<PAGE> 1
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[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-12.
Ortec International, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name(s) of Person(s) Filing Proxy Statement, if other than the Registrant
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed 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> 2
ORTEC INTERNATIONAL, INC.
3960 BROADWAY
NEW YORK, NY 10032
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, AUGUST 3, 1999
The 1999 Annual Meeting of Stockholders of Ortec International, Inc. (the
"Company") will be held at the Russ Berrie Medical and Science Pavilion, 1150
St. Nicholas Avenue, New York, New York, on Tuesday, August 3, 1999, at 4:30
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. (a) To ratify Management's execution of a Placement Agreement with
Roberts Mitani Capital LLC ("Roberts Mitani"), engaging Roberts Mitani
as the Company's exclusive agent, with certain listed exceptions, for a
period of not less than one nor more than twelve months, for the private
placement of the Company's Common Stock and other equity securities in
private placements at prices which are below the then current market
value of such Common Stock or other equity securities, provided (i) such
prices are not less than a price which is then thirty (30%) percent
below the then current market value of the Company's Common Stock or
other such equity securities and (ii) no more than 1,900,000 shares of
the Company's Common Stock are issuable in all transactions entered into
by the Company pursuant to such Placement Agreement.
(b) To authorize the President or Secretary of the Company, subject to
approval by the Company's Board of Directors, to enter into a placement
agreement with any other placement agent for a period that will expire
not later than one year after the adoption of this resolution, for the
sale of shares of the Company's Common Stock or other equity securities
in private placements at prices which are then below the then current
value of the Company's Common Stock or such other equity securities,
provided (i) such prices are not less than a price which is then thirty
(30%) percent below the then current market value of the Company's Common
Stock or such other equity securities and (ii) no more than an aggregate
of 1,900,000 shares of the Company's Common Stock are issuable in all
such transactions and in the transactions through Roberts Mitani.
4. To authorize the Company's Board of Directors to reduce the exercise
price of the Company's Class B Warrants from an exercise price of $15
per share to such lower price as the Board of Directors determines to be
in the best interests of the Company, provided such reduced exercise
price is no less than a price which is thirty (30%) percent below the
market value of the Company's Common Stock at the time of such
reduction.
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 4, 1999 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
, 1999
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> 3
ORTEC INTERNATIONAL, INC.
3960 BROADWAY
NEW YORK, NY 10032
PROXY STATEMENT FOR THE 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, AUGUST 3, 1999
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 1999 Annual Meeting of Stockholders to be held on Tuesday, August
3, 1999, 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 to Shareholders for the fiscal year ended
December 31, 1998 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 4, 1999, 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 6,563,753 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
authorization of Management of the Company to enter into transactions for the
sale of the Company's Common Stock in private placements at prices which are
below market value and the authorization of the Board of Directors to reduce the
exercise price of the Company's Class B Warrants. 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 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 May 31, 1999, 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
<PAGE> 4
Company as a group and (iv) each person known by the Company to own beneficially
more than five percent (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*.............................................. 619,962(1) 8.9%
Mark Eisenberg*........................................... 596,000 9.1%
Ron Lipstein*............................................. 567,771(2) 8.2%
Alain Klapholz*........................................... 415,607(3) 6.2%
William Schaeffer*........................................ 11,000(4) ***
Joseph Stechler........................................... 955,166(5) 14.1%
15 Engle Street
Englewood, NJ 07631
Steven Lilien............................................. 8,000(6) ***
19 Larchmont Street
Ardsley, NY 10502
Soros Fund Management, LLC................................ 847,500(7) 12.9%
888 Seventh Avenue
33rd Floor
New York, NY 10106
Lupa Family Partners...................................... 467,400(8) 7.1%
888 Seventh Avenue
33rd Floor
New York, NY 10106
Pequot Capital Management, Inc............................ 834,179(9) 12.4%
354 Pequot Avenue
Southport, CT 06490
All officers and directors as a group (seven persons)..... 3,173,506(1-6) 41.7%
</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 Securities and Exchange
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 4,
1999. 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 420,750 shares issuable to Dr. Katz upon his exercise of
outstanding options and warrants.
(2) Includes 33,600 shares owned by Mr. Lipstein's minor children. Mr. Lipstein
disclaims any beneficial interest in such 33,600 shares. Also includes
305,000 shares issuable to Mr. Lipstein and 15,000 to his minor children
upon his and their 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
120,000 shares issuable to Mr. Klapholz upon his exercise of outstanding
options.
(4) Includes 10,000 shares issuable to Mr. Schaeffer upon his exercise of
outstanding options.
(5) Includes shares owned by Stechler & Company and 30,000 shares owned by a
charitable foundation of which Mr. Stechler and another member of his family
are the trustees. Also includes 210,500 shares to be
2
<PAGE> 5
issued by the Company to Mr. Stechler or Stechler & Company upon their
exercise of outstanding options or warrants. Does not include 1,314,900
shares held in investment accounts for clients of Stechler & Company.
Stechler & Co.'s investment power over such investment accounts may be
terminated at any time by such clients.
(6) Consists of shares underlying options granted under the Company's Employee
Stock Option Plan.
(7) 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 the 823,800 shares of Common
Stock held for the account of Quasar pursuant to an investment advisory
contract entered into with SFM LC, 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.
(8) 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.
(9) Shares held by three investment funds. The Company believes that Pequot
Capital Management, Inc. has sole or shared investment and/or voting power
for these shares. Includes 81,153 shares issuable upon exercise of
outstanding warrants.
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..................... 54 President, Chief Executive Officer and
Chairman of the Board of Directors
Dr. Mark Eisenberg.................... 61 Senior Vice President, Research and
Development and Director
Ron Lipstein.......................... 43 Secretary, Treasurer, Chief Financial
Officer and Director
Alain M. Klapholz..................... 42 Vice President, Operations and
Director
Joseph Stechler....................... 47 Director
Steven Lilien, Ph.D................... 52 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
3
<PAGE> 6
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 1991. See "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, Treasurer,
Chief Financial Officer 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
1991. Mr. Klapholz has an MBA from New York University.
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 certified public accountant and has a Ph.D. in
accounting and finance and an MS, 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.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Directors receive no cash
compensation for serving on the Board of Directors. Non-employee directors of
the Company are compensated for their services and attendance at meetings
through the grant of options pursuant to the Company's Employee Stock Option
Plan.
EXECUTIVE OFFICERS
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board of Directors. Three of the Company's four executive
officers, Steven Katz, Ron Lipstein and Alain Klapholz, are also directors of
the Company. Information with regard to such persons is set forth above under
the heading "Nominees."
The remaining executive officer is Mr. William Schaeffer, age 51, the
Company's Chief Operating Officer since May 1998. Prior to joining the Company,
Mr. Schaeffer was employed by Johnson & Johnson for more than 25 years. His last
position was Vice President, Quality Assurance Worldwide for Johnson & Johnson's
Cordis, Inc., where he was also a member of its Management Board. Mr. Schaeffer
has also held senior
4
<PAGE> 7
management positions at Johnson & Johnson's Ethicon, Inc., Johnson & Johnson
Cardiovascular and Ortho Diagnostics, Inc. His responsibilities have included
process development, manufacturing and quality assurance for a broad range of
medical devices developed, produced and distributed by Johnson & Johnson.
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 is required to devote 20
hours per week to the Company. The Company pays Dr. Eisenberg an annual fee at
the rate of $73,000. 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.
SCIENTIFIC ADVISORY BOARD
The Company has secured a number of experts in the areas of care of chronic
and acute wounds and cell biology 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.
MEDICAL ADVISORY BOARD
The Company has established a Medical Advisory Board consisting of persons
expert in the fields of dermatology and infectious diseases 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONSULTING AGREEMENT
See "Eisenberg Consulting Agreement" for a description of the consulting
agreement between Dr. Mark Eisenberg and the Company.
CLASS B WARRANTS
On December 3, 1998, the Company's Board of Directors extended the
expiration date of the Company's publicly traded Class B Warrants from January
19, 1999 to May 28, 1999. On April 22, 1999 the Company's Board of Directors
again extended the expiration date of the Class B Warrants to November 30, 1999.
In addition, the Company is presenting for shareholder approval at the Annual
Meeting a resolution authorizing the Board of Directors to reduce the exercise
price of the Class B Warrants (See "Proposal No. 4"). Mr. Joseph Stechler, a
director of the Company, is an owner of Class B Warrants.
CHANGE OF CONTROL AGREEMENTS
The Company's Board of Directors has authorized agreements between the
Company and four of its executive officers in the event of a "change of control"
of the Company. In the agreements with Dr. Katz and Messrs. Lipstein and
Klapholz "change of control" is defined as a change in the ownership or
effective control
5
<PAGE> 8
of the Company or in the ownership of a substantial portion of the assets of the
Company, but in any event if Messrs. Katz, Lipstein and Klapholz and Dr. Mark
Eisenberg no longer constitute a majority of the Company's Board of Directors.
The payments to be made to such three executive officers in the event of a
change of control of the Company range from 2 to 2.99 times the compensation
paid by the Company to such executive in the twelve-month period prior to the
change of control. Of the 57,500 options granted to Mr. Schaeffer under the
Company's Employee Stock Option Plan which are still outstanding, options to
purchase 43,750 shares at $9.50 per share are exercisable in different amounts
only as the Company achieves certain milestones and even after a milestone is
achieved, the vesting of the portion of the options exercisable as a result of
such milestone being achieved will be deferred for periods ranging from one to
four years. The change of control agreement with Mr. Schaeffer will provide that
such options which have not already lapsed because the time to achieve the
milestone has passed, will vest immediately upon the change of control of the
Company. The agreement with Mr. Schaeffer will define "change of control" as a
merger or consolidation of the Company with another Company or the sale by the
Company of all or substantially all of its assets. The change of control
agreements with Messrs. Katz, Lipstein and Klapholz will provide that in the
event that such change of control occurs, the expiration dates of all options
and warrants which have been granted to such executive and which expire less
than three years after such change of control, will be extended so that such
options and warrants expire three years after such change of control, and that
at Messrs. Katz, Lipstein or Klapholz' election, the Company will lend such
executive officer upon his exercise of any of his warrants or options, interest
free and repayable after three years, the funds needed by such executive officer
to pay the exercise price.
The Company believes that such payments to most, if not all, of these four
executive officers will, if they are made, constitute "golden parachute"
payments under the Internal Revenue Code and to the extent the change of control
payments made to an individual executive officer exceeds the average annual
compensation paid by the Company to such executive officer in the five year
period prior to such change of control (a) such excess will not be able to be
deducted by the Company in calculating its income for income tax purposes and
(b) a special excise tax equal to 20% of such excess will have to be paid by the
executive officer receiving such excess payments. The change of control
agreements will provide that the Company will pay such excise tax payable by
such executive officer.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934
To the best of the Company's knowledge, (i) Dr. Steven Katz and Messrs. Ron
Lipstein and William Schaeffer each failed to file on a timely basis with the
Securities and Exchange Commission during the fiscal year ended December 31,
1998, one report on Form 4, Mr. Schaeffer having been late in reporting one
transaction, and Dr. Katz and Mr. Lipstein having each been late in reporting
two transactions, and (ii) Mr. Schaeffer and Dr. Steven Lilien each failed to
file on a timely basis with the Securities and Exchange Commission during the
fiscal year ended December 31, 1998, one report on Form 3, reporting one late
transaction each. Each of such individuals are executive officers and/or
directors of the Company. 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, 1998
were timely filed.
BOARD MEETINGS
In 1998, the Board of Directors, the Stock Option Committee and the Audit
Committee each met or acted without a meeting pursuant to unanimous written
consent, nine times, eleven times and one time, respectively.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Company during
the three fiscal years ended December 31, 1998, 1997 and 1996 to the Chief
Executive Officer and the Company's other executive officers whose cash
compensation exceeded $100,000 (the "Named Officers").
6
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ------------------------ ----------------------
---------------------------- RESTRICTED STOCK ALL
NAME & SALARY BONUS OTHER STOCK OPTION PLAN PAYOUTS OTHER
PRINCIPAL POSITION YEAR ($) ($) ($) AWARDS (#) ($) COMPENSATION
- ------------------ ---- --------- ------ ------ ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STEVEN KATZ...................... 1998 200,000 9,000* 230,750 -- --
Chairman, CEO and 1997 130,000 45,000 8,400* -- 155,000 -- --
President 1996 162,451(1) -- 8,100* -- 50,000 -- --
RON LIPSTEIN..................... 1998 165,000 9,000 -- 220,000 -- --
Secretary, Treasurer, 1997 115,000 30,000 8,400* -- 80,000 -- --
CFO and Director 1996 135,861(1) -- 8,100* -- 25,000 -- --
ALAIN KLAPHOLZ................... 1998 150,000 -- -- -- 70,000 -- --
Vice President & 1997 115,000 20,000 -- -- 40,000 -- --
Director 1996 112,249(1) -- 3,500* 10,000 -- --
</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 in 1995.
BOARD COMPENSATION
In November 1998, for services to be rendered by Messrs. Joseph Stechler
and Steven Lilien as directors of the Company in 1999, Mr. Stechler and Dr.
Lilien were each granted options under the Company's Employee Stock Option Plan
to purchase 5,000 shares of the Company's Common Stock. At the same time, for
services rendered by him in 1998 as a member of the Stock Option Committee of
the Board of Directors, Mr. Stechler was granted an additional five-year option
to purchase an additional 5,000 shares of the Company's Common Stock. All such
options are exercisable at $12.4375 per share. On February 10, 1998, upon his
becoming a director of the Company and for his services as a director in 1998,
Dr. 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 $12.00 per share.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1998 by the Company to the
Named Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ----------------------------------------------------------------------------------------- ----------------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES IN OR BASE PRICE
NAME GRANTED(#) FISCAL YEAR(1) ($/SHARE) EXPIRATION DATE 5%($) 10%($)
- ---- ------------ -------------- ------------- --------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Steven Katz.......... 230,750 35% $12.13 11/26/03 772,992 1,708,111
Ron Lipstein......... 220,000 33 12.44 11/24/03 755,975 1,670,508
Alain Klapholz....... 70,000 11 12.44 11/24/03 240,538 531,535
</TABLE>
- ---------------
(1) Options to purchase a total of 673,250 shares of Common Stock were granted
to the Company's employees, including the Named Officers, during the fiscal
year ended December 31, 1998.
7
<PAGE> 10
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 1998 and the value of the options held as
of December 31, 1998 by the Named Officers. None of the Named Officers exercised
any options in 1998 nor did they hold any options which were not exercisable at
December 31, 1998.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR AT FISCAL YEAR END
NAME END (ALL EXERCISABLE) (ALL EXERCISABLE)(1)
- ---- ---------------------- --------------------
<S> <C> <C>
Steven Katz................................... 420,750 $690,700
Ron Lipstein.................................. 320,000 $401,250
Alain Klapholz................................ 120,000 $166,875
</TABLE>
- ---------------
(1) The difference between (x) the product of the unexercised options and the
closing price of the Company's Common Stock on December 31, 1998, as listed
on The Nasdaq SmallCap Market, less (y) the product of the unexercised
options and the exercise price of such options.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
The Company does not have a Compensation Committee. The compensation of the
Company's executive officers is set by the Board of Directors. Drs. Steven Katz
and Mark Eisenberg and Messrs. Ron Lipstein and Alain Klapholz, all of whom are
employed by the Company and three of whom are executive officers of the Company,
are four of the Company's six directors and participated in the deliberations of
the Company's Board of Directors concerning executive officers' compensation.
TOTAL SHAREHOLDER RETURNS
[PERFORMANCE GRAPH]
ANNUAL RETURN PERCENTAGE
<TABLE>
<CAPTION>
COMPANY/INDEX
YEARS ENDED ORTEC INTERNATIONAL INC. NASDAQ-US NASDAQ-PHARM
- ----------- ------------------------ --------- ------------
<S> <C> <C> <C>
Mar96 40.00 8.36 3.16
Mar97 23.21 11.10 (8.44)
Mar98 128.99 51.60 19.52
Mar99 (51.27) 34.59 26.96
</TABLE>
INDEXED RETURNS
<TABLE>
<CAPTION>
COMPANY/INDEX
ORTEC INTERNATIONAL INC. NASDAQ-US NASDAQ-PHARM
------------------------ --------- ------------
<S> <C> <C> <C>
Base Period 19Jan96 100.00 100.00 100.00
Mar96 140.00 108.36 103.16
Mar97 172.50 120.39 94.46
Mar98 395.00 182.51 112.89
Mar99 192.50 245.65 143.33
</TABLE>
The Company's publicly traded securities commenced trading on the NASDAQ
SmallCap Market January 19, 1996 as Units, each Unit consisting of one share of
Common Stock, one Class A Warrant and one Class B Warrant, at a price of $5.00
per Unit. On May 17, 1996, the components of the Units each became
8
<PAGE> 11
separately traded securities. Total returns presented above assume $100 invested
on January 19, 1996 in the Units (and such invested amount invested entirely in
the Common Stock as of May 17, 1996), the NASDAQ-US Companies Index and the
NASDAQ-Pharmaceutical Companies Index.
BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION
CORPORATE POLICY. The Company does not have a compensation committee. The
Board of Directors annually reviews executive compensation and makes
determinations as to the optimal level of compensation for each of the Company's
executive officers. It is the philosophy of the Board of Directors that the
total executive compensation package should align the financial interests of the
Company's executives with the short-term and long-term goals of the Company and
consequently enhance shareholder value. The key elements of the Company's
current compensation program consist primarily of a base salary and equity
participation through a long-term incentive plan.
Base Salary. As a development-stage company, it is difficult to compare
salaries to any particular peer group. Rather, the Board takes into
consideration the responsibilities, experience level, individual
performance levels, and amount of time devoted to the Company's needs.
Salaries are reviewed annually by the Board based on the foregoing criteria
and are adjusted, if warranted, by the Board.
Long Term Incentives. The Company currently has an Employee Stock Option
Plan in effect for its employees, consultants, advisors and directors. The
purpose of this Plan is to create an opportunity for employees, including
executive officers, to share in the enhancement of shareholder value. This
Plan is administered by the Stock Option Committee, except that the
Committee has no authority to grant options to employees who are also
directors of the Company, such authority being reserved to the entire Board
of Directors. In the administration of the Plan, the Stock Option Committee
or the Board of Directors, as the case may be, reviews and grants incentive
awards based upon its evaluation of the executive's individual performance,
level of responsibility and overall contribution towards the Company's
operations, together with the Company's achievement of development
milestones and growth.
COMPENSATION OF DR. STEVEN KATZ, PRESIDENT AND CHIEF EXECUTIVE OFFICER. A
majority of the Board believes that Dr. Katz' salary and stock option grant for
1998 were consistent with the criteria described above and with the evaluation
of his overall leadership and Management of the Company. The Board believes 1998
was a year of significant accomplishments for the Company, including the
following:
- progress made in obtaining clinical and regulatory approvals for venous
ulcer and donor site trials.
- the development of the Company's cryopreservation process to provide a
"user-friendly" method for preparing the Company's Composite Cultured
Skin for application on a patient's wound.
- the completion of enrollment and follow-up treatment for patients with
Epidermolysis Bullosa at the Rockefeller University Hospital in New York.
- expansion of the Company's personnel from 18 to 50 employees, including
the hiring of Mr. William Schaeffer as the Company's new Chief Operating
Officer.
- expansion of the Company's facilities from approximately 10,000 to 20,000
square feet.
- obtaining additional market makers for the Company's publicly traded
securities and expansion of analyst coverage therefor.
- the completion of a private placement of the Company's Common Stock,
whereby the Company raised gross proceeds of $2,000,000, and the
commencement of an additional private placement of the Company's Common
Stock, which private placement was consummated during 1999, whereby the
Company raised gross proceeds of $3,400,000.
A majority of the Board believes the foregoing accomplishments
significantly resulted from the efforts of the Company's executive officers, led
by Dr. Katz. Dr. Katz' compensation for 1998 is set forth under the
9
<PAGE> 12
"Compensation of Executive Officers" section of this Proxy Statement. Mr. Joseph
Stechler, a director of the Company, has not joined in this report.
SUMMARY. The Board believes that the Company's compensation policy, as
practiced to date, has been successful in attracting and retaining qualified
employees as the Company attempts to achieve its goals of enhancing stockholder
value through the development and marketing of its product in the treatment of
various skin disorders. See "Forward Looking Information."
Respectfully Submitted,
Board of Directors
By: Steven Katz, Ph.D.
Dr. Mark Eisenberg
Ron Lipstein
Alain M. Klapholz
Steven Lilien, Ph.D.
10
<PAGE> 13
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, 1999, 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.
AUTHORIZATION TO SELL SHARES
OF COMMON STOCK AT PRICES
BELOW THE THEN CURRENT MARKET VALUE
(PROPOSAL NOS. 3(a) AND (b))
The Company is a development stage company and, to date, has not had any
revenues from operations. The Company must maintain sufficient levels of cash
reserves in order to continue its research and development, continue to conduct
human clinical trials and, if the Company were to receive the necessary
approvals from the Food and Drug Administration, commercially sell its Composite
Cultured Skin, of which there can be no assurance (see "Forward Looking
Information"). Management recommended to the Board of Directors that, in light
of such cash needs, the Company must avail itself of all possible means of
financing, including the private placement of its securities. Management
informed the Board that the ability of the Company to offer its securities in
such private placements at an offering price below the market value of such
securities at the time of such private placement would afford the Company
greater flexibility in structuring future financings. Accordingly, the Board of
Directors, on June 1, 1999, unanimously adopted two resolutions in connection
with such potential future financings, each subject to shareholder approval.
The first of such resolutions authorized Management to enter into a
placement agreement (the "Placement Agreement") with Roberts Mitani Capital LLC
("Roberts Mitani"), engaging Roberts Mitani as the Company's exclusive agent,
with certain listed exceptions, for a period of not less than one nor more than
twelve months, for the private placement of the Company's Common Stock and other
equity securities in private placements at prices which are below the then
current market value of such Common Stock or other equity securities, provided
(a) such prices are not less than a price which is then thirty (30%) percent
below the then current market value of the Company's Common Stock or other such
equity securities and (b) no more than 1,900,000 shares of the Company's Common
Stock are issuable in all transactions entered into by the Company pursuant to
such Placement Agreement. The Company entered into such Placement Agreement on
May 28, 1999. The material terms of the Placement Agreement are as follows:
1. Term. Six months, but terminable by the Company or Roberts Mitani upon
thirty days prior written notice.
2. Services. Securing financing for the Company, including a private
placement of equity securities sold to accredited investors; preparing
offering materials for such financing; and assisting the Company in
negotiating sales in such financings with prospective investors.
3. Compensation -- Cash. Roberts Mitani shall be paid 5% of the first
$5,000,000 of proceeds received by the Company from such financing, 4%
of the next $5,000,000 of such proceeds and 3% of any proceeds received
in excess of $10,000,000. The Company is paying Roberts Mitani a
retainer of $20,000, which is to be deducted from any of the foregoing
fees payable to Roberts Mitani by the Company.
4. Compensation -- Warrants. Roberts Mitani shall be issued five year
warrants to purchase such number of shares of the Company's Common Stock
equal to 4% of the number of shares of Common
11
<PAGE> 14
Stock issued in such financing to investors, or if the financing does
not involve the issuance of shares of Common Stock, warrants to purchase
such number of shares of the Company's Common Stock equal to 4% of the
gross proceeds received by the Company in such financing divided by the
exercise price of the warrants issued to Roberts Mitani. Such exercise
price shall be 110% of the average closing prices of the Company's
Common Stock on the NASDAQ SmallCap market for the ten trading days
immediately preceding the earlier of the closing of the financing or the
public announcement of such closing.
5. Exclusivity. Roberts Mitani has the exclusive right to secure financing
for the Company during the term of the Placement Agreement, except that
no commission will be payable to Roberts Mitani with respect to any
financing secured from certain persons or entities specifically
identified by the Company in an exhibit to the Placement Agreement. If
during the six month period after the termination of the Placement
Agreement, the Company enters into a financing transaction with a person
or entity with whom Roberts Mitani arranged a meeting by telephone or in
person with the Company during the term of the Placement Agreement
(except for the identified persons and entities with respect to whom no
fee is payable by the Company to Roberts Mitani), Roberts Mitani will be
entitled to receive the compensation provided for in the Placement
Agreement (and described above) with respect to such financing.
6. Expenses. The Company is required to reimburse Roberts Mitani for
Roberts Mitani's out-of-pocket expenses (including legal and travel
expenses), approved in advance by the Company. The Company's obligation
to reimburse Roberts Mitani for its legal expenses is limited to
$25,000, except if there are unforeseen circumstances.
A copy of the Placement Agreement with Roberts Mitani may be obtained by any
shareholder of the Company entitled to vote at the Annual Meeting by calling Ms.
Alicia Harding at the Company, (212) 740-6999. A copy of the Placement Agreement
with Roberts Mitani will be available at the Meeting for inspection by any
shareholder of the Company entitled to vote at the Annual Meeting.
The second resolution adopted by the Board of Directors on June 1, 1999,
authorized the President or Secretary of the Company, subject to approval by the
Company's Board of Directors, to enter into future placement agreements with any
other placement agent for a period that will expire not later than one year
after shareholder adoption of this resolution, for the sale of shares of the
Company's Common Stock or other equity securities in private placements at
prices which are then below the then current value of the Company's Common Stock
or such other equity securities, provided (a) such prices are not less than a
price which is then thirty (30%) percent below the then current market value of
the Company's Common Stock or such other equity securities and (b) no more than
an aggregate of 1,900,000 shares of the Company's Common Stock are issuable in
all such transactions and in the transactions through Roberts Mitani.
The shareholders of the Company are being asked hereby to (i) ratify
Management's execution of the Placement Agreement with Roberts Mitani and (ii)
authorize the President or Secretary of the Company to enter into future
placement agreements subject to the terms outlined above.
Although the Company is continuously in search of additional available
means of financing, as of the date hereof, other than the Placement Agreement
with Roberts Mitani, the Company has not entered into any agreements for the
sale of the Company's securities or other capital raising transactions.
AUTHORIZATION OF
REDUCTION OF EXERCISE PRICE OF CLASS B WARRANTS
(PROPOSAL NO. 4)
The Company has outstanding approximately 1,188,600 publicly traded
redeemable Class B Common Stock Purchase Warrants (the "Class B Warrants"), each
Class B Warrant entitling the holder thereof to purchase one (1) share of Common
Stock of the Company at an exercise price of $15.00 per share, unless redeemed
by the Company prior to its expiration date. The Class B Warrants are redeemable
by the Company in whole but not in part for $.01 per Class B Warrant, upon 30
days' prior written notice, if the market price of
12
<PAGE> 15
the Common Stock equals or exceeds $10.00 per share. The Class B Warrants were
scheduled to expire on January 18, 1999. On December 3, 1998, the Board of
Directors extended the expiration date to May 28, 1999, and on April 22, 1999,
extended the expiration date again to November 30, 1999. Approximately 11,400 of
the original 1,200,000 Class B Warrants have already been exercised.
Management has informed the Board of Directors of the Company that it would
be in the best interests of the Company to reduce the exercise price of the
Class B Warrants from $15.00 to such price as the Board of Directors of the
Company determines to be in the best interests of the Company. Management
informed the Board that it believes that a reduction in the exercise price of
the Class B Warrants may induce the holders of the Class B Warrants to exercise
them and thereby provide the Company with funds it will need in the future to
continue its research and development and conduct human clinical trials in the
treatment of different skin disorders and for the manufacture and commercial
sale of its Composite Cultured Skin.
Based upon the foregoing recommendations of Management, on April 22, 1999,
the Board of Directors of the Company adopted a resolution, subject to
shareholder approval, to reduce the exercise price of the Class B Warrants from
$15.00 to such lower price as the Board of Directors of the Company determines
to be in the best interests of the Company, provided the exercise price of the
Class B Warrants after such reduction is no less than a price which is thirty
(30%) less than the market value of the Company's Common Stock at the time of
such reduction. Joseph Stechler, a director of the Company, is a holder of Class
B Warrants, and, therefore, abstained from voting on such resolution adopted by
the Board of Directors.
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.
FORWARD LOOKING INFORMATION
This Proxy Statement includes statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding the Company's expectations, hopes, beliefs,
intentions or strategies regarding the future, that are based on the beliefs of
Management, as well as assumptions made by and information currently available
to the Company. When used in this document, the words "anticipate," "believe,"
"estimate," and "expect" and similar expressions, as they relate to the Company,
are intended to identify such forward-looking statements. Such statements
reflect the current views of Management with respect to future events and are
subject to certain risks, uncertainties and assumptions, including those
described in this Proxy Statement. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward-looking statements.
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 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.
13
<PAGE> 16
Proposals of stockholders intended to be presented at the 2000 Annual
Meeting of Stockholders must be received by the Company at its principal office
in New York, New York not later than March 30, 2000 for inclusion in the proxy
statement for that meeting.
By Order of the Board of Directors,
Ron Lipstein, Secretary
, 1999
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.
14
<PAGE> 17
[X] PLEASE MARK YOUR
VOTES AS THIS EXAMPLE.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD AUGUST 3, 1999.
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 4, 1999, at the Annual Meeting of
Stockholders of the Company to be held on August 3, 1999 at the Russ Berrie
Medical and Science Pavilion, 1150 St. Nicholas Avenue, 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.
1. Election of Directors.
[ ] FOR [ ] AGAINST
NOMINEES ARE: Steven Katz, Dr. Mark Eisenberg, Ron Lipstein, Alain Klapholz,
Joseph Stechler, and Steven Lilien
(Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
-----------------------------------------------------------------------------
2. Approval of appointment of Grant Thornton LLP as the Company's auditors.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
(Continued and to be signed on the reverse side.)
<PAGE> 18
3. (a) Ratification of Management's execution of the Placement Agreement
entered into by the Company with Roberts Mitani Capital LLC.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
(b) Authorization for the President or Secretary of the Company, subject to
approval by the Company's Board of Directors, to enter into future
placement agreements with other placement agents subject to the
limitations described in this Proxy Statement.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
4. Authorization of the Board of Directors to reduce the exercise price of the
Class B Warrants.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
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>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
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
---------------------------------.
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.
Signature: Date: Signature: Date:
