board. Anything in the Plan to the contrary
notwithstanding, any authority or responsibility that, under the terms of the
Plan, may be exercised by the Committee may alternatively be exercised by the
Board.
4. Eligibility
(a) Eligible Individuals. Awards may be granted to officers, employees,
directors and consultants of the Company or any of its Subsidiaries. The
Committee shall have the authority to select the persons to whom Awards may be
granted and to determine the number and terms of Awards to be granted to each
such Participant. Under this Plan, references to "employment," "employed," etc.
include Participants who are consultants of the Company or its Subsidiaries.
(b) Grants to Participants. The Committee shall have no obligation to
grant any Eligible Individual an Award or to designate an Eligible Individual as
a Participant solely by reason of such Eligible Individual having received a
prior Award or having been previously designated as a Participant. The Committee
may grant more than one Award to a Participant and may designate an Eligible
Individual as a Participant for overlapping periods of time.
5. Common Shares Subject to the Plan
(a) Plan Limit. The maximum number of shares of Common Shares that may
be awarded for all purposes under the Plan shall be the aggregate of:
(i) 2,000,000 shares;
(ii) the number of shares previously authorized but not
reserved for options under the Prior Plan as of the date the Plan is
approved; and
(iii) any shares corresponding to an award, or portion
thereof, under the Prior Plan that are forfeited or expire for any
reason without having been exercised or settled after the date the Plan
is approved (collectively, the "Plan Limit").
Shares issued upon exercise of Awards may be either authorized and unissued
shares or shares held by the Company in its treasury.
(b) Rules Applicable to Determining Shares Available for Issuance. For
purposes of determining the number of Common Shares that remain available for
issuance under the Plan, the number of Common Shares corresponding to Awards
under the Plan that are forfeited or expire for any reason without having been
exercised or settled, the number of Common Shares tendered or withheld to pay
the exercise price of an Award and the number of shares withheld from any Award
to satisfy a Participant's tax withholding obligations shall be added back to
the Plan Limit and again be available for the grant of Awards.
(c) Special Limits. Anything to the contrary in Section 5(a) above
notwithstanding, but subject to Section 13(b), the following special limits
shall apply to Common Shares available for Awards under the Plan:
(i) the maximum number of Common Shares that, in the
aggregate, may be subject to Discounted Options, Restricted Stock Units
payable in Common Shares, Performance Share Units payable in Common
Shares, and Other Awards payable in Common Shares shall equal 400,000
shares;
II-4
(ii) the maximum number of Common Shares that may be subject
to Options granted to any Eligible Individual in any calendar year
shall equal 200,000 shares, plus any shares which were available under
this Section 5(c)(ii) for Awards to such Eligible Individual in any
prior calendar year but which were not covered by such Awards; and
(iii) the maximum number of Common Shares that may be subject
to Restricted Share Units, Performance Share Units, Stock Appreciation
Rights or Other Awards granted to any Eligible Individual in any
calendar year shall equal 200,000 shares, plus any shares which were
available under this Section 5(c)(iii) for Awards to such Eligible
Individual in any prior calendar year but which were not covered by
such Awards.
6. Awards in General
(a) Types of Awards. Awards under the Plan may consist of Options,
Restricted Share Units, Performance Share Units, Stock Appreciation Rights and
Other Awards. Any Award described in Sections 7 through 11 of the Plan may be
granted singly or in combination or tandem with any other Awards, as the
Committee may determine. Awards under the Plan may be made in combination with,
in replacement of, or as alternatives to awards or rights under any other
compensation or benefit plan of the Company, including the plan of any acquired
entity.
(b) Terms Set Forth in Award Document. The terms and conditions of each
Award shall be set forth in an Award Document in a form approved by the
Committee for such Award, which shall contain terms and conditions not
inconsistent with the Plan. Notwithstanding the foregoing, the Committee may, in
its sole discretion, accelerate (i) the vesting or payment of any Award, (ii)
the lapse of restrictions on any Award or (iii) the date on which any Award
first becomes exercisable. The terms of Awards may vary among Participants and
the Plan does not impose upon the Committee any requirement to make Awards
subject to uniform terms. Accordingly, the terms of individual Award Documents
may vary.
(c) Termination of Employment and Change in Control. The Committee
shall specify at or after the time of grant of an Award the provisions governing
the disposition of an Award in the event of a Participant's termination of
employment with the Company or any of its Subsidiaries. In connection with a
Participant's termination of employment, the Committee shall have the discretion
to accelerate the vesting, exercisability or settlement of, eliminate the
restrictions and conditions applicable to, or extend the post-termination
exercise period of an outstanding Award, which provisions may be specified in
the applicable Award Document or determined at a subsequent time. Similarly, the
Committee shall have full authority to determine the effect, if any, of a change
in control of the Company on the vesting, exercisability, settlement, payment or
lapse of restrictions applicable to an Award, which effect may be specified in
the applicable Award Document or determined at a subsequent time.
(d) Dividends and Dividend Equivalents. The Committee may provide
Participants with the right to receive dividends or payments equivalent to
dividends or interest with respect to an outstanding Award, which payments can
either be paid currently or deemed to have been reinvested in Common Shares, and
can be made in Common Shares, cash or a combination thereof, as the Committee
shall determine.
(e) Rights of a Shareholder. A Participant shall have no rights as a
shareholder with respect to Common Shares covered by an Award until the date the
Participant or his nominee becomes the holder of record of such shares. No
adjustment shall be made for dividends or other rights for which the record date
is prior to such date, except as provided in Section 13(b).
(f) Performance-Based Awards. The Committee may determine whether any
Award under the Plan is intended to be "performance-based compensation" as that
term is used in Section 162(m) of the Code. Any such Awards designated to be
"performance-based compensation" shall be conditioned on the achievement of one
or more Performance Targets, to the extent required by Section 162(m) of the
Code. The Performance Targets that may be used by the Committee for such Awards
will be based on measurable and attainable financial goals for the Company, one
or more of its operating divisions or Subsidiaries or any combination of the
above such as net income, net revenue, cash flow, operating margin, operating
revenue, pre-tax income, pre-tax operating income,
II-5
operating income growth, return on assets, total shareholder return, share
price, return on equity, diluted earnings per share or earnings per share
growth, or a combination thereof as selected by the Committee, and quantifiable
non-financial goals. Each Participant is assigned a Target Number payable if
Performance Targets are achieved. If a Participant's performance exceeds such
Participant's Performance Targets, Awards may be greater than the Target Number,
but may not exceed 200% of such Participant's Target Number. The Committee
retains the right to reduce any Award if it believes that individual performance
does not warrant the Award calculated by reference to the result. In the event
that all members of the Committee are not "outside directors" as that term is
defined in Section 162(m) of the Code, the grant and terms of Awards intended to
qualify as "performance-based compensation" will be made by a subcommittee of
the Committee consisting of two or more "outside directors" for purposes of
Section 162(m) of the Code.
7. Terms and Conditions of Options
(a) General. The Committee, in its discretion, may grant Options to
eligible Participants and shall determine whether such Options shall be
Incentive Stock Options or Nonqualified Stock Options. Each Option shall be
evidenced by an Award Document that shall expressly identify the Option as an
Incentive Stock Option or Nonqualified Stock Option, and be in such form and
contain such provisions as the Committee shall from time to time deem
appropriate.
(b) Exercise Price. The exercise price of an Option shall be fixed by
the Committee at the time of grant or shall be determined by a method specified
by the Committee at the time of grant; provided, however, that the exercise
price of an Option shall not be less than 100% of the Fair Market Value per
share on the date of grant unless, subject to the limitations on Discounted
Options set forth in Section 5(c)(i), the Committee elects to set the exercise
price below Fair Market Value on the date of grant (or, if the exercise price is
not fixed on the date of grant, on such date as the exercise price is fixed).
Payment of the exercise price of an Option shall be made in any form approved by
the Committee at the time of grant.
(c) Term. An Option shall be effective for such term as shall be
determined by the Committee and as set forth in the Award Document relating to
such Option, and the Committee may extend the term of an Option after the time
of grant; provided, however, that the term of an Option may in no event extend
beyond the tenth anniversary of the date of grant of such Option.
(d) Incentive Stock Options. The exercise price per share of an
Incentive Stock Option may not be less than 100% of the Fair Market Value per
share on the date of grant. No Incentive Stock Option may be issued pursuant to
the Plan to any individual who, at the time the Incentive Stock Option is
granted, owns stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or any of its Subsidiaries, unless (i)
the exercise price determined as of the date of grant is at least 110% of the
Fair Market Value on the date of grant of the Common Shares subject to such
Incentive Stock Option and (ii) the Incentive Stock Option is not exercisable
more than five years from the date of grant thereof. No Participant shall be
granted any Incentive Stock Option which would result in such Participant
receiving a grant of Incentive Stock Options that would have an aggregate Fair
Market Value in excess of $100,000, determined as of the time of grant, that
would be exercisable for the first time by such Participant during any calendar
year. The terms of any Incentive Stock Option granted under the Plan shall
comply in all respects with the provisions of Section 422 of the Code, or any
successor provision thereto, and any regulations promulgated thereunder.
8. Terms and Conditions of Restricted Share Units
The Committee is authorized to grant Restricted Share Units to Eligible
Individuals. A Restricted Share Unit shall entitle a Participant to receive,
subject to the terms, conditions and restrictions set forth in the Plan and
applicable Award Document, one or more Common Shares in consideration of the
Participant's employment with the Company or any of its Subsidiaries. If and
when the forfeiture provisions lapse, the Restricted Share Units shall become
Common Shares owned by the corresponding Participant or, at the sole discretion
of the Committee, cash, or a combination of cash and Common Shares, with a value
equal to the Fair Market Value of the shares at the time of payment.
II-6
9. Terms and Conditions of Performance Share Units
The Committee is authorized to grant Performance Share Units to
Eligible Individuals. A Performance Share Unit shall entitle a Participant to
receive, subject to the terms, conditions and restrictions set forth in the Plan
and applicable Award Document, a Target Number of Common Shares based upon the
achievement of Performance Targets over the applicable Performance Period. At
the sole discretion of the Committee, Performance Share Units shall be settled
through the delivery of Common Shares or cash, or a combination of cash and
Common Shares, with a value equal to the Fair Market Value of the Common Shares
as of the last day of the applicable Performance Period.
10. Stock Appreciation Rights
(a) General. The Committee is authorized to grant Stock Appreciation
Rights to Eligible Individuals. A Stock Appreciation Right shall entitle a
Participant to receive, upon satisfaction of the conditions to payment specified
in the applicable Award Document, an amount equal to the excess, if any, of the
Fair Market Value on the exercise date of the number of Common Shares for which
the Stock Appreciation Right is exercised, over the exercise price for such
Stock Appreciation Right specified in the applicable Award Document. The
exercise price per share of Common Shares covered by a Stock Appreciation Right
shall be fixed by the Committee at the time of grant or, alternatively, shall be
determined by a method specified by the Committee at the time of grant,
provided, however, that the exercise price of a Stock Appreciation Right shall
not be less than 100% of the Fair Market Value per share on the date of grant
unless, subject to the limitations on Discounted Options set forth in Section
5(c)(i), the Committee elects to set the exercise price below Fair Market Value
on the date of grant (or, if the exercise price is not fixed on the date of
grant, on such date as the exercise price is fixed). At the sole discretion of
the Committee, payments to a Participant upon exercise of a Stock Appreciation
Right may be made in cash or Common Shares, or in a combination of cash and
Common Shares, having an aggregate Fair Market Value as of the date of exercise
equal to such cash amount.
(b) Stock Appreciation Rights in Tandem with Options. A Stock
Appreciation Right granted in tandem with an Option may be granted either at the
same time as such Option or subsequent thereto. If granted in tandem with an
Option, a Stock Appreciation Right shall cover the same number of Common Shares
as covered by the Option (or such lesser number of shares as the Committee may
determine) and shall be exercisable only at such time or times and to the extent
the related Option shall be exercisable, and shall have the same term and
exercise price as the related Option (which, in the case of a Stock Appreciation
Right granted after the grant of the related Option, may be less than the Fair
Market Value per share on the date of grant of the tandem Stock Appreciation
Right). Upon exercise of a Stock Appreciation Right granted in tandem with an
Option, the related Option shall be canceled automatically to the extent of the
number of shares covered by such exercise; conversely, if the related Option is
exercised as to some or all of the shares covered by the tandem grant, the
tandem Stock Appreciation Right shall be canceled automatically to the extent of
the number of shares covered by the Option exercise.
11. Other Awards
The Committee shall have the authority to specify the terms and
provisions of other forms of equity-based or equity-related Awards not described
above that the Committee determines to be consistent with the purpose of the
Plan and the interests of the Company, which Awards may provide for cash
payments based in whole or in part on the value or future value of Common
Shares, for the acquisition or future acquisition of Common Shares, or any
combination thereof.
12. Certain Restrictions
(a) Transfers. Unless the Committee determines otherwise on or after
the date of grant, no Award shall be transferable other than by will or by the
laws of descent and distribution or pursuant to a domestic relations order;
provided, however, that the Committee may, in its discretion and subject to such
terms and conditions as it shall specify, permit the transfer of an Award for no
consideration to a Participant's family members or to one or more trusts or
partnerships established in whole or in part for the benefit of one or more of
such family members (collectively, "Permitted Transferees"). Any Award
transferred to a Permitted Transferee shall be further transferable only by will
or the laws of descent and distribution or, for no consideration, to another
Permitted
II-7
Transferee of the Participant. The Committee may in its discretion permit
transfers of Awards other than those contemplated by this Section 12(a).
(b) Award Exercisable Only by Participant. During the lifetime of a
Participant, an Award shall be exercisable only by the Participant or by a
Permitted Transferee to whom such Award has been transferred in accordance with
Section 12(a). The grant of an Award shall impose no obligation on a Participant
to exercise or settle the Award.
13. Recapitalization or Reorganization
(a) Authority of the Company and Stockholders. The existence of the
Plan, the Award Documents 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 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 Shares or the rights
thereof or which are convertible into or exchangeable for Common Shares, 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.
(b) Change in Capitalization. Notwithstanding any provision of the Plan
or any Award Document, the number and kind of shares authorized for issuance
under Section 5, including the maximum number of shares available under the
special limits provided for in Section 5(c), may be equitably adjusted in the
sole discretion of the Committee in the event of a stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, extraordinary dividend,
split-up, spin-off, combination, exchange of shares, warrants or rights offering
to purchase Common Shares at a price substantially below Fair Market Value or
other similar corporate event affecting the Common Shares in order to preserve,
but not increase, the benefits or potential benefits intended to be made
available under the Plan. In addition, upon the occurrence of any of the
foregoing events, the number of outstanding Awards and the number and kind of
shares subject to any outstanding Award and the exercise price per share, if
any, under any outstanding Award may be equitably adjusted (including by payment
of cash to a Participant) in the sole discretion of the Committee in order to
preserve the benefits or potential benefits intended to be made available to
Participants granted Awards. Such adjustments shall be made by the Committee, in
its sole discretion, whose determination as to what adjustments shall be made,
and the extent thereof, shall be final. Unless otherwise determined by the
Committee, such adjusted Awards shall be subject to the same restrictions and
vesting or settlement schedule to which the underlying Award is subject.
14. Term of the Plan
Unless earlier terminated pursuant to Section 16, the Plan shall
terminate on the 10th anniversary of the Effective Date, except with respect to
Awards then outstanding. No Awards may be granted under the Plan after the 10th
anniversary of the Effective Date.
15. Effective Date
The Plan shall become effective on the Effective Date; provided,
however, that, if the Plan is not approved by the shareholders upon submission
to them for approval, the Plan shall be void ab initio and of no further force
and effect.
16. Amendment and Termination
Notwithstanding anything herein to the contrary, the Board may, at any
time, terminate or, from time to time, amend, modify or suspend the Plan;
provided, however, that no termination, amendment, modification or suspension of
the Plan shall materially and adversely alter or impair the rights of a
Participant in any Award previously made under the Plan without the consent of
the holder thereof and no amendment which (i) increases the Plan Limit or (ii)
permits a reduction in the exercise price of Options or Stock Appreciation
Rights under
II-8
circumstances other than in connection with a transaction or event
described in Section 13(b), shall be effective without shareholder approval.
17. Miscellaneous
(a) Tax Withholding. The Company or a Subsidiary, as appropriate, may
require any individual entitled to receive a payment in respect of an Award to
remit to the Company, prior to such payment, an amount sufficient to satisfy any
applicable tax withholding requirements. In the case of an Award payable in
Common Shares, the Company or a Subsidiary, as appropriate, may permit such
individual to satisfy, in whole or in part, such obligation to remit taxes by
directing the Company to withhold shares that would otherwise be received by
such individual or to repurchase shares that were issued to such individual to
satisfy the minimum statutory withholding rates for any applicable tax
withholding purposes, in accordance with all applicable laws and pursuant to
such rules as the Committee may establish from time to time. The Company or a
Subsidiary, as appropriate, shall also have the right to deduct from all cash
payments made to a Participant (whether or not such payment is made in
connection with an Award) any applicable taxes required to be withheld with
respect to such payments.
(b) No Right to Awards or Employment. No person shall have any claim or
right to receive Awards under the Plan. Neither the Plan, the grant of Awards
under the Plan, nor any action taken or omitted to be taken under the Plan shall
be deemed to create or confer on any Eligible Individual any right to be
retained in the employ of the Company or any Subsidiary or other affiliate
thereof, or to interfere with or to limit in any way the right of the Company or
any Subsidiary or other affiliate thereof to terminate the employment of such
Eligible Individual at any time.
(c) Section 16(b) of the Exchange Act. The Plan is intended to comply
in all respects with Section 16(b) of the Exchange Act. Notwithstanding anything
contained in the Plan or any Award Document under the Plan to the contrary, if
the consummation of any transaction under the Plan, or the taking of any action
by the Committee in connection with a change in control of the Company, would
result in the possible imposition of liability on a Participant pursuant to
Section 16(b) of the Exchange Act, the Committee shall have the right, in its
sole discretion, but shall not be obligated, to defer such transaction or the
effectiveness of such action to the extent necessary to avoid such liability,
but in no event for a period longer than 180 days.
(d) Section 162(m) of the Code. The Plan is intended to comply in all
respects with Section 162(m) of the Code.
(e) Awards to Individuals Subject to Non-U.S. Jurisdictions. To the
extent that Awards under the Plan are awarded to individuals who are domiciled
or resident outside of the United States or to persons who are domiciled or
resident in the United States but who are subject to the tax laws of a
jurisdiction outside of the United States, the Committee may adjust the terms of
the Awards granted hereunder to such persons (i) to comply with the laws of such
jurisdiction and (ii) to permit the grant of the Award not to be a taxable event
to the Participant. The authority granted under the previous sentence shall
include the discretion for the Committee to adopt, on behalf of the Company, one
or more sub-plans applicable to separate classes of Eligible Individuals who are
subject to the laws of jurisdictions outside of the United States.
(f) Securities Law Restrictions. An Award may not be exercised or
settled and no Common Shares may be issued in connection with an Award unless
the issuance of such shares has been registered under the Securities Act of
1933, as amended, and qualified under applicable state "blue sky" laws and any
applicable foreign securities laws, or the Company has determined that an
exemption from registration and from qualification under such state "blue sky"
laws is available. The Committee may require each Participant purchasing or
acquiring Common Shares pursuant to an Award under the Plan to represent to and
agree with the Company in writing that such Eligible Individual is acquiring the
Common Shares for investment purposes and not with a view to the distribution
thereof. All certificates for Common Shares delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any exchange upon which the Common Shares
are then listed, and any applicable securities law, and the Committee may cause
a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
II-9
(g) Award Document. In the event of any conflict or inconsistency
between the Plan and any Award Document, the Plan shall govern and the Award
Document shall be interpreted to minimize or eliminate any such conflict or
inconsistency.
(h) Application of Funds. The proceeds received by the Company from the
sale of Common Shares pursuant to Awards will be used for general corporate
purposes.
(i) Governing Law. The Plan and all agreements entered into under the
Plan shall be construed in accordance with and governed by the laws of the State
of New York and without giving effect to principles of conflicts of laws.
II-10
Appendix III
AMENDMENTS TO ARTICLES OF ASSOCIATION
A marked copy of the proposed amendment in full to the Articles of
Association is included in this Appendix III. Language deleted from the Articles
of Association is indicated by brackets and language added to the Articles of
Association appears in all capital letters.
III-1
ARTICLES OF ASSOCIATION
NAME AND DOMICILE
ARTICLE 1
1.1 The name of the Company is: "ORTHOFIX INTERNATIONAL N.V.".
1.2 In transactions in foreign countries, the name "Orthofix International
Inc." may be used.
1.3 The Company is domiciled in Curacao and may have branches and/or branch
offices elsewhere.
1.4 [The Company may transfer its place of domicile to another country and
assume the status of a legal entity formed under the laws of that
country in accordance with the Netherlands Antilles Ordinance on
Transfer of Domicile to Third Countries pursuant to a resolution of the
Board of Directors.]
PURPOSE
ARTICLE 2
2.1 The purpose of the Company is:
(a) to [manufacture, market, sell, buy and use trauma,] ACT AS A
DIVERSIFIED orthopedic [and related medical] products COMPANY
MANUFACTURING, MARKETING AND SELLING A BROAD LINE OF MINIMALLY
INVASIVE SURGICAL, AS WELL AS NON-SURGICAL, PRODUCTS FOR THE
SPINE, RECONSTRUCTION AND TRAUMA MARKET SECTORS, including but
not limited to external AND INTERNAL fixation devices used in
[bone] fracture treatment, limb lengthening and bone
reconstruction, [equipment, parts and accessories therefor and
any and all] NON-INVASIVE STIMULATION products [using the same
or used therewith, throughout the world], BRACING PRODUCTS AND
PAIN MANAGEMENT PRODUCTS and to engage in any business related
thereto;
(b) to manufacture, buy, sell and use any and all products made
from wood, metal, plastic or other material or materials or
combinations thereof and to engage in manufacturing generally;
(c) to enter into and carry on any mercantile business in any
country and to receive by assignment or purchase or to
otherwise acquire any accounts receivable, bank accounts,
securities, bills of exchange, notes, bonds, letters of
credit, stocks or other instruments of value or documents of
title in any country and to collect and hold the proceeds
thereof;
(d) to undertake, conduct, assist, promote or engage in any
research and development;
(e) to organize and to own, directly or indirectly, and to
operate, under the laws of any state or other government,
domestic or foreign, corporations and other organizations; to
subscribe for any such corporation or organization; and to
dissolve, liquidate, wind up, reorganize, merge or consolidate
any such corporation or organization;
(f) to invest its assets in securities, including shares and other
certificates of participation and bonds, as well as other
claims for interest bearing debts, however denominated, and in
any and all forms,
III-2
the borrowing of money and the issuance of evidences of
indebtedness therefor, as well as the lending of money;
(g) to acquire considerations paid for technical assistance;
(h) to invest its assets directly or indirectly in real property
and right, to acquire, own, hire, let, lease, rent, divide,
drain, reclaim, develop, improve, cultivate, build on, sell or
otherwise alienate, mortgage or otherwise encumber real
property and to construct infrastructure work, like roads,
pipes and similar works on real estate;
(i) to obtain income from the disposition or grant of rights to
use copyrights, patents, designs, secret processes and
formulae, trademarks and other analogous property, from
royalties (including rentals) for the use of industrial,
commercial or scientific equipment, and from compensation or
other consideration received for technical assistance or
services;
(j) to establish, participate in and manage limited liability and
other companies or other undertakings of every kind or nature
whatsoever, and to engage in industry and trade;
(k) to guarantee or otherwise secure, and to transfer ownership,
to mortgage, to pledge or otherwise to encumber assets as
security for the obligations of the Company and for the
obligations of third parties, with or without consideration;
(l) to borrow moneys upon the issuance of its bonds, debentures,
notes or other obligations and to give security therefor; and
(m) to place in trust all or any of its properties, including
securities.
2.2 The Company is entitled to do all that may be useful or necessary for
the attainment of the above purposes or that is connected therewith in
the widest sense, including the participation in and the management of
any other venture or corporation.
DURATION
ARTICLE 3
The Company shall have perpetual existence.
CAPITAL AND SHARES
ARTICLE 4
4.1 The [authorized] capital of the Company [shall be (3) three million
United States dollars (US $3,000,000)], IS divided into [thirty million
(30,000,000)] Common Shares with a par value of ten United States cents
(US $0.10) per share (the "Common Shares"), WITH A MAXIMUM OF FIFTY
MILLION (50,000,000) COMMON SHARES.
4.2 Common Shares [representing at least twenty percent (20%) of the
authorized capital of the Company have been subscribed for at the time
of this amendment to the articles of association. 4.3 The remaining
unissued Common Shares] shall be issued PURSUANT TO A DEED BETWEEN THE
COMPANY AND THE PROSPECTIVE SHAREHOLDER at such times, under such
conditions and for such consideration as may be determined by, or on
behalf of, the Board of Directors, provided that such consideration
shall not be less than par value.
III-3
4.3 [4.4] The Board of Directors is competent, without instruction of the
General Meeting of Shareholders, to redeem Common Shares with due
observance of the provisions applicable thereto of these Articles of
Association and subsequently cancel them. The redemption price per
Common Share so redeemed shall be calculated in accordance with
generally accepted accounting principles as being the value that would
be payable on such Common Shares were the Company liquidated or
dissolved.
4.4 [4.5] Options to subscribe for Common Shares in the Company may be
issued to directors, officers and other persons employed by the Company
and/or its subsidiaries or whose services are otherwise contracted by
the Company, for such consideration and on such terms as determined
from time to time by, or on behalf of, the Board of Directors, provided
that [after September fifteenth nineteen hundred ninety-five] the
exercise price of such options shall not be below the net asset value
of the relevant Common Shares as calculated in accordance with
generally accepted accounting principles at the time of issuance of
the relevant options.
4.5 [4.6] The options will be issued by the Board of Directors in
registered form only, and shall be entered in a register, which shall
be kept by, or on behalf of, the Board of Directors.
4.6 [4.7] At the request of a holder of options, certificates may be issued
for the options held by him. Option certificates shall be signed by a
director, which signature may be in facsimile.
ARTICLE 5
No holder of Common Shares of the Company shall have as such shareholder any
preferential or preemptive right to purchase or subscribe for any Common Shares
or any securities convertible into or exchangeable for shares which the Company
may issue.
ARTICLE 6
6.1 The Company may, WITH DUE OBSERVANCE OF THE PROVISIONS OF ARTICLE 114
OF BOOK 2 CIVIL CODE NETHERLANDS ANTILLES for its own account and for
valuable consideration from time to time, acquire fully paid Common
Shares[, provided that at least twenty percent (20%) of its authorized
capital in the form of Common Shares remains outstanding and held by
others than the Company itself]. The authority to make any such
acquisition is vested in the Board of Directors. Any Common Shares so
acquired may be cancelled by the Board of Directors.
6.2 The Company shall not acquire any voting rights by reason of ownership
of its Common Shares, and, in connection with any General Meeting of
Shareholders, Common Shares owned by the Company shall not be counted
as outstanding, or as present or represented, for the purpose of
determining a quorum or for any other purpose.
ARTICLE 7
7.1 The Common Shares shall be in registered form.
7.2 Share certificates for the Common Shares may be issued at the request
of the shareholder.
7.3 The Common Shares shall be entered into a register (the "Register")
which is kept by the Board of Directors or by a registrar designated
thereto by the Board of Directors (the "Registrar"). Each entry shall
mention the name of the shareholder, his residence or his elected
domicile, the DATE OF ACQUISITION
III-4
AND THE quantity of his Common Shares and the numbers of the share
certificates, if any, representing such Common Shares AND SUCH FURTHER
INFORMATION AS IS MENTIONED IN ARTICLE 109 BOOK 2 CIVIL CODE
NETHERLANDS ANTILLES. The Register shall not be open for inspection by
third parties or shareholders with respect to Common Shares other than
those registered in their name, except with respect to Common Shares
that have not been paid in full and except further, with respect to the
Registrar, if said Registrar has been requested, or if demand of said
Registrar has been made, to disclose any piece of information in the
Register and failure to disclose such information would lead to
liability of the Registrar.
7.4 Every transfer and devolution of a Common Share shall be entered in the
Register and every such entry shall be signed by a director or by the
Registrar or by a transfer agent (a "Transfer Agent") designated
thereto by the Board of Directors.
7.5 If any shareholder shall establish to the satisfaction of the Board of
Directors that his share certificate has been lost or destroyed, then,
at his request, a duplicate may be issued under such conditions and
guarantees (which, if required by the Board of Directors, may include
the provision of an indemnity bond issued by an insurance company) as
the Board of Directors shall determine. By the issuance of the new
share certificates on which shall be recorded that it is a duplicate,
the old certificate in place of which the new one has been issued shall
become null and void. The Board of Directors may authorize the exchange
of new share certificates for mutilated share certificates. In such
case the mutilated share certificates shall be delivered to the Company
and shall be cancelled immediately. The cost of a duplicate or new
certificate and any proper expenses incurred by the Company in
connection with the issuance thereof may, at the option of the Board of
Directors, be charged to the shareholder.
7.6 (A) The transfer of Common Shares shall be effected [either] by A
DEED OF TRANSFER BETWEEN THE TRANSFEROR AND THE TRANSFEREE AND
serving [a] OF THAT deed [of transfer] upon the Company or by
written acknowledgement of the transfer by the Company. IF
SHARE CERTIFICATES HAVE BEEN ISSUED, PARTIES MAY MAKE AN
APPROPRIATE DECLARATION ON THE CERTIFICATE, which THEN COUNTS
AS A DEED OF TRANSFER AND THE ACKNOWLEDGMENT BY THE COMPANY
can [only] take place by an annotation on the share
certificate [, if share certificates have been issued].
(B) AS LONG AS THE COMMON SHARES ARE LISTED ON A STOCK EXCHANGE,
TRANSFER OF SHARES MAY ALSO BE EFFECTED IN ACCORDANCE WITH THE
SYSTEM COMMONLY APPLIED BY SUCH STOCK EXCHANGE.
7.7 The entry in the Register provided for in paragraphs 3 and 4 of this
Article shall have the effect of a written acknowledgement of the
transfer by the Company in the event no share certificate(s) has (have)
been issued.
MANAGEMENT
ARTICLE 8
III-5
8.1 The management of all the affairs, property and business of the Company
shall be vested in a Board of Directors, who shall have and may
exercise all powers except such as are exclusively conferred upon the
shareholders by law or by these Articles of Association, as from time
to time amended.
8.2 With respect to the issuance of Common Shares, the Board of Directors,
or persons acting pursuant to authority granted by the Board of
Directors, may enter into and conclude agreements without the necessity
of any action by the General Meeting of Shareholders:
(a) imposing special obligations upon the Company in connection
with the subscription for Common Shares;
(b) concerning the issue of Common Shares on a basis other than
that on which participation in the Company is open to the
public; or
(c) providing for the payment for Common Shares by means other
than by legal tender of the Netherlands Antilles.
8.3 SAVE AS SET FORTH IN ARTICLE 8.5, THE [The] directors shall be elected
at a General Meeting of Shareholders by a plurality of votes cast, in
person or by proxy, by the shareholders. The number of persons
constituting the whole Board of Directors shall be not less than seven
nor more than fifteen, as fixed and elected by the General Meeting of
Shareholders. The number of persons constituting the whole Board of
Directors shall, until changed at any succeeding General Meeting of
Shareholder, be the number so fixed and elected. Directors may be
removed or suspended at any time by the General Meeting of
Shareholders. At any General Meeting of Shareholders at which action is
taken to increase the number of the whole Board of Directors or to
remove a director, or at any subsequent General Meeting of
Shareholders, the shareholders may fill any vacancy or vacancies
created by such action.
8.4 Each director shall be elected to serve until the next annual General
Meeting of Shareholders and until his successor shall be elected and
qualified, or until his death, resignation, retirement or removal.
8.5 In the event that one or more of the directors RESIGNS OR is prevented
from or is incapable of acting as director, the remaining directors (or
the remaining director, if there should be only one) may appoint one or
more persons to fill the vacancy or vacancies thereby created on the
Board of Directors until the next General Meeting of Shareholders,
provided that if at any time the number of directors then in office
shall be reduced to less than two, the remaining directors or director
shall forthwith call a General Meeting of Shareholders for the purpose
of filling the vacancies in the Board of Directors, and provided
further that in the event that all of the directors are prevented from
or are incapable of acting as directors, the Company shall be
temporarily managed by any person or persons previously appointed by
the Board of Directors so to act who shall forthwith call a General
Meeting of Shareholders for the purpose of electing a Board of
Directors. If no such General Meeting of Shareholders shall be called,
and if no such person shall have been appointed, any person or persons
holding in the aggregate at least twenty-five per cent (25%) of the
outstanding Common Shares of the Company may call a General Meeting of
Shareholders for the purpose of electing a Board of Directors.
III-6
8.6 A regular meeting of the Board of Directors shall be held at such
place, at such time and on such notice as the Board of Directors shall
determine from time to time, and a special meeting shall be held as and
when the Chairman or Vice Chairman of the Board of Directors shall call
the same. Notice of the time and place of a special meeting shall be
given:
(a) not less than ninety-six (96) hours before such meeting, by
written notice mailed to each director, or
(b) not later than the calendar day immediately preceding the date
of such meeting, by personal delivery, or by telephone call or
by sending [a telegram] AN E-MAIL or telefax to each director.
A waiver of notice of any such meeting signed by all of the directors,
whether before, at or after the time of such meeting, shall be deemed
equivalent to notice of the meeting.
8.7 A majority of the whole Board of Directors shall constitute a quorum
for the conduct of any business and the action of the majority of the
directors present, in person or by proxy as hereinafter provided, at a
meeting at which a quorum is so present, shall constitute the action of
the Board of Directors. In the absence of a quorum, one director may
adjourn any meeting from time to time until a quorum shall be present
and no notice of the adjourned meeting need be given if the time and
place are fixed at the meeting adjourned and if the period of
adjournment does not exceed ten days in any one adjournment.
8.8 Meetings of the Board of Directors may be held through conference
telephone calls or other communication equipment allowing all persons
participating in the meeting to hear each other or through any other
device permitted by then applicable law, and participation in a meeting
through any such lawful device or arrangement shall constitute presence
at such meeting.
8.9 When action by the Board of Directors is required or permitted to be
taken, action at a meeting may be dispensed with if all the directors
shall consent in writing to such action taken or being taken. Directors
may by [telegram] E-MAIL, TELEFAX, or other writing appoint a proxy to
act at any meeting of the Board of Directors, such proxy to be
restricted, however, to the particular meeting specified therein. Such
proxy must be another director of the Company.
ARTICLE 9
9.1 The Board of Directors, by resolution adopted by a majority of the
entire Board of Directors, may appoint an Executive Committee (and may
discontinue the same at any time) to consist of two or more directors
of the Company to hold office at the pleasure of the Board of
Directors. Additional members of the Executive Committee may, but are
not required to, be directors. The Executive Committee shall, subject
to the provisions laid down in these Articles of Association, have and
may exercise all the powers and authority delegated to it by the Board
of Directors regarding the management of the business and affairs of
the Company. The Executive Committee shall not have the power or
authority to:
(a) recommend to the shareholders to amend the Articles of
Association;
(b) recommend to the shareholders the sale, lease or exchange of
all or substantially all of the Company's property and assets;
III-7
(c) recommend to the shareholders the dissolution and liquidation
of the Company;
(d) amend the By-laws, as defined in paragraph 6 of Article 10 of
these Articles of Association (in Dutch: "reglement"), if any;
(e) declare interim dividends; or
(f) authorize the issuance of Common Shares;
for as much as such powers are within the authority of the entire Board
of Directors or the General Meeting of Shareholders.
9.2 Meetings of the Executive Committee may be called at any time by the
Chairman of the Board of Directors or the Chairman of the Executive
Committee or any two members of the Executive Committee. Two members of
the Executive Committee shall constitute a quorum for the transaction
of business, except that when the Executive Committee consist of one
member, then one member shall constitute a quorum.
9.3 The Board of Directors by resolution passed by a majority of the entire
Board of Directors may appoint such other Committees as may be deemed
advisable and may terminate any such Committee at any time. Each
Committee shall have two or more members who may, but are not required
to, be directors and who shall serve at the pleasure of the Board of
Directors and shall have such powers as may be provided by resolution
of the Board of Directors. Two members of each of such Committee shall
constitute a quorum for the transaction of business except that when
such an additional Committee consists of one member, then one member
shall constitute a quorum.
ARTICLE 10
10.1 The Board of Directors annually shall elect or appoint the following
officers: a Chairman, a President, a Secretary and a Treasurer, each to
serve until his successor is elected and qualified. The Board of
Directors from time to time also may elect or appoint a Chairman of the
Executive Committee, one or more Vice Chairmen of the Board of
Directors, one or more Vice Presidents (who may have such additional
descriptive designations as the Board of Directors may determine), a
Controller, one or more Assistant Treasurers, Assistant Controllers and
any such other officers and agents as it determines proper, all of whom
shall hold office at the pleasure of the Board of Directors. The same
person may hold any two or more of the aforesaid offices but no officer
shall execute, acknowledge or verify an instrument in more than one
capacity if such instrument is required by law or by these Articles of
Association to be executed, acknowledged or verified by two or more
officers. The Chairman and the Vice Chairman of the Executive Committee
shall be chosen from among the Board of Directors, but the other
officers of the Company need not be members of the Board of Directors.
10.2 The Company shall be represented at law and otherwise, and shall be
bound with respect to third parties by:
(a) those directors authorized by the Board of Directors to
represent the Company, who shall have the following
titles and occupy the following offices:
(i) Chairman; or
(ii) Vice Chairman;
III-8
(b) persons, who may, but are not required to, be directors,
authorized by the Board of Directors to represent the Company,
who shall have the following titles and occupy the following
offices:
(i) President;
(ii) one or more Vice Presidents;
(iii) Chief Executive Officer;
(iv) Chief Operating Officer;
(v) Controller;
(vi) Treasurer; or
(vii) Secretary.
The Board of Directors may also from time to time authorize other
persons, who may or may not be directors, to represent the Company, who
shall have such titles and occupy such additional offices as the Board
of Directors may determine.
10.3 The General Meeting of Shareholders may grant specific authority to the
Chairman, the President or any member of the Board of Directors to
represent the Company with respect to any particular matter as
specified by such General Meeting of Shareholders.
10.4 The persons holding the above-mentioned offices or any other offices
which the Board of Directors may from time to time authorize as herein
provided shall, respectively, have such power and authority as the
Board of Directors may from time to time grant to the holders of the
offices held by them.
10.5 The Board of Directors may grant general or specific authority to
additional agents or to committees, giving such agents or committees
such general or limited powers or duties as it may deem appropriate.
10.6 The Board of Directors may adopt and may amend and repeal such rules
and regulations as it may deem appropriate for the conduct of the
affairs and the management of the Company, including rules, regulations
and resolutions setting forth the specific powers and duties of the
holders of the above-mentioned offices and other persons authorized by
the Board of Directors to represent the Company (the "By-laws"). Such
rules, regulations and resolutions must be consistent with these
Articles of Association.
10.7 The directors, the holders of the above-mentioned offices and other
persons authorized by the Board of Directors to represent the Company
shall receive such compensation as the Board of Directors may from time
to time prescribe.
ARTICLE 11
11.1 The Company shall have the power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that he is or was a
director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise or entity, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the
III-9
best interests of the Company, and with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the Company.
11.2 The Company shall have the power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Company to
procure a judgment in its favor by reason of the fact that he is or was
a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise or entity, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the defense or settlement
of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of
the Company and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
finally adjudged to be liable to the Company for improper conduct
unless and only to the extent that the court in which such action or
suit was brought or any other court having appropriate jurisdiction
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses,
judgments, fines and amounts paid in settlement which the court in
which the action or suit was brought or such other court having
appropriate jurisdiction shall deem proper.
11.3 To the extent that a director, officer, employee or agent of the
Company has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in paragraphs 1 and 2 of
this Article, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
11.4 Any indemnification under paragraphs 1 and 2 of this Article (unless
ordered by a court) shall be made by the Company only as authorized by
contract approved, or by-laws, resolution or other action adopted or
taken, by the Board of Directors or by the shareholders.
11.5 Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent
to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Company as authorized by this
Article.
11.6 The indemnification and advancement of expenses provided by or granted
pursuant to the other paragraphs of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law,
agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director,
III-10
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of the estate of such a person.
11.7 The Company shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Company would have the power to indemnify him against such liability
under the provisions of this Article.
11.8 For purposes of this Article, reference to the Company shall include,
in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a
consolidation or merger, and which, if its separate existence had
continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is
or was a director, officer, employee or agent of such constituent, or
is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in
the same position under the provisions of this Article with respect to
the resulting or surviving corporation if its separate existence had
continued.
GENERAL MEETING OF SHAREHOLDERS
ARTICLE 12
12.1 All General Meetings of Shareholders shall be held in Curacao.
12.2 The annual General Meeting of Shareholders shall be held within nine
months after the end of the preceding fiscal year on a date
determined from year to year by the Board of Directors [for].
AT SUCH ANNUAL GENERAL MEETING:
A. the [purpose] BOARD of [electing directors reporting] DIRECTORS
SHALL REPORT on the [course of] business OF THE COMPANY AND THE
ADMINISTRATION THEREOF CONDUCTED during the preceding fiscal
year [and for any other purposes required by law, and for such
additional purposes as may be specified in the notice of such
meeting];
B. THE ANNUAL ACCOUNTS INCLUDING THE BALANCE SHEET AND THE PROFIT
AND LOSS STATEMENT WITH AN EXPLANATORY STATEMENT SETTING FORTH
THE STANDARDS BY WHICH THE PROPERTIES OF THE COMPANY HAVE BEEN
VALUED (THE "ANNUAL ACCOUNTS") WILL BE SUBMITTED BY THE BOARD OF
DIRECTORS FOR APPROVAL;
C. MEMBERS OF THE BOARD OF DIRECTORS WILL BE ELECTED;
D. THE APPOINTMENT OF THE ACCOUNTANTS WILL BE RATIFIED AS REFERRED
TO IN ARTICLE 117 OF BOOK 2 CIVIL CODE OF THE NETHERLANDS
ANTILLES; AND
III-11
E. THE BOARD OF DIRECTORS SHALL INTRODUCE ANY RELATED ITEMS OF
BUSINESS DEEMED NECESSARY FOR DISCUSSION BY THE BOARD OF
DIRECTORS OR GENERAL MEETING OF SHAREHOLDERS.
12.3 Special General Meetings of Shareholders may be called at any time
only upon the direction of the Chairman, the Vice Chairman, or by
resolution of the Board of Directors.
12.4 Notice of General Meetings of Shareholders, whether annual General
Meetings or special General Meetings, stating the time and place of the
meeting, shall be given to the shareholders not less than [ten (10)]
FIFTEEN (15) or more than sixty (60) days prior to the date of the
meeting in question by mailing a written notice, postage prepaid to
each shareholder at the address thereof appearing in the Register.
12.5 All notices of General Meetings of Shareholders shall state the matters
to be considered at the meeting. In the event a General Meeting of
Shareholders is to consider an amendment to these Articles of
Association, then such shall be stated in a notice and the full text of
such amendments shall be filed at the offices of the Company for
inspection by every shareholder until the conclusion of the General
Meeting of Shareholders.
ARTICLE 13
13.1 Every shareholder has the right to attend any General Meeting of
Shareholders in person or by proxy, and to address the meeting.
13.2 Each holder of Common Shares shall be entitled to one vote for each
Common Share held on all matters to be voted on, including the election
of directors.
ARTICLE 14
For the purpose of determining shareholders entitled to notice of and/or to vote
at any General Meeting of Shareholders, or entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors of the Company may provide that the
Register shall be closed for a stated period not to exceed, in any case, fifty
(50) days. If the share transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a General Meeting
of Shareholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting. In lieu of closing the Register, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than fifty
(50) days and, in case of a General Meeting of Shareholders, not less than ten
(10) days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If the share transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a General Meeting of Shareholders, or
shareholders entitled to receive payment of a dividend, the date on which notice
of the meeting is mailed or the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any General Meeting of Shareholders has been
made as herein provided, such determination shall apply to any adjournment
thereof except where the determination has been made through the closing of
share transfer books and the stated period of closing has expired.
ARTICLE 15
III-12
15.1 Except as otherwise provided herein, no action may be taken at any
General Meeting of Shareholders unless a quorum consisting of the
holders of at least one half of the outstanding Common Shares are
present at such meeting in person or by proxy.
15.2 If a quorum is not present in person or by proxy at any General Meeting
of Shareholders a second general meeting shall be called in the same
manner as such original meeting of Shareholders, to be held within two
months, at which second meeting, regardless of the number of Common
Shares represented (but subject to the provisions of Articles 19, 20
and 21), valid resolutions may be adopted with respect to any matter
stated in the notice of the original meeting and also in the notice of
such second meeting or which by law is required to be brought before
the shareholders despite the absence of a quorum.
15.3 Subject to the provisions of Articles 19, 20 and 21, a majority
of the votes cast shall be necessary to adopt any resolution at
any General Meeting of Shareholders.
15.4 The Chairman of the Board of Directors or in his absence the Vice
Chairman or a person designated by the Board of Directors shall preside
at General Meetings of Shareholders.
15.5 At any General Meeting of Shareholders, a shareholder may vote upon all
matters before the meeting, even if the decision to be taken would
grant him, in a capacity other than as a shareholder, any right against
the Company or would in such other capacity relieve him of any
obligation to the Company.
DISTRIBUTION OF PROFITS
ARTICLE 16
16.1 All profits may be reserved at the discretion of the Board of
Directors. The profits so reserved shall be reflected on the Company's
annual balance sheet in a Common Share Retained Earnings Account. No
profits reserved by the Board of Directors pursuant to a duly adopted
resolution shall be distributed to the holders of Common Shares, unless
the Board of Directors has first recommended in writing to the General
Meeting of Shareholders that such a distribution be made and the
General Meeting of Shareholders has duly adopted a subsequent
resolution confirming the recommendation of the Board of Directors. Any
such written recommendation of the Board of Directors shall specify the
amount of the distribution and the date on which it is to be paid. Once
profits have been reserved, the Board of Directors shall be under no
obligation to recommend within any specific period of time that a
distribution be made to the holders of Common Shares; instead, such
written recommendations may be made at such times and in such amounts
as the Board of Directors determines in its sole discretion.
16.2 In the event that the profit and loss account shows a loss for any
given year, which cannot be covered by the reserves or compensated in
another manner, no profit shall be distributed in any subsequent year,
as long as the loss has not been recovered.
16.3 The Board of Directors may at any time resolve to distribute one or
more interim dividends, if justified by the anticipated profits of the
Company, as an advance payment of the dividend expected to be declared
by the General Meeting of Shareholders.
FISCAL YEAR
ARTICLE 17
III-13
The fiscal year of the Company shall be the calendar year.
BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
ARTICLE 18
[18.1 Within] EACH YEAR WITHIN eight months [after] (8) FROM the end of the
fiscal year of the Company SUBJECT TO THE GENERAL MEETING OF SHAREHOLDERS
POSSIBLY EXTENDING THIS PERIOD BY UP TO SIX (6) MONTHS ON GROUNDS OF SPECIAL
CIRCUMSTANCES, the Board of Directors shall prepare the [balance sheet and
profit and loss account with respect] ANNUAL ACCOUNTS AS REFERRED TO IN ARTICLE
12 HEREOF. [Subsequently,] THE ANNUAL ACCOUNTS DRAWN UP SHALL BE SIGNED BY ALL
OF the [balance sheet and profit and loss account] DIRECTORS; SHOULD A SIGNATURE
BE LACKING THEN A REASON THEREFORE SHALL BE STATED. THE ANNUAL ACCOUNTS shall be
submitted to the shareholders for inspection and [adoption at] TO the [annual]
General Meeting of Shareholders FOR APPROVAL. From the date at which the notice
of the annual General Meeting of Shareholders is sent until the close of the
annual General Meeting of Shareholders, the [balance sheet and profit and loss
account] ANNUAL ACCOUNTS shall be available for inspection by the shareholders
at the office of the Company, and at any additional place, if specified in the
notice of such meeting. [18.2 The adoption of the balance sheet and profit and
loss account by the annual General Meeting of Shareholders shall have the effect
of acquitting and discharging the Board of Directors for their actions during
the past fiscal year to the extent such actions appear from the balance sheet
and profit and loss account or to the extent the results of such actions are
clearly embodied therein.]
DISPOSITION OF ASSETS
ARTICLE 19
Notwithstanding any provision of Article 15, any sale or other disposition of
all or substantially all of the assets of the Company, whether for cash,
property, stock or other securities of another company, or for any other
consideration, shall be made only pursuant to a resolution duly adopted at a
General Meeting of Shareholders by the holder or holders of at least a majority
of the Common Shares of the Company at the time outstanding, the notice of which
meeting shall have specified the terms of such proposed sale or other
disposition; provided, however, the foregoing shall not apply to any
reorganization or rearrangement of the Company, or of any of its subsidiaries or
of any of its assets in any transaction whereby there shall be no diminution of
the beneficial interest of the shareholders of the Company in such assets.
DISSOLUTION
ARTICLE 20
20.1 Notwithstanding any provision of Article 15, any resolution providing
for the dissolution, liquidation or winding up of the Company shall be
valid only if duly adopted at a General Meeting of Shareholders by the
holder or holders of at least a majority of the Common Shares of the
Company at the time outstanding, the
III-14
notice of which meeting shall have specified the nature of any such
resolution to be voted upon at such meeting.
20.2 In the event of dissolution of the Company, the liquidation shall be
effected under such provisions as the General Meeting of Shareholders
shall, without prejudice to the provisions of this Article, decide.
20.3 If the profit and loss account covering the fiscal year, closing as of
the date of the dissolution of the Company, shows a profit balance,
this balance shall be divided in conformity with the provisions of
Article 16 of these Articles of Association.
20.4 The distributions of the liquidation proceeds shall be paid to the
holders of Common Shares in proportion to their share holding.
20.5 During [thirty] TEN years after the end of the liquidation, the books
and records of the Company shall remain in the custody of the [person]
LIQUIDATOR OR OF THE CUSTODIAN designated [for that purpose] THERETO by
the [General Meeting] COURTS IN THE NETHERLANDS ANTILLES AT THE REQUEST
of [Shareholders] THE LIQUIDATOR.
AMENDMENTS
ARTICLE 21
Notwithstanding any provisions of Article 15, these Articles of Association may
be amended only pursuant to a resolution duly adopted at a General Meeting of
Shareholders by the holder or holders of at least an absolute majority of the
Common Shares of the Company at the time outstanding, the notice of which
meeting shall have set forth the exact text of the proposed amendment or
amendments or shall have stated that a copy of such text has been deposited at
the office of the Company in Curacao for inspection by the shareholders of the
Company, and will remain available for inspection until the conclusion of said
meeting.
III-15
Appendix IV
FORM OF PROXY
[FORM OF FACE OF PROXY]
ORTHOFIX INTERNATIONAL N.V.
This Proxy is Solicited on Behalf of the Board of Directors of
Orthofix International N.V.
The undersigned hereby appoints Mr. Thomas Hein and Mr. Alberto d'Abreu
de Paulo and each of them, with the power of substitution attorneys, proxies of
the undersigned to vote the number of Orthofix shares the undersigned would be
entitled to vote if personally present at the annual general meeting of
shareholders of Orthofix International N.V. ("Orthofix"), in Curacao,
Netherlands Antilles, at 11:00 a.m., local time, on June 29, 2004 and at any
adjournments thereof, for the transaction of such business as may come before
the meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSALS 1,
2, 3(a), 3(b), 4 and 5.
This proxy when properly executed will be voted in the manner directed
by the undersigned. If no instructions are given, this proxy will be voted FOR
proposals 1, 2, 3(a), 3(b), 4 and 5.
(continued and to be dated and signed on the reverse side.)
COMMENTS/ADDRESS CHANGE: PLEASE
MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
ORTHOFIX INTERNATIONAL N.V.
---------------------------------------------
P.O. BOX 11111
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NEW YORK, N.Y. 10203-0111
---------------------------------------------
---------------------------------------------
---------------------------------------------
[FORM OF REVERSE OF PROXY]
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
|X|
|_| Sign, Date and Return 2. Proposal to approve Orthofix |_| |_| |_|
the Proxy Card Votes must be International N.V. 2004 Long-
Promptly Using indicated term Incentive Plan.
the Enclosed Envelope (x) in Black or Blue
ink.
1. Election of the following persons to the Board of Directors: 3(a). Proposal to approve amendment to
Articles of Association to |_| |_| |_|
increase the maximum number of
shares available for issuance.
FOR ALL NOMINEES |_| WITHHOLD AUTHORITY |_| *EXCEPTIONS |_| 3(b). Proposal to approve
amendment to Articles |_| |_| |_|
of Association to make
other changes.
Nominees: Robert Gaines-Cooper, Edgar Wallner, Peter Clarke, 4. Proposal to approve the
Jerry Benjamin, Frederik Hartsuiker, Alberto balance sheet and |_| |_| |_|
d'Abreu de Paulo, Peter Hewett, John Littlechild, income statement at and
Charles Federico, James Gero and Walter von for the year ended
Wartburg. December 31, 2003.
(INSTRUCTIONS: To withhold authority to vote for any individual 5. Proposal to ratify the |_| |_| |_|
nominee, mark the "Exceptions" box and write that nominee's name selection of Ernst &
in the space provided below). Young as independent
auditors for Orthofix
and its subsidiaries
for the fiscal year
ending December 31,
2004.
*Exceptions________________________________ PLEASE CHECK BOX IF YOU |_|
INTEND TO BE PRESENT AT
MEETING.
COMMENT/ADDRESS CHANGE |_|
Please mark this box if you
have written
comment/address change on
the reverse side
[SCAN LINE ]
[
IMPORTANT: Please date this proxy and sign
exactly as your name appears hereon.
Executors, administrators, trustees,
guardians and officers signing in a
representative capacity should give full
title. If Orthofix shares are held in more
than one capacity, this proxy will be deemed
to vote all Orthofix shares held in all
] capacities.
Date Share Owner sign here Co-Owner sign here
[ ] ][ ]
IV-1