<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>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 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 5,877,243 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* 391,887(1) 6.5%
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
Quasar International Partners, C.V. 847,500(6) 14.4%
888 Seventh Avenue
33rd Floor
New York, NY 10106
Lupa Family Partners 395,400(7) 6.7%
888 Seventh Avenue
33rd Floor
New York, NY 10106
Dawson-Samberg Capital 542,679(8) 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) 40.6%
</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 1,242,900 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) 823,800 of the shares of Common Stock are held directly 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.
The remaining 23,700 shares of Common Stock are held for the account
of Quasar Rabbico N.V., a Netherlands Antilles corporation ("Quasar
Rabbico"). Quasar Rabbico is a wholly owned subsidiary of Quasar.
Investment discretion granted to SFM LLC by Quasar does not extend to
portfolio investments of Quasar Rabbico. Stechler & Company currently
exercises investment discretion over the 23,700 shares of Common Stock
held for the account of Quasar Rabbico, pursuant to an investment
advisory contract which is terminable within sixty days.
(7) Lupa Family Partners ("Lupa") is a New York limited partnership. In his
capacity as one of two general partners, Mr. George Soros exercises
voting and dispositive power with respect to securities held for the
account of Lupa. Stechler & Company currently exercises investment
discretion over the shares of Common Stock held for the account of
Lupa, pursuant to an investment advisory contract which is terminable
within sixty days.
(8) 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 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 EXCHANGE 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.
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.
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<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. Non-employee directors, consultants and advisors
shall be
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<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.
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 April 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 provided in the
Plan, 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 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 under the Plan which is intended to be an
"incentive stock option" from being qualified 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 Securities Exchange Act of 1934. 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 to agree to the
following:
Nondisclosure. 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.
Covenant not to Compete. That during the continuation of his employment
with the Company and for one year after his employment with the Company is
terminated he will not:
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 (a
"Competitive Company") that engages in the business of designing,
developing, marketing, selling and/or distributing any skin replacement
or skin regeneration product or any other product or services being
developed, sold, marketed or provided by the Company during the period
of the Optionee's employment by the 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 provision 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 or any employee of the Company
to terminate his employment with the 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 5,877,243 shares of Common Stock outstanding and options and warrants
to purchase an additional 2,462,132 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
APPENDIX A
ORTEC INTERNATIONAL, INC.
AMENDED AND RESTATED
1996 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The Ortec International, Inc. Amended and
Restated 1996 Stock Option Plan (the "Plan") is intended to advance the
interests of Ortec International, Inc. (the "Company") by inducing persons of
outstanding ability and potential to join and remain with the Company, by
encouraging and enabling employees to acquire proprietary interests in the
Company, and by providing the participating employees with an additional
incentive to promote the success of the Company. This is accomplished by
providing for the granting of "Options" (which term as used herein includes both
"Incentive Stock Options" and "Nonstatutory Stock Options," as later defined) to
qualified employees. In addition, the Plan also provides for the granting of
"Nonstatutory Stock Options" to all non-employee Directors of the Company, as
consideration for their services and for attending meetings of the Board of
Directors, and also provides for the granting of "Nonstatutory Stock Options" to
consultants and advisors who provide services to the Company.
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors, or if the Board of Directors elects, a committee (the "Committee")
consisting of at least two (2) Directors chosen by the Board of Directors.
Except as herein specifically provided, the interpretation and construction by
the Board or Committee of any provision of the Plan or of any Option granted
under it shall be final and conclusive. The receipt of Options by Directors, or
any members of the Committee, shall not preclude their vote on any matters in
connection with the administration or interpretation of the Plan, except as
otherwise provided by law.
3. SHARES SUBJECT TO THE PLAN. The stock subject to grant under the
Plan shall be shares of the Company's common stock, $.001 par value (the "Common
Stock"), whether authorized but unissued or held in the Company's treasury or
shares purchased from stockholders expressly for use under the Plan. The maximum
number of shares of Common Stock which may be issued pursuant to Options granted
under the Plan shall not exceed one million five hundred fifty thousand
(1,550,000) shares, subject to adjustment in accordance with the provisions of
Section 12 hereof. The Company shall at all times while the Plan is in force
reserve such number of shares of Common Stock as will be sufficient to satisfy
the requirements of all outstanding Options granted under the Plan. In the event
any Option granted under the Plan shall expire or terminate for any reason
without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject thereto shall
again be available for Options under this Plan.
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<PAGE> 25
4. STOCK OPTION DOCUMENT. Each Option granted under the Plan shall be
authorized by the Board or Committee and shall be evidenced by a Stock Option
Document which shall be executed by the Company. The Stock Option Document shall
specify the number of shares of Common Stock as to which any Option is granted,
the period during which the Option is exercisable and the option price per share
thereof.
5. DISCRETIONARY GRANT PARTICIPATION. The class of persons which shall
be eligible to receive discretionary grants of Options under the Plan shall be
all key employees (including officers) of either the Company or any subsidiary
corporation of the Company and directors who are not employees of the Company
and consultants and advisors who provide services to the Company or any
subsidiary of the Company, other than in connection with the offer or sale of
securities in a capital raising transaction. Such persons shall be entitled to
receive (i) Incentive Stock Options, as described in Section 6 hereafter and
(ii) Nonstatutory Stock Options, as described in Section 7 hereafter.
Non-employee directors, consultants and advisors shall be entitled only to
receive Nonstatutory Stock Options. The Board or Committee, in their sole
discretion, but subject to the provisions of the Plan, shall determine the
employees, non-employee 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.
6. INCENTIVE STOCK OPTIONS. The Board or Committee may grant Options
under the Plan which are intended to meet the requirements of Section 422 of the
Internal Revenue Code of 1986 (the "Code") (such an Option referred to herein as
an "Incentive Stock Option") and which are subject to the following terms and
conditions and any other terms and conditions as may at any time be required by
Section 422 of the Code:
(a) No Incentive Stock Option shall be granted to individuals other
than key employees of the Company or of a subsidiary corporation of the Company.
(b) Each Incentive Stock Option under the Plan must be granted prior to
April 5, 2006, which is within ten (10) years from the date the Plan was adopted
by the Board of Directors and stockholders.
(c) The option price of the shares subject to any Incentive Stock
Option shall not be less than the fair market value of the Common Stock at the
time such Incentive Stock Option is granted; provided, 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, the option price of the shares subject to the
Incentive Stock Option shall be at least one hundred ten percent (110%) of the
fair market value of the Common Stock at the time the Incentive Stock Option is
granted.
2
<PAGE> 26
(d) 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.
Every Incentive Stock Option granted under the Plan shall be subject to earlier
termination as expressly provided in Section 10 hereof.
(e) For purposes of determining stock ownership under this Section 6,
the attribution rules of Section 425(d) of the Code shall apply.
(f) For purposes of the Plan, fair market value shall be determined by
the Board or Committee and, if the Common Stock is listed on a national
securities exchange or traded on the Over-the-Counter market, the fair market
value shall be the closing price of the Common Stock on such exchange, or on the
Over-the-Counter market as reported by the National Quotation Bureau,
Incorporated, as the case may be, on the day on which the Option is granted or
on the day on which a determination of fair market value is required under the
Plan, or, if there is no trading or closing price on that day, the closing price
on the most recent day preceding the day for which such prices are available.
7. NONSTATUTORY STOCK OPTIONS. The Board or Committee may grant Options
under the Plan which are not intended to meet the requirements of Section 422 of
the Code, as well as Options which are intended to meet the requirements of
Section 422 of the Code, but the terms of which provide that they will not be
treated as Incentive Stock Options (referred to herein as a "Nonstatutory Stock
Option"). Nonstatutory Stock Options which are not intended to meet these
requirements shall be subject to the following terms and conditions:
(a) A Nonstatutory Stock Option may be granted to any person eligible
to receive an Option under the Plan pursuant to Section 5 hereof.
(b) The option price of the shares subject to a Nonstatutory Stock
Option shall be determined by the Board or Committee, in their absolute
discretion, at the time of the grant of the Nonstatutory Stock Option.
(c) A Nonstatutory Stock Option granted under the Plan may be of such
duration as shall be determined by the Board or Committee (not to exceed 10
years) and shall be subject to earlier termination as expressly provided in
Section 10 hereof.
8. RIGHTS OF OPTION HOLDERS. The holder of any Option granted under the
Plan shall have none of the rights of a stockholder with respect to the shares
covered by his Option until such shares shall be issued to him upon the exercise
of his Option.
3
<PAGE> 27
9. TRANSFERABILITY. No Option granted under the Plan shall be
transferable by the individual to whom it was granted otherwise than by Will or
the laws of descent and distribution, and, during the lifetime of such
individual, shall not be exercisable by any other person, but only by him.
10. TERMINATION OF EMPLOYMENT OR DEATH.
(a) If the employment of an employee by the Company or any subsidiary
of the Company shall be terminated voluntarily by the employee or for cause,
then his Options shall expire forthwith. Except as provided in subsections (b)
and (c) of this Section 10, 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, subject to the provisions of subparagraph (f)
of this Section 10. For purposes of the Plan, 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. For purposes of this subparagraph, an employee who leaves the
employ of the Company to become an employee of a subsidiary corporation of the
Company or a corporation (or subsidiary or parent corporation of such
corporation) which has assumed the Options of the Company as a result of a
corporate reorganization shall not be considered to have terminated his
employment.
(b) 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 employment or services other than voluntarily by
the employee or for cause, then such Options may, subject to the provisions of
subparagraph (f) of this Section 10, be exercised by the estate of the 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
(1) year after such death.
(c) 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, subject to the provision of subparagraph (f) of
this Section 10, be exercised at any time within one (1) year after his
termination of employment due to his disability.
(d) If the services of a non-employee Director of the Company shall be
terminated by the Company for cause, then his Options shall expire forthwith. If
such services shall terminate for any other reason (including the death or
disability of a non-employee Director), 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 (1) year after such termination, subject to the provisions of
subparagraph (f) of this Section 10. In the event of the death of a non-employee
Director, his Options may be exercised by his estate or by a person who acquired
the right to exercise
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such Options by bequest or inheritance or by reason of the death of such
non-employee Director at any time within one (1) year after such death.
(e) Upon the death of any consultant or advisor to the Company or any
of its subsidiaries, who is granted any Options hereunder, such Options may,
subject to the provisions of subparagraph (f) of this Section 10, 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 (1) year after such death.
(f) An Option may not be exercised pursuant to this Section 10 except
to the extent that the holder was entitled to exercise the Option at the time of
termination of employment, termination of Directorship, or death, and in any
event may not be exercised after the expiration of the Option.
(g) For purposes of this Section 10, the employment relationship of an
employee of the Company or of a subsidiary corporation of the Company will be
treated as continuing intact while he is on military or sick leave or other bona
fide leave of absence (such as temporary employment by the Government) if such
leave does not exceed ninety (90) days, or, if longer, so long as his right to
reemployment is guaranteed either by statute or by contract.
(h) Restrictive Covenants. In consideration of the Options granted
pursuant to this Plan and to induce the Company to grant such Options, for all
Options granted hereunder each optionee shall agree, which agreement shall be
deemed given by the optionee by the optionee's acceptance of such Options, as
follows:
(i) Definitions. As used in this Section 10(h),
the following terms shall have the meanings ascribed to them in this subsection:
"Business" shall mean the business of
designing, developing, marketing, selling and/or
distributing any kind of skin replacement or skin
regeneration product or other product or service
being developed, produced, sold, marketed or provided
by the Company during the period of such optionee's
employment by the Company.
"Competitive Company" shall mean any person,
corporation, association, joint venture, partnership,
or other business entity that engages in any part of
the Business in competition with the Company.
"Restrictive Period" shall mean a period of
one year following the termination of the optionee's
employment with the Company; provided, however, that
the Restrictive Period shall be extended for an
additional period equal to any period during which
the optionee is in violation of any of the provisions
of Section 10(h)(iv), below.
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"Territory" shall mean the entire world.
(ii) Acknowledgements. The optionee will
acknowledge that by reason of his position with the Company he is and will be
acquainted with confidential and privileged information relating to biomedical
products or other products being developed or developed by the Company, customer
files and special customer information, vendor sources and information,
licenses, product lines, intellectual property (including, but not limited to,
patents, trademarks and copyrights), financings, mergers, acquisitions,
selective personnel information and confidential processes, designs, ideas,
plans, devices and materials, and other similar matters treated by the Company
as confidential (the "Confidential Information") and that use of the
Confidential Information might seriously damage the Company in its Business.
(iii) Nondisclosure. 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 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.
(iv) Covenant Not to Compete. The Optionee will
agree that during the continuation of his employment with the Company and during
the Restrictive Period the optionee will not, directly or indirectly, within the
Territory:
(1) 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
Competitive Company, unless his affiliation with such
Competitive Company is not related in any way,
directly or indirectly, to the development, sale or
marketing of skin replacement or skin regeneration
products, or the development, sale or marketing of
other products or the provision of services that are
of the same kind or a like nature as those products
developed, sold or marketed or services provided by
the Company at the time of the optionee's employment
by the Company; or
(2) 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, or any employee
of the Company to terminate his employment with the
Company.
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(v) Enforcement. The optionee will agree that
in the event of any breach or threatened breach by the optionee of the foregoing
covenants, the Company, in addition to any other rights and remedies it may
have, will be entitled to an injunction without having to post any bond or other
security, restraining such breach or threatened breach, the optionee agreeing to
stipulate that a breach by the optionee would cause irreparable damage to the
Company and that the Company's remedies at law would be inadequate. The optionee
will further agree that the existence of any claim or cause of action on the
part of the optionee against the Company shall not constitute a defense to the
enforcement of these provisions and that the terms of the foregoing covenants,
including without limitation the Restrictive Period and the Territory, are
reasonable in all respects and necessary for the protection of the Company. If
any court of competent jurisdiction will finally adjudicate that any of the
covenants are too broad as to area, activity or time covered, the optionee will
agree that such area, activity or time covered may be reduced to whatever extent
the court deems reasonable and the covenants and the remedy of injunctive relief
may be enforced as to such reduced area, activity or time.
11. EXERCISE OF OPTIONS.
(a) Unless otherwise provided in the Stock Option Document, any Option
granted under the Plan shall be exercisable in whole at any time, or in part
from time to time, prior to expiration. The Board or Committee, in their
absolute discretion, may provide in any Stock Option Document that the exercise
of any Option granted under the Plan shall be subject (i) to such condition or
conditions as it may impose, including but not limited to, a condition that the
holder thereof remain in the employ or service of the Company or a subsidiary
corporation of the Company for such period or periods of time from the date of
grant of the Option, as the Board or Committee, in their absolute discretion,
shall determine; and (ii) to such limitations as it may impose, including, but
not limited to, a limitation that the aggregate fair market value of the Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by any employee during any calendar year (under all plans of the
Company and its parent and subsidiary corporations) shall not exceed One Hundred
Thousand Dollars ($100,000). In addition, in the event that under any Stock
Option Document the aggregate fair market value of the Common Stock with respect
to which Incentive Stock Options are exercisable for the first time by any
employee during any calendar year (under all plans of the Company and its parent
and subsidiary corporations) exceeds One Hundred Thousand Dollars ($100,000),
the Board or Committee may, when shares are transferred upon exercise of such
Options, designate those shares which shall be treated as transferred upon
exercise of an Incentive Stock Option and those shares which shall be treated as
transferred upon exercise of a Nonstatutory Stock Option.
(b) An Option granted under the Plan shall be exercised by the delivery
by the holder thereof to the Company at its principal office (attention of the
Secretary) of written notice of the number of shares with respect to which the
Option is being exercised. Such notice shall be accompanied by payment of the
full option price of such shares, and payment of such option price shall be made
by the holder's delivery of his check payable to the order of the
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Company; provided, however, that notwithstanding the foregoing provisions of
this Section 11 or any other terms, provisions or conditions of the Plan, at the
written request of the optionee and upon approval by the Board of Directors or
the Committee, shares acquired pursuant to the exercise of any Option may be
paid for in full at the time of exercise by the surrender of shares of Common
Stock of the Company held by or for the account of the optionee at the time of
exercise to the extent permitted by subsection (c)(5) of Section 422 of the Code
and, with respect to any person who is subject to the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), to
the extent permitted by Section 16(b) of the Exchange Act and the Rules of the
Securities and Exchange Commission, without liability to the Company. In such
case, the fair market value of the surrendered shares shall be determined by the
Board or Committee as of the date of exercise in the same manner as such value
is determined upon the grant of an Incentive Stock Option.
12. ADJUSTMENT UPON CHANGE IN CAPITALIZATION.
(a) 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 of
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 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
hereunder from being disqualified as an "incentive stock option" under the then
existing provisions of the Code or any law amendatory thereof or supplemental
thereto.
(b) Any adjustment in the number of shares shall apply proportionately
to only the unexercised portion of the Option granted hereunder. If fractions of
a share would result from any such adjustment, the adjustment shall be revised
to the next lower whole number of shares.
13. FURTHER CONDITIONS OF EXERCISE.
(a) Unless prior to the exercise of the Option the shares issuable upon
such exercise have been registered with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), the
notice of exercise shall be accompanied by a representation or agreement of the
individual exercising the Option to the Company to the effect that such shares
are being acquired for investment and not with a view to the resale
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<PAGE> 32
or distribution thereof or such other documentation as may be required by the
Company unless in the opinion of counsel to the Company such representation,
agreement or documentation is not necessary to comply with the Securities Act.
(b) The Company shall not be obligated to deliver any Common Stock
until it has been listed on each securities exchange on which the Common Stock
may then be listed or until there has been qualification under or compliance
with such state or federal laws, rules or regulations as the Company may deem
applicable. The Company shall use reasonable efforts to obtain such listing,
qualifications and compliance.
14. EFFECTIVENESS OF THE PLAN. The Plan was originally adopted by the
Board of Directors on April 1, 1996. The Plan was approved by the affirmative
vote 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 on June 19, 1996. The Amendment and Restatement of the Plan was adopted
by the Board of Directors on May 5, 1998 and by the affirmative vote of a
majority of the outstanding shares of capital stock of the Company in person or
by proxy at a meeting of stockholders of the Company convened on August 11,
1998.
15. TERMINATION, MODIFICATION AND AMENDMENT.
(a) The Plan (but not Options previously granted under the Plan) shall
terminate on April 5, 2006, which is within ten (10) years from the date of its
adoption by the Board of Directors and stockholders, or sooner as hereinafter
provided, and no Option shall be granted after termination of the Plan.
(b) 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.
(c) The Board of Directors may at any time, on or before the
termination date referred to in Section 15(a) hereof, 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
(except as provided by Section 12 hereof) the maximum number of shares as to
which Incentive Stock Options may be granted, or change the designation of the
employees or class of employees 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 qualifying as such under the
then existing provisions of the Code or any law amendatory thereof or
supplemental thereto.
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<PAGE> 33
(d) No termination, modification or amendment of the Plan, may without
the consent of the individual to whom an Option shall have been previously
granted, adversely affect the rights conferred by such Option.
16. NOT A CONTRACT OF EMPLOYMENT. Nothing contained in the Plan or in
any Stock Option Document executed pursuant hereto shall be deemed to confer
upon any individual to whom an Option is or may be granted hereunder any right
to remain in the employ or service of the Company or a subsidiary corporation of
the Company.
17. USE OF PROCEEDS. The proceeds from the sale of shares pursuant to
Options granted under the Plan shall constitute general funds of the Company.
18. INDEMNIFICATION OF BOARD OF DIRECTORS OR COMMITTEE. In addition to
such other rights of indemnification as they may have, the members of the Board
of Directors or the Committee, as the case may be, shall be indemnified by the
Company to the extent permitted under applicable law against all costs and
expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any rights
granted hereunder and against all amounts paid by them in settlement thereof or
paid by them in satisfaction of a judgment of any such action, suit or
proceeding, except a judgment based upon a finding of bad faith. Upon the
institution of any such action, suit or proceeding, the member or members of the
Board of Directors or the Committee, as the case may be, shall notify the
Company in writing, giving the Company an opportunity at its own cost to defend
the same before such member or members undertake to defend the same on their own
behalf.
19. DEFINITIONS. For purposes of the Plan, the terms "parent
corporation" and "subsidiary corporation" shall have the same meanings a set
forth in Sections 425(e) and 425(f) of the Code, respectively, and the masculine
shall include the feminine and the neuter as the context requires.
20. GOVERNING LAW. The Plan shall be governed by, and all questions
arising hereunder shall be determined in accordance with, the law of the State
of New York.
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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.)
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/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.
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