<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
Ortec International, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed aggregate value of transaction:
- ----------------------------------------------------------------------------
(5) Total fee paid:
- ----------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 09-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: _______________________________________________
(2) Form. Schedule or Registration Statement No. _________________________
(3) Filing Party: _________________________________________________________
(4) Date Filed: ___________________________________________________________
<PAGE> 3
ORTEC INTERNATIONAL, INC.
3960 BROADWAY
NEW YORK, NY 10032
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, AUGUST 11, 1998
The 1998 Annual Meeting of Stockholders of Ortec International, Inc.
(the "Company") will be held at the Audubon Biomedical Science and Technology
Park, 3960 Broadway, New York, New York, on Tuesday, August 11, 1998, at 4.00
p.m. local time, to consider and act upon the following matters:
1. To elect six directors to serve for the ensuing year.
2. To ratify the selection by the Board of Directors of Grant
Thornton LLP as the Company's independent auditors for the
current fiscal year.
3. To ratify and approve the Company's Amended and Restated 1996
Stock Option Plan, increasing the maximum number of shares of
the Company's Common Stock for which stock options may be
granted under the Plan from the 350,000 to 1,550,000.
4. To amend the Company's Certificate of Incorporation increasing
the number of shares of common stock the Company is authorized
to issue from 10,000,000 shares to 25,000,000 shares.
5. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Stockholders of record as of the close of business on June 15, 1998
will be entitled to notice of and to vote at the meeting or any adjournment
thereof. The stock transfer books of the Company will remain open.
By Order of the Board of Directors
Ron Lipstein
Secretary
New York, New York
June 25, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT
PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE
REPRESENTATION OF YOUR SHARES. YOU MAY REVOKE THE PROXY
AT ANY TIME BEFORE THE AUTHORITY GRANTED THEREIN IS
EXERCISED.
<PAGE> 4
ORTEC INTERNATIONAL, INC.
3960 BROADWAY
NEW YORK, NY 10032
PROXY STATEMENT FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, AUGUST 11, 1998
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Ortec International, Inc. (the
"Company") for use at the 1998 Annual Meeting of Stockholders to be held on
Tuesday August 11, 1998, and at any adjournment of that meeting (the "Annual
Meeting"). All proxies will be voted in accordance with a stockholder's
instructions and, if no choice is specified, the proxies will be voted in favor
of the matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before it is exercised by delivery of
written revocation or a subsequently dated proxy to the Secretary of the Company
or by voting in person at the Annual Meeting.
The Company's Annual Report for the fiscal year ended December 31, 1997
is being mailed to all stockholders of the Company simultaneously with this
Proxy Statement.
VOTING SECURITIES AND VOTES REQUIRED
At the close of business on June 15, 1998, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to vote an aggregate of 5,879,353 shares of Common
Stock of the Company. Stockholders are entitled to one vote per share.
The affirmative vote of the holders of a plurality of the shares of
Common Stock present or represented at the Annual Meeting is required for
election of directors. The affirmative vote of the holders of a majority of the
shares of Common Stock present or represented at the Annual Meeting is required
for the ratification of the selection by the Board of Directors of Grant
Thornton LLP as the Company's independent auditors for the current fiscal year,
the adoption of the Company's Amended and Restated 1996 Stock Option Plan and
the amendment of the Company's Certificate of Incorporation increasing the
number of shares of Common Stock the Company is authorized to issue. Shares of
Common Stock represented in person or by proxy (including shares which abstain
or do not vote for any reason with respect to one or more of the matters
presented for stockholder approval) will be counted for purposes of determining
whether a quorum is present at the Annual Meeting. Abstentions will be treated
as shares that are present and entitled to vote for purposes of determining the
number of shares present and entitled to vote with respect to any particular
matter, but will
<PAGE> 5
not be counted as a vote in favor of such matter. Accordingly, an abstention
from voting on a matter has the same legal effect as a vote against the matter.
If a broker or nominee holding stock in "street name" indicates on the proxy
that it does not have discretionary authority to vote as to a particular matter
("broker non-votes"), those shares will not be considered as present and
entitled to vote with respect to such matter. Accordingly, a broker non-vote on
a matter has no effect on the voting on such matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 15, 1998,
with respect to the beneficial ownership of the Company's Common Stock by (i)
each current director and nominee for director of the Company, (ii) each
executive officer of the Company named in the Summary Compensation Table set
forth under the caption "Compensation of Executive Officers" below, (iii) all
directors and executive officers of the Company as a group and (iv) each person
known by the Company to own beneficially more than five per cent (5%) of the
outstanding shares of Common Stock of the Company.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE OF
NAME AND ADDRESS BENEFICIAL OUTSTANDING
OF BENEFICIAL OWNER OWNERSHIP** SHARES OWNED**
<S> <C> <C>
Steven Katz* 385,237(1) 6.4%
Mark Eisenberg* 596,000 10.1%
Ron Lipstein* 372,606(2) 6.2%
Alain Klapholz* 330,607(3) 5.6%
Joseph Stechler 927,266(4) 15.0%
15 Engle Street
Englewood, NJ 07631
Steven Lilien 3,000(5) ***
19 Larchmont Street
Ardsley, NY 10502
Soros Fund Management, LLC 823,800(6) 14.0%
888 Seventh Avenue
33rd Floor
New York, NY 10106
Dawson-Samberg Capital 542,679(7) 9.2%
Management, Inc.
354 Pequot Avenue
Southport, CT 06490
</TABLE>
2
<PAGE> 6
<TABLE>
<S> <C> <C>
The Travelers Indemnity
Company 307,692 5.2%
One Tower Square
Hartford, CT 06183
All officers and directors as
group (seven persons) 2,624,716(1,2,3)
(4,5) 40.1%
</TABLE>
- -------
* The address of these persons is at the Company's offices, 3960
Broadway, New York, NY 10032.
** The number of Shares of Common Stock beneficially owned by each person
or entity is determined under rules promulgated by the Commission.
Under such rules, beneficial ownership includes any shares as to which
the person or entity has sole or shared voting power or investment
power. Included among the shares owned by such person are any shares
which such person or entity has the right to acquire within 60 days
after June 15, 1998. Unless otherwise indicated, each person or entity
referred to above has sole voting and investment power with respect to
the shares listed. The inclusion herein of any shares deemed
beneficially owned does not constitute an admission of beneficial
ownership of such shares.
*** Less than 1%, based upon information available to the Company.
(1) Does not include shares owned by Dr. Katz's children, their spouses and
his grandchildren. Dr. Katz disclaims any beneficial interest in such
shares. Includes 165,000 shares issuable to Dr. Katz upon his exercise
of outstanding options and warrants.
(2) Includes 36,000 shares owned by Dollspart Supply Co., Inc. (a
corporation of which Mr. Lipstein is the sole shareholder). Also
includes 36,000 shares owned by Mr. Lipstein's minor children. Mr.
Lipstein disclaims any beneficial interest in such 36,000 shares. Also
includes 85,000 shares issuable to Mr. Lipstein upon his exercise of
outstanding options and warrants.
(3) Includes 33,000 shares owned by Mr. Klapholz' minor children. Mr.
Klapholz disclaims any beneficial interest in such 33,000 shares. Also
includes 35,000 shares issuable to Mr. Klapholz upon his exercise of
outstanding options and warrants.
(4) Includes shares owned by Stechler & Company. Also includes 287,430
shares to be issued by the Company to Mr. Stechler or Stechler &
Company upon their exercise of outstanding options or warrants. Does
not include 1,175,100 shares held in investment accounts for clients of
Stechler & Co. Stechler & Co.'s investment power over such investment
accounts may be terminated at any time by such clients.
3
<PAGE> 7
(5) Consists of shares underlying options granted under the Company's 1996
Stock Option Plan.
(6) Consists of shares held for the account of Quasar International
Partners, C.V. ("Quasar"). Soros Fund Management LLC ("SFM LLC") serves
as principal investment manager to Quasar and as such, has been granted
investment discretion over such shares of Common Stock. Stechler &
Company currently exercises investment discretion over the 823,800
shares of Common Stock held for the account of Quasar pursuant to an
investment advisory contract entered into with SFM LLC, which is
terminable within sixty days.
(7) Shares held by two investment funds. The Company believes that
Dawson-Samberg Capital Management, Inc. has sole or shared investment
and/or voting power for these shares. Includes 31,153 shares issuable
upon exercise of outstanding warrants which are not included among the
shares registered for sale.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The persons named in the enclosed proxy will vote to elect as directors
the six nominees named below, unless authority to vote for the election of any
or all of the nominees is withheld by marking the proxy to that effect. All of
the nominees have indicated their willingness to serve, if elected, but if any
nominee should be unable to serve, the proxies may be voted for a substitute
nominee designated by management. Each director will be elected to hold office
until the next annual meeting of stockholders or until his or her successor is
elected and qualified. There are no family relationships between or among any
officers or directors of the Company.
NOMINEES
Set forth below for each nominee as a director of the Company is his
name and age, position with the Company, principal occupation and business
experience during the past five years and the date of the commencement of each
director's term as a director.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Steven Katz, Ph.D. 53 President, Chief Executive Officer and Chairman of
the Board of Directors
Dr. Mark Eisenberg 60 Senior Vice President, Research and Development
and Director
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C> <C>
Ron Lipstein 42 Secretary, Treasurer, Chief Financial Officer and
Director
Alain M. Klapholz 41 Vice President, Operations and Director
Joseph Stechler 46 Director
Steven Lilien, Ph.D. 51 Director
</TABLE>
Steven Katz, a founder of the Company, has been a director of the
Company since its inception in 1991 and was elected chairman of its Board of
Directors in September, 1994. He has been employed by the Company since 1991.
Dr. Katz has also been a professor of Economics and Finance at Bernard M. Baruch
College in New York City since 1972. He has a Ph.D. in Finance and Statistics as
well as an MBA and MS in Operations Research, both from New York University.
Dr. Mark Eisenberg, a founder of the Company, has been a director and
senior vice president of the Company since 1991. Dr. Eisenberg has also been a
consultant to the Company since June 1991. See "Dr. Eisenberg Consulting
Agreement". He has been a physician in private practice in Sydney, Australia,
since 1967. He is a member and co- founder of the Dystrophic Epidermolysis
Bullosa ("EB") clinic at the Prince of Wales Hospital for children in Sydney,
Australia. He has done extensive research on EB disease.
Ron Lipstein, a founder of the Company, has been the secretary and
treasurer and a director of the Company since 1991. He has been employed by the
Company since 1991.
Mr. Lipstein is a certified public accountant.
Alain M. Klapholz, a founder of the Company, has been a vice president
and a director of the Company since 1991. He has been employed by the Company
since September, 1991. Mr. Klapholz has an MBA from New York University. Until
December 14, 1998, Patterson Travis, Inc. ("Patterson Travis"), the underwriter
of the initial public offering of the Company's securities, has the right to
designate a director who will replace Mr. Klapholz. Patterson Travis has not yet
made such designation.
Joseph Stechler has been a director of the Company since 1992. He has
been president and CEO of Stechler & Company, an investment management firm,
since 1986, and from 1990 to January 1997, he was the general partner of Old
Ironsides Capital, L.P., an investment fund. Prior to 1986 he was a securities
analyst with several investment firms. Mr. Stechler has a JD degree from
Columbia University and an LLM degree in corporate law from New York University.
Steven Lilien was elected a director of the Company in February 1998.
He has been chairman of the accounting department of Bernard M. Baruch College
in New York City for the past eleven years and is currently the Weinstein
Professor of Accounting there. He is a
5
<PAGE> 9
certified public accountant and has a Ph.D. in accounting and finance and an
M.S., both from New York University.
On February 10, 1998, the Board of Directors of the Company established
an Audit Committee and a Stock Option Committee. The Board of Directors does not
have a Nominating Committee or a Compensation Committee, and the usual functions
of such committees are performed by the entire Board of Directors.
Audit Committee. The functions of the Audit Committee include
recommendations to the Board of Directors with respect to the engagement of the
Company's independent certified public accountants and the review of the scope
and effect of the audit engagement. The current members of the Audit Committee
are Messrs. Lipstein, Stechler and Lilien.
Stock Option Committee. The Stock Option Committee determines the
persons to whom options should be granted under the Company's stock option plans
and the number of options to be granted to each person. The current members of
the Stock Option Committee are and Messrs. Katz, Lipstein and Stechler.
EISENBERG CONSULTING AGREEMENT
Pursuant to a consulting agreement (the "Consulting Agreement") dated
June 7, 1991, as amended on September 1, 1992, between the Company and Dr.
Eisenberg, the Company has retained the services of Dr. Eisenberg as a
consultant until August 31, 2005.
Under the Consulting Agreement, Dr. Eisenberg devotes 20 hours per week
to the Company. The Company pays Dr. Eisenberg an annual fee at the rate of
$73,000 and $58 per hour for each hour in excess of twenty hours per week spent
by Dr. Eisenberg on the Company's affairs. Dr. Eisenberg's fee is subject to
annual increases based on certain formulas.
In addition, Dr. Eisenberg will receive a bonus in the event that the
Company files for the registration of any patent based on a significant advance
that has been developed under his supervision or direction and which the
Company's Board of Directors determines to have significant commercial
application. The amount of any such bonus shall be determined by the Board of
Directors of the Company, but shall not be less than $30,000 per patent
registration, provided that bonuses may not aggregate more than $60,000 during
any twelve-month period.
Dr. Eisenberg has agreed not to compete with the Company until one year
after termination of the Consulting Agreement.
6
<PAGE> 10
SCIENTIFIC ADVISORY BOARD
The Company has secured medical doctors expert in dermatology and
surgery and an expert in the field of development of biomedical and other health
care products, to serve on the Company's Scientific Advisory Board to advise the
Company in the further development of its technology and to provide guidance for
the Company's research strategy. The following persons are serving on the
Company's Scientific Advisory Board:
Dr. Richard Kronenthal - Chairman of the Company's Scientific Advisory
Board. The Company retains Dr. Kronenthal as a consultant at a minimum
annual fee of $60,000. As part of his consulting services, Dr.
Kronenthal has taken the major responsibility in directing the
Company's research and development efforts. Prior to 1989, Dr.
Kronenthal was employed by Ethicon, Inc. ("Ethicon"), a division of
Johnson and Johnson, for more than 30 years, the last four years as
Ethicon's director of research and development. Prior to his retirement
in 1989, Dr. Kronenthal was responsible for Ethicon's development of a
variety of successful surgical products. During his more than thirty
years with Ethicon, Dr. Kronenthal held increasingly responsible
positions involving the worldwide commercialization of products derived
from collagen, as well as synthetic absorbable and other materials.
Since 1989, Dr. Kronenthal has been president of Kronenthal Associates,
Inc., which provides technical and business consulting services for
investors and companies in the health care field.
Dr. Joseph McGuire - Professor of Dermatology and Pediatrics at
Stanford University School of Medicine.
Dr. Andrew Salzberg - of the Westchester Medical Center and Co-Director
of its burn unit. Dr. Salzberg is a plastic surgeon with extensive
experience in skin grafts.
The Company compensates the members of its Scientific Advisory Board
other than Dr. Kronenthal for their time and expenses only, with minimum
payments of $5,000 per year to each member. The Company has granted to the
following members of its Scientific Advisory Board warrants to purchase shares
of the Company's Common Stock at exercise prices ranging from $9.425 to $10 per
share: (i) to Dr. Salzberg, warrants expiring in August 1999 to purchase 2,660
shares,(ii) to Dr. McGuire, warrants expiring in April 2000 to purchase 2,000
shares and (iii) to Dr. Kronenthal, warrants expiring in March 2000 to purchase
2,000 shares. In addition, on April 1, 1996, the Company granted non-incentive
stock options to Dr. Salzberg to purchase 10,000 shares, and to Dr. Kronenthal
to purchase 7,500 shares, at an exercise price of $6.00 per share. Such options
expire on April 1, 2001 and were granted for consulting services rendered by
Drs. Salzberg and Kronenthal to the Company.
7
<PAGE> 11
MEDICAL ADVISORY BOARD
The Company has established a Medical Advisory Board to monitor the
efficacy of the Company's programs and procedures for the screening and testing
of potential pathogens and transmittable viruses in the Company's product. The
following persons are serving on the Company's Medical Advisory Board:
Dr. Aaron Glatt - Chief of Infectious Diseases at Catholic Medical
Center in Flushing, New York.
Dr. Andrew Salzberg - of the Westchester Medical Center and Co-Director
of its burn unit and a plastic surgeon with extensive experience in
skin grafting. Dr. Salzberg is also a member of the Company's
Scientific Advisory Board.
Dr. Alan Greenspan - a dermatologist in private practice in New York
City.
Dr. Suzanne Schwartz - employed by the Company as its medical director.
Melvin Silberklang, Ph.D.- employed by the Company as Vice President of
Research and Development.
Nitya Ray, Ph.D. - employed by the Company as Director of Process
Development.
The Company compensates the three non-employee members of its Medical
Advisory Board in the amount of $5,000 per annum.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PLACEMENT AGENTS
In November 1996, the Company completed a private placement of its
securities (the "1996 Private Placement"). The offer and sale of the shares in
the 1996 Private Placement was made by the Company, acting through its officers
and directors, and certain placement agents, one of which was Joseph Stechler.
Mr. Stechler is a director of the Company. The Company paid each placement
agent, including Mr. Stechler, cash commissions of 7% of the purchase price for
each share sold in the 1996 Private Placement by such person and, in addition to
such cash commissions, granted five year warrants to such placement agent to
purchase such number of shares of Common Stock equal to 10% of the number of
shares of Common Stock sold by such Placement Agent, exercisable at prices equal
to 120% of the prices paid for such shares (the "1996 Private Placement
Warrants"). As compensation for his services as a placement agent in connection
with the 1996 Private Placement, Mr. Stechler received approximately $140,000 as
cash compensation and 30,500 1996
8
<PAGE> 12
Private Placement Warrants. None of the Company's other directors received any
compensation in connection with the 1996 Private Placement.
CONSULTING AGREEMENT
See "Eisenberg Consulting Agreement" for a description of the
consulting agreement between Dr. Mark Eisenberg and the Company.
EXTENSION OF EXPIRATION DATE OF CLASS A WARRANTS
On July 1, 1997, the Company's Board of Directors extended the
expiration date of the Company's publicly traded Class A Warrants from July 19,
1997 to November 3, 1997, and on October 29, 1997, the Board of Directors again
extended the expiration date of such Class A Warrants to December 31, 1997. Mr.
Joseph Stechler, a director of the Company, was an owner of Class A Warrants.
In consideration for services rendered by him as a director of the
Company in the five year period from 1992 to 1996 for which he never received
compensation, the Company extended by one year to December 31, 1998 the
expiration date of warrants owned by Mr. Stechler to purchase an aggregate of
86,930 shares, exercisable at $9.425 per share.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934
To the best of the Company's knowledge, Dr. Steven Katz and Messrs. Ron
Lipstein and Alain Klapholz, each an executive officer and director of the
Company, filed with the Securities and Exchange Commission one report on Form 4
during or for the fiscal year ended December 31, 1997, later than the time
during which such report was required to be filed. Each such report was for the
receipt of options under the Company's Employee Stock Option Plan. To the best
of the Company's knowledge, all other Forms 3, 4 and 5 required to be filed in
the fiscal year ended December 31, 1997 were timely filed.
BOARD MEETINGS
There were five meetings of the Board of Directors held during 1997 and
twice the directors acted by unanimous written consent in lieu of a meeting.
During 1997 the Board of Directors did not have standing audit or stock option
committees or committees performing similar functions. All such functions were
performed by the Board of Directors. See "The Committees."
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the Company's executive compensation
paid during the three fiscal years ended December 31, 1997, 1996 and 1995 for
the Chief Executive Officer
9
<PAGE> 13
and the Company's four other most highly compensated employees whose cash
compensation exceeded $100,000 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
(a) (b) (c) (d) (e) (f) (g) (h) (i)
RE-
OTHER STRICTED PLAN ALL
NAME AND ANNUAL STOCK PAY- OTHER
PRINCIPAL SALARY BONUS COMPEN- AWARDS OPTIONS OUTS COMPEN
POSITION YEAR ($) ($) SATION ($) ($) (#) ($) SATION($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven Katz 1997 $130,000 $ 45,000 $ 8,400* 155,000
Chief Executive 1996 162,451(1) 8,100* 50,000
Officer and 1995 74,000(2) 6,000*
President
Ron Lipstein 1997 $115,000 $ 30,000 $ 8,400* 80,000
Secretary, 1996 135,861(1) 8,100* 25,000
Treasurer and 1995 53,848(2) 6,000*
CFO
Alain Klapholz 1997 $115,000 $ 20,000 40,000
Vice President 1996 112,249(1) 3,500* 10,000
and Director 1995 86,871(2) 6,000*
</TABLE>
- ----------------------
* In lieu of health insurance.
(1) Includes $37,986, $26,923 and $16,265, paid to Dr. Katz and Messrs.
Lipstein and Klapholz, respectively, in 1996 for compensation payable
to such persons in 1995, but deferred for lack of funds at the
Company's disposal at such time.
(2) Includes amounts for compensation payable to such persons in 1995, but
deferred to 1996 for lack of funds at the Company's disposal at such
time. See Note (1), above. Also includes $16,154 and $3,113, paid to
Messrs. Lipstein and Klapholz, respectively, in 1995 for compensation
payable to such persons in 1994, but deferred for lack of funds at the
Company's disposal at such time.
BOARD COMPENSATION
During 1997, for services rendered and to be rendered by Mr. Joseph
Stechler as a director of the Company, Mr. Stechler was granted the following
options under the Company's Employee Stock Option Plan: for services rendered in
1997, a five-year option to purchase 10,000 shares of the Company's Common Stock
at an exercise price of $10.00 per share, and for services to be rendered in
1998 a five-year option to purchase 10,000 shares of the Company's Common Stock
at an exercise price of $14.25 per share. On February 10,
10
<PAGE> 14
1998, upon his becoming a director of the Company and for his services as a
director, Dr. Steven Lilien was granted a five-year option under the Company's
Employee Stock Option Plan to purchase 3,000 shares of the Company's Common
Stock at an exercise price of $12.00 per share.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding options
(which include warrants) granted during the fiscal year ended December 31, 1997
by the Company to the Named Officers:
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Percent of
Total Options
Granted to Exercise Expira-
Options Employees in or Base tion
Name Granted Fiscal Year As To Price Date
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
15,000 $ 9.25 07/28/02
Steven Katz 155,000 45.6% 140,000 $ 12.00 12/01/02
10,000 $ 9.25 07/28/02
Ron Lipstein 80,000 23.5% 70,000 $ 12.00 12/01/02
10,000 $ 9.25 07/28/02
Alain Klapholz 40,000 11.8% 30,000 $ 12.00 12/01/02
</TABLE>
11
<PAGE> 15
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUE
The following table sets forth certain information regarding options
(which include warrants) exercisable during 1997 and the value of the options
held as of December 31, 1997 by the Named Officers. None of the Named Officers
exercised any options in 1997.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-the-Money Options
at Fiscal Year End at Fiscal Year End(1)
------------------ ---------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Steven Katz 65,000 140,000 $315,345 $148,820
Ron Lipstein 35,000 70,000 174,705 174,410
Alain Klapholz 20,000 30,000 87,760 31,890
</TABLE>
- ----------------------
(1) The difference between (x) the product of the unexercised options and
$13.063 (the closing price of the Company's Common Stock on December
31, 1997, as listed on the Nasdaq SmallCap Market), less (y) the
product of the unexercised options and the exercise price of such
options.
RATIFICATION OF SELECTION
OF INDEPENDENT AUDITORS
(PROPOSAL NO. 2)
The Board of Directors has selected the firm of Grant Thornton LLP
("Grant Thornton"), as the principal independent auditors of the Company for the
fiscal year ending December 31, 1998, subject to ratification by the
stockholders. Grant Thornton has served as the Company's independent auditors
since 1994. If the appointment of the firm of Grant Thornton is not approved or
if that firm shall decline to act or their employment is otherwise discontinued,
the Board of Directors will appoint other independent auditors. Representatives
of Grant Thornton are expected to be present at the Annual Meeting, will have
the opportunity to make a brief statement at the Annual Meeting, if they so
desire, and will be available to answer appropriate questions from stockholders.
12
<PAGE> 16
APPROVAL OF THE COMPANY'S
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
(PROPOSAL NO. 3)
The Board of Directors has unanimously adopted, subject to shareholder
approval, an Amended and Restated 1996 Stock Option Plan (the "Plan"), which
amends certain aspects of the Company's 1996 Stock Option Plan, which was
adopted by the Company's directors in April 1996 and approved by the Company's
stockholders in June 1996. If approved by the stockholders of the Company, the
Plan would (i) increase the number of shares of Common Stock available
thereunder from 350,000 shares to 1,550,000 shares, and (ii) provide for the
inclusion in any future grants of options made under the Plan of a provision
requiring the optionee, for a period of one year after termination of
employment, not to compete with the Company or disclose certain confidential
information obtained during the course of the optionee's employment with the
Company.
The above-described amendment was approved by unanimous consent of the
Company's Board of Directors on May 5, 1998, subject to shareholder approval.
The Plan is summarized below. The full text of the Plan is set forth in
Appendix A to this Proxy Statement, and the following discussion is qualified in
its entirety by reference thereto.
ADMINISTRATION AND ELIGIBILITY
The Plan provides for the grant of stock options to officers,
directors, eligible employees, consultants and advisors of the Company. The
Company proposes to increase the maximum number of shares of Common Stock
available for issuance under the Plan from 350,000 shares to 1,550,000 shares.
Under the Plan, the Company may grant incentive stock options or options not
intended to qualify as incentive stock options (together, the "Options).
The Plan provides for the granting of (i) Incentive Stock Options
intended to meet the requirements of Section 422 of the Internal Revenue Code of
1986 (the "Code") to the Company's eligible employees and (ii) Nonstatutory
Stock Options which are not to be treated as incentive stock options to the
Company's directors, eligible employees, consultants or advisors.
The Plan is to be administered by the Board of Directors or the Stock
Option Committee (the "Committee"). Any construction or interpretation of terms
and provisions of the Plan by the Board or Committee are final and conclusive.
The class of persons which shall be eligible to receive discretionary grants of
Options under the Plan shall be employees (including officers), directors,
consultants or advisors of either the Company or any subsidiary corporation of
the Company. Employees shall be entitled to receive Incentive Stock Options and
Nonstatutory Stock Options. Directors, consultants and advisors shall be
13
<PAGE> 17
entitled only to receive Nonstatutory Stock Options. The Board or the Committee,
in their sole discretion, but subject to the provisions of the Plan, shall
determine the non-executive employees, and the Board the executive employees,
directors, consultants or advisors, of the Company or its subsidiary
corporations to whom Options shall be granted and the number of shares to be
covered by each Option taking into account the nature of the employment or
services rendered by the individuals being considered, their annual
compensation, their present and potential contributions to the success of the
Company and such other factors as the Board or Committee may deem relevant.
Under the Plan, directors who are not employees of the Company may only
be granted Nonstatutory Stock Options. Such individuals include attorneys,
accountants, consultants and advisors of the Company who, in addition to
providing services in such capacities, also serve as directors of the Company.
No Incentive Stock Option granted under the Plan shall be exercisable
after the expiration of ten (10) years from the date of its grant. However, if
an Incentive Stock Option is granted to an individual who owns, at the time the
Incentive Stock Option is granted, more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of a subsidiary
corporation of the Company, such Incentive Stock Option shall not be exercisable
after the expiration of five (5) years from the date of its grant.
The exercise price of the Nonstatutory Stock Options granted to
directors who are not employees of the Company shall be the "fair market value"
(as defined pursuant to the Plan) of the Company's Common Stock on the date such
options are granted. The exercise price of all other Nonstatutory Stock Options
granted under the Plan shall be determined by the Board or Committee at the time
of the grant of the Option.
A Nonstatutory Stock Option granted to directors who are not employees
of the Company shall vest entirely on the date granted and shall be exercisable
for a period of ten (10) years. All other Nonstatutory Stock Options granted
under the Plan may be of such duration as shall be determined by the Board or
Committee (not to exceed 10 years).
If the employment of an employee by the Company or any subsidiary of
the Company shall be terminated either voluntarily by the employee or for cause,
then such employee's Options shall immediately expire. If such employment or
services shall terminate for any other reason, then such Options may be
exercised at any time within three (3) months after such termination. The
retirement of an individual either pursuant to a pension or retirement plan
adopted by the Company or at the normal retirement date prescribed from time to
time by the Company shall be deemed to be termination of such individual's
employment other than voluntarily or for cause.
If the holder of any Options under the Plan dies (i) while employed by
the Company or a subsidiary of the Company, or (ii) within three (3) months
after the termination of his
14
<PAGE> 18
employment or services other than voluntarily by the employee or for cause, then
such Options may be exercised by the estate of such employee or by a person who
acquired the right to exercise such Options by bequest or inheritance or by
reason of the death of such employee at any time within one year after such
death.
If the holder of any Options under the Plan ceases employment because
of permanent and total disability (within the meaning of Section 22(e)(3) of the
Code) while employed by the Company or a subsidiary of the Company, then such
Options may be exercised at any time within one year after his termination of
employment due to such disability.
If the services of a director who is not an employee of the Company
shall be terminated by the Company for cause, then his Options shall immediately
expire. If such services shall terminate for any other reason (including the
death or disability of a director who is not an employee of the Company), he
shall resign as a director of the Company or his term shall expire, then such
Options may be exercised at any time within one year after such termination. In
the event of the death of a director who is not an employee of the Company, his
Options may be exercised by his estate or by a person who acquired the right to
exercise such Options by bequest or inheritance or by reason of the death of
such director at any time within one year after such death.
Upon the death of any consultant or advisor to the Company or any of
its subsidiaries, who is granted any Options under the Plan, such Options may be
exercised by the estate of such person or by a person who acquired the right to
exercise such Options by bequest or inheritance or by reason of the death of
such person at any time within one year after such death.
Options granted under the Plan may provide for the payment of the
exercise price by the delivery of a check to the order of the Company in an
amount equal to the exercise price, by delivery to the Company of shares of
Common Stock of the Company already owned by the optionee having a fair market
value equal in amount to the exercise price of the options being exercised, or
by any combination of such methods of payment.
All options are nontransferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder.
There are approximately 29 employees and 2 directors who are not
employees of the Company who are eligible for participation in the Plan. The
Company cannot presently approximate the number of consultants and/or advisors
who will be eligible to receive Options under the Plan.
15
<PAGE> 19
MERGER, CONSOLIDATION, ASSET SALE, LIQUIDATION, ETC.
In the event that the outstanding Common Stock is hereafter changed by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, stock dividends or the
like, an appropriate adjustment shall be made by the Board or Committee in the
aggregate number of shares available under the Plan and in the number of shares
and option price per share subject to outstanding Options. If the Company shall
be reorganized, consolidated or merged with another corporation, or if all or
substantially all of the assets of the Company shall be sold or exchanged, the
holder of an Option shall, at the time of issuance of the stock under such a
corporate event, be entitled to receive upon the exercise of his Option and
payment of the exercise price, the same number and kind of shares of stock or
the same amount of property, cash or securities as he would have been entitled
to receive upon the happening of such corporate event as if he had been,
immediately prior to such event, the holder of the number of shares covered by
his Option; provided, however, that in such event the Board or Committee shall
have the discretionary power to take any action necessary or appropriate to
prevent any Incentive Stock Option granted pursuant to the Plan from being
disqualified as an "incentive stock option" under the then existing provisions
of the Code or any law amendatory thereof or supplemental thereto.
AMENDMENT AND TERMINATION OF THE PLAN
The Plan shall terminate on June 5, 2006, which is within ten (10)
years from the date of the adoption of the Company's original 1996 Stock Option
Plan by the Board of Directors and stockholders, or sooner as hereinafter
provided, and no Option shall be granted after termination of the Plan.
The Plan may from time to time be terminated, modified or amended by
the affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Company present in person or by proxy at a meeting of
stockholders of the Company convened for such purpose.
The Board of Directors may at any time, on or before the termination
date of the Plan, terminate the Plan, or from time to time make such
modifications or amendments to the Plan as it may deem advisable; provided,
however, that the Board of Directors shall not, without approval by the
affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Company present in person or by proxy at a meeting of
stockholders of the Company convened for such purpose, increase the maximum
number of shares as to which Incentive Stock Options may be granted, or change
the designation of the employees or other persons, or class of employees or
other persons eligible to receive Options or make any other change which would
prevent any Incentive Stock Option granted hereunder which is intended to be an
"incentive stock option" from being disqualified as such under the then existing
provisions of the Code or any law amending or supplementing the Code.
16
<PAGE> 20
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the federal income tax treatment of
incentive stock options and non-statutory stock options. The tax consequences
recognized by an optionee may vary; therefore, an optionee should consult his or
her tax advisor for advice concerning any specific transaction.
Incentive Stock Options. No taxable income will be recognized by an
optionee upon the grant or exercise of an incentive stock option granted under
the Plan. The difference between the exercise price and the fair market value of
the stock on the date of exercise will be included in alternative minimum
taxable income for purposes of the alternative minimum tax. The alternative
minimum tax is imposed upon an individual's alternative minimum taxable income
at rates of 26% to 28%, but only to the extent that such tax exceeds the
taxpayer's regular income tax liability for the taxable year.
Generally, if an optionee holds shares acquired upon the exercise of
incentive stock options until the later of (i) two years form the date of grant
of the option and (ii) one year from the date of transfer of the purchased
shares to him or her (the "Statutory Holding Period"), any gain recognized by
the optionee on a sale of such shares will be treated as capital gain. The gain
recognized upon the sale of the stock is the difference between the option price
and the sale price of the stock. The net federal income tax effect on the holder
of incentive stock options is to defer, until the stock is sold, taxation of any
increase in the stock's value from the time of grant to the time of exercise,
and to treat such increase as capital gain.
If the optionee sells the shares prior to the expiration of the
Statutory Holding Period, he or she will realize taxable income at ordinary
income tax rates in an amount equal to the lesser of (i) the fair market value
of the shares on the date of exercise less the option price, or (ii) the amount
realized on the disposition of the stock less the option price, and the Company
will receive a corresponding business expense deduction. However, special rules
may apply to options held by persons required to file reports under Section 16
of the Securities Exchange Act (the "Exchange Act"). The amount by which the
proceeds of the sale exceeds the fair market value of the shares on the date of
exercise will be treated as long-term capital gain if the shares are held for a
more than one year prior to the sale and as short-term capital gain if the
shares are held for a shorter period. If an optionee sells the shares acquired
upon exercise of an option at a price less than the option price, he or she will
recognize a capital loss equal to the difference between the sale price and the
option price. The loss will be long-term capital loss if the shares are held for
more than one year prior to the sale and a short-term capital loss if the shares
are held for a shorter period.
Non-Statutory Stock Options. No taxable income is recognized by the
optionee upon the grant of a Non-Statutory Option. The optionee must recognize
as ordinary income in the year in which the option is exercised the amount by
which the fair market value of the purchased shares on the date of exercise
exceeds the option price. However, special rules
17
<PAGE> 21
may apply to options held by persons required to file reports under Section 16
of the Exchange Act. The Company will be entitled to a business expense
deduction equal to the amount of ordinary income recognized by the optionee,
subject to Section 162(m) of the Code. Any additional gain or any loss
recognized upon the subsequent disposition of the purchased shares will be a
capital gain or loss, and will be a long-term gain or loss if the shares are
held for more than one year.
RESTRICTIVE COVENANTS
The Plan provides for the inclusion in any future grants of options
made under the Plan a provision requiring the optionee, for a period of one year
after termination of employment (the "Restrictive Period"), to agree to the
following restrictive covenants:
Nondisclosure. Upon the grant of any option under the Plan, the
optionee will agree not to divulge, furnish, or make accessible to any third
person, company or other organization or entity (other than in the regular
course of the Company's business) any confidential and privileged information
relating to the operations of the Company, including, but not limited to,
intellectual property, confidential processes, ideas, plans, devices and
materials, financings, mergers, acquisitions, selective personnel information
and other similar matters treated by the Company as confidential ("Confidential
Information"), without the prior written consent of the Company; provided,
however, that such covenant will not apply to any Confidential Information that
was known by the optionee prior to the Company's disclosure thereof to such
optionee, that is or becomes through no fault of the optionee generally
available to the public, or that is independently developed and supplied to the
optionee by a source other than the Company.
Covenant not to Compete. Upon the grant of any option under the Plan,
the optionee will agree that during the continuation of his employment with the
Company and during the Restrictive Period if his employment with the Company is
terminated by him voluntarily or by the Company for cause, the optionee will
not, directly or indirectly, within the United States of America:
a. own, manage, operate, control, be employed by, render advisory
services to, support or assist (by loans or otherwise), participate in
or be connected in the management or control of any person,
corporation, association, joint venture, partnership, or other business
entity that engages in any part of the business of the Company in
competition with the Company (a "Competitive Company"), unless his
affiliation with such Competitive Company is not related in any way,
directly or indirectly to the sale or marketing of products or the
provisions of services that are of the same kind or a like nature as
those products sold or services provided by the Company at the time the
optionee's employment terminates; or
18
<PAGE> 22
b. solicit or attempt in any manner to persuade or influence any
present or future customer of the Company to divert its business from
the Company to any Competitive Company.
NEW PLAN BENEFITS
Because the option grants under the Plan are discretionary, or the
exercise prices of options automatically granted thereunder are equal to
currently unknown closing prices of the Common Stock on the Nasdaq SmallCap
Market, the Company cannot presently determine the benefits to be received by
any particular individual or particular group of individuals from such option
grants made in the future.
AUTHORIZATION TO INCREASE NUMBER OF SHARES
COMPANY IS AUTHORIZED TO ISSUE
(PROPOSAL NO. 4)
The Company is presently authorized, pursuant to its Certificate of
Incorporation, to issue 10,000,000 shares of Common Stock. As of June 15, 1998,
there were 5,879,353 shares of Common Stock outstanding and options and warrants
to purchase an additional 2,460,022 shares of Common Stock outstanding
(including publicly-traded Class B Warrants to purchase 1,193,600 shares of
Common Stock), leaving only 1,660,625 authorized but not yet issued shares.
Accordingly, the Board of Directors, on May 5, 1998, unanimously adopted a
resolution, subject to shareholder approval, authorizing the amendment of the
Company's Certificate of Incorporation to increase the number of shares the
Company is authorized to issue from 10,000,000 to 25,000,000 shares. Upon
shareholder approval, the Company will then have 16,660,625 authorized shares
available for future issuance.
BOARD RECOMMENDATION
The Board of Directors believes that the foregoing four proposals are
in the best interests of the Company and its stockholders and therefore
recommends that the stockholders vote FOR such proposals.
OTHER MATTERS
Management does not know of any other matters which may come before the
Annual Meeting. However, if any other matters are properly presented to the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without
19
<PAGE> 23
additional remuneration, may solicit proxies by telephone, telegraph, facsimile,
mail and personal interviews, and the Company reserves the right to compensate
outside agencies for the purpose of soliciting proxies. Brokers, custodians and
fiduciaries will be requested to forward proxy soliciting material to the owners
of shares held in their names and the Company will reimburse them for
out-of-pocket expenses incurred on behalf of the Company.
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Company at its principal office
in New York, New York not later than April 13, 1999 for inclusion in the proxy
statement for that meeting.
By Order of the Board of Directors,
Ron Lipstein, Secretary
June 25, 1998
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE ANNUAL
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE.
STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING MAY VOTE THEIR SHARES
PERSONALLY, EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
20
<PAGE> 24
Proxy for Annual Meeting of Stockholders to be held August 6, 1998.
ORTEC INTERNATIONAL, INC.
Know all men by these presents, that the undersigned hereby constitutes and
appoints Dr. Steven Katz and Ron Lipstein and each of them, the true and lawful
attorneys, agents and proxies of the undersigned, with full power of
substitution, to represent and vote with respect to all of the shares of the
common stock of Ortec International, Inc., standing in the name of the
undersigned at the close of business on June 15, 1998, at the Annual Meeting of
Stockholders of the Company to be held on August 11, 1998 at the Audubon
Biomedical Science and Technology Park, 3960 Broadway, New York, New York, and
at any and all adjournments thereof, with all the powers that the undersigned
would possess if personally present, and especially (but without limiting the
general authorization and power hereby given) to vote as follows.
This proxy is solicited by the Board of Directors of the Company.
(Continued and to be signed on the reverse side.)
21
<PAGE> 25
/X/ Please mark your
votes as this example
1. Election of For Against Nominees are:
Directors / / / / Dr. Steven Katz, Ron Lipstein,
Alain Klapholz, Dr. Mark
Eisenberg, Joseph Stechler
and Dr. Steven Lilien
<TABLE>
<S> <C> <C> <C> <C>
2. Approval of appointment of Grant Thornton LLP For Against Abstain
as the Company's auditors. / / / / / /
3. Ratification and approval of the Company's
Amended and Restated 1996 Stock Option Plan / / / / / /
4. Authorization of amendment to the Company's
Certificate of Incorporation increasing the number
of shares of Common Stock the Company is
authorized to issue. / / / / / /
5. In their discretion upon such other measures as
may properly come before the meeting, hereby
ratifying and confirming all that said proxy may
lawfully do or cause to be done by virtue hereof
and hereby revoking all proxies heretofore given by
the undersigned to vote at said meeting or any
adjournment thereof. / / / / / /
</TABLE>
(Instruction: To withhold authority to vote for any
individual nominee, write that nominee's name in the
space provided below.)
_____________________________________________
The shares represented by this proxy will be voted in the manner indicated, and
if no instructions to the contrary are indicated, will be voted FOR all
proposals listed above. Number of shares owned by undersigned ___________.
Signature(s):____________ Date: ______ Signature(s):_________________ Date: ____
IMPORTANT: Please sign exactly as your name or names are printed here.
Executors, administrators, trustees and other persons signing in a
representative capacity should give full title.
22
