<PAGE>
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:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Orthovita, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Orthovita, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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Orthovita, Inc.
45 Great Valley Parkway
Malvern, PA 19355
April 13, 2000
VIA EDGAR
- ---------
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Orthovita, Inc. (the "Company")
Annual Meeting Proxy Statement
------------------------------
Dear Sir or Madam:
Pusuant to Rule 14a-6(b) under the Exchange Act, filed herewith via EDGAR,
are the definitive Notice of 2000 Annual Meeting of Shareholders, Proxy
Statement and form of Proxy Card being furnished to stockholders in connection
with the 2000 Annual Meeting of Shareholders of the Company to be held on May
23, 2000.
No fee is being paid because pursuant to Rule 14a-6(i)(2), no fee is
required.
Please contact the undersigned at (610) 407-5205 if you should have any
questions or comments regarding the enclosed materials.
Sincerely,
/s/Lisa Casel
<PAGE>
ORTHOVITA, INC
45 GREAT VALLEY PARKWAY
MALVERN, PENNSYLVANIA 19355
NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
Tuesday, May 23, 2000
DEAR ORTHOVITA, INC. SHAREHOLDERS:
On Tuesday, May 23, 2000, ORTHOVITA, INC. will hold its Annual Meeting of
Shareholders at the Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania,
USA. The meeting will begin at 10:00 am, Daylight Saving Time.
Shareholders that own stock at the close of business on April 13, 2000, can vote
at this meeting. At the meeting, we will consider the following proposals:
1. To elect a Board of Directors to hold office until the next Annual Meeting
of Shareholders or until their respective successors have been elected or
appointed;
2. To approve an amendment to the 1997 Equity Compensation Plan; and
3. To attend to other business properly brought before the meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE TWO PROPOSALS
OUTLINED IN THIS PROXY STATEMENT.
A list of our shareholders allowed to vote at the meeting will be available for
inspection by any shareholder at our office, during normal business hours, for
the ten days prior to the Annual Meeting.
By Order of the Board of Directors,
JOSEPH M. PAIVA
Corporate Secretary
Malvern, Pennsylvania, USA
April 13, 2000
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
CARD IN THE ENCLOSED ENVELOPE.
<PAGE>
ORTHOVITA, INC.
45 GREAT VALLEY PARKWAY
MALVERN, PENNSYLVANIA 19355
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
Questions and Answers........................................................... 3 - 5
Proposals You May Vote On:
Nominees for the Board of Directors............................................. 6 - 7
Amendment to 1997 Equity Compensation Plan...................................... 8 - 12
Statement of Corporate Governance............................................... 13
Directors' Compensation......................................................... 14
Holders of 5% or More and Directors' and Officers' Ownership of
Orthovita, Inc. Stock........................................................... 14 - 15
Executive Compensation: Report of the Compensation Committee ................... 16
Summary Compensation Table...................................................... 17
Option Grants in Fiscal 1999 Table.............................................. 18
Aggregate Option Exercises and Year-End Values Table............................ 18
Employment...................................................................... 19
Agreements......................................................................
Stock Performance Graph......................................................... 19
Section 16(a) Beneficial Ownership Reporting and Compliance..................... 20
Shareholders' Proposals for 2001 Annual Meeting................................. 20
</TABLE>
2
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QUESTIONS AND ANSWERS
1. Q: WHO IS SOLICITING MY VOTE?
A: This proxy solicitation is being made and paid for by Orthovita, Inc.
2. Q: WHEN WAS THIS PROXY STATEMENT MAILED TO SHAREHOLDERS?
A: This proxy statement was first mailed to shareholders on or about April
13, 2000.
2. Q: WHAT MAY I VOTE ON?
A: (1) The election of nominees to serve on our Board of Directors; AND
(2) The amendment to the 1997 Equity Compensation Plan.
3. Q: HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
A: The Board recommends a vote FOR each of the nominees, and the Board
recommends a vote FOR the amendment to the 1997 Equity Compensation
Plan.
4. Q: WHO IS ENTITLED TO VOTE?
A: Shareholders as of the close of business on April 13, 2000 (the Record
Date) are entitled to vote at the Annual Meeting.
5. Q: HOW DO I VOTE?
A: Sign and date each proxy card you receive and return it in the prepaid
envelope. If you return your signed proxy card but do not mark the boxes
showing how you wish to vote, your shares will be voted FOR the two
proposals. You have the right to revoke your proxy at any time before
the meeting by:
(1) notifying the Corporate Secretary, Joseph M. Paiva, at the address shown
above;
(2) voting in person; OR
(3) returning a later dated proxy card.
6. Q: WHO WILL COUNT THE VOTE?
A: Representatives of our transfer agent, StockTrans, will count the votes.
7. Q: IS MY VOTE CONFIDENTIAL?
A: Proxy cards, ballots and voting tabulations that identify individual
shareholders are mailed or returned directly to StockTrans, and handled
in a manner that protects your voting privacy. Your vote will not be
disclosed except: (1) as needed to permit StockTrans to tabulate and
certify the vote; and (2) as required by law. Additionally, all comments
written on the proxy card or elsewhere will be forwarded to management.
Your identity will be kept confidential unless you ask that your name be
disclosed.
8. Q: HOW MANY SHARES CAN VOTE?
A: As of March 15, 2000, 11,478,273 shares of Common Stock were issued and
outstanding. Every share of Common Stock is entitled to one vote.
3
<PAGE>
9. Q: WHAT IS A "QUORUM"?
A: A "quorum" is a majority of the outstanding shares. They may be present
at the meeting or represented by proxy. There must be a quorum for the
meeting to be held. A proposal must receive more than 50% of the shares
voting to be adopted. If you submit a properly executed proxy card, even if
you abstain from voting, then you will be considered part of the quorum. An
abstention has the same effect as a vote AGAINST a proposal. A WITHHELD vote
will be counted for quorum purposes. However, a WITHHELD vote will not be
deemed present for purposes of determining whether shareholder approval has
been obtained.
10. Q: WHO CAN ATTEND THE ANNUAL MEETING?
A: All shareholders of record on April 13, 2000, may attend.
11. Q: HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A: We do not know of any business to be considered at the 2000 Annual
Meeting other than the proposals described in this proxy statement. If any
other business is presented at the Annual Meeting, your signed proxy card
gives authority to Joseph M. Paiva, our Chief Financial Officer,
Adminstrative Officer and Secretary, to vote on such matters at his
discretion.
11. Q: WHO ARE THE LARGEST PRINCIPAL SHAREHOLDERS?
A: See "HOLDERS OF 5% OR MORE OF ORTHOVITA'S STOCK AND DIRECTORS' AND
OFFICERS' OWNERSHIP OF ORTHOVITA'S STOCK" beginning on page 11 of this proxy
for the largest principal shareholders as of December 31, 1999.
12. Q: WHEN ARE THE SHAREHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING DUE?
A: All shareholder proposals to be considered for inclusion in next year's
proxy statement must be submitted in writing to Joseph M. Paiva, Secretary,
Orthovita, Inc., 45 Great Valley Parkway, Malvern, Pennsylvania 19355 prior
to February 1, 2001. All other shareholder proposals must be received by
December 15, 2000.
Additionally, the proxy for next year's Annual Meeting will confer
discretionary authority to vote on any shareholder proposal that we do not
know about before February 1, 2001.
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13. Q: CAN A SHAREHOLDER NOMINATE SOMEONE TO BE A DIRECTOR OF THE COMPANY?
A: As a shareholder, you may recommend any person as a nominee for director
by writing to the Nominating Committee of the Board of Directors, c/o
Orthovita, Inc., 45 Great Valley Parkway, Malvern, PA 19355. Recommendations
must be received between February 23, 2001, and March 23, 2001, for the 2001
Annual Meeting. They must be accompanied by the name, residence and business
address of the nominating shareholder. They must include a representation
that the shareholder is a record holder of the stock or holds the stock
through a broker. They must state the number of shares held. The
recommendations must include a representation that the shareholder intends
to appear in person or by proxy at the meeting of the shareholders to
nominate the individual(s) if the nominations are to be made at a
shareholder meeting. They must include information regarding each nominee
that would be required to be included in a proxy statement. They must also
include a description of any arrangement or understanding between the
shareholder and each and every nominee. Finally, the recommendations must
include the written consent of each nominee to serve as a director, if
elected.
5
<PAGE>
PROPOSALS YOU MAY VOTE ON
1. ELECTION OF DIRECTORS
There are currently eight members of the Board of Directors. All of the current
members, except Mr. Lew Bennett who is not standing for re-election, of the
Board of Directors are nominees for election this year. In addition, Mr. Robert
Levande has been nominated for election to the Board of Directors. All
directors are elected annually and serve a one-year term until the next Annual
Meeting. If any director is unable to stand for re-election, the Board may
reduce its size or designate a substitute. If a substitute is designated,
proxies voting on the original director candidate will be cast for the
substitute candidate.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THESE DIRECTORS.
NOMINEES FOR THE BOARD OF DIRECTORS
<TABLE>
<CAPTION>
Name of Director Age Principal Occupation and Certain Directorships
- ---------------- --- ----------------------------------------------
<S> <C> <C>
David S. Joseph 57 Mr. Joseph has been Chairman and CEO since May 1999, after having previously served
Director since 1993 as President and CEO since 1993. He is a member of the Board of Directors of Highway
to Health, a private internet health and travel company, and Animas Corporation, a
private diabetes device company. Mr. Joseph recently retired as a member of the
Corporation of The Jackson Laboratory, a leading genetic research institute, and as a
member of the Board of Directors of King's College. He received a BS Degree from
King's College in Pennsylvania and a MBA from Xavier University in Ohio in Health
Care Administration.
Paul Ducheyne, Ph.D 50 Dr. Ducheyne founded Orthovita and served as the Chairman of the Board from its
Director since 1993 inception through May 1999. Dr. Ducheyne is currently Chairman Emeritus and Director.
Since 1997, Dr. Ducheyne has been the Director of the Center for Bioactive Materials
and Tissue Engineering at the University of Pennsylvania, where he has been a
Professor of Bioengineering and Orthopaedic Surgery Research since 1983.
James M. Garvey 52 Mr. Garvey has been the Chief Executive Officer and Managing Partner of Schroder
Director since 1997 Ventures Life Sciences, a private venture capital firm, since May 1995. Prior to
joining Schroder Ventures, Mr. Garvey was Director of the $600 million Venture
Capital Division of Allstate Corp. where he served on several public and private
healthcare boards in the U.S. and Europe. Mr. Garvey is currently a director of
Nationwide J&C Health Services, Mednova PLC and LaserVision Centers. Mr. Garvey
received a BSE degree from Northern Illinois University in 1969.
Richard M. Horowitz, 38 Mr. Horowitz has been employed by R.A.F. Industries, Inc., a private venture capital
Esquire and acquisition firm, since 1991. He currently serves as its president, as well as
Director since 1995 the president of its sister corporation, R.A.F. Ventures, Inc. Mr. Horowitz received
his BA in Economics and Political Science from the University of Pennsylvania and his
JD from Harvard Law School.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Name of Director Age Principal Occupation and Certain Directorships
- ---------------- --- ----------------------------------------------
<S> <C> <C>
Robert M. Levande 51 Mr. Levande has been President of The Palantir Group, a private consulting firm which
specializes in providing strategic advice to entrepreneurs in the medical technology
industry, since 1999. From 1972 until 1999, Mr. Levande served in various capacities
with Pfizer Inc., including Vice President - Business Analysis & Development of its
Medical Technology Group and Senior Vice President - Finance, Planning & Business
Development of Howmedica, Inc., within the group. The Medical Technology Group of
Pfizer, Inc. has been a worldwide leader in the design, manufacture and marketing of
medical devices. Mr. Levande received his BS from the Wharton School of Finance and
Commerce of the University of Pennsylvania and his MBA from Columbia University.
Bruce A. Peacock 48 Mr. Peacock has been President, Chief Operating Officer and a Director of Orthovita
Director since 1999 since June 1999. Previously, Mr. Peacock was Executive Vice President, Chief
Operating Officer and a Director of Cephalon, Inc., a publicly-traded biotechnology
company, and was employed there from 1992 to June 1999. From 1982 to 1992, Mr.
Peacock was Vice President and Chief Financial Officer of Centocor, Inc. a
biotechnology company. Mr. Peacock has been a director of Genometrix, Incorporated, a
private genomics-focused company, since June 1998. Mr. Peacock received a BA degree
from Villanova University and is a Certified Public Accountant.
Jos B. Peeters, Ph.D. 52 Dr. Peeters is a Partner with Baring Private Equity Partners Ltd. and the founder and
Director since 1996 a Managing Director of Capricorn Venture Partners n.v., a Belgian-based venture
capital firm specializing in early-stage, technology-based companies since January
1995. Dr. Peeters has been the Chairman of Quartz Capital Partners Limited, a London
based investment bank, since July 1996. Dr. Peeters was Chairman of the Working Group
that founded the European Association of Securities Dealers (EASD) and developed
EASDAQ, for which he serves as Vice-Chairman. Since April 1998, Dr. Peeters has been
Co-founder and Chairman of Quest for Growth n.v., a quoted investment company
specializing in quoted and later-stage unquoted technology-based growth companies.
Howard Salasin, Ph.D. 65 Dr. Salasin is a private investor and financial advisor to a private investment fund,
Director since 1995 and has been a general management consultant since 1975. He was President, Chief
Executive Officer and 100% owner of Martin Industries, a manufacturing company, from
1977 to 1996. Dr. Salasin was a director of Genometrix, Incorporated from January
1998 until February 2000. Dr. Salasin holds a BS in Electrical Engineering and MS in
Electrical Engineering from Drexel University and a Ph.D. in Education from the
University of Pennsylvania.
</TABLE>
7
<PAGE>
2. AMENDMENT TO THE 1997 EQUITY COMPENSATION PLAN
Our Board has proposed to amend and restate Section 3(a) of our 1997 Equity
Compensation Plan (the "Plan"). The effect of the amendment will be to increase
the aggregate number of shares of common stock of the Company that may be issued
under the Plan from 1,350,000 common shares to 1,850,000 common shares. This is
a 500,000 common share increase to the Plan.
Purpose and Effect of the Proposed Amendment
Our Board of Directors believes it is in our best interest to increase the
number of shares authorized under the Plan. The Plan is intended to encourage
participants to contribute to our long-term growth, to align their interests
with our shareholders' and to aid us in attracting and retaining officers,
employees, consultants and directors of outstanding ability.
Description of the Plan
Since our initial public offering in June 1998 and as specified in the Plan, the
Plan is administered by a committee (the "Committee") consisting of two or more
outside directors, as defined under section 162(m) of the Internal Revenue Code
of 1986, as amended, and non-employee directors, as defined in Rule 16b-3 under
the Securities and Exchange Act of 1934, as amended, and references in the Plan
to the Board shall be deemed to refer to the committee. The Board of Directors
shall approve all grants to non-employee directors.
The Committee selects the key employees, consultants and non-employee directors
to receive grants and determines the number of shares of Common Stock that will
be subject to each grant. Employees may receive incentive stock options,
nonqualified stock options, restricted stock or stock appreciation rights
("SARs") under the Plan. Non-employee directors and consultants may receive
non-qualified stock options, restricted stock or SARs.
The stock option exercise prices may be equal to, greater than or less than the
fair market value of a share of Common Stock on the date of grant, provided that
(i) the option exercise price of an incentive stock option may not be less than
the fair market value of a share of Common Stock on the date of grant and (ii)
an incentive stock option that is granted to a 10% shareholder must have an
exercise price of not less than 110% of the fair market of the Common Stock on
the date of grant.
The Committee also determines the term of each stock option, which shall not
exceed ten years from the date of grant. However, an incentive stock option
granted to a 10% shareholder may not have a term longer than five years from the
date of grant. The grantee may pay the exercise price (i) in cash, (ii) with
the consent of the Committee, by tendering shares of Common Stock owned by the
grantee, or (iii) by a combination of the two. Options may be exercised while
the grantee is an employee, consultant or member of the Board or within a
special time after termination of employment or service.
The Committee may grant restricted stock to key employees, consultants or non-
employee directors as it deems appropriate. The Committee will establish the
amount and terms of each restricted stock grant.
The Committee may grant SARs to a key employee, consultant or member of the
Board separately or in tandem with any stock option. Unless the Committee
determines otherwise, the base amount of each SAR
8
<PAGE>
shall be equal to the option price of the related option or, if there is no
related option, the fair market value of a share of Common Stock on the date of
grant of the SAR. When an SAR is exercised, the grantee will receive an amount
equal to the difference between the fair market value of the Common Stock on the
date of exercise and the base price of the SAR. Payments shall be made in cash,
Common Stock, or a combination of the two in such proportion as the Committee
determines.
Grants under the Plan may not be transferred except upon the grantee's death or,
with respect to grants other than incentive stock options, if permitted by the
Committee pursuant to a domestic relations order. The Committee may permit a
grantee to transfer non-qualified stock options to family members or other
persons or entities on such terms as the Committee deems appropriate.
The Plan provides that, unless the Committee determines otherwise, outstanding
options, SARs and restricted stock will automatically vest in full in the event
of a Change of Control. A "Change of Control" will be deemed to occur if (i)
any person (other than the Company or certain related entities or persons)
acquires securities of the Company representing more than 50% of the voting
power of the then outstanding securities of the Company, or (ii) the
shareholders approve (or, if shareholder approval is not required, the Board
approves) an agreement providing for (x) the merger or consolidation of the
Company where the shareholders immediately before the transaction will not hold,
immediately after the transaction, a majority of the stock of the surviving
corporation, (y) a sale of substantially all of the assets of the Company or (z)
a liquidation or dissolution of the Company.
In the event of a Change of Control, the Committee may require that grantees
surrender their outstanding options and SARs in exchange for payment by us, in
cash or common stock, of an amount equal to the amount by which the fair market
value of the Common stock exceeds the option price or base price of the options
or SARS, and the Committee may terminate unexercised options and SARs. Unless
the Committee determines otherwise, upon a Change of Control where the Company
is not the surviving corporation (or survives only as a subsidiary of another
corporation), outstanding grants shall be assumed by the surviving corporation.
In the event of certain changes in the number or kind of company stock
outstanding, the Board may adjust proportionally the maximum number of shares of
Company Stock that any individual participating in the Plan may be granted in
any year, the number of shares covered by outstanding grants, the kind of shares
issued under the Plan, and the exercise price per share of existing grants under
the Plan to reflect any increase or decrease in the number or kind of issued
shares.
A majority of the votes cast during the Annual Meeting, a quorum being present,
is required to approve the amendment to our 1997 Equity Compensation Plan.
Federal Income Tax Consequences
The current United States federal income tax treatment of grants under the Plan
is generally described below. This description of tax consequences is not a
complete description. There may be different income tax consequences under
certain circumstances, and there may gift and estate tax consequences. Local,
state and other taxing authorities may also tax grants under the Plan. Tax laws
are subject to change. Participants are urged to consult with their personal
tax advisors concerning the application of the general principles discussed
below to their own situations and the application of other tax laws.
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Non-qualified Stock Options
- ---------------------------
There generally are no federal income tax consequences to a participant or to
the Company upon the grant of a non-qualified stock option.
Upon the exercise of a non-qualified stock option, a participant will recognize
ordinary income in an amount equal to the excess of the fair market value of the
shares of Company Common Stock at the time of exercise over the exercise price.
The Company, generally, will be entitled to a corresponding federal income tax
deduction.
Upon the sale of the shares of stock acquired upon the exercise of a non-
qualified stock option, a participant will have a capital gain or loss in an
amount equal to the difference between the amount realized on the sale and the
participant's adjusted tax basis in the shares (the exercise price plus the
amount of income recognized at the time of exercise). The capital gain tax rate
will depend on the length of time the shares are held and other factors.
Incentive Stock Options
- -----------------------
There generally are no federal income tax consequences to a participant or to
the Company upon the grant of an incentive stock option.
A participant will not recognize income for purposes of the regular federal
income tax upon the exercise of an incentive stock option. However, for
purposes of the alternative minimum tax, in the year in which an incentive stock
option is exercised, the amount by which the fair market value of the shares
acquired upon exercise exceeds the exercise price will be treated as an item of
adjustment and included in the computation of the recipient's alternative
minimum taxable income.
A participant will recognize income when he or she sells stock acquired upon
exercise of an incentive stock option. If the shares acquired upon exercise of
an incentive stock option are disposed of after two years from the date the
option was granted and after one year from the date the shares were transferred
upon the exercise of the option, the participant will recognize long-term
capital gain or loss in the amount of the difference between the amount realized
on the sale and the exercise price. The Company will not be entitled to any
corresponding tax deduction.
If a participant disposes of the shares acquired upon exercise of an incentive
stock option before satisfying both holding period requirements (a disqualifying
disposition), any gain recognized on the disposition will be taxed as ordinary
income to the extent of the difference between the fair market value of the
shares on the date of exercise and the exercise price. The Company, generally,
will be entitled to a deduction in that amount. The gain, if any, in excess of
the amount recognized as ordinary income will be a long-term or short-term
capital gain, depending upon the length of time the shares were held before the
disposition.
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Restricted Stock
- ----------------
A participant normally will not recognize taxable income upon receipt of a
restricted stock grant, and the Company will not be entitled to a deduction
until the stock is transferable by the participant or no longer subject to a
substantial risk of forfeiture for federal tax purposes, whichever occurs
earlier. When the stock is either transferable or is no longer subject to a
substantial risk of forfeiture, the participant will recognize ordinary income
in an amount equal to the fair market value of the shares (less any amounts paid
for the shares) at that time. The Company, generally, will be entitled to a
deduction in the same amount.
A participant may elect to recognize ordinary income in the year when the
restricted stock grant is awarded in an amount equal to the fair market value of
the shares subject to the restricted stock grant (less any amounts paid for such
shares) at that time, determined without regard to any restrictions. In that
event, the Company, generally, will be entitled to a corresponding deduction in
the same year. Any gain or loss recognized by the participant upon a later
disposition of the shares will be a capital gain or loss.
Stock Appreciation Rights
- -------------------------
There generally are no federal income tax consequences to the participant or to
the Company upon the grant of a SAR under the Plan. Upon the exercise of an
SAR, if the participant receives the appreciation inherent in the SAR in cash,
the participant will recognize ordinary compensation income equal to the cash
received. If the participant receives the appreciation in shares, the
participant will recognize ordinary compensation income in an amount equal to
the fair market value of the shares received. The Company, generally, will be
entitled to a corresponding federal income tax deduction at the time of the
exercise of the SAR.
Upon the sale of any shares acquired by the exercise of an SAR, a participant
will have a capital gain or loss (long-term or short-term depending upon the
length of time the shares were held) in an amount equal to the difference
between the amount realized upon the sale and the participant's adjusted tax
basis in the shares (the amount of ordinary income recognized by the participant
at the time of exercise of the SAR). The capital gain tax rate will depend on
the length of time the shares were held and certain other factors.
Tax Withholding
- ---------------
The Company has the right to deduct from all grants paid in cash or other
compensation, any taxes required to be withheld with respect to grants under the
Plan. The Company may require the participant to pay to the Company the amount
of any required withholding. The Committee may permit the participant to elect
to have withheld from the shares issuable to him or her with respect to an
option, SAR, and restricted stock a number of shares with a value equal to the
required tax withholding amount.
Transfer of Stock Options
- -------------------------
The Committee may permit a participant to transfer non-qualified stock options
to family members. The tax consequences of stock option transfers are complex
and should be carefully evaluated by the participant and his or her tax advisor.
11
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Generally, a participant will not recognize income at the time he or she makes a
gift of a non-qualified stock option to a family member. When the transferee
later exercises the option, the participant (and not the transferee) must
recognize ordinary income on the difference between the fair market value of the
stock and the exercise price.
For federal gift tax purposes, if a participant transfers an option before the
option has become exercisable, the transfer will not be considered by the
Internal Revenue Service to be a completed gift until the option becomes
exercisable. The value of the gift will be determined when the option becomes
exercisable. Gifts of options may qualify for the $10,000 gift tax annual
exclusion.
If a participant dies after transferring an option in a completed gift
transaction, the transferred option may be excluded from the participant's
estate for estate tax purposes if the applicable estate tax requirements have
been met.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE 1997 EQUITY COMPENSATION PLAN.
12
<PAGE>
STATEMENT OF CORPORATE GOVERNANCE
Orthovita, Inc.'s business is managed under the direction of the Board of
Directors. The Board delegates the conduct of business to our senior management
team. Our Board meets four times a year in regularly scheduled meetings;
however, it may meet more often if necessary. The Board held six meetings
during 1999. The Chairman and Chief Executive Officer ("CEO") usually
determines the agenda for the meetings. Board members receive the agenda and
supporting information in advance of the meetings; however, Board members may
raise other matters at the meetings. The Chairman and CEO, Chief Operating
Officer ("COO"), Chief Financial Officer ("CFO") and, from time to time, other
senior management make presentations to the Board at the meetings. A
substantial portion of the meeting time is devoted to the Board's discussion of
these presentations. Significant matters that require Board approval are voted
on at the meetings.
The Board considers all major decisions. The Board has established four
standing committees so that certain areas can be addressed in more depth than
may be possible at a full Board meeting.
Executive Committee. This committee works with our management to review and
discuss our strategies, long-term plans and special projects. This committee
held two meetings in 1999.
Nominating Committee. This committee exercises the authority of the Board
during intervals between Board meetings and identifies individuals with the
experience, judgment and skills to become Board members. It recommends to the
Board and our shareholders the slate of directors for nomination and election
each year. This committee held two meetings in 1999.
Audit Committee. This committee assures the credibility of our financial
reporting by providing oversight of our financial reporting process and our
internal controls. The Audit Committee operates pursuant to a charter approved
by the Board of Directors. The Audit Committee reports on its activities to the
Board. This committee held two meetings during 1999.
Compensation Committee. This committee reviews the compensation of the CEO, COO
and other senior management, as well as our general employee compensation and
benefits policies and practices. They approve the goals for our incentive plans
and they monitor results against those goals. This committee held three
meetings during 1999.
Individual committees and their respective members effective May 23, 2000, are
as follows:
<TABLE>
<CAPTION> Nominating Compensation
Name of Director Executive Committee Committee Audit Committee Committee
- ---------------- ------------------- --------- --------------- ---------
<S> <C> <C> <C> <C>
David S. Joseph X* X*
Paul Ducheyne, Ph.D X X
James M. Garvey X
Richard M. Horowitz, Esq. X
Robert Levande X
Bruce A. Peacock X
Jos B. Peeters, Ph.D. X X
Howard Salasin, Ph.D. X
</TABLE>
* denotes Chairman of the committee
13
<PAGE>
DIRECTORS' COMPENSATION
As outlined in the Plan, each outside director receives 2,500 non-qualified
stock options per calendar year. The stock options are issued with an exercise
price equal to the market price on the date of the Annual Meeting of
Shareholders. The options are 50% immediately vested (1,500 shares) and 25%
vested (625 shares) for each of the following two years if the non-employee
director continues to be a member of the Board or is otherwise employed by us.
Outside directors receive no other compensation for serving on the Board;
however, they are reimbursed for travel expenses to the meetings. Employee
directors are not eligible for any additional compensation for service on the
Board or its committees. We pay liability insurance on behalf of all directors.
HOLDERS OF 5% OR MORE OF ORTHOVITA'S STOCK AND DIRECTORS' AND OFFICERS'
OWNERSHIP OF ORTHOVITA'S STOCK
The following table shows stock each of our directors and named executive
officers owned as of
December 31, 1999 and also how much stock was reportedly owned by entities
owning 5% or more of our Common Stock as of December 31, 1999. The table also
includes shares of Common Stock which are issuable, within 60 days of December
31, 1999, upon the exercise of vested stock option shares.
<TABLE>
<CAPTION>
Shares of Common Stock Percent of Common
Name Beneficially Owned Stock Owned
- ---- ------------------ -----------
Five Percent (5%) Shareholders:
- -------------------------------
<S> <C> <C>
Schroder Ventures International Life Science Funds:
L.P. I., L.P. II., Trust and Co-Investment Scheme (1) 788,143 6.9%
Electra Fleming Equity Partners and EF Nominees
Limited (2) 785,648 6.9
Directors and Named Executive Officers
- --------------------------------------
Paul Ducheyne, Ph.D. (3) 1,471,393 12.9
David S. Joseph (4) 741,587 6.5
Howard Salasin, Ph.D. (5) 154,084 1.4
Erik M. Erbe, Ph.D. (6) 111,750 1.0
Richard M. Horowitz, Esquire (7) 46,200 *
Bruce A. Peacock (12) 40,000 *
Joseph M. Paiva (8) 34,250 *
James M. Garvey (9) 12,250 *
Jos. B. Peeters, Ph.D. (9) 11,250 *
David J. McIlhenny (10) 23,800 *
Jeffrey J. Wicklund (11) 15,000 *
Robert M. Levande (13) 10,000 *
Directors and executive officers as a group
(11 persons) (14) 2,671,564 23.4
</TABLE>
* Less than 1%
14
<PAGE>
(1) Includes 82,260 shares of Common Stock obtainable upon the exercise of
presently exercisable warrants. Schroder Life Sciences Funds disclaim
ownership of any shares beneficially owned by Mr. Garvey.
(2) Includes 79,765 shares of Common Stock obtainable upon the exercise of
presently exercisable warrants.
(3) Includes (i) 200,000 shares held in trust by Dr. Ducheyne's spouse and (ii)
712,647 shares held in trust for the benefit of Dr. Ducheyne's children, of
which 63,573 shares are obtainable upon the exercise of warrants granted to
certain shareholders. Dr. Ducheyne disclaims beneficial ownership of the
shares held by the foregoing trusts.
(4) Includes (i) 13,250 shares underlying a warrant granted by Mr. Joseph to a
shareholder and excludes shares held in an irrevocable Trust for Mr.
Joseph's daughter and shares of Common Stock held by Mr. Joseph's spouse.
Mr. Joseph disclaims beneficial ownership of both the irrevocable Trust's
shares and his wife's shares.
(5) Includes (i) 39,908 shares of Common Stock obtainable from the Company upon
the exercise of presently exercisable warrants, (ii) 4,194 shares of Common
Stock obtainable from trusts established by Dr. Ducheyne upon the exercise
of a presently exercisable warrant and (iii) 11,250 shares of Common Stock
obtainable upon the exercise of presently exercisable options.
(6) Includes 111,750 shares of Common Stock obtainable upon the exercise of
presently exercisable options.
(7) Includes (i) 3,281 shares of Common Stock obtainable from the Company upon
the exercise of presently exercisable warrants, (ii) 2,097 shares of Common
Stock obtainable from trusts established by Dr. Ducheyne upon the exercise
of a presently exercisable warrant and (iii) 11,250 shares of Common Stock
obtainable upon the exercise of presently exercisable options.
(8) Includes 34,250 shares of Common Stock obtainable upon the exercise of
presently exercisable options.
(9) Includes 11,250 shares of Common Stock obtainable upon the exercise of
presently exercisable options.
(10) Includes 23,800 shares of Common Stock obtainable upon the exercise of
presently exercisable options.
(11) Includes 15,000 shares of Common Stock obtainable upon the exercise of
presently exercisable options.
(12) Includes 35,000 shares of Common Stock obtainable upon the exercise of
presently exercisable options.
(13) Includes 10,000 shares of Common Stock obtainable upon the exericise of
presently exercisable options held by The Palantir Group. Mr. Levande is
president of The Palantir Group.
(14) Includes an aggregate of shares subject to options that are exercisable (or
will become exercisable by February 29, 2000) to acquire 274,800 shares of
Common Stock by all directors and named executive officers, as a group.
15
<PAGE>
EXECUTIVE COMPENSATION: REPORT OF THE COMPENSATION COMMITTEE
Compensation Philosophy. The Compensation Committee of the Board of Directors
has instituted a management compensation plan that:
- Attracts and retains talented management;
- Provides between short-term and long-term incentives; and
- Focuses performance on the achievements of the Company's objectives.
Compensation Methodology. The Compensation Committee develops and implements
compensation policies, plans and programs which seek to enhance the
profitability and shareholder value of the Company by closely aligning the
financial interests of the Company's senior management with those of its
shareholders.
The Compensation Committee's compensation program for senior management is
comprised of the following:
Base salary. The annual base salary is designed to compensate executives for
their sustained performance and level of responsibility. Base salary is
based on individual performance and the executives' experience. The
Committee approves all salary increases for executive officers.
Annual performance bonus. An annual bonus program is established in order to
promote the achievement of Orthovita's performance objectives. The granting
of an annual bonus is discretionary. Company and individual goals and
milestones are established at the beginning of the year, and include targets
for progress in the research and development, clinical activities,
development of sales, marketing and investor relations programs and
organizational developments and share price. The Compensation Committee
provides bonus incentives for achievements of these goals because they
believe attainment of these goals will be in the best long-term interests of
the Company's shareholders. Bonus amounts for each executive are dependent
upon the level of achievement of the Company as well as the individual.
Long-term incentive compensation. The Committee determines the number of
incentive stock option grants or other grants under the Plan, if any, to be
granted to each executive. These recommendations are based on the
executive's ability to impact the financial and operational performance of
Orthovita; the executive's past performance; and the CEO's expectation of the
executive's future performance and contributions. All options are granted
with an exercise price equal to the closing market price on the date of
grant.
Compensation of the Chief Executive Officer and Chief Operating Officer. The
Committee meets annually to evaluate the performance of the CEO and COO. Based
on this evaluation, the Committee may recommend for approval salary increases,
annual bonuses and long-term incentive awards, if any. The CEO's and COO's
compensation reflects a higher degree of policy-making and decision-making
authority and a higher level of responsibility with respect to our strategic
direction and its financial and operating results. It also reflects the CEO's
and COO's long-term commitment and contributions to our success.
Respectfully submitted,
Compensation Committee
Mr. James Garvey Dr. Howard Salasin
16
<PAGE>
SUMMARY COMPENSATION TABLE
The following table reflects information for the year ended December 31, 1999,
regarding annual compensation and long-term incentive compensation earned by the
Chief Executive Officer and each of our four most highly compensated executive
officers, other than the Chief Executive Officer, whose compensation exceeded
$100,000 for the 1999 year ("Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term Incentive
Annual Compensation Compensation
------------------- ------------
Option Grants
Other Annual During Current All Other
Executive Officer Principal Compensation Year Compensation
Position Year Salary ($) Bonus ($) ($) (#) ($)(1)
-------- ---- ---------- --------- --- --- ------
<S> <C> <C> <C> <C> <C> <C>
David S. Joseph, Chairman 1999 225,000 --- 12,963 --- ---
and Chief Executive Officer 1998 225,000 99,000 19,800 --- ---
1997 210,577 --- 7,900 --- ---
Erik M. Erbe, Ph.D., Vice 1999 153,296 13,000 6,577 20,000 3,844
President, Research and 1998 130,000 26,000 8,500 17,000 3,816
Development 1997 123,423 22,500 4,400 100,000 2,254
Joseph M. Paiva, Vice President 1999 152,600 16,333 7,366 12,500 4,537
and Chief Financial Officer (2) 1998 140,000 24,500 9,600 17,000 2,380
1997 8,077 --- --- 50,000 ---
Jeffrey J. Wicklund, Vice 1999 120,208 7,436 4,841 13,000 3,821
President, Process Development 1998 106,977 7,500 --- 12,000 3,435
and Manufacturing (3) 1997 37,292 12,000 --- 15,000 ---
David J. McIlhenny, Vice 1999 119,888 5,769 7,106 15,000 3,762
President, Quality Systems and 1998 108,363 7,500 --- 11,000 4,634
Operations Support 1997 97,618 --- --- --- 3,430
</TABLE>
(1) The amounts disclosed consist of the Company's 401(k) savings plan matching
contributions.
(2) On December 1, 1997, Mr. Paiva joined the Company as Vice President and
Chief Financial Officer.
(3) On August 11, 1997, Mr. Wicklund joined the Company as Director of Process
Engineering. In 1999, he was promoted to his current position as Vice
President of Manufacturing and Process Technology.
17
<PAGE>
OPTION GRANTS. The following table presents information concerning the
options granted under the 1997 Equity Compensation Plan to Named Executive
Officers during 1999.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
Number of % of Total
Securities Options Potential Realizable Value at
Underlying Granted to Exercise Assumed Annual Rates of Stock Price
Options Employees Price Appreciation for
Name Granted in Year ($/share) (2) Expiration Date Option Term
---- ------- ------- ------------ --------------- -----------
5% ($) 10% ($)
------ ------
<S> <C> <C> <C> <C> <C> <C>
David S. Joseph --- --- --- --- --- ---
Erik M. Erbe, PhD. (1) 20,000 2.9% $5.00 December 31, 2009 $162,889 $259,374
Joseph M. Paiva (1) 12,500 1.8% $5.00 December 31, 2009 101,806 162,109
Jeffrey J. Wicklund (1) 13,000 1.9% $5.00 December 31, 2009 105,878 168,593
David J. McIlhenny (1) 15,000 2.2% $5.00 December 31, 2009 122,167 194,531
</TABLE>
(1) These options have a ten-year term and are exercisable as follows: 20%
on December 31, 2000, and 20% additional on each anniversary date
thereafter.
(2) The exercise price per share of the options was equal to the closing
price of the Common Stock on the date of grant.
OPTION EXERCISES. The following table summarizes the value of unexercised
options for the Named Executive Officers at December 31, 1999.
AGGREGATE OPTION EXERCISES AND YEAR-END VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
December 31, 1999 (#) at December 31, 1999 ($) (1)
Shares -------------------- ----------------------------
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David S. Joseph --- --- --- --- --- ---
Erik M. Erbe, Ph.D. --- --- 111,750 60,250 $134,188 $23,813
Joseph M. Paiva --- --- 34,250 45,250 23,563 8,250
Jeffrey J. Wicklund --- --- 15,000 30,000 9,750 18,188
David J. McIlhenny --- --- 23,800 22,200 31,850 2,400
</TABLE>
(1) Value presented is based upon the difference between (i) the $5.00 per
share closing price of our Common Stock on the European Association of
Securities Dealers' Automated Quotation System ("EASDAQ") on December 31,
1999, and (ii) the exercise price of unexercised-in-the-money options.
18
<PAGE>
EMPLOYMENT AGREEMENTS
David S. Joseph, Bruce A. Peacock and Erik M. Erbe, Ph.D., have employment
agreements with the Company, under which, in the event of involuntary
termination without cause by us, we will pay 24 months salary as a severance
benefit. The receipt of this severance benefit is conditioned upon the employee
executing a release in our favor. Additionally, each employment agreement
entitles the employee to participate in any of our senior level executive short-
term or long-term incentive compensation programs. Mr. Joseph's and Mr.
Peacock's respective employment agreements provide for their employment as the
Company's Chairman and CEO, and President and COO, respectively, through
December 31, 2000, at an annual salary of $225,000 each. Dr. Erbe's employment
agreement provides for his employment as the Company's Vice President of
Research and Development through June 30, 2000, at a minimum annual salary of
$130,000. In addition, each employment agreement contains other terms
customarily found in executive officer employment agreements, including
provisions relating to changes in control, the reimbursement of certain
business expenses, participation in employee benefit plans generally available
to the other executive officers of the Company, life insurance, severance,
confidentiality and non-competition.
COMPARATIVE STOCK PERFORMANCE GRAPH
The following graph was prepared and shows how an initial investment of $100 in
Orthovita's Common Stock would have compared to an equal investment in the
EASDAQ Stock Market Index. The graph compares the total cumulative return since
June 25, 1998 (the date we began public trading of our Common Stock).
EASDAQ Stock
Measurement Period Orthovita, Inc. Market Index
------------------ --------------- ------------
June 25, 1998 100 100
June 30, 1998 106 102
September 30, 1998 90 77
December 31, 1998 45 82
March 31, 1999 54 98
June 30, 1999 48 112
September 30, 1999 90 53
December 31, 1999 48 153
[GRAPH APPEARS HERE]
19
<PAGE>
SECTION 16(a) REPORTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
directors, certain of our officers, and persons who own more than ten percent of
our Common Stock, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of our Common Stock.
These directors, officers and more than ten percent shareholders are required by
regulation to furnish us with copies of all Section 16(a) forms they file.
Based upon a review of the copies of such reports furnished to us and written
representations from such directors and officers, certain fiscal year 1999
Section 16(a) filing requirements were filed late. Mr. Garvey and Dr. Salasin
each purchased 1,000 shares of our Common Stock during April 1999 and filed the
required Form 4 during June 1999. In May 1999, Mr. Bennett, Mr. Horowitz, Dr.
Peeters, Dr. Salasin and Schroder Ventures Life Sciences were each granted 1,500
non-qualified stock options and the required statements on Form 4 were filed
July 1999. Mr. Joseph, Mr. Peacock, Mr. Paiva, Dr. Erbe, Mr. Bennett, Dr.
Ducheyne, Mr. Horowitz, Mr. Garvey, Dr. Peeters and Dr. Salasin filed their
respective Year End Statement of Beneficial Ownership during March 2000.
SHAREHOLDERS' PROPOSALS FOR 2001 ANNUAL MEETING
Shareholders may submit proposals on matters appropriate for shareholder action
at annual meetings in accordance with regulations adopted by the Securities and
Exchange Commission governing the solicitation of proxies. To be considered for
inclusion in the proxy statement and form of proxy card relating to the 2001
Annual Meeting, we must receive such proposals no later than February 1, 2001.
Proposals should be directed to the attention of the Secretary of the Company.
By Order of the Board of Directors,
JOSEPH M. PAIVA
Corporate Secretary
20
<PAGE>
PROXY PROXY
ORTHOVITA, INC.
2000 Annual Meeting of Shareholders--May 23, 2000
This Proxy Is Solicited on Behalf of the Board of Directors of
Orthovita, Inc.
The undersigned, having duly received notice of the meeting and
the proxy statement therefore, and revoking all prior proxies,
hereby appoints Joseph M. Paiva, attorney of the undersigned (with
full power of substitution, for and in the name(s) of the
undersigned, to attend the Annual Meeting of Shareholders of
Orthovita, Inc. to be held at the Desmond Hotel, One Liberty
Boulevard, Malvern, Pennsylvania, 19355 at 10:00 am (Eastern
standard time), on Tuesday, May 23, 2000 and any adjourned sessions
thereof, and to vote and act upon the matters set forth herein in
respect of shares of Common Stock of Orthovita, Inc. which the
undersigned would be entitled to vote or act upon, with all powers
the undersigned would possess, if personally present. Each of the
matters set forth herein is being proposed by Orthovita, Inc.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY
ADJOURNMENT THEREOF.
[X] Please mark your votes as in this example.
1. TO ELECT A BOARD OF DIRECTORS (nominees David S. Joseph, Paul Ducheyne,
Ph.D, James M. Garvey, Richard M. Horowitz, Robert M. Levande, Bruce A.
Peacock, Jos B. Peeters, Ph.D., and Howard Salasin, Ph.D.)
[_] FOR [_] WITHHELD [_] FOR ALL EXCEPT
To withhold authority to vote for a particular nominee(s), mark the "FOR ALL
EXCEPT" box and write the name of the nominee(s) on the line provided:
- --------------------------------------------------------------------------------
2. TO APPROVE AN AMENDMENT TO THE 1997 EQUITY COMPENSATION PLAN.
[_] FOR [_] AGAINST [_] ABSTAIN
3. IN THEIR DISCRETION, THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE MEETING OR AT ANY ADJOURNMENTS THEREOF.
[_] FOR [_] AGAINST [_] ABSTAIN
SIGNATURE ON REVERSE SIDE
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY PROPOSAL SPECIFIED ON
THE REVERSE SIDE, THIS PROXY WILL BE VOTED "FOR" SUCH PROPOSAL.
Attendance of the undersigned at the meeting or at any adjournment session
thereof, will not be deemed to revoke this proxy unless the undersigned shall
affirmatively indicate at such meeting or session the intention of the
undersigned to revoke said proxy in person. If the undersigned hold(s) any of
the shares of Orthovita, Inc. in a fiduciary, custodial or joint capacity or
capacities, this proxy is signed by the undersigned in every such capacity, as
well as individually.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD IN THE ENCLOSED
ENVELOPE.
Date: _________________
_______________________
Signature
_______________________
Printed Name
_______________________
Signature (if held
jointly)
Note: Please sign
name(s) exactly as
appearing hereon. When
signing as attorney,
executor,
administrator or other
fiduciary, please give
your full title as
such. Joint owners
should each sign
personally.
