formdef14a.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy Statement Pursuant to Section
14(a) of
the Securities Exchange Act of 1934
(Amendment No. )
Filed by the
Registrant ý
Filed by a Party other than the
Registrant o
Check the appropriate
box:
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Preliminary Proxy
Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive Proxy
Statement
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Definitive Additional
Materials
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Soliciting Material Pursuant to
§240.14a-12
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ORTHOFIX
INTERNATIONAL N.V.
(Name of Registrant as Specified In Its
Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the
appropriate box):
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Fee computed on table
below per Exchange
Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title of each class of securities
to which transaction
applies:
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(2)
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Aggregate number of securities to
which transaction applies:
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(3)
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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)
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Proposed maximum aggregate value
of transaction:
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Fee paid previously with
preliminary materials.
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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.
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(1)
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Amount Previously
Paid:
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(2)
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Form, Schedule or Registration
Statement No.:
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Orthofix International
N.V.
NOTICE OF ANNUAL GENERAL MEETING OF
SHAREHOLDERS
AND
PROXY STATEMENT
Meeting
Date:
June 19, 2008
at 11:00 a.m. (local time)
Meeting
Place:
Orthofix International
N.V.
7 Abraham de
Veerstraat
Curaçao, Netherlands
Antilles
Dear Shareholders:
We will hold the Annual General Meeting
of Shareholders (the
“Annual General Meeting”) on June 19, 2008, at 11:00 a.m. (local time) at Orthofix’s offices, located at 7 Abraham de
Veerstraat, Curaçao,
Netherlands Antilles.
This booklet includes the notice of
Annual General Meeting and the proxy statement. The proxy statement
describes the business that we will conduct at the meeting.
Your vote is
important. Please refer to the proxy card or other voting
instructions included with these proxy materials for information on how to vote
by proxy or in
person.
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Sincerely,
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/s/ Alan W.
Milinazzo
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Alan W.
Milinazzo
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President and Chief Executive
Officer and Director
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April 29, 2008
NOTICE AND PROXY
STATEMENT
for Shareholders of
ORTHOFIX INTERNATIONAL
N.V.
7 Abraham de
Veerstraat
Curaçao, Netherlands Antilles
for
ANNUAL GENERAL MEETING OF
SHAREHOLDERS
to be held on June 19, 2008
This notice and the accompanying proxy
statement are being furnished to the shareholders of Orthofix International
N.V., a Netherlands Antilles corporation (“Orthofix” or the “Company”), in connection with the upcoming
Annual General Meeting of Shareholders (the “Annual General Meeting”) and the related solicitation of
proxies by the Board of Directors of Orthofix (the “Board of Directors” or “Board”) from holders of outstanding shares of common
stock, par value $0.10 per share, of Orthofix for use at the Annual General Meeting and at any adjournment
thereof. In this notice and the accompanying proxy statement, all
references to “we,” “our” and “us” refer to the Company, except as otherwise
provided.
Time, Date and Place of Annual
General Meeting
Notice is hereby given that the Annual
General Meeting will be held on June 19, 2008 at 11:00 a.m., local time, at Orthofix’s offices, located at 7 Abraham de
Veerstraat,
Curaçao, Netherlands
Antilles.
Purpose of the Annual General Meeting
1. Election of Board of
Directors. Shareholders will be asked
to consider, and, if thought fit, approve a resolution to elect the following
persons to the Board of Directors: James F. Gero,
Peter J. Hewett, Jerry C. Benjamin, Charles W. Federico, Dr. Guy J. Jordan, Thomas J. Kester, Alan W.
Milinazzo, Maria
Sainz, Dr. Walter P. von Wartburg and Kenneth R.
Weisshaar. The Board of Directors recommends that
shareholders
vote
FOR each of the foregoing nominees for
director.
2. Approval of Amendment No.1 to
Amended and Restated 2004 Long-Term Incentive
Plan. Shareholders will be asked to consider, and, if thought
fit, approve the Amendment No. 1 to the Amended and Restated 2004 Long-Term
Incentive Plan. The Board of Directors recommends that shareholders
vote FOR the proposal to
amend the Amended and Restated 2004 Long-Term Incentive Plan.
3.
Approval of Amended and Restated
Orthofix International N.V. Stock Purchase Plan. Shareholders
will be asked to consider, and, if thought fit, approve the Amended and Restated
Orthofix International N.V. Stock Purchase Plan. The Board of
Directors recommends that shareholders vote FOR the proposal to adopt the
Amended and Restated Orthofix International N.V. Stock Purchase
Plan.
4. Amendment and Restatement of Section
8.3 of the Articles of Association. Shareholders will be asked
to consider, and, if thought fit, adopt an amendment and restatement of Section
8.3 of the Articles of Association. Currently, the Articles of
Association provide that the Board of Directors may fill vacancies created when
a director resigns or is otherwise prevented from or is incapable of acting as a
director. The proposed amendment would provide that the Board of
Directors also has authority to fill vacancies on the Board created if the Board
increases the Board’s size by resolution. The Board of Directors
recommends that shareholders vote FOR the proposal to adopt the
amendment and restatement of Section 8.3 of the Articles of
Association.
5. Approval of
Financial Statements for the Year Ended December 31, 2007. Shareholders will be asked
to consider, and, if thought fit, approve the balance sheet and income statement at and for the year ended
December 31, 2007. The Board of Directors
recommends that shareholders vote FOR the proposal to approve the balance
sheet and income statement at and for the year ended December 31,
2007.
6. Ratification of the Selection
of Ernst & Young LLP. Shareholders will be asked
to consider, and, if thought fit, approve a resolution to ratify the selection
of Ernst & Young LLP as the independent registered public accounting firm
for Orthofix and its subsidiaries for the fiscal year ending December 31,
2008. The Board of Directors
recommends that shareholders vote FOR the proposal to ratify the selection of
Ernst & Young LLP as the independent registered public accounting
firm.
7. Miscellaneous. Shareholders will be asked to transact such
other business as may come before the Annual General Meeting or any adjournment
thereof.
Please read a detailed description of
proposals 1 through 6 stated above beginning on page
45 of the proxy
statement.
Shareholders Entitled to
Vote
All record holders of shares of Orthofix
common stock at the close of business on April 23, 2008 have been sent this notice and will be
entitled to vote at the Annual General Meeting. Each record holder
on such date is entitled to
cast one vote per share of common stock.
Documents Available for
Inspection
A copy of the financial statements for
the year ended December 31, 2007 have been filed at the offices of
Orthofix at 7 Abraham de Veerstraat, Curaçao, Netherlands Antilles and are available for inspection by
shareholders until the conclusion of the Annual General Meeting.
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By Order of the Board of
Directors
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/s/ Raymond C.
Kolls
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Raymond C.
Kolls
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Corporate
Secretary
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April 29, 2008
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Appendices:
PROXY STATEMENT FOR THE ORTHOFIX
INTERNATIONAL
N.V.
2008 ANNUAL GENERAL MEETING OF
SHAREHOLDERS
THIS PROXY STATEMENT AND THE ENCLOSED
PROXY ARE BEING MAILED TO SHAREHOLDERS ON OR ABOUT MAY 7, 2008.
Who can vote?
All record holders of shares of Orthofix
common stock at the close
of business on April
23, 2008 (the “Record Date”) have been sent this notice and will be
entitled to vote at the Annual General Meeting. Each record holder
on such date is entitled to cast one vote per share of common
stock. As of the Record Date, there were 17,088,856 shares of Orthofix common stock
outstanding.
Quorum, vote
required
The
presence, in person or by proxy, of the holders of fifty percent (50%) of the
shares of Orthofix common stock outstanding on the Record Date is required to
constitute a quorum at the Annual General Meeting. An absolute
majority of the votes cast will be required in order to approve the proposals
before the Annual General Meeting, except that (i) the proposed amendment to the
Articles of Association will require an absolute majority of the shares of
common stock outstanding for approval and (ii) the directors shall be elected by
a plurality of the votes cast. Abstentions and “broker non-votes” are
counted as shares that are present and entitled to vote on the proposals for
purposes of determining the presence of a quorum, but abstentions and broker
non-votes will not have any effect on the outcome of voting on the proposals,
except for the proposed amendment to the Articles of Association, for which
abstentions and “broker non-votes” will have the effect of a vote against such
proposal. A broker “non-vote” occurs when a broker holding shares for
a beneficial owner does not vote on a particular proposal because the broker
does not have discretionary voting power for that particular item and has not
received instructions from the beneficial owner.
Proxies
This proxy statement is being furnished
to holders of shares of Orthofix common stock in connection with the
solicitation of proxies by and on behalf of the Board of Directors for use at the
Annual General Meeting.
All shares of Orthofix common stock that
are represented at the Annual General Meeting by properly executed proxies
received prior to or at the Annual General Meeting and which are not validly
revoked, will be voted at
the Annual General
Meeting in accordance with
the instructions indicated on such proxies. If no instructions are
indicated on a properly executed proxy, such proxy will be voted in favor of
each of the proposals. The Board of Directors does not know of any other matters that are
to be presented for consideration at the Annual General Meeting.
Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before it is
voted. Proxies may be revoked by (1) filing with Orthofix, at or before the
taking of the vote at the Annual General Meeting, a written notice of revocation
bearing a later date than the proxy, or (2) duly executing a subsequent proxy
relating to the same shares of Orthofix common stock and delivering it to Orthofix before the
Annual General Meeting. Attending the Annual
General Meeting will not in and of itself
constitute the revocation of a proxy. Any written notice of
revocation or subsequent proxy should be sent so as to be delivered
to: Orthofix
International N.V., 7 Abraham de Veerstraat, Curaçao, Netherlands Antilles, at or before
the taking of the vote at the Annual General Meeting.
Voting is
confidential
We maintain a policy of keeping all the
proxies, ballots and voting tabulations confidential.
The costs of soliciting these proxies
and who will pay them
We will pay all the costs of soliciting
these proxies. Although we are mailing these proxy materials, our
directors and employees may also solicit proxies by telephone, fax or other electronic means of
communication, or in person. We will reimburse banks, brokers,
nominees and other fiduciaries for the expenses they incur in forwarding the
proxy materials to you. Georgeson Inc. is assisting us with the
solicitation of proxies for a fee of $7,000 plus out-of-pocket
expenses.
Obtaining an Annual Report on Form
10-K
We have filed our Annual Report on Form
10-K for the year ended December 31, 2007 with the U.S. Securities and Exchange
Commission (the “SEC”). Our Form 10-K is included in our Annual Report
that we are sending you with this proxy statement. Our Form 10-K is
also available on our website at www.orthofix.com. If you would like to
receive a separate copy of our Form 10-K, we will send you one without
charge. Please
write to:
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Investor
Relations
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Orthofix International
N.V.
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10115 Kincey Ave., Suite
250
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Huntersville,
NC 28078
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Attention: Mr. Dan
Yarbrough
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You may also contact Mr. Dan Yarbrough
at (704) 948-2600 or at danyarbrough@orthofix.com.
The voting results
We will publish the voting results from
the Annual General
Meeting in our Form 10-Q
for the second quarter of 2008, which we currently expect to file with
the SEC in August
2008. You will
also be able to find the Form 10-Q on our website at www.orthofix.com.
Whom to call if you have any
questions
If you have any questions about the
Annual General Meeting, voting or your ownership of
Orthofix common stock, please contact Thomas Hein, Chief Financial Officer, at (704)
948-2600 or at tomhein@orthofix.com or Raymond C. Kolls, Senior Vice
President, General Counsel and Corporate Secretary, at (704) 948-2600 or
at raykolls@orthofix.com. For
directions to the meeting please consult the Company’s website at www.orthofix.com/investors/annuals.asp.
Important
Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting
To Be Held on June 19, 2008.
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The
2008 Proxy Statement and the 2007 Annual Report to Shareholders are
available at www.orthofix.com/investors/annuals.asp.
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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDERS
Who are the principal owners of Orthofix common
stock?
The following table shows each person,
or group of affiliated persons, who beneficially owned, directly or indirectly,
at least 5% of Orthofix common stock as of the record date. Our information is
based on reports filed with
the SEC by each of the firms or individuals listed in the table below. You may
obtain these reports from the SEC.
The Percent of Class figures for the
common stock are based on shares of our common stock outstanding as of the
record date. Except as
otherwise indicated, each shareholder has sole voting and dispositive power with
respect to the shares indicated.
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Name and
Address
of Beneficial
Owner
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Amount and Nature
of
Beneficial
Ownership
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Percent of
Class
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Columbia Wanger Asset Management, L.P.
227 West Monroe Street, Suite
3000
Chicago,
IL 60606
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1,851,360
(1)
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10.8%
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FMR Corp
82 Devonshire
Street
Boston, MA
02109
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1,659,290
(2)
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9.7%
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Paradigm Capital Management,
Inc
Nine Elk
Street
Albany, NY
12207
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926,450 (3)
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5.4%
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Porter Orlin
LLC
666 5th Avenue, 34th Floor
New York, NY 10103
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899,209 (4)
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5.3%
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(1)
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Information obtained from Schedule
13G/A filed with the SEC by Columbia Wanger Asset Management,
L.P. (“Columbia Wanger”) on January 8, 2008. The
Schedule 13G/A discloses that, of these shares, Columbia Wanger has sole
power to vote or direct the vote of 1,661,360 shares, shared power to vote
or direct the vote of 190,000 shares and sole power to
dispose or to direct the disposition of 1,851,360
shares.
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(2)
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Information obtained from Schedule
13G/A filed with the SEC by FMR Corp. (“FMR”) on February 14,
2008. The Schedule
13G/A discloses that, of these shares, FMR has sole power to vote or direct the
vote of 278,490 shares and sole power to dispose
or to direct the
disposition of 1,659,290
shares.
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(3)
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Information obtained from Schedule
13G/A filed with the SEC by Paradigm Capital Management, Inc.
(“Paradigm”) on February 14, 2008. The Schedule
13G/A discloses that Paradigm has sole power to vote or direct the vote
of, and sole power to dispose or to direct the disposition of, all of
these shares.
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(4)
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Information obtained from Schedule
13G filed with the SEC by Porter Orlin LLC. (“Porter Orlin”) on March 4, 2008. The
Schedule 13G discloses that Porter Orlin has shared power to vote or
direct the vote of, and shared power to dispose or to direct the
disposition of, all of these
shares.
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Common stock owned by
Orthofix’s directors and executive
officers
The following table sets forth the
beneficial ownership of our common stock, including stock options currently
exercisable and exercisable within 60 days, as of April 23, 2008, the record
date, by each director, each nominee for director, each executive officer
listed in the Summary Compensation Table and all directors and executive
officers as a group. The percent of class figure is based
on 17,088,856 shares of our common stock outstanding as of April
23, 2008. All directors and executive officers as a
group beneficially owned 875,962 shares of Orthofix common stock as of such
date. Unless otherwise indicated, the beneficial owners exercise sole
voting and/or investment power over their shares.
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Name of Beneficial
Owner
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Amount and Nature of Beneficial
Ownership
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Percentage of
Class
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Bradley R.
Mason
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186,774 |
(1) |
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1.1%
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James F.
Gero
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123,972 |
(2) |
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Alan W.
Milinazzo
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119,867 |
(3) |
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Thomas M.
Hein
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109,641 |
(4) |
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* |
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Jerry C.
Benjamin
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94,282 |
(5) |
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Peter J.
Hewett
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60,800 |
(6) |
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Dr. Walter P. von
Wartburg
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25,000 |
(7) |
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Thomas J.
Kester
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21,000 |
(8) |
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Kenneth R.
Weisshaar
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19,500 |
(9) |
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Dr. Guy J.
Jordan
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19,000 |
(10) |
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Michael M.
Finegan
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16,667 |
(11) |
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* |
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Oliver
Burckhardt
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10,000 |
(12) |
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Charles W.
Federico
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6,225 |
(13)
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Maria Sainz
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– |
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Timothy M. Adams
(14)
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– |
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All directors, nominees for
director and executive officers as a group (17
persons)
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875,962 |
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5.0%
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*
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Represents less than one
percent.
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(1)
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Reflects 2,506 shares owned
directly, 78,080 shares owned indirectly and 107,001 shares issuable
pursuant to stock options that are currently exercisable or
exercisable within 60
days of the record date.
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(2)
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Reflects 87,504 shares owned
directly and 38,400 shares issuable pursuant to stock options that are
currently exercisable or exercisable within 60 days of the record
date.
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(3)
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Reflects 13,200 shares owned
indirectly and
106,667 shares issuable pursuant to stock options that are currently
exercisable or exercisable within 60 days of the record
date.
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(4)
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Reflects 3,900 shares owned
directly and 106,000 shares issuable pursuant to stock options that are
currently exercisable
or exercisable within 60 days of the record
date.
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(5)
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Reflects 69,282 shares owned
directly and 25,000 shares issuable pursuant to stock options that are
currently exercisable or exercisable within 60 days of the record
date.
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(6)
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Reflects 59,800 shares owned directly and 1,000
shares issuable pursuant to stock options that are currently exercisable
or exercisable within 60 days of the record
date.
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(7)
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Reflects 25,000 shares issuable
pursuant to stock options that are currently exercisable or exercisable within 60 days of the
record date.
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(8)
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Reflects 2,000 shares owned
directly and 19,000 shares issuable pursuant to stock options that are
currently exercisable or exercisable within 60 days of the record
date.
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(9)
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Reflects 500 shares owned
directly and 19,000
shares issuable pursuant to stock options that are currently exercisable
or exercisable within 60 days of the record
date.
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(10)
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Reflects 19,000 shares issuable
pursuant to stock options that are currently exercisable or exercisable
within 60 days of the
record date.
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(11)
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Reflects 16,667 shares issuable
pursuant to stock options that are currently exercisable or exercisable
within 60 days of the record
date.
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(12)
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Reflects 10,000 shares issuable
pursuant to stock options that are currently exercisable or exercisable within 60
days of the record date.
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(13)
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Reflects 4,325 shares owned
directly, 900 shares owned indirectly and 1,000 shares issuable pursuant
to stock options that are currently exercisable or exercisable within 60
days of the record date.
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(14)
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This
executive officer ceased employment with Orthofix as of April 30, 2008 and
he is not reflected in the line entitled “All directors, nominees for
director and executive officers as a
group.”
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities
Exchange Act of 1934, as amended, requires our officers and directors, and
holders of more than 10% of our common stock (collectively, the “Reporting Persons”) to file with the SEC initial reports
of ownership and reports of
changes in ownership of our common stock. Such persons are required
by regulations of the SEC to furnish us with copies of all such
filings. Based on our review of the these reports from the Reporting
Persons, we believe that during the fiscal year ended December 31, 2007 all Section 16(a) filing requirements
applicable to the Reporting Persons were complied with, except that one Form 3
for Mr. Dodson, one Form 4 with respect to one
transaction each for each of Messrs. Burckhardt, Federico, Kester, Weisshaar and Benjamin, Dr. Jordan and Dr. von
Wartburg, two Forms 4 with
respect to one transaction each of Mr. Hewett, and one Form 4 with respect to
two transactions of Mr. Gaines-Cooper, were filed late.
INFORMATION ABOUT
DIRECTORS
The Board of Directors and Committees of the
Board
The Board of Directors currently has
nine members. The Board has resolved to
increase the size of the Board from nine to ten effective at the Annual General
Meeting. The
directors are elected at
each Annual General Meeting by a plurality of the votes cast, in
person or by proxy by the shareholders. Directors are elected for
one-year
terms. Because we are required by Netherlands Antilles
law to hold the Annual General Meeting in the Netherlands Antilles, we
do not have a policy
regarding director attendance at the Annual General Meeting of
Shareholders. No directors were present at our 2007 Annual General Meeting of
Shareholders. Our Articles of Association currently provide that the
Board shall consist of not less than six and no more than fifteen directors, the
exact number to be determined by resolution of the Board.
Our Board usually meets four times per
year in regularly scheduled meetings, but will meet more often if
necessary. The Board met six times during 2007 (four of which meetings were two-day
in-person meetings). The Board has three standing
committees: the Audit Committee, the Compensation Committee and the
Nominating and Governance Committee. Each Director attended
more than 75% of the aggregate of all meetings of the Board of Directors and the
Committees on which he served during 2007.
Of the ten directors standing for election at the
Annual General Meeting, the Board has determined that
Messrs. Benjamin, Kester and Weisshaar, Ms. Sainz, Dr. Jordan and Dr. von Wartburg are
independent under the current listing standards of the Nasdaq Global Select
Market and Section 10A(m)(3) of the Securities Exchange Act of 1934, as
amended. A list of our current directors who will serve beyond the
meeting and background information for each of
them, together with
information regarding our new director nominee, Ms. Sainz, is presented in the section
“Proposal 1: Election of
Directors,” beginning on page 45.
The Audit Committee
Our Audit Committee is a separately-designated standing audit
committee established in accordance with section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended. The Audit Committee is responsible
for the appointment, compensation and oversight of our independent registered public accounting firm,
approving the scope of the annual audit by the independent registered public
accounting firm, reviewing audit findings and accounting policies, assessing the
adequacy of internal controls and risk management and reviewing and approving Orthofix’s financial disclosures. The
committee also meets privately, outside the presence of Orthofix management,
with our independent registered public accounting firm. The Audit
Committee’s Report for 2007 is printed below at page
63.
The Board has adopted a written charter
for the Audit Committee, a copy of which is available for review on our
website at www.orthofix.com.
The Audit Committee met fourteen times during 2007.
Messrs. Benjamin, Kester and Weisshaar
currently serve as members
of the Audit Committee. Mr. Benjamin serves as Chairman of the
committee. Under the current rules of the Nasdaq Global Select Market
and pursuant to Rule 10A-3 of Schedule 14A under the Securities Exchange Act of
1934, as amended, all of the members of the Audit Committee are
independent. Our Board of Directors has determined that Messrs.
Benjamin, Kester and Weisshaar are “audit committee financial
experts” as that term is defined in Item 401(h)
of Regulation S-K.
The Compensation
Committee
The
Compensation Committee is responsible for establishing compensation policies and
determining, approving and overseeing the total compensation packages for our
executive officers and other key employees, including all elements of
compensation.
The
Compensation Committee administers our Amended and Restated 2004 Long-Term
Incentive Plan (the “2004 LTIP”), the primary equity incentive plan under which
we make equity-related awards, and the Orthofix Inc. Employee Stock Purchase
Plan (the “ESPP”), an equity plan under which most of our employees are eligible
to purchase Company stock. The Compensation Committee also
administers prior plans that continue to have outstanding awards, but under
which we no longer grant awards. The Compensation Committee has sole
authority with respect to awards under the 2004 LTIP and oversees the ESPP and
remaining awards under prior plans. See “Executive Compensation –
Compensation Discussion and Analysis – Elements of Executive Compensation –
Long-Term Equity-Based Incentives” for information on these
plans.
The
Compensation Committee met ten times during 2007.
The Board
has adopted a written charter for the Compensation Committee, a copy of which is
available for review on our website at www.orthofix.com.
Mr.
Kester, Dr. Jordan and Dr. von Wartburg currently serve as members of the
Compensation Committee. From January 1, 2007 until June 20, 2007, the
Compensation Committee of the Board consisted of four members, Mr. Kester, Dr.
Jordan, Mr. Widensohler and Dr. von Wartburg. On June 20, 2007, Mr.
Widensohler ceased serving as a member of the Compensation Committee when he
departed the Company’s Board of Directors. All persons who served on
the Compensation Committee in 2007 satisfied, and all persons currently serving
on the Compensation Committee satisfy, the qualification standards of Section
162(m) of the U.S. Internal Revenue Code of 1986, as amended (the “Internal
Revenue Code”), and Section 16 of the Exchange Act. All members are
non-employee, non-affiliated, outside directors and they are considered
independent under the current rules of the Nasdaq Global Select Market and the
SEC. Mr. Kester serves as Chairman of the Compensation
Committee.
No
interlocking relationship, as defined in the Exchange Act, exists between the
Board or Committee and the board of directors or compensation committee of any
other entity.
The Nominating and Governance
Committee
The Nominating and Governance Committee
assists the Board in identifying qualified individuals to become Board members, recommends to the Board nominees for
election at each annual general meeting of shareholders, develops and recommends
to the Board the Company’s corporate governance principles and
guidelines, and evaluates potential candidates for executive positions as
appropriate. The
Nominating and Governance Committee is also responsible for periodically
reviewing plans regarding succession of senior management.
The Nominating and Governance Committee
met five times in 2007.
The Board has adopted a written charter for the Nominating and
Governance Committee, a copy of which is available for review on our website
at www.orthofix.com.
Messrs. Benjamin, Weisshaar and Dr. Jordan currently serve as
members of the Nominating and Governance Committee. Dr. Jordan serves as Chairman of the
committee. All members are independent under the current rules of the
Nasdaq Global Select Market and the SEC.
Code of Ethics
We have adopted a code of ethics to
comply with the rules of the SEC and the Nasdaq Global Select Market. Our
Code of Conduct and Ethics applies to our directors, officers
and employees worldwide, including our Chief Executive Officer and Chief
Financial Officer. A copy of our Code of Conduct and Ethics is available for review on our
website at www.orthofix.com.
Shareholder Communication with the Board
of Directors
To facilitate the ability of
shareholders to communicate with the Board of Directors, we have established an
electronic mailing address and a physical mailing address to which
communications may be
sent: boardofdirectors@orthofix.com, or The Board of Directors, c/o Mr.
James F. Gero, Chairman of the Board of Directors, Orthofix International N.V.,
10115 Kincey Avenue, Suite 250, Huntersville, NC 28078.
Mr. Gero reviews all correspondence addressed to the Board of
Directors and presents to the Board a summary of all such correspondence and
forwards to the Board or individual directors, as the case may be, copies of all
correspondence that, in the opinion of Mr. Gero, deals with the functions of the Board or committees
thereof or that he otherwise determines requires their
attention. Examples of communications that would be logged, but not
automatically forwarded, include solicitations for products and services or
items of a personal nature not relevant to us or our
shareholders. Directors may at any time review the log of all
correspondence received by Orthofix that is addressed to members of the Board
and request copies of any such correspondence.
Nomination of
Directors
As provided in its charter, the Nominating
and Governance Committee identifies and recommends to the Board nominees for
election or re-election to the Board and will consider nominations submitted by
shareholders. The Nominating and Governance Committee
Charter is available for review on our website
at www.orthofix.com.
The Nominating and Governance Committee
seeks to create a Board of Directors that is strong in its collective diversity
of skills and experience with respect to finance, leadership, business
operations, technologies
and industry knowledge. The Nominating and Governance Committee
reviews with the Board, on an annual basis, the current composition of the Board
in light of the characteristics of independence, skills, experience and
availability of service to Orthofix of its members and
of anticipated needs. If necessary, we will retain a third party to
assist us in identifying or evaluating any potential nominees for
director. When the Nominating and Governance Committee reviews a
potential new candidate, it looks specifically at the
candidate’s qualifications in light of the needs
of the Board at that time given the then current mix of director
attributes.
Generally, in nominating director
candidates, the Nominating and Governance Committee strives to nominate directors that exhibit
high standards of ethics, integrity, commitment and
accountability. In addition, all nominations attempt to ensure that
the Board shall encompass a range of talent, skills and expertise sufficient to
provide sound guidance with respect to our operations
and activities.
Under our Corporate Governance
Guidelines, directors must inform the Chairman of the Board and the Chairman of
the Nominating and Governance Committee in advance of accepting an invitation to
serve on another
company’s board of directors. In
addition, no director may sit on the board of directors of, or beneficially own
a significant financial interest in, any business that is a material competitor
of Orthofix. The Nominating and Governance
Committee reviews any
applicable facts and circumstances relating to any such potential conflict of
interest and determines in its reasonable discretion whether a conflict
exists.
To recommend a nominee, a shareholder
shall give notice to the Board, at our registered address c/o Dr. Guy J. Jordan, Chairman of the
Nominating and Governance Committee, Orthofix International N.V., 10115 Kincey
Avenue, Suite 250, Huntersville, NC 28078. This notice should include
the candidate’s brief biographical description, a
statement of the
qualifications of the candidate, taking into account the qualification
requirements set forth above and the candidate’s signed consent to be named in the
proxy statement and to serve as a director if elected. The notice
must be given not later
than 180 days before the first anniversary of the last Annual General Meeting of
Shareholders. Once we receive the recommendation, we will contact the
candidate and request that he or she provide us with additional information
about the candidate’s independence, qualifications and other
information that would assist the Nominating and Governance Committee in
evaluating the candidate, as well as certain information that must be disclosed
about the candidate in our proxy statement, if
nominated. Candidates must respond to our inquiries within
the time frame provided in order to be considered for nomination by the
Nominating and Governance Committee.
The Nominating and Governance Committee
has not received any nominations for director from shareholders for the 2008 Annual General Meeting of
Shareholders.
TRANSACTIONS WITH RELATED
PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
Procedures for Approval of Related
Person Transactions
The Company’s policies and procedures for the
review, approval or ratification of related-party transactions are set forth in our
Code of Conduct and Ethics. Our policy is that the
Audit Committee will review and approve all related party transactions
that meet the
minimum threshold for disclosure under the relevant SEC rules (generally,
transactions involving amounts exceeding $120,000 in which a related person has
a direct or indirect material interest).
Transactions
involving Charles W. Federico
On
January 10, 2002, we entered into a full-recourse loan with Charles W. Federico
(former Chief Executive Officer of Orthofix Inc. and a current director of the
Company). The loan had a principal amount of $145,200 and was entered into to
assist Mr. Federico in purchasing shares of OrthoRx Inc. common stock, a company
in which we currently hold a minority interest. The loan had an
annual interest rate of 3.97%, compounded annually, and matured on the earlier
of (1) January 10, 2007 and (2) the date Mr. Federico ceased to be our employee,
officer or director. No principal or interest payments were due prior
to the maturity date, and after such date, the loan bore an interest rate of 18%
if not paid in full at such time. The loan was secured by a stock
pledge agreement covering all shares of OrthoRx Inc. common stock owned by Mr.
Federico.
In
January 2007, we entered into a settlement agreement with Mr. Federico with
respect to disputes between Orthofix and him regarding his shares of OrthoRx
Inc. and the outstanding obligations under the loan and related stock pledge
agreement. Under the settlement agreement and in full satisfaction of
any and all amounts and obligations under the loan and stock pledge agreement,
as well as in settlement of any disputes between the parties, Mr. Federico (1)
tendered all shares of OrthoRx Inc. held by him to Orthofix, (2) paid $40,000 to
Orthofix and (3) entered into various releases with Orthofix.
Gregory
Federico, son of Mr. Federico, a director and former Orthofix Group President
and Chief Executive Officer, is the owner of OrthoPro, Inc. (“OrthoPro”), which
acts as an independent third-party distributor for Breg. In 2007,
Breg paid commissions to OrthoPro of approximately $500,000. The
OrthoPro distributor relationship with Breg predates Orthofix’s acquisition of
Breg in December of 2003 and commissions paid to OrthoPro are at a rate that the
Company considers to be generally accepted in the industry.
Matthew
Federico, son of Mr. Federico, is employed by Breg was paid approximately
$88,000 by Breg during 2007.
Transactions
involving Robert Gaines-Cooper
Robert
Gaines-Cooper was a member of the Company’s Board of Directors until December
2006 and is a significant shareholder of the Company.
On March
17, 2008, our Breg division sold its pain care product assets to LMA North
America, a Delaware corporation and LMA Medical & Innovations Limited, an
entity organized under the laws of the Republic of Seychelles. These
entities are subsidiaries of LMA International N.V., a Netherlands Antilles
company. LMA paid approximately $6.0 million to Breg at closing and
agreed to an additional $1 million future payment that is contingent upon sales
levels being maintained post-closing. Mr. Gaines-Cooper is Chairman
of LMA International N.V.
The
Company also has commercial relationships with several entities that the Company
understands are wholly or partially owned by LMA. In some cases, Mr.
Gaines-Cooper may have a direct or indirect equity interest in such
entities. For example, two of the Company’s subsidiaries have product
distribution agreements with LMA-controlled entities, and in 2007 paid a total
of $6.2 million to purchase LMA product pursuant to these distribution
agreements. An additional subsidiary of the Company
regularly purchases impads and calf pads from an entity that the Company
understands that LMA and/or Mr. Gaines-Cooper has a significant equity interest
in. In 2007, these purchases totaled $4.7 million.
Compensation Committee Report
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis with the members of management of the Company and, based on such
review and discussions, the Compensation Committee recommended to the Board that
the Compensation Discussion and Analysis be included in the Company’s proxy
statement.
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The
Compensation Committee
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Thomas
J. Kester, Chairman
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Dr.
Guy J. Jordan
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Dr.
Walter P. von Wartburg
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Compensation Discussion and Analysis
Overview
Our
Compensation Committee, or the Committee, discharges the responsibilities of the
Board relating to all compensation of the Company’s executive officers,
including equity-based compensation. The Committee is responsible for
establishing and evaluating compensation policies and determining, approving and
evaluating employee compensation, including the total compensation packages for
our executive officers and other key employees and compensation under the
Company’s equity incentive plans and other Company compensation policies and
programs. The Committee specifically considers and approves the
compensation for the Chief Executive Officer and other named executive
officers. It is also responsible for making recommendations to the
Board regarding the compensation of directors. The Committee relies
on some senior executive officers to make recommendations on certain aspects of
compensation as discussed below. The Committee acts under a written
charter adopted by the Board. The Committee reviews its charter
annually and recommends any changes to the Board. The Committee did
not amend its charter in 2007. The charter is available on our
website at www.orthofix.com. Since
June 20, 2007, the Committee has consisted of Mr. Kester, Dr. Jordan and Dr. von
Wartburg. Prior to that time, from January 1, 2007 until June 20,
2007, the Committee also included Mr. Stefan Widensohler. Mr.
Widensohler ceased serving as a member of the Committee when he departed the
Company’s Board of Directors. During 2007, each member of the
Committee was an independent, non-employee, non-affiliated, outside director
while he served on the Committee. Mr. Kester serves as Chairman of
the Committee. The Committee furnished its report provided
above.
Throughout
this proxy statement, the individuals serving as our principal executive officer
(“Chief Executive Officer”), our principal financial officer (“Chief Financial
Officer”) during the last completed fiscal year and our three other most highly
compensated executive officers who were serving as executive officers at the end
of the last completed fiscal year, are referred collectively as the “named
executive officers.”
Role
of Executive Officers
At the
Committee’s request, from time to time certain of our senior management presents
compensation-related initiatives to the Committee. For instance,
while the Committee approves all elements of compensation for executive
officers, the Committee requests on an annual basis that the Chief Financial
Officer aid the Committee in fulfilling its duties by facilitating the gathering
of information relating to potential bonus guidelines and goals under our annual
incentive program as well as possible stock option or restricted stock
grants. The Chief Financial Officer’s recommendations are prepared in
accordance with the market-based compensation guidelines developed by the
Committee’s outside compensation consultant, Towers Perrin, and approved by the
Committee. This information is presented to the Chief Executive
Officer, who considers the information (other than with respect to his
compensation) and makes separate recommendations to the Committee with respect
to salary and any increases in salary for the named executive
officers. The Committee then reviews the
recommendations. The Chief Executive Officer is also actively
involved in compensation discussions with respect to other executive
officers. The Chief Executive Officer and Chief Financial Officer
attend meetings of the Committee in such roles from time to time. In
addition, Raymond C. Kolls regularly attends meetings of the Committee in his
role as Secretary to the Committee and, when requested by the Committee, as
General Counsel. To the extent required or advisable, these executive
officers are excluded from any Committee discussions or votes regarding their
compensation.
Compensation
Consultant
The
Committee has the authority under its charter to retain, at the Company’s
expense, outside compensation consultants to assist in evaluating
compensation. The Committee also has the authority to terminate those
engagements. In accordance with this authority and to aid the
Committee in fulfilling its duties, the Committee has engaged Towers Perrin
since 2006 as its outside compensation consultant.
In its
role as compensation consultant, Towers Perrin has worked with the Committee to
develop our executive and director compensation philosophy, and Towers Perrin
periodically conducts reviews and updates of our executive officer and director
compensation programs and long-term incentive practices at the request of the
Committee. For
instance, at the Committee’s request, in 2006 and again in 2008, Towers Perrin
conducted an assessment of our top five executive compensation levels as
compared to the competitive market to determine whether they remain consistent
with our compensation philosophy discussed below. In connection with
this assessment, each time, Towers Perrin made comparisons to our then-current
peer group and considered the compensation, rights and benefits of executive
officers of those peer group companies based upon publicly-available disclosure
regarding the compensation arrangements at those companies. Towers
Perrin also compared our long-term incentive grant guidelines for all
equity-eligible employees and directors to the competitive market to enable the
Committee to determine if current equity grant levels are aligned with our
compensation philosophy. As part of this process and at the request
of the Committee, Towers Perrin also conducted a competitive market analysis of
outside director pay practices and levels such that the Committee could
determine if our current outside director compensation program was aligned with
the competitive market.
In order
to perform their tasks as requested by the Committee, certain of our senior
management has shared access to much of the information compiled and provided to
the Committee by the consultant. In addition, the Company’s
management engages Towers Perrin on an ad hoc, limited basis in connection with
certain human resources-related projects. In 2007 and 2008, the
Company’s management engaged Towers Perrin to assist it with conducting an
analysis of the impact of certain amendments to the 2004 LTIP. In
addition, Towers Perrin also assisted management with creating specific
retention model recommendations (including with respect to its proposed
divestiture of its orthopedic business) and preparing communication materials to
send to the Company’s employees regarding its initial grants of restricted stock
under the 2004 LTIP.
Executive
Compensation Philosophy
The
Committee guides itself in large part by our executive compensation
philosophy. This philosophy reflects a “pay-for-performance” outlook
in consideration of our growth (whether internal or as a result of acquisitions)
and our objectives of attracting, retaining and motivating executive officers
and other key employees while increasing shareholder value. We must
attract the right mix of executive officers, including from businesses larger
than ours, for us to grow successfully. At the same time, we must
retain employees in order to motivate them to help us achieve our goals,
especially as we grow. Finally, we must consider all these elements
in the context of our ultimate objective of enhancing the value of the Company
for our shareholders.
Under
this philosophy, the Committee’s goal is to fairly compensate executive officers
with an emphasis on providing incentives that balance the promotion of both our
short- and long-term objectives. As described in more detail below,
achievement of short-term objectives is rewarded through base salary and cash
bonuses, while grants of stock options encourage executive officers to focus on
our long-term goals. The Committee may choose to materially increase
or decrease compensation based on performance and the achievement of the above
objectives. While we have grown in the last few years, these core
components remain the basis for our executive compensation philosophy as we
continue to grow.
Benchmarking
During
fiscal year 2007, decisions related to executive compensation program design and
pay levels were informed, in part, by the practices and pay levels of comparable
peer organizations. The executive compensation comparator peer group
utilized by the Company during fiscal year 2007 included the following
organizations:
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Arrow
International, Inc.
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Integra
LifeSciences Holding Corporation
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·
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CONMED
Corporation
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Kyphon,
Inc.
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Cooper
Companies, Inc.
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Resmed,
Inc.
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·
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Datascope
Corporation
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·
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Respironics,
Inc.
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·
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DJO
Incorporated
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·
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VIASYS
Healthcare, Inc.
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·
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Edwards
Lifesciences Corporation
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·
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Vital
Signs, Inc.
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·
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Encore
Medical Corporation
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·
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Wright
Medical Group, Inc.
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·
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Haemonetics
Corporation
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From time
to time, based upon changes both within Orthofix and within the marketplace, it
is appropriate for the Committee to review the peer group and realign it, as
needed, to ensure that it continues to contain organizations that are of the
appropriate size and complexity for the purposes of executive compensation
benchmarking.
In early
2008, the Committee engaged Towers Perrin to conduct an executive compensation
analysis that provided summarized data on market competitive levels of base
salary, annual incentive opportunities and long-term incentive
grants. This analysis updated competitive market data developed in
2006 and also provided benchmark information on compensation practices such as
the prevalence of types of compensation plans and the proportion of the types of
pay components as part of the total compensation package for executive officers
of similarly situated companies. Other publicly available information
and input from Towers Perrin on other factors, such as recent market trends,
supplemented this information. In conducting this benchmarking,
Towers Perrin utilized a selection of peer companies, which was reviewed by the
Committee to ensure that it represented organizations of the appropriate size
and complexity based upon key financial factors such as annual gross revenues,
shareholder return and market capitalization. In January 2008, the
Committee approved the peer group below containing sixteen medical technology
and device manufacturers and distributors, some of which we compete against for
executive talent.
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Advanced
Medical Optics, Inc.
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Invacare
Corporation
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·
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Arrow
International, Inc.
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Kinetic
Concepts, Inc.
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ArthroCare
Corporation
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Millipore
Corporation
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·
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CONMED
Corporation
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NuVasive,
Inc.
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·
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Cooper
Companies, Inc.
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Pediatrix
Medical Group, Inc.
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·
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Edwards
Lifesciences Corporation
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·
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Resmed,
Inc.
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·
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Haemonetics
Corporation
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Respironics,
Inc.
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·
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Integra
LifeSciences Holding Corporation
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STERIS
Corporation
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Advanced
Medical Optics, Inc., ArthroCare Corporation, Invacare Corporation, Kinetic
Concepts, Inc., Millpore Corporation, NuVasive, Inc., Pediatrix Medical Group
and STERIS Corporation have been added to the peer group since the last fiscal
year to replace the companies that are no longer part of the peer
group. Based on the Compensation Committee’s review of the peer
group, Datascope Corporation, DJO Incorporated, Encore Medical Corporation,
Kyphon, Inc., VIASYS Healthcare, Inc., Vital Signs, Inc. and Wright Medical
Group, Inc. were removed from the peer group since the last fiscal year, as some
of those companies are no longer comparable to the Company or have been acquired
and are no longer in existence.
This peer
group was updated from the prior group based on our current size and anticipated
growth. While the updated peer group includes some companies with
larger revenues and greater market capitalization than that of Orthofix, using
the updated peer group as our benchmark gives us a more appropriate mix of
companies and enables the Company to more closely benchmark the total
compensation packages of our named executive officers with the types of
companies with which the Company typically competes and with the market
capitalization of companies to which the Company expects to be comparable in the
next few years under the Company’s growth strategies. We believe this
approach enables the Company to attract and retain appropriate executive
talent.
Elements
of Executive Compensation
Overview
Our
compensation program for executive officers and other key employees consists of
three primary elements:
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performance-based
incentives in the form of annual cash bonuses;
and
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long-term
equity-based incentives, generally in the form of stock options granted
under the 2004 LTIP.
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The
Committee determines annually what portion of an executive officer’s
compensation should be in the form of salary, potential annual performance-based
cash bonuses and stock option-based compensation. The Committee
believes an appropriate mix of these elements, commensurate with our
compensation philosophy, will ensure that our compensation objectives are
achieved. See “Executive Compensation Philosophy” below for more
information on the Committee’s guidelines for each element of executive
compensation. As
part of its decision making process, the Committee reviews tally sheets setting
forth all components of the compensation and benefits received by our named
executive officers. These tally sheets include a specific review of
dollar amounts for salary, bonus, perquisites and long-term incentive
compensation in the form of stock options.
With
respect to incentive compensation, the (i) setting of performance goals for the
attainment of cash bonuses and the determination of awards thereunder and (ii)
determination of the number and type of annual equity-based compensation awards,
are typically done at different times during the year. The Committee
believes that the separation of the timing of these grants and awards provides
for increased incentives for the recipients. These incentives are
based on financial objectives that are important to the Company, including
income attainment and sales attainment. To a lesser extent,
individual performance is also taken into account. The consideration
of individual performance enables the Committee to differentiate among executive
officers and emphasize the link between personal performance and
compensation. We do not currently provide stock appreciation rights
or other incentive compensation, but in 2007 we began granting restricted stock
to non-executive officers only, in addition to or in lieu of stock option
grants. Under the 2004 LTIP, the Company may grant restricted stock
to named executive officers and other key employees in the future.
Certain
non-employee directors and executive officers are eligible to participate in the
Orthofix Deferred Compensation Plan, whereby such eligible participants may
elect to defer a portion of their earnings each year. We also provide
our executive officers and directors with certain limited perquisites discussed
below.
Executive
Compensation Philosophy
Our
“pay-for-performance” philosophy is based upon the following executive
compensation philosophy. This philosophy takes into account the
results of our benchmarking surveys and assumes that the Company meets or
exceeds its performance goals. This compensation philosophy
emphasizes pay at risk through awards made under the cash-based annual incentive
plan as well as grants made under the long-term equity compensation
program.
2007
Based
upon competitive benchmarking completed in 2006, the Committee concluded that
our 2007 top five executive cash compensation levels were generally aligned with
our compensation philosophy set forth below, but the expected value of annual
equity grants was less competitive as compared to our philosophy.
|
Pay
Element
|
|
Market
Position
|
|
Rationale
|
|
|
|
|
|
|
|
Annual
Salary
|
|
50th
Percentile
|
|
“Competitive”
annual salary.
|
|
|
|
|
|
|
|
Total
Cash Goal (1)
|
|
Up
to 75th
Percentile
|
|
Opportunity
for greater than “competitive” cash compensation if performance exceeds
expectations.
|
|
|
|
|
|
|
|
Long-Term
Incentive Grants
|
|
50th
Percentile
|
|
Reward
performance, retain key employees and provide alignment with shareholder
interests while thoughtfully managing share
utilization/dilution.
|
|
|
|
|
|
|
|
Total
Direct Compensation Goal (2)
|
|
60th
Percentile +
|
|
Align
long-term incentive plus total cash with shareholder interest and reward
long-term performance. The combination of 75th
percentile total cash goal and 50th
percentile long-term incentive grants results in approximately 60th
percentile total direct
compensation.
|
_______________
|
(1)
|
Total
cash compensation equals annual salary plus annual cash
incentives.
|
|
(2)
|
Total
direct compensation equals total cash plus annualized expected value of
long-term incentives.
|
In
addition, in 2006 Towers Perrin conducted a competitive market analysis to
determine competitive compensation levels for our directors. As a
result of this analysis, it was determined that our equity-based compensation to
our directors was below our peer group based upon our compensation philosophy
for outside director compensation levels, which is targeted at the market median
of our peer group. Based on this finding, the Board recommended
an increase in director stock option grants, which was approved by our
shareholders in June 2007.
2008
In March
2008, the Committee approved the following executive compensation philosophy,
which is based upon the 2008 peer group outlined
previously. Consistent with the 2007 compensation philosophy, the
2008 compensation philosophy emphasizes pay at risk through an appropriate mix
of pay at risk through awards made under the cash-based annual incentive plan as
well as grants made under the long-term equity compensation program as outlined
above.
|
Pay
Element
|
|
Market
Position
|
|
Rationale
|
|
|
|
|
|
|
|
Base
Salary
|
|
50th
Percentile
|
|
“Competitive”
annual salary.
|
|
|
|
|
|
|
|
Total
Cash Goal (1)
|
|
50th
Percentile (2)
|
|
Target
incentive opportunity aligned with market 50th
percentile to be “competitive.” Opportunity for greater than
“competitive” cash compensation only if individual and company performance
exceeds target goals.
|
|
|
|
|
|
|
|
Long-Term
Incentive Grants
|
|
The
annual long-term equity incentive grant program is designed to align
senior management with shareholders while being fair and competitive
(3)
|
|
Consider
market competitive expected value delivered annually, as well as reward
individual and company performance, retain key employees and provide
alignment with shareholder interests while thoughtfully managing share
utilization/dilution.
|
|
|
|
|
|
|
|
Total
Direct Compensation Goal (4)
|
|
50th
Percentile
|
|
Align
long-term incentive plus total cash with shareholder interests and reward
individual and company long-term
performance.
|
_______________
(1) Total
cash compensation equals annual salary plus annual cash incentives.
(2) Actual
award levels will vary within a set range developed around a target based upon
company and individual performance goals.
(3) As
noted below, the equity grants may be higher or lower than the market 50th
percentile based upon a variety of factors.
(4) Total
direct compensation equals total cash plus annualized expected value of
long-term incentives.
Our
target percentiles are guidelines. The annual salary, bonus and
equity awards may be higher or lower than the 50th
percentile for certain individuals based upon company and individual
performance, competitive market practices, shareholder alignment, availability
of shares for equity grants and the need for executive retention. The
Committee also departs from the target percentiles for other purposes based upon
particular facts and circumstances that apply to an individual, entity or a
division at the time, including adjustments due to market conditions, the
promotion of employees and other factors. In doing so, the Committee
may look to similar situations for executive officers in the past.
Annual
Salary
The
Committee makes annual determinations with respect to the salaries of executive
officers. In making these decisions, the Committee considers each
executive officer’s performance, the market compensation levels for comparable
positions within and outside our peer group, performance goals and objectives
and other relevant information, including recommendations of the Chief Executive
Officer.
Performance-Based
Incentives
Annual Incentive
Program
The
Committee believes that a significant portion of the compensation for each
executive officer should be in the form of annual performance-based cash
bonuses. Short-term incentives, like our annual incentive program,
tie executive compensation to our immediate financial performance as well as, to
a certain extent, individual performance. Each executive officer
generally participates in our annual incentive program as it is our primary
means of providing for an annual cash bonus.
The
annual incentive program is based on goals determined by the Committee. Under
our program, at the outset of each year the Committee establishes target
performance goals and a range of performance around the target performance goals
for which a bonus would be paid as described below. We set the performance
goals with the intent that it will be challenging for a participant to receive
100% of his potential bonus amount. However, based on the goals set, an
executive officer can earn from 0% of this targeted bonus to 150% of his
targeted bonus based upon actual performance measured against the range of
established performance goals. Varying bonuses are paid for the attainment
of specified goals within that range. For named executive officers
the maximum bonus is a percentage of that person’s salary. See
“Agreements with Named Executive Officers” below for more information on the
amount of each named executive officer’s eligible
bonus.
We
establish separate performance goals for each of Orthofix International N.V.,
Orthofix Inc., Breg, Inc., Blackstone Medical, Inc. and our international
division based on a matrix of performance goals as set forth
below. In 2007, the Chief Financial Officer was responsible for
overseeing the process of determining proposed goals for Orthofix International
N.V., Orthofix Inc. and Breg, Inc. The proposed goals for Blackstone
Medical, Inc. and our international division were supervised in 2007 by the
President of Blackstone Medical, Inc. and the international division head,
respectively. As a result, executive officers within or among any of
our divisions may be treated differently according to the applicable objectives
specific to them. For 2008, the Chief Financial Officer is
responsible for overseeing the process of determining proposed goals for the
Company and each of its divisions and subsidiaries.
The
proposed goals and related matrix are then provided to the Committee for review
and approval. Typically, the goals are set in February for the
current year and payments are made the following March for the previous fiscal
year. Goals for 2008 were set in April of this year following
approval of updates to our annual incentive plan. Mr. Kester, Dr.
Jordan and Dr. von Wartburg participated in the determination of the cash bonus
amounts to be paid to the named executive officers for their performance and
services during 2007.
Executive officers are notified in writing of the goals and bonus
eligibility for any given year. The terms of the notice generally
require that the executive officer be an employee on the date of payment in
order to be paid any compensation under the annual incentive
program.
While
each entity and business unit generally has different performance goal amounts
applicable to it, the annual incentive program in 2007 for the Company’s
international division, and in 2007 and 2008 for Orthofix International N.V.,
Orthofix Inc., and Breg, Inc. (only with respect to Bradley R. Mason), and in
2008 for Blackstone Medical, Inc., consists of the following performance goal
components and are weighted as follows:
|
|
·
|
50%
– based on the attainment of a specified dollar amount of net income or
operating income;
|
|
|
·
|
40%
– based on the attainment of a specified dollar amount of sales;
and
|
|
|
·
|
10%
– based on individual performance
goals.
|
The
annual incentive program in 2007 and 2008 for Breg, Inc. (other than for Bradley
R. Mason) consists of the following performance goal components and are weighted
as follows:
|
|
·
|
30%
– based on the attainment of a specified dollar amount of operating
income;
|
|
|
·
|
30%
– based on the attainment of a specified dollar amount of
sales;
|
|
|
·
|
20%
– based on individual performance goals;
and
|
|
|
·
|
20%
– based on department goals.
|
The
annual incentive program for 2008 for the Company’s international division
consists of the following performance goal components and are weighted as
follows:
|
|
·
|
90%
– based on the attainment of a specified dollar amount of operating
income; and
|
|
|
·
|
10%
– based on individual performance
goals.
|
We
developed these weightings with the intent of linking most of the bonus to
quantifiable entity or business unit performance measures, while also providing
discretion so as to recognize individual or division performance, as
applicable. In 2007, the performance range for each of the goals
outlined above was 25% to 150%, the percentage attainment of which for 2007 was
determined by the Committee at a February 20, 2008 telephonic
meeting. For 2008, the percent of attainment of the goals relating to
corporate performance (net income or operating income and sales) have a
threshold and a maximum of performance ranging from 25% to
150%.
With
respect to the individual or division performance component of the applicable
formula, each respective entity or business unit determines the appropriate
performance level ranging from 0% to 100% of the target attainment goals and
makes a recommendation to the Committee.
To
calculate the bonus amount, each percentage is multiplied by its component’s
percentage weight. The products are added together to produce a
resulting weighted percentage. For each participant, this percentage
is used to determine what amount of the pre-established bonus goal amount will
be paid. The weighted percentage is then multiplied by the target
amount of bonus for which that participant is eligible. The following
is an illustration
only of how this calculation may work using sample attainment percentages
and maximum eligible bonus numbers:
|
Performance
Goal
|
Weighting
|
Attainment
|
Product
|
|
Net/Operating
Income
|
50%
|
100%
|
50%
|
|
Sales
|
40%
|
75%
|
30%
|
|
Individual
Objectives
|
10%
|
80%
|
8%
|
|
|
|
Weighted
Percentage:
|
88%
|
Target Bonus: 40%
of base salary of $200,000 = $80,000
Bonus Calculation: $80,000
(at target) multiplied by 88% (weighted percentage attainment) = $70,000
bonus
The
Committee has the discretion to review an entity’s or business unit’s actual
results (or an individual’s or division’s performance) and consider certain
mitigating factors, such as one-time costs or events such as acquisitions or
other unique corporate (or personal) events not contemplated at the time the
goals were established. These may be excluded from the financial
information used in connection with the determination of bonuses or the
financial (or individual) information may be otherwise adjusted in light of
these mitigating factors.
In 2007,
and after reviewing the results and taking into account any mitigating factors
as described above, Mr. Milinazzo attained 24%, Mr. Finegan attained
29% and Mr. Burckhardt attained 49% of the Orthofix International N.V.
performance goals; in addition, Mr. Mason attained 135% of the Breg, Inc.
performance goals. In connection with Mr. Hein’s transition from his
position as CFO of the Company, Mr. Hein was credited with having attained 19%
of the Orthofix International N.V. performance goals. Mr. Adams was
not eligible in 2007 to receive compensation under the Company’s annual
incentive plan. Payouts to the named executive officers under the
annual incentive program are reflected in column (g) of the “Summary
Compensation Table.”
Outside
of the annual incentive program, in any year the Committee has and does exercise
its discretion to grant bonuses for performance or for other circumstances in
any year, such as in the cases of new hires and promotions. See
“Summary Compensation Table” for discretionary bonuses for 2007.
Long-Term
Equity-Based Incentives
Our
primary equity compensation plan for named executive officers is the 2004
LTIP. Some named executive officers continue to hold outstanding
awards under one or more of our prior equity-compensation plans, namely our
Staff Share Option Plan and Performance Accelerated Stock Option Inducement
Grants. We no
longer grant awards under these plans. All named executive officers
are also eligible, at their discretion, to purchase shares of common stock
pursuant to our Employee Stock Purchase Plan. Each plan is described
below. The Committee administers each of these plans (other
than the Employee Stock Purchase Plan and the Staff Share Option Plan) and only
the Committee makes grants to named executive officers under the 2004
LTIP.
The
Committee’s date of approval of a stock option or restricted stock grant is
typically the second in-person Board meeting of the fiscal year. The
grant date of a stock option or restricted stock is on or after the approval
date and typically is a fixed future date for any options approved at this
second Board meeting. Actual grant dates are determined, among other
factors, in accordance with past practice for annual grants , the Committee’s
determination of an appropriate grant date, as well as our communications
policy. Under this policy, employees are alerted to their option
grants and grants of restricted stock. We also take into account that
approvals may be required in advance of expected acquisitions, new hires or
other transactions. For example, in connection with expected new
hires, the grant approval may be included in an offer letter even though the
actual date of grant is typically not until the employee’s first day of
employment. Our
policy, in accordance with the 2004 LTIP, is that the closing price of the stock
on the date of grant will be used to price stock
options.
The
Committee generally grants stock options and restricted stock as noted above and
does not specifically take into consideration the release of material non-public
information when determining whether and in what amount to make stock option
grants and grants
of restricted stock. In addition, the Committee does not have a
specific policy of setting grant dates in coordination with the release of
material non-public information and we do not have a policy of timing our
release of material non-public information for the express purpose of affecting
the value of executive compensation.
Current Equity Compensation
Plans
2004
Long-Term Incentive Plan
The 2004
LTIP is a long term
incentive plan that was originally adopted by the Board on April 15,
2004. The original plan was approved by shareholders on June 29, 2004
and was amended and restated on November 5, 2004 and on June 20,
2007. Under the 2004 LTIP, 662,379 shares remain available for
issuance. Awards can be in the form of a stock option, restricted
stock, restricted share unit, performance share unit, or other award form
determined by the Board. Awards expire no later than 10 years after
the date of the grant. To date, we have granted only non-qualified
stock options and restricted stock under the plan. 2007 was the first
year in which we made awards of restricted stock. To date, we have
only made restricted stock awards to employees at the director-level (i.e.,
employees with the title of “director”) or below and not to named executive
officers or to members of the Board of Directors. Stock options and
restricted stock generally vest equally in one-third increments beginning on the
first anniversary of the date of grant, so long as the grantee remains an
employee of the Company, but the Committee may provide different vesting
provisions depending on the nature of and reason for the grant (or in the event
of a change of control or termination of employment).
The goal
of our 2004 LTIP is to create an ownership interest in the Company in order to
align the interests of executive officers with shareholders, to more closely tie
executive compensation to our performance and to create long-term performance
and service incentives for executive officers and other key
employees. Stock options and restricted stock awards are granted to
executive officers and other employees:
|
|
·
|
in
conjunction with the second in-person Board meeting of the fiscal year,
generally held in May or June;
|
|
|
·
|
as
new-hire incentives or in connection with promotion to a new
position;
|
|
|
·
|
in
connection with our acquisitions;
and
|
|
|
·
|
otherwise
in connection with retention, reward or other purposes based on the
particular facts and circumstances determined by the
Committee.
|
For
example, Mr. Burckhardt received a grant of 40,000 options in November 2007 as a
retention bonus.
In 2007,
pursuant to our 2004 LTIP, 817,601 stock options and 67,422 shares of restricted
stock were granted to our employees and directors in connection with our
long-term equity grant program for new hire equity grants, promotional equity
grants, as well as ongoing equity grants, of which 387,200 stock options were
granted to our executive officers, and 3,000 stock options were granted to each
of our non-employee directors pursuant to Orthofix’s annual grant to its
directors (a total of 21,000 stock options).
In
accordance with the Company’s delegation policy, the Committee has delegated to
Mr. Milinazzo for 2008 the authority to grant to newly-hired employees up to an
aggregate of 85,000 stock options and restricted stock awards (referred to as
delegated awards) per calendar year; provided, however, that for purposes of the
delegation, any stock option grant counts as one delegated award and any
restricted stock award counts as four delegated awards, such that no more than
21,250 restricted stock awards may be made under the delegation in any calendar
year. For example, if one employee is granted 1,000 stock options and
1,000 shares of restricted stock, that grant would count as 5,000 delegated
awards. Any stock options or restricted stock awards not granted as
delegated awards in any calendar year will be available for grants pursuant to
the delegation in subsequent years. Any single employee award is
limited to a maximum of 15,000 delegated awards (a maximum of 3,750 restricted
stock awards). These grants of delegated awards may not be made to
officers obligated to file reports under Section 16(a) of the Exchange
Act.
In 2007,
a new form of Nonqualified Stock Option Agreement for grants of stock options to
executive officers and other employees pursuant to the 2004 LTIP was adopted (i)
to conform to the updated 2004 LTIP provisions that were adopted by the
Company’s shareholders on June 20, 2007, but which is similar in many respects
to our previous form, and (ii) to take into consideration the deferred
compensation rules of Section 409A of the Internal Revenue Code (including the
proposed Treasury regulations under Section 409A that allow limited extensions
of option exercise periods following termination of employment). The agreement grants
nonqualified stock options that, in most cases, will vest and become exercisable
in one-third increments on each of the first, second and third anniversaries of
the grant date (or in the event of a change in control or, under certain
circumstances, termination of employment). The options expire and are
no longer exercisable 10 years from the grant date and are subject to early
termination as a result of a termination of employment or a change of control of
the Company. Provisions in this new form provide, among
others:
|
|
·
|
If,
prior to an option vesting, the optionee’s employment is terminated other
than pursuant to an employment agreement and other than (1) for cause, or
(2) upon death or permanent disability, any options that would have been
vested as of December 31 of the year in which termination occurs shall
automatically vest as of the date of termination and remain exercisable by
the optionee for 180 days after the date of such termination of
employment. The options will be cancelled and will revert back
to the Company to the extent not exercised within such
period. Any unvested options on the date of termination will
also be cancelled and will revert back to the Company on such
date.
|
|
|
·
|
If
the optionee’s employment is terminated by reason of death or permanent
disability, all options shall automatically vest and remain exercisable by
the optionee (or a transferee under a domestic relations order, the
optionee’s estate, personal representative or beneficiary, as applicable)
for 12 months after the date of such termination of
employment. The options will be cancelled and will revert back
to the Company to the extent not exercised within such
period.
|
|
|
·
|
If
the optionee’s employment is terminated for cause, the optionee may
exercise the options (only to the extent vested at the date of
termination) at any time within three months after the date of such
termination in accordance with their terms, subject only to any different
rights contained in an employment agreement. The options will
be cancelled and will revert back to the Company to the extent not
exercised within such period. Any unvested options on the date
of termination will also be cancelled and will revert back to the Company
on such date.
|
|
|
·
|
Upon
the occurrence of a change of control of the Company, all options shall
automatically vest and remain exercisable in accordance with the
provisions applicable thereto. The options will expire and no
longer be exercisable to the extent not exercised within 10 years from the
grant date.
|
The
agreement takes into consideration that the grantee may have a separate
employment or change of control agreement with the Company or one of its
subsidiaries. For instance, in addition to the scenarios described
above, if the optionee has an employment agreement with the Company or any
subsidiary and the optionee’s employment is terminated pursuant to that
employment agreement other than for cause (including if the optionee terminates
his employment for good reason), all unvested options shall automatically vest
and remain exercisable by the optionee for 10 years from the grant
date. Such rights do not exist in the event of termination for cause
or voluntary termination by the optionee. If the employment agreement
expressly provides for different vesting and exercisability of options, the
terms of the employment agreement will control. The options will be
cancelled and will revert back to the Company to the extent not exercised within
such period.
As set
forth in Proposal 2, the Company is proposing to further amend the 2004 LTIP to
(i) increase by 300,000 shares the maximum number of shares available for
issuance under the plan; (ii) increase from 3,000 to 5,000 shares the number of
shares granted annually to directors in order to more closely align the
directors’ equity-based compensation with the equity-based compensation of the
Company’s peer group companies; and (iii) limit in the future the number of
shares of Company common stock that may be awarded under the plan as full value
awards (such as restricted share units payable in Company common stock,
performance share units payable in Company common stock, restricted stock and
Other Awards (as defined in the 2004 LTIP) payable in Company common stock)
100,000 shares.
Employee
Stock Purchase Plan
Our ESPP
provides for the issuance of shares of our common stock to eligible employees of
the Company and its subsidiaries that elect to participate in the plan and
acquire shares of our common stock through payroll deductions (including
executive officers). During each purchase period, eligible employees
may designate between 1% and 25% of their cash compensation to be deducted from
that compensation for the purchase of common stock under the
plan. Under the plan, the purchase price for shares is equal to (i)
the fair market value per share on the first day of the plan year for officers
and directors of Orthofix Inc. and (ii) 85% of the fair market value of such
shares on the first day of the plan year for all other employees.
In
December 2007, the Committee adopted certain amendments to the Employee Stock
Purchase Plan. Among other changes, the amendments are intended to
make the plan exempt from the deferred compensation rules of Section 409A of the
Internal Revenue Code. In general, the amendments (i) convert the
plan to a short-term deferral plan, (ii) make all options granted under the plan
exercisable within 2 ½ months after the end of each calendar year in which the
options vest, (iii) make certain other technical changes intended to exempt the
plan from the provisions of Section 409A, and (iv) change the plan year from
beginning on July 1 and ending on June 30 to beginning on January 1 and ending
on December 31. Prior to the amendments in December 2007, the plan
year began on July 1 and ended on June 30. In connection with the new
amendments, the 2007 plan year was shortened, beginning on July 1, 2007 and
ending on December 31, 2007. The new full plan year began on January
1, 2008 and will end on December 31, 2008.
As set
forth in Proposal 3, the Company is proposing to further amend and restate the
Employee Stock Purchase Plan to: (i) allow officers and directors of Orthofix
Inc. to participate in the plan on the same basis as our other employees
(including other executive officers not employed by Orthofix Inc.), (ii) provide
that Orthofix will assume and adopt the plan, as amended, in lieu of Orthofix
Inc. acting as sponsor of the plan, (iii) allow non-employee directors of
Orthofix International N.V. to participate in the plan, (iv) increase by 500,000
shares the maximum number of shares available for issuance under the plan, (v)
provide that the determination of the value of common stock under the plan will
be determined either on the first or last day of the plan year, whichever date
renders the lower value, and (vi) make other technical changes.
Restricted
Stock Awards
The
Company has historically utilized stock options as the principal means of
providing its executive officers and other employees with equity incentive
compensation. However, following the adoption of the amended 2004
LTIP in June 2007, the Compensation Committee began making grants of restricted
stock to certain employees who hold an employee title of director or below as
part of the Company’s compensation strategy of linking long-term benefits to the
rate of return received by stockholders and as a retention device. By
offering different forms of equity (i.e., stock options and restricted stock) to
different employee groups, the Company is able to target the risk/reward
opportunities of each type of equity more appropriately to employees based on
the accountabilities and expectations of their roles. For example,
eligible employees at the director level and below are primarily accountable for
achieving group or individual results, so a more stable reward of restricted
stock provides an appropriate degree of risk. Since stock options are
typically awarded to employees at a higher level who have a greater ability and
expectation to impact Company-wide and business unit performance, stock options
provide a level of risk to their reward mix that is more aligned with the
expectations of their positions.
The restricted stock granted by the
Company has a vesting period that must be satisfied before the shares are available
to the employee. The restricted shares of stock granted by the
Company typically vest with respect to one-third of the shares covered by each
grant agreement on the first, second and third anniversaries of the
grant date (or in the event of a change of
control or, under certain circumstances, termination of
employment).
Previous Equity Compensation
Plans
Staff
Share Option Plan
The Staff
Share Option Plan is a fixed share option
plan which was adopted in April 1992. There are no options remaining
to be granted under the Staff Share Option Plan and only 140,125 stock options
remain outstanding. All outstanding stock options are
vested. Under the Staff Share Option Plan, we granted options to our
employees at the estimated fair market value of such options on the date of
grant. Options granted under the Staff Share Option Plan expire 10
years after date of grant.
Performance
Accelerated Stock Option Inducement Agreements or PASOs
On
December 30, 2003, in conjunction with the acquisition of Breg, Inc., we granted
inducement stock option awards to two key executive officers of Breg, Inc.,
including Mr. Mason. Pursuant to the original PASO, Orthofix granted
150,000 stock options to Mr. Mason as a key executive officer of Breg,
Inc. The exercise price was fixed at $38.00 per share on November 20,
2003, which was the date Orthofix announced the agreement to acquire Breg,
Inc. The options vested on December 30, 2007, the fourth anniversary
of the grant date. Following vesting on December 30, 2007, the
original PASO limited Mr. Mason’s ability to exercise specific numbers of
options during the years 2008 – 2012. If not exercised sooner as
permitted under the original PASO, all options would have ultimately been
exercisable after December 30, 2012, but prior to December 30,
2013.
As an
inducement to Mr. Mason to extend the term of his employment agreement with the
Company for one year, which agreement would otherwise have terminated on
December 31, 2007, as well as to meet certain requirements under Section 409A of
the Internal Revenue Code, the Company and Mr. Mason entered into an Amended and
Restated Performance Accelerated Stock Option Agreement (“Amended PASO”) in
November 2007.
The
Amended PASO did not change the vesting date of the options granted
thereunder. However, the Amended PASO provides that Mr. Mason’s
options will only be exercisable during the fixed period beginning January 1,
2009, and ending on December 31, 2009. Subject to certain termination
provisions and notwithstanding any other provisions of the Amended PASO, any
portion of the options that are not exercised by December 31, 2009 will not be
exercisable thereafter and will lapse and be cancelled.
Other
Compensation
Deferred Compensation
Plan
In
December 2006, the Board approved the adoption of the Orthofix Deferred
Compensation Plan by Orthofix Holdings, Inc. This plan became effective on
January 1, 2007, and its terms essentially mirror our 401(k) plan.
Pursuant to the plan, all non-employee directors of the Company, Orthofix
Holdings, Inc. and any of their subsidiaries (which we refer to as the Parent
Group) that have been approved for participation and a select group of
management or highly compensated employees of the Parent Group are eligible to
participate (including named executive officers). A number of our
executive officers, as well as one non-employee director, have elected to
participate under the plan. Under the plan, participants may elect to
defer salary, bonus or director’s fees on a pre-tax basis. The minimum deferral
amount is $2,000 per plan year and the maximum deferral amounts are 80% of the
participant’s salary and 100% of bonuses and director’s fees. The plan
year is the calendar year. The plan is intended to be an unfunded plan
under the provisions of ERISA and although the amounts deferred are considered
fully vested, none of the Parent Group members are required to set aside funds
for the payment of benefits under the plan, such benefits being paid out of the
general assets of the Parent Group member that employs the particular
participant receiving the benefit or for which the particular participant serves
as a director. Orthofix Holdings, Inc. has established a rabbi trust to
provide funds for the payment of benefits under the plan, and it is currently
making discretionary contributions to the rabbi trust in amounts equal to the
compensation deferred by plan participants. While the rabbi trust is an asset of
Orthofix Holdings, Inc. and can be revoked by Orthofix Holdings, Inc. at any
time, upon a change of control, the rabbi trust will become irrevocable and must
be used to pay plan benefits. Further, if a change of control occurs,
Orthofix Holdings, Inc. must make a contribution to the rabbi trust in an amount
that is sufficient to pay all plan benefits and the projected fees and expenses
of the trustee of the rabbi trust. It is intended that the terms of the
plan will be interpreted and applied to comply with Section 409A of the Internal
Revenue Code.
In
general, participants may defer compensation under the plan by submitting a
Participation Agreement (as defined in the plan) to the plan administrator by
December 31 of the calendar year immediately preceding the plan year, and newly
eligible participants may participate in a partial year by submitting such an
agreement within 30 days of becoming eligible for participation in the
plan. For record keeping purposes, accounts shall be maintained for each
participant to reflect the amount of his deferrals and any hypothetical earnings
or losses on the deferrals. Participants must designate the portion of their
contributions to be allocated among the various independently established funds
and indexes chosen by the plan administrator, or Measurement Funds, to measure
hypothetical earnings and losses on the deferred amounts. The balance
credited to each participant’s account will be adjusted periodically to reflect
the hypothetical earnings and losses. We are not obligated to invest any
amount credited to a participant’s account in such Measurement Funds or in any
other investment funds.
A
participant may elect to receive an in-service distribution of the balance
credited to his plan account in a lump sum or in a series of up to 10 annual
installments. In the event a participant terminates employment with (or,
in the case of a director, ceases to perform services for) the Parent Group for
any reason other than retirement or death, the participant will receive a
distribution of the entire amount credited to his account in a single lump
sum. In the case of a termination (or, in the case of a director,
separation) due to retirement or in the case of a change of control, the
participant can elect to receive either a single lump sum or a series of annual
installments over a one, three, five or ten year period. In the case of a
termination (or, in the case of a director, separation) due to death or if a
participant experiences a disability, the balance credited to the participant’s
account will be paid out in a single lump sum, unless installment payments have
already begun at the time a participant dies. In such a case, such
installments shall be continued as originally elected unless the participant’s
beneficiary is a trust or estate, in which case the remaining balance will be
paid in a lump sum. Participants may also petition the plan administrator
to suspend any deferral contributions being made by the participant and receive
a payout from the plan in the event of an unforeseeable emergency (as defined in
the plan). No participant or beneficiary may alienate, transfer, pledge or
encumber plan benefits prior to payment.
Perquisites and Other
Personal Benefits
Our
executive officers are entitled to or may otherwise be the beneficiaries of
certain limited perquisites including a car allowance, reimbursement for tax
preparation expenses and an annual physical exam. In addition, our
executive officers and directors are entitled to reimbursement of expenses
relating to their spouse’s travel in connection with no more than one Board
meeting per year. We do not consider any of these significant or out
of the ordinary course for similarly situated companies.
Other
Plans
Executive
officers participate in our 401(k) plan on the same basis as other similarly
situated employees. Other than the Orthofix Deferred Compensation
Plan, we do not have a long-term retirement plan or other deferred compensation
plan.
Employment
and Other Agreements with the Company
Pursuant
to employment agreement guidelines adopted by the Committee in 2006, all of our
named executive officers have employment agreements. Generally, our
employment agreement guidelines provide that executive officers who report
directly to the Chief Executive Officer receive full employment agreements that
provide for a term of employment, renewal terms, base salary and bonus
provisions, eligibility for equity incentive compensation, benefits and
restrictive provisions (non-competition, non-solicitation, confidentiality and
invention assignment), as well as a variety of payments depending on the
circumstances surrounding the executive officer’s separation from the
Company. The guidelines generally require a one-year waiting period
of employment prior to our entering into these employment
agreements. However, these guidelines may be waived if an employment
agreement is determined to be necessary or advisable, such as to attract or
retain certain persons. In lieu of an employment
agreement, during the first year of employment for senior executives (and
generally for select divisional and middle management personnel), these persons
receive change of control agreements providing for payments of base salary and
incentives in the event of certain terminations following a change of
control. The Committee may delegate the power to determine whether to
enter into these change of control agreements to the Chief Executive
Officer. Further, the Compensation Committee need not review and
approve employment agreements which are legally required or normal and customary
in certain jurisdictions and which are not considered “full employment
agreements” as outlined in the guidelines. The employment agreement
guidelines do not address every situation, and the Committee deviates and makes
employment agreement decisions based on particular facts and
circumstances. Any exceptions to these guidelines must be approved by
the Committee. In an effort to bring these employment agreements into
compliance with Section 409A of the Internal Revenue Code, in December 2007, we
entered into amended and restated employment agreements with such executive
officers. All officers receiving full employment agreements and
selected other executive officers or employees that are exposed to legal risk in
the performance of their employment also receive indemnity agreements from the
Company. See “Agreements with Named Executive Officers” for more
information on the terms of particular employment agreements.
Elements
of Post-Termination Executive Compensation
In
accordance with our employment agreement guidelines, certain of our senior
executive officers have employment agreements with our subsidiary, Orthofix
Inc. An exception to this is Mr. Mason, who has an employment
agreement with Orthofix International N.V. These agreements outline
the compensation payable to each executive officer, which is consistent with the
pay structure described above. They are also intended as a retention
tool for senior executive officers and to remove some of the uncertainty
surrounding potential change of control transactions. To that end,
the agreements provide for certain payments upon termination (e.g., without
cause, for good reason, etc.), which payments increase in certain instances
following a change of control. For instance, following a change of
control, the amount payable for termination without cause or for good reason
generally increases by 50% (and 100% for the Chief Executive
Officer). With respect to a change of control, most agreements
provide for a “double-trigger” so that a change of control itself does not
trigger any payments. However, under separate option agreements, all
stock options immediately vest upon a change of control without reliance on any
other triggering event. The employment agreements and the 2004 LTIP
each provide specified definitions of what constitutes a “change of
control.” See “Agreements with Named Executive Officers” and the
discussion of the 2004 LTIP in the narrative following “Executive Compensation –
Grants of Plan-Based Awards.”
Stock
Ownership Guidelines
Under the
Company’s Corporate Governance Guidelines, each director is encouraged to have a
personal investment in Orthofix through such director’s ownership of shares of
Orthofix common stock. While the Company does not currently have
formal stock ownership guidelines, the Compensation Committee has considered
their adoption from time to time and may adopt formal guidelines in the
future.
Compliance
with Section 162(m) of the Internal Revenue Code
Section
162(m) of the Internal Revenue Code limits the deductibility of compensation
payments to our named executive officers in excess of $1 million per year per
person, unless certain requirements are met. To the extent that it is
practicable and consistent with our executive compensation philosophy, we intend
to comply with Section 162(m) of the Internal Revenue Code. Compensation paid to
the named executive officers has historically not exceeded deductibility limits
under Section 162(m) of the Internal Revenue Code. If compliance with
Section 162(m) of the Internal Revenue Code conflicts with our compensation
philosophy or is determined not to be in the best interest of our shareholders,
the Committee will abide by our compensation philosophy.
SUMMARY COMPENSATION TABLE
The
following table sets forth the compensation earned by or paid to our named
executive officers with respect to 2006 and 2007. The named executive
officers include our current Chief Executive Officer, our current and former
Chief Financial Officers and our three other most highly compensated executive
officers who were serving as executive officers on December 31,
2007.
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)(1)
|
|
|
Bonus
($)(2)
|
|
|
Option
Awards
($)(3)
|
|
|
Non-Equity
Incentive Plan Compensation
($)(4)
|
|
|
All
Other Compensation
($)(5)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
(d)
|
|
|
(f)
|
|
|
(g)
|
|
|
(i)
|
|
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
W. Milinazzo –
|
|
2007
|
|
451,500
|
|
|
-
|
|
|
1,145,831 |
|
|
54,632 |
|
|
243,756(7) |
|
|
1,676,338 |
|
|
President
and Chief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officer (Principal Executive
Officer)(6)
|
|
2006
|
|
407,500
|
|
|
40,000 |
|
|
905,003 |
|
|
178,450 |
|
|
34,509 |
|
|
1,565,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Hein – Chief
|
|
2007
|
|
281,190
|
|
|
-
|
|
|
1,063,770 |
|
|
24,295 |
|
|
24,631(8) |
|
|
1,393,886 |
|
|
Financial
Officer, Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Assistant Secretary (Principal Financial Officer)
|
|
2006
|
|
270,375
|
|
|
25,000 |
|
|
294,158 |
|
|
90,197 |
|
|
30,229 |
|
|
709,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bradley
R. Mason –
|
|
2007
|
|
283,250
|
|
|
-
|
|
|
839,387 |
|
|
172,074 |
|
|
12,186(9) |
|
|
1,306,897 |
|
|
Vice President of
the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
and President, Breg, Inc.
|
|
2006
|
|
257,500 |
|
|
-
|
|
|
618,473 |
|
|
24,720 |
|
|
11,820 |
|
|
912,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oliver
Burckhardt –
|
|
2007
|
|
263,495 |
|
|
75,000 |
|
|
383,223 |
|
|
51,087 |
|
|
19,356(10) |
|
|
792,161 |
|
|
President,
Spine Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
40,519 |
|
|
35,237 |
|
|
38,659 |
|
|
-
|
|
|
-
|
|
|
114,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
M. Finegan –
|
|
2007
|
|
257,250 |
|
|
-
|
|
|
381,639 |
|
|
30,047 |
|
|
19,879(11) |
|
|
688,815 |
|
|
Vice President
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
Development
|
|
2006
|
|
139,462 |
|
|
100,000 |
|
|
196,510 |
|
|
85,750 |
|
|
-
|
|
|
521,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy M. Adams –
(former Principal Financial Officer)
(12)
|
|
2007
|
|
40,385 |
|
|
-
|
|
|
159,174 |
|
|
-
|
|
|
-
|
|
|
199,559 |
|
______________
(1) Amounts
include salary deferred and further described in “Deferred
Compensation.”
(2) Amounts
shown in the row for 2006 reflect cash bonuses determined by the Committee
based on each named executive officer’s contribution to the closing of the
acquisition of Blackstone Medical, Inc. in 2006. In addition to a
$25,000 bonus relating to this acquisition, Mr. Finegan’s 2006 amount reflects a
$75,000 signing bonus paid upon his commencement of employment with
us. Mr. Burckhardt’s 2007 amount reflects a bonus of $75,000 paid in
connection with certain performance objectives that he achieved.
(3) Amounts
shown do not reflect compensation actually received. Instead, the
amounts shown are the 2007 and 2006 compensation cost recognized for stock
option awards for financial statement reporting purposes as determined pursuant
to Statement of Financial Accounting Standards No. 123(R), or FAS
123R. The assumptions used in the calculation of values of stock
option awards are set forth under the section entitled “Share-based
Compensation” in “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Critical Accounting Policies and
Estimates” in the Company’s Annual Reports on Form 10-K for 2007 and 2006 filed
with the SEC on February 29, 2008 and March 16, 2007, respectively.
(4) Amounts
shown reflect cash bonuses paid in 2008 and in 2007 for performance in 2007 and
in 2006, respectively, pursuant to our annual incentive program.
(5) Excludes
perquisites and other personal benefits unless the aggregate amount of such
annual compensation exceeded $10,000 for the named executive
officer.
(6) Effective
April 1, 2006, Mr. Milinazzo was promoted from Chief Operating Officer to
President and Chief Executive Officer of the Company. In conjunction
with his promotion, Mr. Milinazzo’s salary was increased to $430,000 per year
(pro-rated for the partial year). Additionally, Mr. Milinazzo was
elected as a director of the Company on December 5, 2006. As an
employee director, Mr. Milinazzo does not receive additional fees for his
services as director. Since Mr. Milinazzo is listed in this Summary
Compensation Table, he is not listed in the Director Compensation Table
below.
(7) This
amount includes $10,800 for car allowance, $2,162 for insurance premiums paid
by, or on behalf of, the Company with respect to term life insurance, $8,800 for
401k matching and $2,613 for spousal travel
expenses in connection with the December 2007 meeting of the Board.
(8) This
amount includes $10,800 for car allowance, $1,067 for insurance premiums paid
by, or on behalf of, the Company with respect to term life insurance, $450 for
tax preparation fees, $8,800 for 401k matching and $3,514 for spousal travel
expenses in connection with the December 2007 meeting of the
Board. This amount does not include payment of up to $407,726, which
Mr. Hein became entitled to in connection with his letter agreement but has not
yet been paid by the Company pursuant to the terms of his letter
agreement. See “Agreements with Named Executive Officers – Executive
Employment Agreement for Thomas Hein.”
(9) This
amount includes $10,800 for car allowance, $1,000 for 401k matching and $386 for
insurance premiums paid by, or on behalf of, the Company with respect to term
life insurance.
(10) This
amount includes $10,800 for car allowance, $8,281 for 401k matching and $275 for
insurance premiums paid by, or on behalf of, the Company with respect to term
life insurance.
(11) This
amount includes $10,800 for car allowance, $279 in insurance premiums paid by,
or on behalf of, the Company with respect to term life insurance and $8,800 for
401k matching.
(12)
Mr. Adams terminated his employment as the Company’s former Chief Financial
Officer effective April 30, 2008.
As
discussed above in “Compensation Discussion and Analysis,” our compensation
program for executive officers and other key employees consists of three primary
elements: annual salary; performance-based incentives in the form of annual cash
bonuses; and long-term equity-based incentives in the form of stock options and
restricted stock granted under our current 2004 LTIP. That section
also explains how salary and bonus relate in proportion to overall
compensation. For a discussion of each named executive officer’s
employment agreement, see “Agreements with Named Executive
Officers.” That section includes a description of any applicable
potential bonus levels under the annual incentive program for the named
executive officers.
GRANTS OF PLAN-BASED AWARDS
The
following table provides information regarding plan-based awards granted during
the fiscal year ended December 31, 2007 to the named executive
officers.
|
Name
|
|
Grant
Date
|
|
|
Approval
Date
|
|
|
All
Other Option Awards:
Number of Securities
Underlying Options
(#)
|
|
|
Exercise
or Base Price of
Option Awards
($/Sh)
|
|
|
Grant
Date Fair
Value of
Equity Award(1)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
|
|
|
|
(j)
|
|
|
(k)
|
|
|
(l)
|
|
|
Alan W. Milinazzo
|
|
6/29/2007
|
|
|
5/22/2007
|
|
|
|
75,000
|
|
|
|
44.97 |
|
|
|
1,053,498 |
|
|
Thomas Hein
|
|
6/29/2007
|
|
|
5/22/2007
|
|
|
|
20,300 |
|
|
|
44.97 |
|
|
|
285,145 |
|
|
Bradley R. Mason
|
|
6/29/2007
|
|
|
5/22/2007
|
|
|
|
20,000 |
|
|
|
44.97 |
|
|
|
280,931 |
|
|
Oliver
Burckhardt
|
|
6/29/2007
|
|
|
5/22/2007
|
|
|
|
22,300 |
|
|
|
44.97 |
|
|
|
313,238 |
|
|
|
|
8/21/2007
|
|
|
8/21/2007
|
|
|
|
10,000(2) |
|
|
|
47.78 |
|
|
|
144,772 |
|
|
|
|
11/27/2007
|
|
|
11/27/2007
|
|
|
|
40,000(3) |
|
|
|
58.43 |
|
|
|
775,488 |
|
|
Total
|
|
–
|
|
|
–
|
|
|
|
72,300 |
|
|
|
– |
|
|
|
1,233,498 |
|
|
Michael
M. Finegan
|
|
6/29/2007
|
|
|
5/22/2007
|
|
|
|
22,300 |
|
|
|
44.97 |
|
|
|
313,238 |
|
|
Timothy
M. Adams(4)
|
|
11/19/2007
|
|
|
11/1/2007
|
|
|
|
125,000 |
|
|
|
58.12 |
|
|
|
2,115,377 |
|
|
|
|
11/19/2007
|
|
|
11/1/2007
|
|
|
|
25,000 |
|
|
|
58.12 |
|
|
|
482,108 |
|
|
Total
|
|
–
|
|
|
–
|
|
|
|
150,000 |
|
|
|
– |
|
|
|
2,597,485 |
|
________________
(1) Amounts
shown reflect the grant date fair value of the stock options awarded calculated
in accordance with FAS 123R.
(2) Mr.
Burckhardt received these options in connection with his promotion to President
of the Company’s spine division.
(3) Mr.
Burckhardt received these options as a retention bonus.
(4) Mr.
Adams was granted stock options in connection with the Company hiring him as
Chief Financial Officer in November 2007. These stock options were
forfeited in connection with his resignation from employment with the Company
effective April 30, 2008. None continue to be
outstanding.
The
awards reflected in the table above were all made under the 2004
LTIP, unless otherwise noted above. For information relating to the
2004 LTIP and our other equity compensation plans, see “Executive Compensation –
Compensation Discussion and Analysis – Elements of Executive Compensation –
Long-Term Equity-Based Incentives.” For information relating to each named
executive officer’s employment agreement, see “Agreements with Named Executive
Officers.” For information on grants of awards to our directors under
the 2004 LTIP, see “Director Compensation.” All non-equity incentive
plan awards have been paid to named executive officers for 2007. See
“Summary Compensation Table.”
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The
following table provides information about the number of outstanding equity
awards held by our named executive officers at December 31,
2007.
|
Name
|
|
Number
of Securities Underlying
Unexercised
Options
(#)
Exercisable(1)
|
|
|
Number
of Securities Underlying Unexercised Options (#) Unexercisable(2)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(e)
|
|
|
(f)
|
|
|
Alan
W. Milinazzo
|
|
|
40,000
|
|
|
|
20,000(3) |
|
|
|
46.33 |
|
|
09/01/2015
|
|
|
|
|
|
66,667
|
|
|
|
33,333(4) |
|
|
|
39.94 |
|
|
04/11/2016
|
|
|
|
|
|
--
|
|
|
|
75,000(5) |
|
|
|
44.97 |
|
|
06/29/2017
|
|
|
Total
|
|
|
73,334 |
|
|
|
161,666 |
|
|
|
– |
|
|
|
– |
|
|
Thomas
Hein(6)
|
|
|
12,500 |
|
|
|
– |
|
|
|
33.00 |
|
|
05/14/2012
|
|
|
|
|
|
10,000 |
|
|
|
– |
|
|
|
32.18 |
|
|
08/06/2013
|
|
|
|
|
|
10,000 |
|
|
|
– |
|
|
|
34.81 |
|
|
10/04/2014
|
|
|
|
|
|
3,800 |
|
|
|
– |
|
|
|
37.76 |
|
|
12/02/2014
|
|
|
|
|
|
20,000 |
|
|
|
– |
|
|
|
43.04 |
|
|
06/30/2015
|
|
|
|
|
|
30,000 |
|
|
|
– |
|
|
|
38.11 |
|
|
06/30/2016
|
|
|
|
|
|
20,300 |
|
|
|
– |
|
|
|
44.97 |
|
|
06/29/2017
|
|
|
Total
|
|
|
106,600 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Bradley
R. Mason
|
|
|
150,000(7) |
|
|
|
– |
|
|
|
38.00 |
|
|
12/30/2013
|
|
|
|
|
|
13,334 |
|
|
|
6,666(8) |
|
|
|
43.04 |
|
|
06/30/2015
|
|
|
|
|
|
6,667 |
|
|
|
13,333(9) |
|
|
|
38.11 |
|
|
06/30/2016
|
|
|
|
|
|
– |
|
|
|
20,000(10) |
|
|
|
44.97 |
|
|
06/29/2017
|
|
|
Total
|
|
|
170,001 |
|
|
|
39,999 |
|
|
|
– |
|
|
|
– |
|
|
Oliver
Burckhardt
|
|
|
10,000 |
|
|
|
20,000(11) |
|
|
|
42.97 |
|
|
11/6/2016
|
|
|
|
|
|
– |
|
|
|
22,300(12) |
|
|
|
44.97 |
|
|
6/29/2017
|
|
|
|
|
|
– |
|
|
|
10,000(13) |
|
|
|
47.78 |
|
|
8/21/2017
|
|
|
|
|
|
– |
|
|
|
40,000(14) |
|
|
|
58.43 |
|
|
11/27/2017
|
|
|
Total
|
|
|
10,000 |
|
|
|
92,300 |
|
|
|
– |
|
|
|
– |
|
|
Michael
M. Finegan
|
|
|
16,667 |
|
|
|
33,333(15) |
|
|
|
38.11 |
|
|
06/29/2016
|
|
|
|
|
|
– |
|
|
|
22,300(16) |
|
|
|
44.97 |
|
|
06/29/2017
|
|
|
Total
|
|
|
16,667 |
|
|
|
55,633 |
|
|
|
–
|
|
|
|
– |
|
|
Timothy
M. Adams(17)
|
|
|
– |
|
|
|
125,000(18) |
|
|
|
58.12
|
|
|
11/19/2017
|
|
|
|
|
|
– |
|
|
|
25,000(19) |
|
|
|
58.12
|
|
|
11/19/2017
|
|
|
Total
|
|
|
– |
|
|
|
150,000 |
|
|
|
–
|
|
|
|
– |
|
______________
(1) All
options listed in this column are vested.
(2) All
options listed in this column are unvested.
(3) The
options vested in one-third increments on September 1, 2006 and September 1,
2007, and the third increment vests on September 1, 2008.
(4) The
options vested in one-third increments on April 11, 2007 and April 11, 2008, and
the third increment vests on April 11, 2009.
(5) The
options vest in one-third increments on June 29, 2008, June 29, 2009 and June
29, 2010.
(6) Mr.
Hein’s options accelerated in connection with Mr. Adams assuming the position of
Chief Financial Officer. See “Agreements with Named Executive
Officers” for additional information regarding Mr. Hein’s agreements with the
Company.
(7) While
the options are fully vested, they are not exercisable until January 1, 2009, in
accordance with Mr. Mason’s Amended and Restated Performance Accelerated Stock
Option Agreement. See “Agreements with Named Executive Officers –
Amended and Restated Performance Accelerated Stock Option Agreement with Mr.
Mason.”
(8) The
options vested in one-third increments on June 30, 2006 and June 30, 2007, and
the third increment vests on June 30, 2008.
(9) The
options vested in a one-third increment on June 30, 2007, and the second and
third increments vest on June 30, 2008 and June 30, 2009.
(10) The
options vest in one-third increments on June 29, 2008, June 29, 2009 and June
29, 2010.
(11) The
options vested in a one-third increment on November 6, 2007, and the second and
third increments vest on November 6, 2008 and November 6, 2009.
(12) The
options vest in one-third increments on June 29, 2008, June 29, 2009 and June
29, 2010.
(13) The
options vest in one-third increments on August 21, 2008, August 21, 2009 and
August 21, 2010.
(14) The
options vest in one-third increments on November 27, 2008, November 27, 2009 and
November 27, 2010.
(15) The
options vested in a one-third increment on June 29, 2007, and the second and
third increments vest on June 29, 2008 and June 29, 2009.
(16) The
options vest in one-third increments on June 29, 2008, June 29, 2009 and June
29, 2010.
(17) Mr.
Adams was granted stock options in connection with the Company hiring him as
Chief Financial Officer in November 2007. These stock options were
forfeited in connection with his resignation from employment with the Company
effective April 30, 2008. None continue to be
outstanding.
(18) The
options vest in one-third increments November 19, 2008, November 19, 2009 and
November 19, 2010.
(19) The
options vest on November 19, 2010.
Unless
stated otherwise in the footnotes above and except for any awards under the
Staff Share Plan, Performance Accelerated Stock Option Inducement Agreements or
similar awards, all stock options vest equally in one-third increments beginning
on the first anniversary of the date of grant, so long as the grantee remains an
employee of the Company (subject to earlier vesting in the event of a change in
control or certain termination events). For a summary of our standard
option agreements, see “Executive Compensation – Compensation Discussion and
Analysis – Elements of Executive Compensation – Long-Term Equity-Based
Incentives.” See also “Agreements with Named Executive
Officers.”
OPTION EXERCISES AND STOCK VESTED
The
following table provides information about the number of shares issued upon
option exercises, and the value realized on exercise, by our named executive
officers during fiscal 2007. For any named executive officer not
listed on the following table, no information was applicable.
|
|
Option
Awards
|
|
|
Name
|
Number
of Shares
Acquired
on
Exercise
(#)
|
|
Value
Realized on
Exercise
($)(1)
|
|
|
(a)
|
(b)
|
|
(c)
|
|
|
Thomas
Hein
|
|
|
22,500
|
|
|
|
626,227
|
|
(1) The
value realized on exercise is calculated by subtracting the strike price from
the exercise price of each option, and multiplying that number times the number
of options exercised at that strike price and exercise price.
The
following table provides information about the amount of compensation deferred
by our named executive officers at December 31, 2007. For any named
executive officer not listed on the following table, no information was
applicable. For more information about deferred compensation, see
“Executive Compensation – Compensation Discussion and Analysis – Elements of
Executive Compensation - Other Compensation – Deferred Compensation
Plan.”
|
Name
(a)
|
|
Executive
Contributions
in
Last FY
($)(1)
(b)
|
|
|
Aggregate
Earnings
in Last
FY ($)
(d)
|
|
|
Aggregate
Balance
at
Last
FYE
($)
(f)
|
|
|
Alan
W. Milinazzo
|
|
|
90,300 |
|
|
|
743 |
|
|
|
91,043 |
|
|
Thomas
Hein
|
|
|
11,248 |
|
|
|
(92) |
|
|
|
11,156 |
|
(1)
Represents the dollar amount of salary or director fees set forth on the Summary
Compensation Table, which the executive has deferred in accordance with the
Deferred Compensation Plan.
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
We have
entered into employment agreements with all of our Named Executive Officers, as
described below.
Executive
Employment Agreements for Alan W. Milinazzo, Michael M. Finegan and Oliver
Burckhardt
On July
13, 2006, we entered into employment agreements with each of Messrs. Milinazzo,
Finegan, Burckhardt and Hein through the one of the Company’s operating
subsidiaries, Orthofix Inc., as part of the Company’s executive compensation and
employment agreement review, with which the Committee was assisted by Towers
Perrin, as described above. Subsequently, Mr. Burckhardt entered into
an employment agreement with Orthofix Inc., effective November 27, 2007, in
connection with the Company promoting him to President of the Company’s Spine
Division. Except for the employment agreement with Mr. Mason
described below, the Company’s employment agreements contain substantially
similar terms, other than a few items particular to each individual, including
title, level of pay and other material differences noted
below.
In an
effort to bring these employment agreements into compliance with Section 409A of
the Internal Revenue Code, in December 2007, we entered into amended and
restated employment agreements through Orthofix Inc., with Messrs. Milinazzo,
Finegan, Burckhardt and Hein. The principal purpose of the amendments
was to avoid adverse tax consequences under Section 409A of the Internal Revenue
Code, including through amendments permitted in light of guidance from the
Internal Revenue Service with respect to Section 409A arising since the
agreements were originally entered into. This includes amendments
with respect to the timing of severance and bonus payments, definitional issues
arising under Section 409A, exerciseability of stock options and savings
clauses. In addition, we made certain other technical changes in an
effort to update them, including, among other changes, to list the then current
particulars applicable to each executive, including title and
compensation. The agreements are described in detail below, other
than for Mr. Hein, as his agreement was superseded in all respects in April 2008
by the arrangements described below under “Agreements with Named Executive
Officers – Executive Employment Agreement for Thomas Hein.” We
guarantee the obligations of Orthofix Inc. under each employment agreement
listed above.
Each
agreement is for an initial term lasting through April 1, 2009, with automatic
one-year renewals on April 1, 2009 and April 1, 2010 unless either party
notifies the other party of its intention not to renew at least 180 days prior
to a renewal period as set forth in the agreement. Each agreement
further provides that if a change of control (as that term is defined in each
agreement) occurs after April 1, 2007, the agreement will automatically be
extended for two years only from the change of control date (as that term is
defined in each agreement).
Compensation
Under the
agreements, each executive officer agrees to serve the Company and Orthofix Inc.
in the capacities and for the compensation levels noted below. These
dollar amounts reflect 2008 pay raises. Salary levels are reviewed
annually by the Committee and may be further amended from time to time by the
Committee. These salary levels may only be decreased if the decrease
is the result of a general reduction affecting the base salaries of all other
executive officers that does not disproportionately affect the executive officer
and does not reduce the executive officer’s base salary to a rate that is less
than 90% of the executive officer’s then current base salary
amount.
|
Name
|
Title
|
|
Base
Salary
(annualized)
|
|
|
Alan
W. Milinazzo
|
President
and Chief Executive Officer of Orthofix International N.V.; Chief
Executive Officer of Orthofix Inc.
|
|
$
|
500,000
|
|
|
Michael
M. Finegan
|
Vice
President of Corporate Development of Orthofix International N.V. and
Orthofix Inc.
|
|
$
|
280,000
|
|
|
Oliver
Burckhardt
|
President,
Spine Division
|
|
$
|
315,000
|
|
Each
executive officer participates in our annual incentive program. In 2008,
for: (1) Mr. Milinazzo, if 100% of target performance goals are met, a bonus of
75% of his annual base salary can be earned; if 150% of target performance goals
are met, a bonus of 112.5% of his annual base salary can be earned; (2) Mr.
Burckhardt, if 100% of target performance goals are met, a bonus of 50% of his
annual base salary can be earned; if 150% of target performance goals are met, a
bonus of 75% of his annual base salary can be earned and (3) Mr. Finegan, if
100% of target performance goals are met, a bonus of 50% of his annual base
salary can be earned; if 150% of target performance goals are met, a bonus of
75% of his annual base salary can be earned. Amounts actually paid to each
executive officer will depend on whether or not the various performance goals
under the program are attained, the ranges described above and the discretion of
the Committee. In addition, each executive officer is eligible to receive
additional bonus or incentive compensation as determined solely by the Committee
from time to time, subject only to changes made by the Board of Directors. For a
more detailed explanation of the Company’s annual incentive program, including
targets met and amounts paid for 2007, see “Executive Compensation -
Compensation Discussion & Analysis - Elements of Executive Compensation –
Performance Based Incentives – Annual Incentive Program” and “Summary
Compensation Table.”
In
addition, these executive officers are eligible to receive option grants under
the 2004 LTIP or other stock-based compensation plans that we may establish from
time to time, including participation in the ESPP. Under the
agreements, the executive officers and their eligible dependents will generally
be entitled to participate in our employee benefit plans such as welfare benefit
plans and savings and retirement plans to the same extent as other senior
executive officers of the Company or by virtue of each executive officer’s
position, salary, tenure and other qualifications.
Termination
Each
employment agreement may be terminated as follows:
|
|
·
|
By
mutual written agreement of Orthofix Inc. and the executive
officer;
|
|
|
·
|
Upon
the executive officer’s death;
|
|
|
·
|
By
Orthofix Inc. in the event the executive officer incurs a disability (as
that term is defined in each agreement) for a continuous period exceeding
90 days or for a total of 180 days during any period of 12 consecutive
months;
|
|
|
·
|
By
the executive officer for good reason (as that term is defined in each
agreement);
|
|
|
·
|
By
Orthofix Inc. for cause (as that term defined in each agreement) or
without cause; or
|
|
|
·
|
By
the executive officer voluntarily.
|
For a
description of potential payments upon termination or change of control, see
“Potential Payments Upon Termination or Change of Control – Potential Payments
to Alan W. Milinazzo, Michael M. Finegan and Oliver Burckhardt.”
Section
280G
Generally,
if it is determined that any amount or benefit payable to an executive officer
under his agreement or otherwise in conjunction with his employment would give
rise to liability of the executive officer for the excise tax imposed by Section
4999 of the Internal Revenue Code or any successor provision, then the amount of
benefits payable to that executive officer shall be reduced by the Company to
the extent necessary so that no portion is subject to those
provisions. This reduction shall only be made if the net amount of
payments, as so reduced (and after deduction of applicable federal, state, and
local income and payroll taxes on the reduced payments other than the excise tax
(as that term is defined in each agreement)) is greater than the excess of (1)
the net amount of the payments, without reduction (but after making the above
referenced deductions) over (2) the amount of excise tax to which the executive
officer would be subject in respect of those payments.
Certain
Other Provisions
The
employment agreements contain confidentiality, non-competition and
non-solicitation covenants effective so long as the executive officers are
employees of any member of the Company’s Parent Group and for a period of one
year after the employment is terminated. In the event the termination
of the executive officer’s employment is for good reason or without cause and
occurs during a change of control period, the term of those non-competition and
non-solicitation covenants extends to a period of two years in the case of Mr.
Milinazzo, 12 months in the case of Mr. Adams and 18 months in the case of
Messrs. Finegan and Hein. The agreements also contain confidentiality
and assignment of inventions provisions that last indefinitely.
We paid
all reasonable legal fees and expenses of each executive officer’s counsel in
connection with the preparation and negotiation of each employment
agreement. In addition, if a dispute arises under or in connection
with an executive officer’s agreement, we will be responsible for our own fees,
costs and expenses and shall pay to the executive officer an amount equal to all
reasonable attorneys’ and related fees, costs and expenses incurred by the
executive officer in connection with the arbitration of that dispute unless the
arbitrator determines that the executive officer (1) did not commence or engage
in the arbitration with a reasonable, good faith belief that his claims were
meritorious or (2) the executive officer’s claims had no merit and a reasonable
person under similar circumstances would not have brought the
claims.
Orthofix
Inc.’s obligation to pay or provide any benefits under each agreement (other
than any benefits as a result of death) is conditioned upon the executive
officer signing a release of claims in favor of the Company and its
affiliates.
Executive
Employment Agreement for Thomas Hein
We
entered into an employment agreement with Mr. Hein through Orthofix Inc.
effective as of April 11, 2008 in conjunction with his appointment as CFO of the
Company (the “Hein Employment Agreement”). Mr. Hein served as CFO of
the Company and Orthofix Inc. until November 19, 2007, and he resumed his role
as CFO with those companies on April 7, 2008. The Hein Employment
Agreement supersedes in all respects Mr. Hein’s Amended and Restated Employment
Agreement dated December 7, 2007 (which was entered into contemporaneously with
the other senior executive employment agreements discussed above) and the
related Letter Agreement dated December 6, 2007 (with respect to his
then-assumption of the role of Executive Vice President – Finance) (together,
the “Prior Agreements”). In order to induce Mr. Hein to accept the
position of CFO, the Company also granted him the stock options described
below.
The Hein
Employment Agreement memorializes the understanding between Mr. Hein and the
Company as to the rights held by Mr. Hein in conjunction with his transition to
CFO and incorporates certain amounts discussed below which the Company was
previously obligated to pay Mr. Hein under the Prior Agreements under certain
conditions. Under the Hein Employment Agreement, Mr. Hein is an
at-will employee and, in the event of any termination of his employment, he
would not be entitled to any sums or other payments or benefits, other than as
specifically provided in the Hein Employment Agreement.
Pursuant
to his previous employment agreement dated July 13, 2006, Mr. Hein would have
been entitled to terminate his employment for Good Reason (as defined in such
agreement) when Mr. Adams replaced him as CFO in November 2007. At
such time, all of his then-outstanding stock options became immediately
vested and exercisable. However, pursuant to the Letter Agreement and
in consideration of continued employment and the opportunity to earn a Retention
Bonus (as defined in the Prior Agreements) of $150,000, Mr. Hein agreed to
temporarily waive certain termination benefits to which he was entitled at
the time, one component of which was a Good Reason Payment in the amount of
$407,726. While the Prior Agreements were entered into in 2007 and
previously disclosed in the Company’s filings with the Commission, they are not
described here since they have been superseded in all respects by the Hein
Employment Agreement. Any obligations of the Company under the prior
Agreements that have been brought forward to the Hein Employment Agreement are
described below. We guarantee the obligations of Orthofix Inc. under
the Hein Employment Agreement.
Compensation
The Hein
Employment Agreement provides for an annual base salary of $350,000, and Mr.
Hein will continue to participate in the Company’s annual incentive program,
under which a bonus of 50% of his annual base salary can be earned if 100% of
target performance goals are met and a bonus of 75% of his annual base salary
can be earned if 150% of target performance goals are met. These are
the same percentages as other similarly-situated senior executives of the
Company. Mr. Hein has additionally been granted 50,000 stock options,
which will vest in one-third increments beginning on the first anniversary of
the date of grant (the “Incentive Options”). The Incentive Options
were granted under the 2004 LTIP and will be subject to the terms and conditions
of a stock option agreement. The exercise price of the Incentive
Options is $31.83, which was the closing price of the Company’s stock on the
date of grant. The Incentive Options become fully vested and
exercisable in the event of Mr. Hein’s death, upon a Change in Control (as
defined in the option agreement) or if the Company terminates his employment for
any reason other than Cause (as defined in the Employment Agreement), but not if
Mr. Hein voluntarily terminates his employment.
As
provided for under the Prior Agreements, Mr. Hein will remain entitled to the
Retention Bonus on July 15, 2008 (other than in the event of a termination for
Cause or a voluntary termination of his employment by Mr. Hein prior to that
date). Further, Mr. Hein has agreed that the Good Reason Payment (as
defined in the Prior Agreements) of $407,726 originally payable to him on or
about July 15, 2008, will be paid to him on the first to occur of (i) January 1,
2009, (ii) Mr. Hein’s termination of his employment for any reason other than
his death and (iii) his death. Under the Hein Employment Agreement,
Mr. Hein will be eligible for benefits generally available to senior executives
of the Company, and in the event of his termination by the Company other than
for Cause, will be provided with healthcare benefits for him and his spouse
under the Company’s employee welfare benefit plans (or equivalent value) until
his 65th birthday.
Termination
The Hein
Employment Agreement may be terminated as follows:
|
|
·
|
Upon
mutual agreement by Mr. Hein and the
Company;
|
|
|
·
|
By
the Company for Cause or for any other reason or for no reason;
or
|
|
|
·
|
By
Mr. Hein for any reason.
|
For a
description of potential payments upon termination or change of control, see
“Agreements with Named Executive Officers – Potential Payments Upon Termination
or Change of Control – Potential Payments to Thomas Hein.”
Certain
Other Provisions
The Hein
Employment Agreement contains non-competition and non-solicitation covenants
that last for one year following a termination of employment. The
Hein Employment Agreement also contains confidentiality and assignment of
inventions provisions that last indefinitely.
We paid
all reasonable legal fees and expenses of Mr. Hein’s counsel in connection with
the preparation and negotiation of the Prior Agreements and the Hein Employment
Agreement. In addition, if a dispute arises under or in connection
with the Hein Employment Agreement, we will be responsible for our own fees,
costs and expenses and shall pay to Mr. Hein an amount equal to all reasonable
attorneys’ and related fees, costs and expenses incurred by him in connection
with the arbitration of that dispute unless the arbitrator determines that he
(i) did not commence or engage in the arbitration with a reasonable, good faith
belief that his claims were meritorious or (ii) Mr. Hein’s claims had no merit
and a reasonable person under similar circumstances would not have brought the
claims.
Employment
Agreement with Former Chief Financial Officer
Orthofix
Inc. entered into an employment agreement with Timothy M. Adams, the Company’s
former Chief Financial Officer, effective November 19, 2007, which was
subsequently amended and restated as of December 6, 2007 in connection with the
Company amending the employment agreements of its executive officers as provided
above. Mr. Adams’ employment agreement contained substantially the
same terms and conditions as the employment agreements described
above. Effective April 30, 2008, Mr. Adams’ employment with Orthfix
Inc. terminated and he resigned from all of his positions with Orthofix
International N.V. and Orthofix Inc. At such time, his employment
agreement terminated other than the post-termination obligations that remain
outstanding, including the confidentiality, indemnity, non-competition,
non-solicitation, legal fees and certain other provisions. Further,
his stock option agreements and the stock options related thereto terminated and
were cancelled effective April 30, 2008.
Executive
Employment Agreement for Bradley R. Mason
We
entered into an employment agreement with Mr. Mason effective as of December 30,
2003, in connection with the acquisition of Breg, Inc. Pursuant to the
employment agreement, Mason serves as a Vice President of the Company and
President of Breg, Inc. As the term of Mr. Mason’s employment
agreement would have expired on December 31, 2007, in November 2007, we entered
into a letter agreement with Mr. Mason that extends the term of his employment
agreement through December 31, 2008. Except as it relates to the
Performance Accelerated Stock Options Agreement, also originally entered into in
conjunction with the acquisition of Breg, Inc. and which is described below, no
other amendments were made to the employment agreement.
Compensation
Under the
agreement, Mr. Mason is entitled to a base salary and a bonus as determined by
our Board. The agreement provides for an annual base salary of at least
$250,000, which may only be decreased as a result of a general reduction (on the
same percentage basis) affecting the base salaries of substantially all other
executive officers. For 2008, the base salary of Mr. Mason is
$300,000 and he received an annual bonus of $172,074 for fiscal year
2007. While not required under the agreement, as determined by the
Committee from time to time, Mr. Mason is also eligible to receive option grants
under the 2004 LTIP or other stock-based compensation plans.
Termination
The
agreement may be terminated as follows:
|
|
·
|
Upon
Mr. Mason’s death or retirement;
|
|
|
·
|
By
Orthofix International N.V. in the event Mr. Mason incurs a disability (as
that term is explained in the agreement) for a continuous period exceeding
120 days during any period of 12 consecutive months and he is qualified
and eligible to receive disability
benefits;
|
|
|
·
|
By
Mr. Mason for good reason (as that term is defined in the agreement) not
later than 90 days following the event constituting good reason;
or
|
|
|
·
|
By
Orthofix International N.V. for cause (as that term defined in the
agreement) or without cause.
|
For a
description of potential payments upon termination or change of control, see
“Potential Payments Upon Termination or Change of Control – Potential Payments
to Bradley R. Mason.”
Certain
Other Provisions
The
agreement contains a non-competition covenant that lasts for one year following
a termination of employment to the extent Mr. Mason has received, or will be
receiving, any payments or benefits pursuant to the agreement, and
confidentiality and assignment of inventions provisions that last indefinitely.
In addition, the agreement also contains a non-solicitation provision that lasts
for two years following a termination of employment for any reason.
Amended
and Restated Performance Accelerated Stock Option Agreement with Mr.
Mason
On
December 30, 2003, in conjunction with the acquisition of Breg, Inc., we granted
inducement stock option awards to Mr. Mason. Pursuant to the original
PASO, Orthofix granted 150,000 stock options to Mr. Mason as a key executive
officer of Breg, Inc. The exercise price was fixed at $38.00 per
share on November 20, 2003, which was the date Orthofix announced the agreement
to acquire Breg, Inc. The options vested on December 30, 2007, the
fourth anniversary of the grant date. Following vesting on December
30, 2007, the original PASO limited Mr. Mason’s ability to exercise specific
numbers of options during the years 2008 – 2012. If not exercised
sooner as permitted under the original PASO, all options would have ultimately
been exercisable after December 30, 2012, but prior to December 30,
2013.
As an
inducement to Mr. Mason to extend the term of his employment agreement with the
Company for one year as noted above, as well as to meet certain requirements
under Section 409A of the Internal Revenue Code, the Company and Mr. Mason
entered into the Amended PASO in November 2007.
The
Amended PASO did not change the vesting date of the options granted
thereunder. However, the Amended PASO provides that Mason’s options
will only be exercisable during the fixed period beginning January 1, 2009, and
ending on December 31, 2009 in lieu of the prior exercise
limitations. Subject to certain termination provisions and
notwithstanding any other provisions of the Amended PASO, any portion of the
options that are not exercised by December 31, 2009 will not be exercisable
thereafter and will lapse and be cancelled.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
Potential
Payments to Alan W. Milinazzo, Michael M. Finegan and Oliver
Burckhardt
Termination
Under
their employment agreements, each of Messrs. Milinazzo, Finegan, Burckhardt and
Hein is generally entitled to receive the following in the event of termination
as a result of death, disability, for good reason or without cause (subject, in
the case of Mr. Hein, to the limitations described above):
|
|
·
|
Any
amounts actually earned or owing through the date of termination (such as
base salary, incentive compensation or accrued vacation) payable within 30
days after the date of termination.
|
|
|
·
|
The
pro rata amount of any bonus plan incentive compensation for the fiscal
year of the executive’s termination of employment (based on the number of
business days he was actually employed by the Company during the fiscal
year in which the termination of employment occurs) that he would have
received had his employment not been terminated during such
year. This pro rata amount is payable at the time such
incentive compensation is paid to other senior executives of the Company
(generally, before March 15 of the next
year).
|
|
|
·
|
An
amount equivalent to a multiple of the executive officer’s Base Amount
payable within 30 days after the date of termination calculated as set
forth in the employment agreement. The timing of such payment
may be modified in accordance with Section 409A of the Internal Revenue
Code. This multiple increases as described below for payments
triggered following a change of control. ”Base Amount” means an
amount equal to the sum of:
|
|
|
(1)
|
the
executive officer’s annual base salary at the highest annual rate in
effect at any time during the term of employment;
and
|
|
|
(2)
|
the
greater of (a) the executive officer’s target bonus in effect during the
fiscal year in which termination of employment occurs, or (b) the greater
of (i) the average of his annual bonuses actually earned for the two years
ending immediately prior to the year in which termination of employment
occurs or (ii) the average of his annual bonuses actually earned for the
two years ending immediately prior to the change of control or potential
change of control (as those terms are defined in the employment
agreement), in each case with adjustments made for eligibility and any
partial years.
|
|
|
·
|
All
stock options previously granted to the executive officer will vest in
full and be immediately exercisable. Any risk of forfeiture
included in restricted stock grants will immediately lapse. If
the executive officer’s termination is for good reason or without cause,
the executive officer will have until the latest date that each stock
option would otherwise expire by its original terms had the executive
officer’s employment not terminated (but in no event later than 10 years
from the original grant date), to exercise any outstanding stock
options.
|
|
|
·
|
Continuation
of basic employee group welfare benefits (but not pension, retirement,
profit-sharing, severance or similar compensatory benefits) for him and
dependents substantially similar to those being received immediately prior
to termination for a limited amount of
time.
|
|
|
·
|
Up
to $25,000 for outplacement fees incurred during the 24-month period
following the date of termination.
|
In the
event of termination for cause or as a result of voluntary termination by the
executive officer, the executive officer will only be entitled to receive the
following:
|
|
·
|
Any
amounts actually earned or owing through the date of termination (such as
base salary, incentive compensation or accrued vacation);
and
|
|
|
·
|
Any
benefits under the Company’s stock-based compensation plans or employee
benefit plans available resulting from the termination events (including
under COBRA), without the agreement granting any greater rights with
respect to such matters than provided for in such
plans.
|
See
“Executive Compensation – Compensation Discussion and Analysis – Elements of
Executive Compensation - Other Compensation – Deferred Compensation Plan” for a
discussion of payments pursuant to the Deferred Compensation Plan upon
termination of employment.
Change
of Control
All
agreements provide for a “double-trigger” so that a change of control (as that
term is defined in the agreement) alone does not grant the executive officer any
specific right to terminate his employment agreement or receive severance
benefits, but it can result in increased payments in the event of termination
for good reason or without cause during the change of control period (as that
term is defined in the employment agreement). The multiple applicable
to the executive officer’s Base Amount increases as described below for payments
triggered following a change of control. The agreements do not
alter any rights the executive officers may have under separate stock-based
compensation plans or agreements with the Company, and which generally provide
that all stock options immediately vest upon a change of control (as that term
is defined under the 2004 LTIP) without reliance on any other triggering
event.
See
“Executive Compensation – Compensation Discussion and Analysis – Elements of
Executive Compensation - Other Compensation – Deferred Compensation Plan” for a
discussion of payments pursuant to the Deferred Compensation Plan upon a change
of control.
Estimated
Payments
The
following table reflects the estimated payments and benefits that would be
provided to each of these executive officers upon their termination or upon a
change of control pursuant to the terms of their respective employment
agreements and related stock option agreements. For purposes of this
table, we assume that the triggering event took place on December 31, 2007 (the
last business day of our 2007 fiscal year) and the price per share of our common
stock was $57.97, the closing market price as of that date. For any
triggering event that presupposes a change of control, we assume a change of
control has so occurred.
|
Name
|
|
Triggering Event
|
|
Lump
Sum Severance Payment ($)
|
|
|
Value of Stock-Based
Rights ($)(1)
|
|
|
Value
of Welfare Benefits ($)
|
|
|
Fees and Expenses of
Out-placement Firm ($)(2)
|
|
|
Total ($)(3)
|
|
|
Alan
W. Milinazzo
|
|
Termination
for death, disability, good reason or without cause
|
|
|
$1,015,875 |
|
|
|
$2,409,788 |
|
|
|
$18,918(6) |
|
|
|
$25,000 |
|
|
|
$3,469,581 |
|
|
|
|
Termination
for cause or voluntary termination
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
Change
of control(4)
|
|
|
– |
|
|
|
$2,409,788 |
|
|
|
– |
|
|
|
– |
|
|
|
$2,409,788 |
|
|
|
|
Termination
for good reason or without cause within a change of control period(5)
|
|
|
$1,354,500 |
|
|
|
– |
|
|
|
$25,224(7) |
|
|
|
$25,000 |
|
|
|
$1,404,724 |
|
|
Oliver
Burckhardt
|
|
Termination
for death, disability, good reason or without cause
|
|
|
$456,750 |
|
|
|
$373,400 |
|
|
|
$10,722(8) |
|
|
|
$25,000 |
|
|
|
$865,872 |
|
|
|
|
Termination
for cause or voluntary termination
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
Change
of control(4)
|
|
|
– |
|
|
|
$373,400 |
|
|
|
– |
|
|
|
– |
|
|
|
$373,400 |
|
|
|
|
Termination
for good reason or without cause within a change of control period(5)
|
|
|
$685,125 |
|
|
|
– |
|
|
|
$16,083(6) |
|
|
|
$25,000 |
|
|
|
$726,208 |
|
|
Michael
M. Finegan
|
|
Termination
for death, disability, good reason or without cause
|
|
|
$360,150 |
|
|
|
$1,282,900 |
|
|
|
$10,726(8) |
|
|
|
$25,000 |
|
|
|
$1,678,776 |
|
|
|
|
Termination
for cause or voluntary termination
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
Change
of control(4)
|
|
|
– |
|
|
|
$1,282,900 |
|
|
|
– |
|
|
|
– |
|
|
|
$1,282,900 |
|
|
|
|
Termination
for good reason or without cause within a change of control period(5)
|
|
|
$540,225 |
|
|
|
– |
|
|
|
$16,089(6) |
|
|
|
$25,000 |
|
|
|
$581,314 |
|
_______________
(1) The
amount disclosed is the value of the accelerated options calculated as the
difference between the exercise price and the closing price as of December 31,
2007. The value of the stock-based rights would be $0 and $0 for Mr.
Milinazzo, $0 and $0 for Mr. Burckhardt and $0 and $0 for Mr. Finegan,
respectively, if calculated at $29.27 per share, which was the price per
share on April 25, 2008, because
on that date, the closing price of common stock was lower than the exercise
price of the applicable options.
(2) Maximum
fees and expenses during 24 months following date of termination.
(3) In
addition to this amount, if a dispute arises under or in connection with an
agreement the Company will be responsible for its own fees, costs and expenses
and shall pay to the executive officer an amount equal to all reasonable
attorneys’ and related fees, costs and expenses incurred by the executive
officer in connection with the arbitration of that dispute subject to certain
exceptions, as discussed below.
(4) The
stock option agreements under the 2004 LTIP provide that the exercisability of
outstanding options accelerates upon a change of control. As noted
above, all the employment agreements provide for a “double-trigger” so that a
change of control (as that term is defined in the employment agreement) alone
does not grant the executive officer severance benefits. The
definition of this event in the executive officer’s stock option agreement is
different than that provided in each executive officer’s employment
agreement.
(5) As
defined in the employment agreement, a “change of control period” means the 24
month period commencing on the date of a change of control. This
period will instead commence on the date immediately prior to the date of the
executive officer’s termination if the termination is prior to the change of
control date under certain circumstances set forth in the
agreement. If this event were to occur simultaneously with the change
of control, the executive would also receive the benefits described under
“Change of Control” in the table above. If termination occurs
following the “Change of Control,” the executive officer will receive these
benefits in addition to those described under “Change of Control”
above.
(6) For
18 months post-termination (assuming the executive officer does not secure
coverage from new employment during that time).
(7) For
24 months post-termination (assuming the executive officer does not secure
coverage from new employment during that time).
(8) For
12 months post-termination (assuming the executive officer does not secure
coverage from new employment during that time).
While Mr.
Adams entered into an employment agreement upon his commencing employment with
the Company, as a result of his departure from the Company, that agreement has
terminated. As such, while as of December 31, 2007, he would have been entitled
to rights similar to those described above, he is now not entitled to any of the
rights described herein other than with respect to the limited items set forth
above with respect to voluntary termination, so a description for him has been
omitted.
Potential
Payments to Thomas Hein
Since the
Prior Agreements in effect with Mr. Hein as of December 31, 2007 have since been
terminated and because all payment terms with Mr. Hein are now set forth in the
Hein Employment Agreement, the amounts below are calculated as if Mr. Hein had
been terminated by the Company on April 15, 2008.
Termination
Under the
Hein Employment Agreement, if Mr. Hein is terminated by the Company without
Cause he is entitled to receive the Retention Bonus of $150,000 and the Good
Reason Payment of $407,726 (if such termination occurs before payment of such
amounts according to their terms on July 15, 2008 and January 1, 2009,
respectively) and continuation of his welfare benefits (or equivalent value) for
him and his spouse through his 65th
birthday. Additionally, the Incentive Options would immediately vest and
the exercise period of such options would continue until the tenth anniversary
of the date of grant as provided in the award documents. Any other
options held by Mr. Hein would be exercisable in accordance with the
terms of the respective award documents.
If Mr.
Hein’s employment is terminated by the Company for Cause or by Mr. Hein in a
Voluntary Termination (as defined in the Hein Employment Agreement), Mr. Hein
will be entitled only to any amounts actually earned or owing through the date
of termination (such as base salary, incentive compensation or accrued vacation)
and the Good Reason Payment. Mr. Hein will also be able to exercise
any Incentive Options that are vested by their terms as of the date of such
termination at any time within three months of such date. Any other
options held by Mr. Hein would be exercisable in accordance with the terms of
the respective award documents.
Estimated
Payments
The
following table reflects the estimated payments and benefits that would be
provided to Mr. Hein upon his termination pursuant to the terms of the Hein
Employment Agreement as of April 15, 2008.
|
Triggering
Event(1)
|
|
Lump
Sum Severance Payment ($)
|
|
|
Value of Stock-Based Rights
($)(3)
|
|
|
Value of Welfare Benefits
($)(4)
|
|
|
Total
($)
|
|
|
Termination
without Cause
|
|
|
$557,726(2) |
|
|
|
– |
|
|
|
$75,000 |
|
|
|
$632,726(5) |
|
|
Change
in Control
|
|
|
– |
|
|
|
– |
|
|
|
$75,000 |
|
|
|
$75,000 |
|
|
Termination
for Cause or Voluntary Termination
|
|
|
$407,726 |
|
|
|
– |
|
|
|
– |
|
|
|
$407,726 |
|
_______________
(1) In the
event Mr. Hein had been terminated as of December 31, 2007 with the Prior
Agreements in place, he would have been entitled to (i) a lump sum severance
payment of $407,726 (the Good Reason Payment), (ii) welfare benefits with a
value of approximately $13,742 and (iii) fees and expenses for an out-placement
firm in the amount of $25,000, for a total estimated termination payment of
$446,468. No acceleration of stock options would have occurred at
such time as all of Mr. Hein’s then-outstanding options were vested as of
December 31, 2007.
(2) This amount
includes the Good Reason Payment of $407,726 and the Retention Bonus of
$150,000.
(3) The
amount disclosed is the value of the accelerated options calculated as the
difference between the exercise price and the closing price as of April 15,
2008. There is no realized value of such rights because the closing price
of the Company's common stock as of April 15, 2008 is less than the exercise
price.
(4) Estimate
of the cost to provide noted welfare benefits to Mr. Hein and his spouse through
his 65th
birthday.
(5) In
addition to this amount, if a dispute arises under or in connection with the
employment agreement each party will be responsible for its own fees, costs and
expenses, but if Mr. Hein is the prevailing party we shall pay to Mr. Hein an
amount equal to all attorneys’ and related fees, costs and
expenses.
Potential
Payments to Bradley R. Mason
Termination
Under his
employment agreement, if Mr. Mason is terminated without cause he is entitled to
receive a lump sum payment equal to:
|
|
·
|
the
average of his annual base salary at the highest rate in effect in the
90-day period immediately before the termination and his annual base
salary for the year preceding the
termination;
|
|
|
·
|
the
average of his annual bonuses for the two years before the year in which
the termination occurs; and
|
|
|
·
|
his
annual automobile allowance.
|
Upon a
resignation for good reason (as such term is defined in the agreement), Mr.
Mason is entitled to half the amount that he would receive had he been
terminated without cause. Under either circumstance, Mr. Mason will be entitled
to continuation of his welfare benefits for up to one year following his
termination. The exercise period of any stock options held by Mr.
Mason will continue for the lesser of one year of his securing new employment
following a termination without cause and six months following a resignation for
good reason. However, the inducement stock award granted to him is
governed by the terms and conditions of the applicable Performance Accelerated
Stock Option Inducement Agreement. We are also required to provide Mr. Mason
with reimbursement for outplacement services of up to $20,000 upon a termination
without cause or resignation for good reason.
If Mr.
Mason’s employment is terminated for cause (as such term is defined in the
agreement) or due to death, disability or retirement, Mr. Mason will not be
entitled to the foregoing benefits.
Change
of Control
If there
is a change of control (as such term is defined in the agreement) of the
Company:
|
|
·
|
the
term of the agreement automatically extends for one year from the date of
the change of control (unless the then current term is greater than one
year);
|
|
|
·
|
all
stock options and stock appreciation rights will vest automatically
(provided, however, that the inducement stock award granted to Mr. Mason
is governed by the terms and conditions of the applicable Performance
Accelerated Stock Option Inducement Agreement);
and
|
|
|
·
|
any
forfeiture provisions included in Mr. Mason’s restricted stock awards will
immediately lapse.
|
In
addition, in the event that Mr. Mason is terminated without cause or resigns for
good reason following a change of control, he is entitled to receive a lump sum
payment equal to:
|
|
·
|
the
greater of (i) the average of his annual base salary at the highest rate
in effect in the 90-day period immediately before the termination and his
annual base salary for the year preceding the termination and (ii) the
average of his annual base salary in effect immediately before the change
of control and his annual base salary for the year preceding the change of
control;
|
|
|
·
|
the
greater of (i) the average of his annual bonuses for the two years before
the year in which the termination occurs and (ii) the average of his
annual bonuses for the two years before the year in which the change of
control occurs; and
|
|
|
·
|
his
annual automobile allowance.
|
The
agreement also provides that, in the event that any payments made to Mr. Mason
constitute “excess parachute payments” under Section 280G of the Internal
Revenue Code, then the amounts to be paid to him will be reduced so that no
excess parachute payments exist.
Estimated
Payments
The
following table reflects the estimated payments and benefits that would be
provided to Mr. Mason upon his termination or upon a change of control pursuant
to the terms of his employment agreement. For purposes of this table,
we assume that the triggering event took place on December 31, 2007 (the last
business day of our 2007 fiscal year) and the price per share of our common
stock is $57.97, the closing market price as of that date. For any
triggering event that presupposes a change of control, we assume a change of
control has so occurred.
|
Triggering
Event
|
|
Lump Sum Severance Payment
($)(1)
|
|
|
Value of Stock-Based Rights
($)(2)
|
|
|
Value of Welfare Benefits
($)(3)
|
|
|
Fees and Expenses of
Out-placement Firm ($)(4)
|
|
|
Total
($)
|
|
|
Termination
without cause
|
|
|
$306,410 |
|
|
|
– |
|
|
|
$11,424 |
|
|
|
$20,000 |
|
|
|
$337,834(5) |
|
|
Termination
for good reason
|
|
|
$153,205 |
|
|
|
– |
|
|
|
$11,424 |
|
|
|
$20,000 |
|
|
|
$184,629(5) |
|
|
Termination
for cause or voluntary termination
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Change
of control
|
|
|
– |
|
|
|
$626,650(6) |
|
|
|
– |
|
|
|
– |
|
|
|
$626,650 |
|
|
Termination
for good reason or without cause within a change of control
period
|
|
|
$306,410 |
|
|
|
– |
|
|
|
$11,424 |
|
|
|
$20,000 |
|
|
|
$337,834(7) |
|
_______________
(1) Includes
accrued vacation amounts to be paid under California law.
(2) The
amount disclosed is the value of the accelerated options calculated as the
difference between the exercise price and the closing price as of December 31,
2007. The value of the stock-based rights would be $0 if calculated
at $29.27 per share, which was the price per share on April 25, 2008, because
on that date, the closing price of the common stock was lower than the exercise
price of the applicable options.
(3) For
12 months post-termination (assuming Mr. Mason does not secure coverage from new
employment during that time).
(4) Maximum
fees and expenses during 24 months following date of
termination. Note that the Company will be responsible for any costs
and expenses incurred in hiring an executive outplacement firm for Mr. Mason, up
to the amount disclosed.
(5) In
addition to this amount, if a dispute arises under or in connection with the
employment agreement each party will be responsible for its own fees, costs and
expenses, but if Mr. Mason is the prevailing party we shall pay to Mr. Mason an
amount equal to all attorneys’ and related fees, costs and
expenses.
(6) While
Mr. Mason’s employment agreement and PASO agreement provide that the vesting of
outstanding options accelerates upon a change of control, the vested PASOs
continue to be subject to the limitations on exercise set forth in the PASO
agreement. The amount disclosed is the value of the accelerated
options calculated as the difference between the exercise price and the closing
price as of December 31, 2007.
(7) In
addition to this amount, if a dispute arises under or in connection with the
employment agreement Mr. Mason may retain counsel at the expense of the Company
to represent him in any legal proceeding arising out of such
agreement. Without respect to whether Mr. Mason prevails, we shall
pay to Mr. Mason an amount equal to all attorneys’ and related fees, costs and
expenses (subject to certain exceptions).
Directors
are traditionally elected each year at the Annual General Meeting of
Shareholders, usually held in June. Other director appointments occur
from time to time as determined by the Board, for instance, in the event of
vacancies on the Board resulting from a director’s death or
resignation.
For 2007,
the Board adopted a director compensation philosophy providing for a 60th
percentile goal for total director compensation. This philosophy is
consistent with the 2007 total compensation philosophy applied to the
compensation levels of the executive officers. Non-employee directors
receive a mix of cash and equity-based compensation as consideration for serving
on the Board. Current Board compensation levels were determined by
the Board, including based upon consideration of Towers Perrin’s 2008
compensation analysis, which included a competitive market analysis to determine
competitive compensation levels for our directors. Towers
Perrin’s analysis concluded that the Board’s cash fees were in line with its
philosophy, but that our equity-based compensation for directors was below our
peer group as compared to our preferred percentile
goals.
Upon
election or appointment to the Board, each Board member is currently entitled to
an annual fee of $55,000 for his services,
pro-rated for any partial year of service. Chairmen of Committees are
entitled to additional compensation ranging from $5,000 to $10,000 for serving
in those capacities, and the Chairman of the Board receives an annual salary of
$200,000 in his role as an executive chairman in lieu of any Board
fees. We do
not pay any other meeting fees. Each director may elect at the time
of election to the Board or at a subsequent increase in fees to have their
director fee paid either in U.S. Dollars or in the director’s local
currency. If a director does not elect to have his director fee paid
in his local currency, the Company will pay the director fee in U.S.
Dollars.
Directors
also receive grants of stock options under the 2004 LTIP. These
grants include (i) a grant of 30,000 options, granted on the date of such
director’s first election to the Board, with such options generally vesting in
one-fifth increments over a 5-year period (so long as a director remains on the
Board and subject to earlier vesting in the event of a change in control), and
(ii) a grant of 3,000 options, granted on the date of any re-election or
re-appointment to the Board, with such options generally vesting in one-third
increments on the anniversary of each grant (so long as a director remains on
the Board and subject to earlier vesting in the event of a change in
control). In 2007, grant levels were established by the Board based
upon Towers Perrin’s competitive assessment and were approved by the Company’s
shareholders. For 2008, based upon a comparison of the Company’s
current peer group and subject to shareholder approval, the Board is
recommending to increase the annual grant from 3,000 to 5,000 options as part of
the 2004 LTIP amendment described below. For more information on the
2004 LTIP generally, see “Executive Compensation – Compensation Discussion and
Analysis – Elements of In-Service Executive Compensation – Long-Term
Equity-Based Incentives.” See also Proposal 2 of this Proxy
Statement.
The
following table provides information regarding director compensation during the
fiscal year ended December 31, 2007.
|
Name(1)
|
|
Fees
Earned or Paid
in Cash
($)(2)
|
|
|
Option
Awards
($)(3)
|
|
|
All
Other Compensation
($)(4)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
|
(d)
|
|
|
(g)
|
|
|
(h)
|
|
|
James
F. Gero – Chairman(5)
|
|
|
200,000 |
|
|
|
160,217 |
|
|
|
8,800(6) |
|
|
|
369,017 |
|
|
Jerry
C. Benjamin
|
|
|
65,000(7) |
|
|
|
88,552 |
|
|
|
– |
|
|
|
153,552 |
|
|
Charles
W. Federico(8)
|
|
|
55,000 |
|
|
|
13,173 |
|
|
|
50,784(9) |
|
|
|
118,957 |
|
|
Peter
J. Hewett
|
|
|
55,000 |
|
|
|
13,173 |
|
|
|
158,250(10) |
|
|
|
228,273 |
|
|
Dr.
Guy J. Jordan
|
|
|
60,000(11) |
|
|
|
104,494 |
|
|
|
– |
|
|
|
164,494 |
|
|
Thomas
J. Kester
|
|
|
60,000(12) |
|
|
|
88,552 |
|
|
|
– |
|
|
|
148,552 |
|
|
Dr.
Walter P. von Wartburg
|
|
|
70,040(13) |
|
|
|
88,552 |
|
|
|
– |
|
|
|
158,592 |
|
|
Kenneth
R. Weisshaar
|
|
|
55,000 |
|
|
|
104,494 |
|
|
|
– |
|
|
|
159,494 |
|
|
Stefan
Widensohler(14)
|
|
|
27,500 |
|
|
|
– |
|
|
|
– |
|
|
|
27,500 |
|
______________
(1) Mr.
Milinazzo was a director and executive officer during 2007. As such,
information about him and his compensation figures are only listed in the
Summary Compensation Table above and not in this Director Compensation
Table.
(2) Each
of our non-employee directors receives an annual fee of $55,000 (or local
currency equivalent at the director’s election) for his services (pro-rated for
partial years).
(3) Amounts
shown do not reflect compensation actually received. Instead, the
amounts shown are the 2007 compensation cost recognized for stock option awards
for financial statement reporting purposes as determined pursuant to Statement
of Financial Accounting Standards No. 123(R), or FAS 123R. The
assumptions used in the calculation of values of stock option awards are set
forth under the section entitled “Share-based Compensation” in “Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Critical Accounting Policies and Estimates” in the
Company’s Annual Report on Form 10-K for 2007, filed with the SEC on February
29, 2008. Our directors’ outstanding option awards as of December 31, 2007
are as follows: Mr. Gero – 61,000; Mr. Benjamin – 39,000; Mr. Federico – 3,000;
Mr. Hewett – 3,000; Dr. Jordan – 33,000; Mr. Kester – 33,000; Dr. von Wartburg –
39,000; and Mr. Weisshaar – 33,000.
(4) Excludes
perquisites and other personal benefits unless the aggregate amount of such
annual compensation exceeded $10,000 for the director.
(5) Mr.
Gero was a director and executive officer during 2007.
(6) Includes
$8,800 for 401k matching.
(7) Mr.
Benjamin received an additional $10,000 for his services as Chairman of the
Audit Committee.
(8) In
2005, we entered into an employment agreement with Mr. Federico while he was
serving as our President and Chief Executive Officer. While Mr.
Federico ceased serving as an employee of the Company in 2006, he remains a
director of the Company. Under the applicable and continuing
provisions of his employment agreement, from April 15, 2007 until December 31,
2010, he provides consulting services to the Company. We pay Mr.
Federico (i) $55,000 per year so long as he remains a director of the Company
and (ii) $110,000 per year during such time as he provides consulting services,
but is not a director. In addition, Mr. Federico and his dependents
are entitled to group health benefits (or the financial equivalent thereof)
during the consulting period. He is also provided with secretarial
support in order to assist him in the performance of his consulting duties.
Mr.
Federico and his dependents will continue to receive employee welfare benefits
(or the financial equivalent thereof) during his consulting period.
(9) This
amount includes $1,730 for insurance premiums paid by, or on behalf of, the
Company with respect to life insurance and $10,123 paid by, or on behalf of, the
Company with respect to health insurance, $3,514 for spousal travel expenses in
connection with the December 2007 meeting of the Board and $35,417 in consulting
fees for consulting services beginning in April 2007.
(10) Pursuant
to written agreement, Mr. Hewett receives fees for consulting and advisory
services provided by him at such times and on such special projects as
requested by the Board from time to time. He receives a fee of $1,500
per day for each day of requested services and reports directly to the
Board. The Company pays such fees and reimburses his travel and
related expenses in connection with such services. This amount represents
consulting and advisory fees paid for 2007.
(11) Dr.
Jordan received an additional $5,000 for his services as Chairman of the
Nominating and Governance Committee.
(12) Mr.
Kester received an additional $5,000 for his services as Chairman of the
Compensation Committee in 2007. He will receive $10,000 for his
services as Chairman of the Compensation Committee in 2008.
(13) In
April 2007, it was decided to compensate Dr. von Wartburg in his role as
chairman of an ad hoc group of Board members that assist the Board and senior
management in reviewing selected communications to external audiences, including
$5,920 for his service in 2007.
(14) On
June 20, 2007, Mr. Widensohler ceased serving as a member of the
Board.
EQUITY COMPENSATION PLAN INFORMATION
Our
primary equity compensation plan is the 2004 LTIP. Some named
executive officers continue to hold outstanding awards under our previous Staff
Share Option Plan and Performance Accelerated Stock Option Inducement Grants,
although we no longer grant awards under these plans. All named
executive officers are also eligible at their discretion to acquire shares of
common stock pursuant to our Employee Stock Purchase Plan. Each of
the 2004 LTIP, the Staff Share Option Plan and the Employee Stock Purchase Plan
has been approved by our shareholders. The Performance Accelerated
Stock Option Inducement Grants were not required to be approved by our
shareholders. For more information on our equity compensation plans,
see “Executive Compensation – Compensation Discussion and Analysis – Elements of
Executive Compensation – Long-Term Equity-Based Incentives.”
The
following table provides aggregate information regarding the shares of our
common stock that may be issued upon the exercise of options and rights under
all of our equity compensation plans as of
December 31, 2007.
|
Plan
Category
|
|
Number
of Securities to
Be
Issued upon Exercise
of
Outstanding Options
and
Rights (#)
(a)
(1)
|
|
|
Weighted-Average
Exercise
Price of
Outstanding
Options
and
Rights ($)
(b)
|
|
|
Number
of Securities Remaining Available for Future Issuance Under
Equity
Compensation
Plans
(Excluding
Securities
Reflected in
Column
(a)) (#)
(c)
|
|
|
Equity
Compensation Plans Approved by Security Holders
|
|
|
2,310,022(2) |
|
|
|
42.78 |
|
|
|
728,826(3) |
|
|
Equity
Compensation Plans Not Approved by Security Holders
|
|
|
200,000(4) |
|
|
|
38.00 |
|
|
|
– |
|
|
Total
|
|
|
2,510,022 |
|
|
|
42.39 |
|
|
|
728,826 |
|
_______________
(1) This
column includes stock options and restricted stock. The
weighted-average exercise price in column (b) only relates to the exercise price
of stock options because the restricted stock has no exercise
price.
(2) Options
were granted pursuant to the following plans: the Staff Share Option
Plan and the 2004 LTIP. As mentioned above, there are currently no
more shares available for issuance under the Staff Share Option
Plan.
(3) Included
are 66,447 registered shares available for issuance pursuant to the Employee
Stock Purchase Plan and 662,379 shares remaining available for grant under the
2004 LTIP.
(4) On
December 30, 2003, in conjunction with the acquisition of Breg, Inc., we granted
inducement stock option awards to two key executive officers of Breg,
Inc. These option grants were not approved by shareholders, and were
granted in reliance on the Nasdaq exception to shareholder approval for equity
grants to new hires. See “Executive Compensation – Compensation
Discussion and Analysis – Elements of Executive Compensation – Long-Term
Equity-Based Incentives – Previous Equity Compensation Plans – Performance
Accelerated Stock Option Inducement Agreements” for more information on these
grants.
PROPOSAL
1: ELECTION OF DIRECTORS
The current term of office for all of
our current
nine directors expires at
this Annual
General
Meeting. The
Company’s articles of association provide that
the number of directors shall be determined by the Board, which has resolved to
increase the number from
nine to ten effective at the Annual General Meeting.
The current terms of Messrs. Gero,
Hewett, Benjamin, Federico, Kester, Milinazzo and Weisshaar, Dr. Jordan and Dr.
von Wartburg will expire at the Annual General Meeting. The Board has
nominate each of Messrs.
Gero, Hewett, Benjamin, Federico, Kester, Milinazzo and Weisshaar, Dr. Jordan
and Dr. von Wartburg to stand for re-election at the Annual General
Meeting.
In addition, the number of directors
will be increased to ten effective at the Annual General Meeting. The Nominating
and Governance Committee has recommended the election of Maria Sainz as a
director. The Board has nominated Ms. Sainz to stand for election as
a director at the Annual General Meeting.
If elected, all of these directors will
hold office until the 2009
annual general meeting of shareholders and/or until their successors have been
elected.
We know of no reason why any nominee may
be unable to serve as a director. If any nominee is unable to serve,
your proxy may vote for another nominee proposed by the Board, or the
Board may reduce the number of directors to be elected. If any
director resigns, dies or is otherwise unable to serve out his term, the Board
may fill the vacancy until the next Annual General Meeting.
Directors Standing for
Election
|
James F.
Gero
|
Chairman of
the Board of Directors
|
Mr. Gero,
63, became Chairman of Orthofix International N.V. on December 2, 2004 and has
been a Director of Orthofix International N.V. since 1998. Mr. Gero became
a Director of AME Inc. in 1990. He is a Director of Intrusion, Inc.,
and Drew Industries, Inc. and is a private investor.
|
Peter J.
Hewett
|
Deputy
Chairman
|
Mr. Hewett, 72, was appointed Deputy Chairman
of the Board of Directors in 2005 and has been a non-executive Director of
Orthofix International N.V. since March 1992. He was the Deputy Group
Chairman of Orthofix International N.V. between March 1998 and December
2000. Previously, Mr. Hewett served as the Managing Director of
Caradon Plc, Chairman of the Engineering Division, Chairman and President of
Caradon Inc., Caradon Plc’s U.S. subsidiary and a member of the Board of
Directors of Caradon Plc of England. In addition, he was responsible
for Caradon Plc’s worldwide human resources function, and the development of its
acquisition opportunities.
|
Jerry C.
Benjamin
|
Director
|
Mr. Benjamin, 67, became a non-executive Director
of Orthofix International N.V. in March 1992. He has been a General
Partner of Advent Venture Partners, a venture capital management firm in London,
since 1985. Mr. Benjamin is a director of Micromet, Inc. Phoqus, Ltd.
and a number of private health care companies.
|
Charles W.
Federico
|
Director
|
Mr. Federico, 59, has been a Director of Orthofix
International N.V. from October 1996, President and Chief Executive Officer of
Orthofix International N.V. from January 1, 2001 until April 1, 2006 and
President of Orthofix Inc. from October 1996 to January 1,
2001. From 1985 to 1996 Mr. Federico was the President of Smith
& Nephew Endoscopy (formerly Dyonics, Inc.). From 1981 to 1985,
Mr. Federico served as Vice President of Dyonics, initially as Director of
Marketing and subsequently as General Manager. Previously, he held
management and marketing positions with General Foods Corporation, Puritan
Bennett Corporation and LSE Corporation. Mr. Federico is a director
of SRI/Surgical Express, Inc., BioMimetic Therapeutics, Inc. and MAKO Surgical
Corp.
|
Dr. Guy J.
Jordan, Ph.D.
|
Director
|
Dr. Jordan, 59, became a non-executive Director
of Orthofix International N.V. in December 2004. Most recently, from
1996 to 2002, Dr. Jordan served as a Group President at CR Bard, Inc., a medical
device company, where he had strategic and operating responsibilities for Bard’s
global oncology business and functional responsibility for all of Bard’s
research and development. Dr. Jordan earned a Ph.D. in organic
chemistry from Georgetown University as well as an MBA from Fairleigh Dickinson
University. He also currently serves on the boards of Specialized
Health Products International, Inc. and EndoGastric Solutions, Inc.
|
Thomas J.
Kester, CPA
|
Director
|
Mr. Kester, 61, became a non-executive Director
of Orthofix International N.V. in August 2004. Mr. Kester retired
after 28 years, 18 as an audit partner, from KPMG LLP in 2002. While
at KPMG, he served as the lead audit engagement partner for both public and
private companies and also served four years on KPMG’s National Continuous
Improvement Committee. Mr. Kester earned a Bachelor of Science degree
in mechanical engineering from Cornell University and an MBA degree from Harvard
University.
|
Alan W.
Milinazzo
|
Director,
President and Chief Executive
Officer
|
Mr.
Milinazzo, 48, joined Orthofix International N.V. in 2005 as Chief Operating
Officer and succeeded to the position of Chief Executive Officer effective as of
April 1, 2006. From 2002 to 2005, Mr. Milinazzo was Vice President of
Medtronic, Inc.’s Vascular business as well as Vice President and General
Manager of Medtronic’s Coronary and Peripheral businesses. Prior to
his time with Medtronic, Mr. Milinazzo spent 12 years as an executive with
Boston Scientific Corporation in numerous roles, including Vice President of
Marketing for SCIMED Europe. Mr. Milinazzo brings more than two and a
half decades of experience in the management and marketing of medical device
businesses, including positions with Aspect Medical Systems and American
Hospital Supply. He earned a bachelor’s degree, cum laude, at Boston
College in 1981.
|
Maria
Sainz
|
Director
Nominee
|
Ms.
Sainz, 42, is being nominated for Director of Orthofix International N.V.
for the first time this year. In April 2008, she became President and
Chief Executive Officer of Concentric Medical, a company developing and
commercializing devices to perform mechanical clot removal post-stroke. From
2003 to 2006, she was the President of the Cardiac Surgery division of
Guidant Corporation. After Boston Scientific acquired
Guidant, Ms. Sainz led the integration process for both the Cardiac Surgery
and European Cardiac Rhythm Management business of Guidant into Boston
Scientific. Between 2001 and 2003, Ms. Sainz was the Vice President
of Global Marketing - Vascular Intervention of Guidant. Ms. Sainz earned a
Bachelor and Masters of Arts from the Universidad Complutense de Madrid and a
Masters Degree in International Management from American Graduate School of
International Management.
|
Dr. Walter P.
von Wartburg
|
Director
|
Dr. von Wartburg, 68, became a non-executive Director
of Orthofix International N.V. in June 2004. He is an attorney and
has practiced privately in his own law firm in Basel, Switzerland since 1999,
specializing in life sciences law. He has also been a Professor of
administrative law and public health policy at the Saint Gall Graduate School of
Economics in Switzerland for 25 years. Previously, he held top
management positions with Ciba Pharmaceuticals and Novartis at their
headquarters in Basel, Switzerland.
|
Kenneth R.
Weisshaar
|
Director
|
Mr. Weisshaar, 57, became a non-executive Director
of Orthofix International N.V. in December 2004. From 2000 to 2002,
Mr. Weisshaar served as Chief Operating Officer and strategy advisor for
Sensatex, Inc. Prior to that, Mr. Weisshaar spent 12 years as a
corporate officer at Becton Dickson, a medical device company, where at
different times he was responsible for global businesses in medical devices and
diagnostic products and served as Chief Financial Officer and Vice President,
Strategic Planning. Mr. Weisshaar earned a Bachelor of Science degree
from Massachusetts Institute of Technology and an MBA from Harvard
University.
The Board of Directors of Orthofix
recommends that you vote “FOR” the election of all nominees for
director.
PROPOSAL 2: APPROVAL OF AMENDMENT NO.1 TO AMENDED AND RESTATED 2004
LONG-TERM INCENTIVE PLAN
The 2004
LTIP was originally approved by our shareholders on June 29,
2004. The plan was subsequently amended and restated on November 5,
2004 and again on June 20, 2007. The Board unanimously recommends
that you approve the further amendment to the 2004 LTIP, which the Board adopted
on April 16, 2008, subject to shareholder approval.
We
propose to further amend the 2004 LTIP to:
(i)
increase the number of shares subject to awards under the plan from 2,800,000 to
3,100,000 (which will be aggregated with certain shares available under the
Staff Share Option Plan as described below) to ensure that we have a sufficient
number of shares of our common stock available for equity-based
awards;
(ii)
increase the annual grant to directors from 3,000 to 5,000 shares of Company
common stock; and
(iii)
limit in the future the number of shares of Company common stock that may be
awarded under the plan as full value awards to 100,000 shares.
We
believe that the ability to make competitive equity-based awards is an essential
part of our compensation program. Additional shares must be reserved
for issuance under the 2004 LTIP to allow for future grants.
Description
of the 2004 LTIP
The
following is a brief summary of the material features of the 2004 LTIP and its
operation. A copy of the 2004 LTIP with Amendment No. 1 thereto is
attached as Appendix I to this proxy statement. The further amendment
of the 2004 LTIP will be effective upon an affirmative vote of a majority of the
votes cast on this proposal at the Annual General Meeting. If the
amendment is not approved, the 2004 LTIP will continue in its current
form.
The
description below reflects the amendments proposed hereby. There are
no other proposed changes to the 2004 LTIP except as set forth
above.
On
December 31, 2007, there were 2,169,887 awards outstanding under the plan,
consisting of 2,104,110 stock options and 65,787 shares of restricted
stock. Of the stock options outstanding, 639,240 were exercisable.
222,656 stock option awards under the plan have been previously exercised and
662,379 remain available for issuance. The closing price of our
common stock as of April 25, 2008 was $29.27.
Purposes
and Eligibility
The
purposes of the 2004 LTIP are to provide an incentive to certain officers,
employees, directors and consultants of the Company and its subsidiaries to
increase their ownership interest in the Company in order to align their
interests with the shareholders, to more closely tie executive compensation to
Company performance and to create long-term performance and service incentives
for executive officers and other key employees. As of April 25, 2008,
we estimate that approximately 7 directors, 7 executives and 1,400
full-time employees of the Company are eligible to receive awards under the 2004
LTIP. Currently, there are approximately 160 participants in the 2004
LTIP.
Number
of Shares of Common Stock Subject to the 2004 LTIP
The
maximum number of shares of our common stock that may be issued pursuant to
awards under the 2004 LTIP, subject to the anti-dilution provisions, will be the
aggregate of (1) 3,100,000 shares, (2) the number
of shares of our common stock previously authorized and available for future
awards under our Staff Share Option Plan as of the date the 2004 LTIP was
originally approved by our shareholders, and (3) any shares corresponding to an
award, or portion thereof, under our Staff Share Option Plan that have been
forfeited or expire for any reason without having been exercised or settled
since the date the 2004 LTIP was originally approved by our
shareholders. Shares issued upon exercise of awards may be either
authorized and unissued shares or shares held by the Company in its
treasury. See “Executive Compensation – Compensation Discussion and
Analysis – Elements of Executive Compensation – Long Term Equity-Based
Incentives.”
Special
Limits on Stock Options, Restricted Stock, Restricted Share Units, Performance
Share Units, Stock Appreciation Rights and Other Awards
The
maximum number of shares of common stock that, in the aggregate, may be subject
to restricted share units, performance share units, restricted stock and other
awards under the 2004 LTIP is 400,000 shares, provided that if the shareholders
approve the amendment to the 2004 LTIP, the number of shares of Company common
stock that may thereafter be awarded as full value awards (such as restricted
share units payable in Company common stock, performance share units payable in
Company common stock, restricted stock and Other Awards (as defined in the 2004
LTIP) payable in Company common stock) may not exceed 100,000
shares.
The
maximum number of shares of common stock subject to stock options that may be
awarded to any participant in any calendar year is limited to 200,000 shares
(with a carryover of any unused portion to future years). In
addition, the number of shares of common stock subject to restricted share
units, performance share units, restricted stock, stock appreciation rights or
other awards that may be awarded to any participant in any calendar year is
limited to 200,000 shares (with a carryover of any unused portion to future
years), subject to the provisions outlined above limiting the number of shares
of restricted stock that may be issued. These maximum individual
limits are required to satisfy requirements under Section 162(m) of the Internal
Revenue Code.
Administration
The
Committee administers the 2004 LTIP and, among other powers, it selects
participants from among eligible individuals, determines the number of shares of
our common stock that will be subject to each award or the cash amount payable
in connection with an award, and determines the terms and conditions of awards
subject to the limitations detailed below. The Committee may from
time to time delegate some or all of its authority to one or more of its members
or the Chief Executive Officer and Chief Financial Officer, subject to certain
limitations. See “Executive Compensation – Compensation Discussion
and Analysis – Elements of Executive Compensation – Long-Term Equity-Based
Incentives – Current Equity Compensation Plans – 2004 Long-Term Incentive
Plan.”
The
Committee has the discretion to electronically deliver or make award documents,
give notice and other elections under the 2004 LTIP and to deliver or otherwise
evidence shares under the 2004 LTIP through book entry or other electronic
format without the need to deliver an actual share
certificate. Actual share certificates will be delivered if requested
by the participant.
Awards
under the 2004 LTIP
Generally
The 2004
LTIP authorizes the following types of awards:
|
|
·
|
stock
appreciation rights;
|
|
|
·
|
restricted
share units;
|
|
|
·
|
performance
share units; and
|
|
|
·
|
other
forms of equity-based or equity-related awards that the Committee
determines to be consistent with the purposes of the 2004 LTIP and the
interests of the Company.
|
The
Committee determines vesting (subject to the below), exercisability, payment and
other restrictions that apply to an award.
All
awards under the 2004 LTIP are subject to certain minimum vesting
requirements. Awards that are not intended to be performance-based
compensation shall vest, or the restrictions shall lapse, as the case may be, at
a rate of 33 1/3% per year on each of the first three anniversaries of the date
of grant. Awards that are intended to be performance-based
compensation shall vest, or the restrictions shall lapse, as the case may be, no
sooner than 12 months following the date of grant. The Committee
retains the discretion to accelerate the vesting or lapse of restrictions of an
award in the event of a participant’s termination or a change of control of the
Company. See “Executive Compensation – Compensation Discussion and
Analysis – Elements of Executive Compensation – Long-Term Equity-Based
Incentives – Current Equity Compensation Plans – 2004 Long-Term Incentive
Plan.”
Neither
the Committee nor the Board may reduce the exercise or grant price of a stock
option or stock appreciation right, or cancel or replace any stock option or
stock appreciation right with an option or stock appreciation right having a
lower exercise or grant price without approval of the
shareholders. The Committee may also not exercise discretion in
establishing valuation methodologies for awards under the plan. The
price of all awards is tied to the fair market value of our common
stock. Under the 2004 LTIP, “fair market value” means, as of any date
that requires determination of the fair market value, the closing price of our
common stock as quoted on Nasdaq on such date of determination (with other
definitions provided under the plan if our common stock is no longer traded on
Nasdaq).
The
Committee generally has the authority to determine the effect, if any, that a
participant’s termination of service or a change of control of the Company will
have on an award. The Committee may determine whether any award is
intended to be “performance-based compensation” as that term is used in Section
162(m) of the Internal Revenue Code. The 2004 LTIP and any award
documents shall be interpreted and construed in compliance with Section 409A of
the Internal Revenue Code and, to the extent the Committee determines that any
award under the 2004 LTIP is subject to Section 409A, the award documents shall
contain the terms and provisions necessary to avoid the consequences specified
in Section 409A(a)(1).
Stock
Options
Stock
options may be either nonqualified stock options or incentive stock options
(within the meaning of Section 422 of the Internal Revenue Code). The
exercise price of a nonqualified stock option may not be less than 100% of the
fair market value per share on the date of grant. Participants may
pay the exercise price of a stock option in any form approved by the Committee
at the time of grant. The Committee establishes a vesting schedule
for each stock option at the time of grant, as well as the term of such option,
which under the 2004 LTIP cannot exceed 10 years from the date the option was
granted.
The 2004
LTIP provides for certain conditions that apply to incentive stock options in
accordance with the applicable requirements of Section 422 of the Internal
Revenue Code and the regulations thereunder. For example, the
exercise price per share of an incentive stock option may not be less than 100%
of the fair market value per share on the date of grant or on the date the
exercise price is fixed.
Stock Appreciation
Rights
Stock
appreciation rights entitle a participant to receive, upon satisfaction of
certain conditions, an amount equal to the excess, if any, of the fair market
value on the date of exercise of the number of shares of our common stock for
which the stock appreciation right is exercised over the exercise price for such
stock appreciation right. The exercise price of a stock appreciation
right may not be less than 100% of the fair market value per share on the date
of grant. At the discretion of the Committee, the Committee may make
payments to a participant upon exercise of a stock appreciation right in cash,
shares of our common stock or a combination of cash and stock. No
award of a stock appreciation right may extend beyond the tenth anniversary of
its date of grant. The Committee may grant stock appreciation rights
alone or together with stock options.
Restricted
Stock
The
Committee has the authority to grant restricted stock to participants pursuant
to the 2004 LTIP. Restricted stock is common stock of the Company
subject to vesting (whether time or performance based) and the participant’s
continued service with the Company. Each grant of restricted stock is
subject to the terms, conditions and restrictions established by the Committee
and set forth in the applicable award document. The award document
also specifies the conditions regarding the grant, vesting or issuance of
restricted stock and the purchase price of the restricted stock (if
any).
Restricted Share
Units
The
Committee has the authority to grant restricted share units to participants
pursuant to the 2004 LTIP. A restricted share unit generally
represents the right of the participant to receive one or more shares of our
common stock, subject to the terms and conditions established by the Committee,
in consideration of the participant’s employment with the Company or any of its
subsidiaries. If and when these terms and conditions are satisfied
and any forfeiture provisions lapse, the restricted share units will, at the
discretion of the Committee, become shares of our common stock owned by the
respective participant or be payable in cash, shares of our common stock or a
combination of cash and stock, with a value equal to the fair market value of
the shares at the time of payment.
Performance Share
Units
The
Committee has the authority to grant performance share units to participants
pursuant to the 2004 LTIP. A performance share unit generally
entitles a participant to receive, subject to terms and conditions established
by the Committee, a target number of shares of our common stock based upon the
achievement of performance goals over a performance
period. Performance share units are subject to conditions of vesting
and time of payment as the Committee may determine. At the discretion
of the Committee, performance share units will be settled through the delivery
of shares of our common stock, cash or a combination of cash and stock, with a
value equal to the fair market value of the shares as of the last day of the
applicable performance period.
Other Equity
Awards
The
Committee has the authority to specify the terms and provisions of other forms
of equity-based or equity-related awards not described above that the Committee
determines to be consistent with the purposes of the 2004 LTIP and the interests
of the Company. These awards may provide for cash payments based in
whole or in part on the value (or future value) of shares of our common stock,
for the acquisition (or future acquisition) of shares of our common stock, or
for any combination thereof.
Awards to Non-Employee
Directors
Under the
2004 LTIP, each non-employee director is granted an award of 30,000 shares of
common stock on the date of their first election to the Board. This
award vests, or the restrictions lapse, as applicable, at the rate of 6,000
shares per year on each of the first five anniversaries of the date of grant
(provided the participant is still a member of the Board on each
anniversary). Non-employee directors also receive an annual award of
3,000 shares of common stock on the date of each director’s re-election or
re-appointment to the Board. The proposed amendment would increase
this annual award from 3,000 to 5,000 shares of common stock, which the Board
believes will more closely align the directors’ equity-based compensation with
the equity-based compensation of the Company’s peer group
companies. This award vests, or the restrictions lapse, as
applicable, at the rate of 33 1/3% per year on each of the first three
anniversaries of the date of grant (provided the participant is still a member
of the Board on each anniversary). The Committee may determine what
form of award to grant to the non-employee director. We retain the
ability to grant additional awards to non-employee directors,
including in their capacities as consultants or executive officers of the
Company or any of its subsidiaries.
Amendment
and Termination of 2004 LTIP
The Board
may amend, suspend or terminate the 2004 LTIP at any time. However,
the Board must obtain shareholder approval to increase the maximum number of
shares issuable under the plan. Also, the Board may not amend,
suspend or terminate the 2004 LTIP without a participant’s consent if it would
adversely affect the participant’s rights to previously-granted awards, unless
the Board determines that amendments to the plan or previously-granted award
documents are necessary or appropriate to exempt awards from or conform the 2004
LTIP to the requirements of Section 409A of the Internal Revenue Code, in which
case the Board may adopt such amendments to the plan or applicable award
documents, or adopt other policies and procedures (including amendments,
policies and procedures with retroactive effect) as it deems appropriate under
the circumstances.
Certain
U.S. Federal Income Tax Consequences
The
U.S. federal income tax consequences of awards under the 2004 LTIP are
summarized below. The information set forth below is a summary only
and does not purport to be complete. The information is based upon
current federal income tax rules and therefore is subject to change when those
rules change. Because the tax consequences to any participant may
depend on his or her particular situation, each participant should consult the
participant’s tax adviser regarding the federal, state, local, foreign and other
tax consequences of the grant, exercise or settlement of an award or the
disposition of shares of our common stock acquired as a result of an
award. The 2004 LTIP is not qualified under the provisions of Section
401(a) of the Internal Revenue Code, and is not subject to any of the provisions
of the Employee Retirement Income Security Act of 1974.
Nonqualified Stock
Options
The grant
of a nonqualified stock option with an exercise price equal to the fair market
value of our stock on the date of grant has no immediate federal income tax
effect. The participant will not recognize any taxable income and we
will not receive a tax deduction.
When the
participant exercises the option, the participant will recognize ordinary income
in an amount equal to the excess of the fair market value of the shares of our
common stock on the date of exercise over the exercise price. If the
optionee is employed by the Company or any of its subsidiaries, we are required
to withhold tax on the amount of income recognized. We will receive a tax
deduction equal to the amount of income recognized.
When the
participant sells the shares of our common stock obtained from exercising a
nonqualified stock option, any gain or loss will be taxed as a capital gain or
loss (long-term or short-term, depending on how long the shares have been
held). Certain additional rules apply if the exercise price for an
option is paid in shares previously owned by the participant.
Incentive Stock
Options
When a
participant is granted an incentive stock option, or when the participant
exercises the incentive stock option, the participant will generally not
recognize taxable income (except for purposes of the alternative minimum tax)
and we will not receive a tax deduction.
If the
participant holds the shares of our common stock for at least two years from the
date of grant, and one year from the date of exercise (the "holding period"),
then any gain or loss will be treated as long-term capital gain or
loss. If, however, the shares are disposed of during the
holding period, the participant will recognize taxable income equal to
the lesser of the fair market value of the shares on the exercise date minus the
exercise price or the amount realized on disposition minus the exercise
price. Any gain in excess of the taxable income portion will be
taxable as long-term or short-term capital gain. We will only receive
a tax deduction if the shares are disposed of during the
holding period. The deduction will be equal to the amount of
taxable income the participant recognizes.
Restricted
Stock
Generally,
a participant who receives a restricted stock award will not recognize
taxable income at the time the award is received. A participant
may, however, file an election with the Internal Revenue Service (a "Section
83(b) election") within 30 days of his or her receipt of the restricted
stock award to recognize taxable income, as of the date the participant receives
the award, equal to the excess, if any, of the fair market value of the stock on
the date the award is granted over any amount paid by the participant in
exchange for the stock. If a
participant does not file a valid Section 83(b) election with respect to the
grant of restricted stock, the participant generally will recognize taxable
income at the time the restricted stock becomes vested equal to the excess, if
any, of the fair market value of the stock on the date it becomes vested over
any amount paid by the participant in exchange for the
stock.
The
participant’s basis for the determination of gain or loss upon the subsequent
disposition of shares acquired from restricted stock awards will be the amount
paid for such shares plus any taxable income recognized either when the stock is
received or when the stock becomes vested. Any gain
or loss will be taxed as a capital gain or loss (long-term or short-term,
depending on how long the shares have been held).
If the
participant is employed by the Company or any of its subsidiaries, we are
required to withhold tax on the amount of taxable income
recognized. We will generally be entitled to a tax deduction equal to
the taxable income realized by the participant and will also be entitled to a
deduction for dividends or dividend equivalents paid to the participant (if any)
on restricted stock that has not vested.
Stock Appreciation
Rights
Where
stock appreciation rights are granted with an exercise price equal to the fair
market value of our stock on the grant date, the participant will recognize
taxable income upon the exercise of the stock appreciation right equal to
the fair market value of the stock or cash received upon such
exercise. If the participant receives shares of our stock, then upon
sale of those shares any subsequent gain or loss will be taxed as a capital gain
or loss (long-term or short-term, depending on how long the shares have been
held).
If the
participant is employed by the Company or any of its subsidiaries, we are
required to withhold tax on the amount of taxable income
recognized. We will generally be entitled to a tax deduction equal to
the taxable income realized by the participant.
Restricted Stock Units and
Performance Share Units
Generally,
the participant who receives a restricted stock unit or a performance share unit
structured to comply with the requirements of Section 409A of the Internal
Revenue Code ("Section 409A"), or qualifies for an exception thereto, will
recognize taxable income at the time the stock or cash is delivered equal to the
excess, if any, of the fair market value of the shares of our common stock or
the cash received over any amount paid by the participant. If the
units do not comply with the requirements of Section 409A and do not
qualify for an exception thereto, then, in addition to the tax treatment
described above, the participant will owe an additional 20% tax and interest on
any taxes owed.
If the
participant receives shares of our stock in settlement of a restricted stock
unit or a performance share unit, then upon sale of those shares any subsequent
gain or loss will be taxed as a capital gain or loss (long-term or short-term
depending on how long the shares have been held).
If the
participant is employed by the Company or any of its subsidiaries, we are
required to withhold tax on the amount of taxable income
recognized. We will generally be entitled to a tax deduction equal to
the taxable income realized by the participant.
Section
409A
Section
409A applies to compensation plans providing deferred compensation to
employees, directors and consultants, and potentially could apply to the
different awards available under the 2004 LTIP. Failure to
comply with Section 409A with
respect to a specific award, in the absence of an applicable exemption, could
result in current income taxation to the recipient for all amounts deferred as
part of that award as well as the imposition of an additional 20% tax and
interest on any underpayment of tax. In general, Section 409A should
not apply to incentive stock options, nonqualified stock options and
stock appreciation rights (that are not discounted) and restricted stock
(provided there is no deferral of income beyond the vesting
date). Section 409A may apply to restricted stock units and
performance share units.
Section
162(m)
As
described above, awards may qualify as “performance-based compensation” under
Section 162(m) of the Internal Revenue Code in order to preserve the Company’s
federal income tax deduction with respect to annual compensation required to be
taken into account under Section 162(m) that is in excess of $1 million and paid
to certain executive officers. To qualify, options and other awards
must be granted by a Committee consisting solely of two or more “outside
directors” (as defined under applicable regulations) and satisfy the limit on
the total number of shares of our common stock that may be awarded to any one
participant during any calendar year. In addition, for awards other
than options and stock appreciation rights (that are not discounted) to qualify,
the grant, issuance, vesting or retention of the award must be contingent upon
satisfying one or more of the performance criteria, as established and certified
by a Committee consisting solely of two or more “outside
directors.”
New
Plan Benefits under the 2004 LTIP
Set forth
below is a table that shows the cumulative awards actually made in 2007 and the
cumulative awards that would have been made if the proposed further amendment to
the 2004 LTIP had been in effect in 2007. We cannot determine the
benefits or amounts that will be received or allocated in the future under the
2004 LTIP as further amended in this Board proposal other than with respect to
annual grants to non-employee directors as disclosed above and described
below. Future awards under the plan to non-employee directors are
contingent upon appointment and/or re-election to the Board. Future
awards under the 2004 LTIP to all other participants will be determined by the
Committee in its sole discretion and will depend on individual and corporate
performance and other factors considered by the
Committee.
|
Name
and Position
|
|
Dollar
Value(1)
|
|
Number
of Stock Options granted in 2007 under 2004 LTIP
(Actual)
|
|
Additional
Number of Stock Options that would have been granted in 2007 under amended
2004 LTIP
|
|
|
Alan
W. Milinazzo
(Chief
Executive Officer)
|
|
|
$1,053,498 |
|
|
75,000 |
|
|
– |
|
|
Thomas
Hein
(Chief
Financial Officer)
|
|
|
$285,145 |
|
|
20,300 |
|
|
– |
|
|
Bradley
R. Mason –
Vice
President of the Company and President of Breg, Inc.
|
|
|
$280,931 |
|
|
20,000 |
|
|
– |
|
|
Oliver
Burckhardt –
President,
Spine Division
|
|
|
$1,233,498 |
|
|
72,300 |
|
|
– |
|
|
Michael
M. Finegan –
Vice
President of Corporate Development
|
|
|
$313,238 |
|
|
22,300 |
|
|
– |
|
|
Timothy
M. Adams
(former
Chief Financial Officer)
|
|
|
$2,597,485 |
|
|
150,000 |
|
|
– |
|
|
All
Executive Officers as a Group(2)
|
|
|
$6,147,263 |
|
|
387,200 |
|
|
– |
|
|
All
Non-Executive Directors as a Group
|
|
|
$300,686 |
|
|
21,000 |
|
|
14,000 |
|
|
All
Non-Executive Officer Employees as a Group(3)
|
|
|
$5,987,662 |
|
|
409,401 |
|
|
– |
|
___________________________
(1) Amounts
shown reflect the grant date fair value of the stock options awarded calculated
in accordance with FAS 123R.
(2) For
additional information regarding awards made during 2007 to the named executive
officers, see “Summary Compensation Table” and “Grants of Plan-Based Awards”
above.
(3) For
additional information regarding awards made during fiscal 2007 to non-employee
directors, see “Director Compensation” above.
The
Board of Directors of Orthofix recommends that you vote “FOR” the proposal
to
amend
the Amended and Restated 2004 Long-Term Incentive Plan.
PROPOSAL 3: APPROVAL OF ORTHOFIX INTERNATIONAL N.V. AMENDED AND
RESTATED STOCK PURCHASE PLAN
The Orthofix Inc. Employee Stock
Purchase Plan (“ESPP”) was approved by our shareholders on August 21,
1995. The ESPP is essentially a continuation by Orthofix Inc. of the
American Medical Electronics, Inc. Employee Stock Purchase Plan, as
amended. The ESPP was subsequently amended on June 24, 2004 and on
December 11, 2007. The Board unanimously recommends that you approve
the Orthofix International N.V. Amended and Restated Stock Purchase Plan (the
“Amended Plan”), which the Board adopted on April 16, 2008, subject to
shareholder approval.
We
propose to further amend and restate the ESPP to:
(i) increase
the number of shares that may be issued under the ESPP by 500,000 to 950,000 to
ensure that we have a sufficient number of shares of our common stock available
for issuance;
(ii) provide
that the Company assume and adopt the ESPP, in lieu of Orthofix Inc. acting as
sponsor of the plan;
(iii) allow
officers and directors of Orthofix Inc. and non-employee directors of the
Company to participate in the ESPP on the same basis as other employees of the
Company and its subsidiaries;
(iv) provide
that the determination of fair
market value of Company common stock will be determined on either the first day
or the last day of the plan year, whichever date renders a lower
valuation; and
(v) make other non-substantive,
technical changes to the
ESPP.
Description
of the Amended Plan
The
following is a brief summary of the material features of the Amended Plan and
its operation, noting the material proposed changes to the plan. A
copy of the Amended Plan, detailing all proposed changes, is attached as
Appendix II to this proxy statement. The Amended Plan will be
effective upon an affirmative vote of a majority of the votes cast on this
proposal at the Annual General Meeting, but will not be operative until the 2009
plan year other than with respect to the number of shares that may be issued
during the 2008 plan year. If the Amended Plan is not approved, the
ESPP will continue in its current form, but the Company would no longer have
sufficient shares to continue offering shares under the plan.
The
description below reflects the amendments proposed hereby. There are
no other proposed changes to the 2004 LTIP except as set forth
above.
Approval
and Adoption of ESPP by Orthofix International N.V.
The ESPP
is currently sponsored by Orthofix Inc., which, at the time the ESPP was
approved by our shareholders on August 21, 1995, was the main operating
subsidiary of Orthofix International N.V. Due to the Company’s
additional operating subsidiaries and divisions, the Company proposes to become
the sponsor of and adopt the Amended Plan.
Purposes
and Eligibility
The
purpose of the Amended Plan is to encourage eligible employees and non-employee
directors of the Company to become owners of common stock of the Company,
thereby giving them a greater interest in the growth and success of its
business. As of April 25, 2008, we estimate that approximately 7
directors, 7 executives and 1,400 full-time employees of the Company are
eligible to purchase shares under the ESPP. Currently, there are
approximately 400 participants in the Amended Plan. Non-employee
directors of the Company are not currently eligible to participate in the
ESPP. If this proposal is adopted, non-employee directors would be
eligible to participate in the plan beginning in 2009.
Number
of Shares of Common Stock Subject to the ESPP
The
maximum number of shares of our common stock that may be issued pursuant to the
Amended Plan, subject to the anti-dilution provisions, will be 950,000 shares. Previously,
450,000 shares were authorized to be issued under the ESPP, only 16,447 of which
have not been issued and remain available for issuance. Shares
purchasable pursuant to the Amended Plan may be authorized but previously
unissued shares or shares of stock held in treasury or purchased in the open
market or in privately negotiated transactions.
Participation
in the ESPP
As
proposed to be amended and restated, all eligible employees and non-employee
directors may participate in the Amended Plan on the first day of any plan
year. Eligible employees participate by electing to contribute to the
Amended Plan through payroll deductions, which generally may not be more than
20% of an employee’s compensation. Eligible non-employee directors
participate by electing to contribute to the Amended Plan through deductions of
their director fees and other compenstaion that are paid in
cash. Eligible participants must elect to participate in the plan
prior to the beginning of the plan year. Participants may
withdraw from the Amended Plan by providing notice to the Committee before the
last day of the plan year. Upon withdrawal from the Amended Plan, all
payroll deductions under the Amended Plan cease immediately, and a participant
will receive a refund of his or her contribution, including all accrued
interest. An employee’s participation in the Amended Plan terminates
upon his or her termination of employment, and will generally terminate upon his
or her leave of absence from active employment only if such employee does not
continue to make contributions to the Amended Plan during such leave of
absence. A
director’s participation in the Amended Plan terminates upon his or her ceasing
to be a member of the Board.
Participants
in Non-US Jurisdictions
With
respect to participants that are subject to the tax laws of a jurisdiction
outside of the US, the Amended Plan allows the Committee to adopt such
modifications and procedures as it deems necessary or desirable to comply with
the provisions of the laws of such non-U.S. jurisdictions in order to assure the
viability of the benefits paid to such participants. Further, the
Committee may adopt sub-plans applicable to separate classes of eligible
employees and non-employee directors who are subject to the laws of
jurisdictions outside of the U.S.
Distribution
of Common Stock
The Amended Plan provides that as soon
as practicable following the last day of the plan year (but in any event, no
more than two and one-half months thereafter), the Committee will distribute to
each person who was a participant during the plan year a certificate or
certificates representing the number of whole shares of Company common stock
determined by dividing (i) the amount of the participant’s contributions for the
plan year plus accrued interest, by (ii) 85% of the lower of the fair market
value of the Company common stock on the first and last day of the plan
year. Under the ESPP, the purchase price for shares is equal to the
fair market value per share on the first day of the plan year only for officers
and directors of Orthofix Inc. and 85% of the fair market value of such shares
on the first day of the plan year only for all other eligible
employees. Non-employee directors of the Company are currently not
eligible to participate in the ESPP.
The Amended Plan would allow all
employees, officers and directors of the Company and participating subsidiaries
to participate on the same terms and no longer discriminate against some
employees simply because their employer is Orthofix Inc. Under the ESPP, some
officers pay the 85% purchase price, while others are required to pay 100% of
fair market value simply by virtue of the entity that employs them. The Board
does not believe such distinction has any benefit and is proposing its
elimination. Further, as some members of the Company’s Board who are
employees can acquire shares under the ESPP, but non-employee directors cannot,
the Board believes it makes sense to allow all directors to participate in the
Amended Plan. This broad-based and non-discriminatory participation also
furthers the Board’s goal of encouraging share ownership in the Company by all
its employees, officers and directors.
Under the
Amended Plan, “fair market value” means, as of any date that requires
determination of the fair market value, the closing price of our common stock as
quoted on Nasdaq on such date of determination (with other definitions provided
under the plan if our common stock is no longer traded on Nasdaq).
The
Committee may, in its discretion, require a participant to pay, prior to the
distribution of Company stock, the amount the Committee deems necessary to
satisfy the Company’s obligation to withhold applicable taxes that the
participant incurs as a result of his or her participation in the Amended
Plan. The participant may deliver sufficient shares of Company stock,
cash or irrevocably elect for the participating employer to withhold from the
shares of stock to be distributed a sufficient number of shares of
stock. The Amended Plan would permit the Company or its subsidiary to
deduct from all cash payments made to a participant any applicable required
taxes to be withheld with respect to such payments.
Administration
of the ESPP
The
Committee currently oversees the ESPP, but since the ESPP is sponsored by
Orthofix Inc., it is technically administered by the board of directors of
Orthofix Inc., with oversight of the ESPP by the Committee. Under the
Amended Plan, the Committee would oversee and administer the plan and, among
other powers, it would determine the amount of benefits payable to participants
and construe and interpret the plan whenever necessary to carry out the Amended
Plan’s intention and purpose. The Amended Plan would clarify that the
Committee would be able to administer the plan as necessary to take account of
tax, securities law and other regulatory requirements of foreign
jurisdictions. The Committee would also generally be able to
designate one or more of its members or the Chief Executive Officer or Chief
Financial Officer of the Company to carry out the Committee’s responsibilities
under such conditions and limitations as the Committee may
determine. The Amended Plan would also provide indemnity
(except in the case of fraud, willful misconduct or failure to act in good
faith) to members of the Board, the Committee, the Chief Executive Officer, the
Chief Financial Officer and other officers or employees to whom duties or
responsibilities are delegated in connection with the operation, administration
or interpretation of the Amended Plan. Any authority or
responsibility that may be exercised by the Committee would also be exercisable
by the Board. The Board or the Committee would be able to extend or
terminate the benefits of the Amended Plan to any subsidiary of the Company at
any time without the approval of the Company’s shareholders. Since
the Committee currently oversees the administration of the ESPP and will oversee
and administer the Amended Plan, the administration of the Amended Plan and the
rights of the participants thereunder will be similar to the administration of
the ESPP.
Amendment
and Termination of Amended Plan
The Board
may amend or terminate the Amended Plan at any time. Upon the termination
of the Amended Plan, each participant will receive a refund of his or her
contributions for the plan year plus accrued interest. However, the
Board must obtain shareholder approval to increase the maximum number of shares
issuable under the plan. Also, the Board may not amend or terminate
the Amended Plan if it would decrease the participant’s accrued benefits as of
the effective date of such action, unless the Board determines that amendments
to the plan are necessary or appropriate to exempt issuances from or conform the
Amended Plan to the requirements of Section 409A of the Internal Revenue Code,
in which case the Board may adopt such amendments to the plan, or adopt other
policies and procedures (including amendments, policies and procedures with
retroactive effect) as it deems appropriate under the
circumstances.
Certain
U.S. Federal Income Tax Consequences
The
following is a general summary of certain U.S. federal income tax consequences
to U.S. employees with respect to Company common stock issued under the Amended
Plan. This discussion applies to employees and directors who are
citizens or residents of the U.S. and U.S. taxpayers. The
information set forth below is a summary only and does not purport to be
complete. The information is based upon current federal income tax
rules and therefore is subject to change when those rules
change. Because the tax consequences to any participant may depend on
his or her particular situation, each participant should consult the
participant's tax adviser regarding the federal, state, local, foreign and other
tax consequences of the Amended Plan. The Amended Plan is not
qualified under the provisions of Section 401(a) of the Internal Revenue Code,
and is not subject to any of the provisions of the Employee Retirement Income
Security Act of 1974.
All
amounts contributed to the Amended Plan are deducted from each participant’s
taxable compensation on an after-tax basis. Participants will
recognize taxable income on the interest they earn on their contributions to the
Amended Plan in the taxable year in which the interest accrues. When
shares of Company common stock are distributed to participants at the end of the
plan year, participants will also recognize taxable income on the difference
between the fair market value of the Company common stock on that date and the
purchase price participants pay for the shares. If participants sell
shares of Company common stock that they received under the Amended Plan, any
gain or loss will be taxed as a capital gain or loss. Subject to the
applicable provisions of the Internal Revenue Code and applicable regulations,
the participant’s employer will generally be entitled to a federal income tax
deduction in an amount equal to the taxable income that each participant
recognizes. Each participant’s employer will be entitled to this
deduction for the taxable year that includes the last day of the taxable year
for which a participant recognizes taxable income.
For U.S.
income tax purposes, the gross amount of dividends paid to participants who hold
shares of Company common stock will be treated as gross dividend income to such
holders in the year in which such dividend is received to the extent paid or
deemed paid out of the Company’s current or accumulated earnings and profits as
calculated for U.S. federal income tax purposes.
Section
409A
Section
409A of the Internal Revenue Code applies to compensation plans providing
deferred compensation to employees and directors, and potentially could apply to
the Amended Plan. Failure to comply with Section 409A, with respect
to compensation deferred under the Amended Plan, in the absence of an applicable
exemption, could result in current income taxation to the recipient for all
amounts deferred as well as the imposition of an additional 20% tax and interest
on any underpayment of tax. In general, Section 409A should not apply
to the Amended Plan (provided there is no deferral of income beyond the date
that is two and one half months after the end of the plan year).
New
Plan Benefits under the Amended Plan
Set forth
below is a table that shows the cumulative shares purchased in 2007, and the
cumulative shares that would have been purchased if the Amended Plan had been in
effect in 2007, by named executive officers and directors based upon payroll
deductions of those employees, whether such shares were purchased at 100% of the
fair market value thereof or 85% of the fair market value thereof, all in
accordance with the ESPP. We cannot determine the
benefits or amounts that will be received or allocated in the future under the
Amended Plan as provided in this Board proposal since those amounts depend both
upon the amount of deductions that a participant elects to make and the price of
the stock at the beginning or end of the plan year. Future shares
that may be issued under the Amended Plan to all other participants will depend
on whether and to what extent such employee elects to participate in the Amended
Plan. Under the Amended Plan, all participants will purchase shares
at 85% of the fair market value thereof.
|
Name
and Position
|
|
Dollar
Value
|
|
|
Number
of Shares of Stock
issued
in 2007
(under
Actual ESPP)
|
|
|
Additional
Number of Shares of Stock
that would have been issued
in 2007
(under
Amended Plan)
|
|
|
Alan
W. Milinazzo(1)
(Chief
Executive Officer)
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Thomas
Hein(1)
(Chief
Financial Officer)
|
|
|
$48,893 |
|
|
|
1,158 |
|
|
|
219 |
|
|
Bradley
R. Mason(2)
–
Vice
President of the Company and President of Breg, Inc.
|
|
|
$103,764 |
|
|
|
2,506 |
|
|
|
314 |
|
|
Oliver
Burckhardt(1)
–
President,
Spine Division
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Michael
M. Finegan(1)
–
Vice
President of Corporate Development
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Timothy
M. Adams
(former
Chief Financial Officer)
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
All
Executive Officers as a Group
|
|
|
$229,204 |
|
|
|
5,596 |
|
|
|
771 |
|
|
All
Non-Executive Officer Employees as a Group
|
|
|
$4,505,349 |
|
|
|
113,870 |
|
|
|
1,398 |
|
|
All
Non-Executive Directors as a Group
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
__________________________
(1) Shares
actually purchased in 2007 for the named executive officer under the ESPP were
purchased at 100% of the fair market value of those shares as a result of his
status as an officer of Orthofix Inc. If the Amended Plan were in
effect in 2007, shares purchased in 2007 would have been purchased at 85% of the
fair market value of those shares, resulting in the issuance of additional
shares.
(2) While
Mr. Mason was not an officer or director of Orthofix Inc., he purchased certain
shares of Company common stock at 100% of the fair market value due to an
administrative error.
The
Board of Directors of Orthofix recommends that you vote “FOR” the proposal
to
adopt
the Orthofix International N.V. Amended and Restated Employee Stock Purchase
Plan.
PROPOSAL 4: APPROVAL OF AMENDMENT AND RESTATEMENT OF
SECTION
8.3 OF THE ARTICLES OF ASSOCIATION
Our Board
of Directors on April 16, 2008 approved and recommended for submission to the
shareholders an amendment and restatement of Section 8.3 of the Company’s
Articles of Association. A copy of Section 8.3 of the Articles of
Association as it is proposed to be amended and restated is attached as Appendix
III to this proxy statement.
Currently, the Articles of Association
provide that the Board of Directors may fill vacancies created when a director
resigns or is otherwise prevented from or is incapable of acting as a
director. The proposed amendment and restatement would provide that
the Board of Directors also has authority to fill Board vacancies until the next
general meeting of shareholders in the event that the Board passes a resolution
increasing its size in the interim period between shareholder
meetings.
The Board
believes it is in the best interests of the shareholders to amend the Articles
as set forth above. Currently, the Articles provide that the number of
directors shall be determined by the Board. However, the Articles do
not provide the Board with authority to fill vacancies of the Board except when
a director resigns or is otherwise prevented from or is incapable of acting as a
director. For example, the Board has increased the size of the Board
from nine to ten, effective at this year’s annual general meeting, and nominated
Ms. Sainz to fill the newly created vacancy. However, the Board was
not able to appoint Ms. Sainz to serve in the months leading up to this year’s
Annual General Meeting because the Articles currently do not provide the Board
with authority to fill vacancies created if the Board increases the Board’s size
by resolution.
If this
amendment is adopted, the Board would have authority to fill Board vacancies
created if the Board increases the size of the Board until the next general
meeting of shareholders. The Board believes this amendment will
benefit the Company because if a director candidate is identified in the future,
the Board will not need to wait until the next general meeting of shareholders
for such candidate to be appointed to the Board. The Board believes
that this will enhance the Company’s ability to attract qualified director
candidates by expediting the time-frame for allowing new candidates to begin
serving on the Board if the size of the Board is ever increased in the
future.
The
Board of Directors recommends that you vote “FOR” the proposal to
amend
and restate Section 8.3 of the Articles of Association.
PROPOSAL 5: APPROVAL OF FINANCIAL STATEMENTS FOR
THE YEAR ENDED DECEMBER 31, 2007
Shareholders will be asked to consider,
and, if thought fit, approve the balance sheet and income statement at and for the year ended
December 31, 2007.
Pursuant to Article 116 of Book 2 Civil
Code of the Netherlands Antilles, the Board is required to draw up the
Company’s balance sheet and income statement
within eight months after the end of the fiscal year and to submit the same to
the Annual General Meeting of Shareholders for approval.
A copy of the Company’s balance sheet and income statement at
and for the year ended December 31, 2007 is included in our Annual Report, a
copy of which accompanies
this proxy statement, and in our Annual Report on Form 10-K for the year ended
December 31, 2007
filed with the
SEC. If you would like additional copies of our Annual Report or a
copy of our Annual Report on Form 10-K, please contact our Investor
Relations
department.
The Board of Directors of Orthofix
recommends that you vote “FOR” the proposal to
approve the balance sheet and income
statement at and for the year ended December 31, 2007.
PROPOSAL 6: RATIFICATION OF THE
SELECTION OF ERNST & YOUNG LLP
AS INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR 2008
We are asking you to ratify the
Board’s selection of Ernst & Young LLP as
our independent registered public accounting firm for 2008. The Audit Committee
recommended the selection of Ernst & Young LLP to the
Board. Ernst & Young LLP has served as the independent registered
public accounting firm of Orthofix since 2002. They have unrestricted
access to the Audit Committee to discuss audit findings and other financial
matters.
We do not anticipate that representatives of Ernst
& Young LLP will be at
the Annual General Meeting. The work performed by
Ernst & Young LLP during 2007 and 2006 and the related fees are set forth
below.
The Board recommends that you vote
“FOR” ratification of
the selection of Ernst & Young LLP as
independent registered public accounting firm for 2008.
Principal Accountant Fees and
Services
The following table sets forth by
category of service the total fees for services performed by Ernst & Young
LLP during the fiscal years
ended December 31, 2007 and December 31, 2006:
|
|
|
2007
|
|
|
2006
|
|
|
Audit Fees
|
|
$ |
3,107,000 |
|
|
$ |
2,229,000 |
|
|
Audit-Related Fees
|
|
$ |
316,000 |
|
|
$ |
133,000 |
|
|
Tax Fees
|
|
$ |
1,061,000 |
|
|
$ |
707,000 |
|
|
All Other
Fees
|
|
$ |
7,000 |
|
|
$ |
7,000 |
|
|
Total
|
|
$ |
4,484,000 |
|
|
$ |
3,076,000 |
|
Audit Fees
Audit fees in 2007 and 2006 consisted of the aggregate fees,
including expenses, billed in connection with the audit of our annual financial
statements, quarterly reviews of the financial information included in our
quarterly reports on Form
10-Q, statutory audits of our subsidiaries and services that are normally
provided by the independent registered public accounting firm and fees billed
for professional services rendered for the audit of management’s assessment of the
effectiveness of internal
control over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002.
Audit-Related Fees
Audit-related fees in 2007 and 2006 consists of the aggregate fees billed
for assurance and related services and are not reported under “Audit Fees.” These fees included fees billed for
acquisition-related due diligence services, employee benefit plan audits and
accounting consultations.
Tax Fees
Tax fees in 2007 and 2006 consist of the aggregate fees billed
for professional services
rendered for tax compliance, tax advice and tax planning. These fees
included fees billed for federal and state tax review and consulting services,
tax audit services and other tax consulting services.
All Other Fees
All Other Fees consist of aggregate fees billed for
products and services other than the services reported above. For
fiscal years 2007 and 2006, this category included fees related to
professional reference materials and publications.
Pre-Approval Policies and
Procedures
The Audit Committee approves all audits,
audit-related services, tax services and other services provided by Ernst &
Young LLP. Any services provided by Ernst & Young LLP that are
not specifically included within the scope of the audit must be either (i) pre-approved by the entire
Audit Committee in advance of any engagement or (ii) pre-approved by the
Chairman of the Audit Committee pursuant to authority delegated to him by the
other independent members of the Audit Committee, in which case the Audit Committee is then informed of his
decision. Under the Sarbanes-Oxley Act of 2002, these pre-approval
requirements are waived for non-audit services where (i) the aggregate of all
such services is no more than 5% of the total amount paid to the
external auditors during the fiscal year in
which such services were provided, (ii) such services were not recognized at the
time of the engagement to be non-audit services and (iii) such services are
approved by the Audit Committee prior to the completion of the audit engagement. In
2007, all fees paid to Ernst & Young LLP
for non-audit services were pre-approved.
In making its recommendation to appoint
Ernst & Young LLP as our independent registered public accounting firm for
the fiscal year ending December 31, 2008, the Audit Committee has considered
whether the services provided by Ernst & Young LLP are compatible with
maintaining the independence of Ernst & Young LLP and has determined that
such services do not interfere with that firm’s independence in the conduct of its auditing
function.
REPORT OF THE AUDIT
COMMITTEE
The Audit Committee of Orthofix is
responsible for providing independent, objective oversight of
Orthofix’s accounting functions, internal
controls and risk management. The Audit Committee recommends the selection of the
independent registered public accounting firm to the Board. The Audit
Committee operates under a written charter adopted by the Board of Directors,
a copy of which is
available for review on our website at www.orthofix.com.
Management is responsible for
Orthofix’s internal controls and financial
reporting process. The independent registered public accounting firm
is responsible for performing an independent audit of Orthofix’s consolidated financial statements in
accordance with auditing
standards of the Public Company Accounting Oversight Board and to issue a report
thereon. Additionally, the independent registered public accounting
firm is also responsible for auditing the effectiveness of Orthofix’s internal control over financial
reporting. The Audit Committee’s responsibility is to monitor and
oversee these processes. The Committee relies without independent
verification on the information provided to it and on the representations made
by management and the independent registered public accounting
firm.
The Audit Committee held fourteen meetings during fiscal 2007. The meetings were designed,
among other things, to facilitate and encourage communication among the
Committee, management, internal audit and Orthofix’s independent registered public accounting firm,
Ernst & Young LLP. The Committee reviewed management’s assessment of the effectiveness of the
design and operation of Orthofix’s disclosure controls over financial
reporting. We discussed with Ernst & Young LLP the overall scope and plans for their
audit. We met with Ernst & Young LLP, with and without management
present, to discuss the results of their examinations and their evaluations of
Orthofix’s internal controls.
The Audit Committee has reviewed and
discussed the audited
consolidated financial statements for the fiscal year ended December 31,
2007 with management and Ernst & Young
LLP. We also discussed with management and Ernst & Young LLP
management’s report and the independent registered
public accounting
firm’s report and attestation on
Orthofix’s internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act. We also
discussed with Ernst & Young LLP, matters required to be discussed with
audit committees, including, among other things, matters related to the
conduct of the audit of Orthofix’s consolidated financial statements and
the matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees).
Ernst & Young LLP also provided to us the written disclosures
and the letter required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and we discussed with them
their independence from Orthofix. When considering Ernst & Young
LLP’s independence, we considered whether
their provision of services to Orthofix beyond those rendered in connection with
their audit of Orthofix’s consolidated financial statements was
compatible with maintaining their independence. We also reviewed,
among other things, the
audit and non-audit services performed by, and the amount of fees paid for such
services to, Ernst & Young LLP. The Committee has determined that
Ernst & Young LLP is independent of Orthofix and its
management.
Based upon the review and discussions referred to above, we
recommended to the Board of Directors, and the Board of Directors has approved,
that Orthofix’s audited financial statements be
included in Orthofix’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2007. We also recommended the
selection of Ernst & Young LLP as Orthofix’s independent registered public
accounting firm for 2008 and, based on that recommendation, the
Board has selected Ernst & Young LLP as Orthofix’s independent registered public
accounting firm for 2008.
|
|
The Audit
Committee
|
|
|
|
|
|
Jerry C. Benjamin,
Chairman
|
|
|
Thomas J.
Kester
|
|
|
Kenneth R.
Weisshaar
|
INFORMATION ABOUT
SHAREHOLDER PROPOSALS
If you wish to submit a proposal to be included in our
2009 proxy statement
pursuant to Rule 14a-8 of
the Securities Exchange Act of 1934, as amended, we must receive your written
proposal on or
before December 30,
2008. Please
address your proposals to: Raymond C. Kolls, Senior Vice President,
General Counsel and Corporate Secretary, Orthofix International N.V., 7 Abraham de
Veerstraat, Curaçao,
Netherlands Antilles.
Pursuant to Rule 14a-4(c)(1) under the
Securities Exchange Act of 1934, as amended, our proxy holders may use
discretionary authority to vote with respect to shareholder proposals presented in person at the
2009 Annual General Meeting of Shareholders
if the shareholder making the proposal has not notified Orthofix by March
23, 2009 of its intent to present a proposal at
the 2009 Annual General Meeting of Shareholders.
AMENDMENT
NO. 1 TO AMENDED AND RESTATED 2004 LONG-TERM INCENTIVE PLAN
The text of the proposed Amendment No.
1 to the Amended and Restated 2004 Long-Term Incentive Plan (the “Amendment”) is
set forth below. The Amendment amends the plan as
follows:
|
|
1.
|
In
Section 5(a)(i), the phrase “3,100,000 shares” is substituted for the
phrase “2,800,000 shares”.
|
|
|
2.
|
Section
5(c)(i) is deleted in its entirety and replaced with the
following:
|
“the
maximum number of Common Shares that, in the aggregate, may be subject to
Restricted Share Units payable in Common Shares, Performance Share Units payable
in Common Shares, Restricted Stock, and Other Awards payable in Common Shares
shall equal 400,000 shares; provided, however, that following the date of the
approval of this proviso by the shareholders of the Company, in no event shall
the number of Common Shares that may thereafter be awarded as Restricted Share
Units payable in Common Shares, Performance Share Units payable in Common
Shares, Restricted Stock, and Other Awards payable in Common Shares exceed
100,000 shares (but, for the avoidance of doubt, nothing in this proviso shall
in any way affect or limit the number of Restricted Share Units payable in
Common Shares, Performance Share Units payable in Common Shares, Restricted
Stock, and Other Awards payable in Common Shares granted prior to such date, all
of which may and shall remain outstanding in accordance with their terms, in
addition to the 100,000 shares of such Awards that may be awarded
hereby);”
|
|
3.
|
In
Section 6(h)(ii), the number “5,000” is substituted for the number
“3,000”.
|
Orthofix
Inc.International
N.V.
AMENDED AND
RESTATED
EMPLOYEE
STOCK PURCHASE PLAN
The Orthofix Inc. Employee
Stock Purchase Plan has been adopted by
Orthofix Inc. effective as of August 21, 1995 and is
hereby amended, restated and renamed the “Orthofix International
N.V. has
authorized its shares to be issued, and agreed to issue such shares, pursuant to
the Plan. The Plan is essentially a continuation of the American
Medical Electronics, Inc. Employee Stock Purchase Plan, as amended (the "AME
Plan"). As of August 21, 1995, the account balance of each
Participant's payroll deduction contribution account, with interest thereon,
under the AME Plan will be deemed to be the Participant's account balance under
this Plan. Amended
and Restated Stock Purchase Plan,” and adopted by the Company, effective as of
the Effective Date.
The
purpose of the Employee
Stock Purchase Plan is to encourage eligible employees and
directors to become owners of common stock of Orthofix International
N.V., thereby giving them a greater interest in the growth and success of its
and
the Company’s business.
The
following definitions are used throughout the Plan:
(a) (a) “Board of
Directors” means the Board
of Directors of the Company.
(b) “Code” means the Internal Revenue
Code of 1986, as amended.
(c) (b)
“Committee” means the
Compensation Committee of the Board of Directors. If, at any time, there is no
acting Compensation Committee of the Board of Directors, the term “Committee”
shall mean the Board of Directors.
(d) (c)
“Company” means
Orthofix Inc., a Minnesota corporation, which is a subsidiary of Orthofix
International N.V., or any
successor to substantially all of its business.
(e) “Director” means a member of the Board
of Directors who is not also an employee of the Company or of a Subsidiary and
is not an Employee for purposes of this Plan.
(f) “Effective Date” means the date determined
in accordance with Section 11.
(g) (d) “Employee” means a full-time
or
part-time employee of the Company or of a Subsidiary that has been
designated as a participating employer under the Plan. Notwithstanding
the foregoing, unless otherwise prohibited by the laws of the local
jurisdiction, “Employee” shall not mean a temporary
employee.
(e) “Fair Market
Value” means
the value of a share of Orthofix Stock as of any date, determined as
follows: (i) if the Orthofix Stock is listed on a national securities
exchange or if last sale prices are reported for the Orthofix Stock as of such
date, the closing price of the Orthofix Stock as reported on such
date; (ii) if the Orthofix Stock is not listed on a national
securities exchange and last sale prices are not reported for the Orthofix
Stock, but the Orthofix Stock is traded
(h) “Fair Market
Value” means, as of any date that
requires the determination of the Fair Market Value of Orthofix Stock under this
Plan, the value of a share of Orthofix Stock on such date of determination,
calculated as follows:
(i) If shares of Orthofix Stock
are then listed or admitted to trading on a Nasdaq market system or a stock
exchange which reports closing sale prices, the Fair Market Value shall be the
closing sale price on such date on such Nasdaq market system or principal stock
exchange on which the share is then listed or admitted to trading, or, if no
closing sale price is quoted on such day, then the Fair Market Value shall be
the closing sale price of the share on such Nasdaq market system or such
exchange on the next preceding day on which a closing sale price is
reported;
(ii) If
shares of Orthofix Stock are not then listed or admitted to trading on a Nasdaq
market system or a stock exchange which reports closing sale prices, the Fair
Market Value shall be the average of the closing bid and asked prices of the
share in the over-the-counter market,
the mean between the closing bid and asked prices of the Orthofix Stock on such
date; or (iii) if there is no generally recognized market for the
Orthofix Stock as of such date, the fair market value of the Orthofix Stock as
determined in good faith by the Board of Directors. on such
date, or, if no closing bid and asked prices are reported on such day, then the
Fair Market Value shall be the average of the closing bid and asked prices of
the share in the over-the-counter market on the next preceding day on which
closing bid and asked prices are reported; or
(iii) If neither (i) nor (ii) is
applicable as of such date, then the Fair Market Value shall be determined by
the Committee in good faith using any reasonable method of evaluation, which
determination shall be conclusive and binding on all interested
parties.
(i)
(f) “Orthofix Stock” means the Common
Stock of the
Company, $.10 par value,
of Orthofix International N.V. Unless the context indicates
otherwise, the termterms
“share” or “shares” shall refer to a share
or shares of Orthofix Stock.
(j)
(g) “Participant” means an
Employee or
Director who elects to participate in the Plan.
(k) (h) “Plan” means the
Orthofix Inc.
EmployeeInternational
N.V. Amended and Restated Stock Purchase Plan, as further
amended from time to time.
(i) “Plan Year” means the
period with
respect to which the Plan is administered,
which, prior to December 31, 2007, is
(l) “Plan
Year”
means the
12-month period beginning on July 1 and ending on June
30 and which, on and after January 1, 2008, shall be the 12-month period
beginning on January 1 and ending on December 31; provided, however, that there shall be a
short Plan Year beginning on July 1, 2007 and ending on December 31,
2007.
(j)
“Subsidiary” means any corporation
(other than Orthofix International N.V.) in an unbroken chain of corporations
beginning with Orthofix International N.V. if each of the corporations, other
than the last corporation, in the unbroken chain owns stock possessing 50% of
more of the total combined voting power of all classes of stock of one of the
other corporations in such chain.January
1 and ending on December 31.
(m) “Subsidiary” means (i) a domestic or
foreign corporation, limited liability company, partnership or other
entity with
respect to which the Company, directly or
indirectly, has the power, whether through the ownership of voting securities,
by contract or otherwise, to elect at least a majority of the members of such
entity’s board of directors or analogous governing body or (ii) any other
domestic or foreign corporation, limited liability company, partnership or other
entity in which the Company, directly or indirectly, has an equity or similar
interest and which the Committee designates as a Subsidiary for purposes of the
Plan.
|
|
3.
|
Shares Subject to the
Plan
|
(a) The total number of shares
of Orthofix Stock reserved and available for issuance pursuant to the Plan shall
not exceed 950,000 shares. The shares of Orthofix Stock
purchasable
pursuant to the Plan may be authorized but previously unissued shares of
Orthofix Stock or shares of Orthofix Stock held in
treasury or
purchased in
the open market or in privately negotiated transactions. The Company
shall bear all
costs in connection with issuance or transfer of any shares and all commissions,
fees and other charges incurred in purchasing shares for distribution pursuant
to the Plan.
(b) A Participant shall have no
rights as a shareholder with respect to shares of Orthofix Stock purchasable
pursuant to the Plan until the date the Participant or his nominee becomes the
holder of record of such shares. No adjustment shall be made for dividends or
other rights for which the record date is prior to such
date.
(c) If the Committee determines
that the total number of shares of Orthofix Stock to be purchased pursuant to
the Plan on any particular date exceeds the number of shares then available for
issuance under the Plan, the Committee shall make a pro rata allocation of the
available shares on a uniform and non-discriminatory basis, and the payroll and
other deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Orthofix Stock pro-rated to such individual,
shall be refunded pursuant to Section 6.
Each
Employee and
Director (subject to Section 5(b) hereof) shall be eligible to
participate in the Plan on the first day of any Plan Year, provided that he or
she is actively employed or is a
Director of the Company on such day.
(a) (a) An
eligible Employee shall become a Participant for any Plan Year by electing to
contribute to the Plan, through payroll deductions, either a fixed amount or a
percentage of his or her compensation for the Plan Year; provided, however, that
such fixed amount or percentage shall not be less than 1% nor more than 25%
(or
such other percentage as the Committee may determine) of his or her
compensation for the Plan Year. For purposes of the Plan, an
Employee’s
compensation shall mean (i) for non-commissioned employees, his or her regular
salary or straight-time wages, overtime, bonuses, and all other forms of
compensation, excluding any car allowance or relocation expense reimbursements;
and (ii) for commissioned employees, his or her commissions, guaranteed
payments, overtime, bonuses, and all other forms of compensation, excluding any
car allowance or relocation expense reimbursements. An Employee’s election to
participate in the Plan for any Plan Year shall be in
writingmade
prior to the beginning of such Plan Year on an authorized form and shall
be made in accordance with procedures established by the Committee from time to
time. A
Participant must complete a new election with respect to each Plan Year in order
to participate in the Plan for such Plan Year.
(b) An eligible Director shall
become a Participant for any Plan Year by electing to contribute to the Plan,
through a deduction of his or her annual director or other compensation paid in
cash, either a fixed amount or a percentage of such director
compensation for the Plan Year. A Director’s election to participate
in the Plan for any Plan Year shall be made prior to the beginning of such Plan
Year or, if later, within 30 days after the date on which such individual first
becomes an eligible Director, on an authorized form and shall be made in
accordance with procedures established by the Committee from time to
time. Notwithstanding the foregoing, a Director’s election to
participate in the Plan for the Plan Year in which he or she first becomes
eligible to participate may be made within 30 days after the date on which such
individual first becomes eligible to participate; provided, however, such
election shall apply only to an amount of his or her annual or other director
compensation paid in cash for such Plan Year equal to the total amount of the
Director’s annual or other compensation paid in cash for such Plan Year
multiplied by the ratio of the number of days remaining in the Plan Year after
such election is made over the total number of days in the Plan Year for which
such Director receives annual director or other
compensation.
(c) A
Participant must complete a new election with respect to each Plan Year in order
to participate in the Plan for such Plan Year.
(d) (b)
Participant contributions to(i)
in the Plancase of
Employees, shall be deposited as soon as practicable in
afollowing
each payday, and (ii) in the case of Directors, shall be deposited as soon as
practicable following the Company’s deduction of all or a portion of the
Director’s annual or other compensation, each in one or more separate
interest-bearing account
or accounts at a bank or other financial institution. Each
such account shall be maintained by
the Company in the name of the Plan for the benefit of Participants, and
the balance of each such account shall remain the property of the Participants
until transferred to the Company or
Orthofix International N.V. pursuant to Section 5.6. After
the close of each Plan Year, the balance of the account will be transferred to
the Company or
Orthofix International N.V. to purchase Orthofix Stock for distribution
to Participants and to pay cash in lieu of fractional shares as provided in
Section 5.6.
(e) (c) Except
as hereafter provided, a Participant may not modify, revoke or suspend
contributions to the Plan for any Plan Year after the first day of the Plan
Year. A Participant may, however, withdraw his or her contributions for a Plan
Year by giving writtenA
Participant may elect to withdraw from the Plan by providing notice to
the Committee before the last day of the Plan Year. A
Participant who elects to withdraw from the PlanUpon
withdrawal from the Plan, all payroll and other deductions under the Plan shall
immediately cease, and a Participant shall receive, in lieu of any other
benefits under the Plan, the following: (i) a refund of his or her contributions
as soon as practicable following the date of withdrawal from the Plan, and in
any event no later than the date that is two and one-half months following the
last day of the Plan Year in which such Participant withdrew from the Plan, and
(ii) a refund of the interest accrued through the date of payment at the rate in
effect at the bank or other financial institution holding Participant
contributions, which refund of accrued interest shall be paid immediately
following the end of the Plan Year in which such Participant withdrew from the
Plan, and in any event no later than the date that is two and one-half months
following the last day of such Plan Year.
(f) (d) An
Employee’s
participation in the Plan shall terminate upon his or her termination of
employment
or death. An Employee’s participation in
the Plan shall, unless otherwise required by applicable law, terminate upon his
or her leave of absence or absence from active employment for any other reason
only if such Employee does not continue to make contributions to the Plan during
such leave in accordance with procedures established by the
Committee. An Employee whose participation terminates
before the last day of the Plan Year shall be entitled only to a refund of his
or her contributions plus interest determined in the same manner as if he or she
had given written notice of withdrawal pursuant to subsection (c) as of the date
he or she ceases to be a Participant.in the
Plan has terminated pursuant to this Section 5(f) shall be deemed to have
withdrawn from the Plan for purposes of this Section 5.
(g) A Director’s participation
in the Plan shall terminate if, during any Plan Year, such Director ceases to be
a member of the Board of Directors for any reason. A Director whose
participation in the Plan has terminated pursuant to this Section 5(g) shall be
deemed to have withdrawn from the Plan for purposes of this Section 5.
(h) (e) A
Participant who withdraws his or her contributions or otherwise ceases
participation before the last day of the Plan Year may again participate in the
Plan for any subsequent Plan Year, provided he or she satisfies the eligibility
requirements of Section 34
and makes a timely election to contribute for such Plan Year.
(i) If any law, rule, or
regulation applicable to an eligible Employee or Director prohibits the use of
payroll or other deductions for purposes of the Plan, or if such deductions
impair or hinder the operation of the Plan or affect the composition of the
Board of Directors or any committee thereof, an alternative method of payment
approved by the Committee may be substituted for such eligible Employee or
Director, as applicable; provided, however, that if any law, rule or regulation
relating to a Director participating in the Plan, in the sole discretion of the
Board of Directors, would affect the composition of the Board of Directors or
any committee thereof, the Board of Directors may terminate such Director’s
participation in the Plan.
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6.
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5.
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Distribution of Common
Stock
|
(a) (a) As
soon as practicable following the last day of each Plan Year, but in any event
no later than the date that is two and one-half months following the last day of
such Plan Year, the Committee shall distribute to each Employee and
Director who was a Participant for the entire Plan Year (or, in
the event of the death of an Employee or Director prior to such distribution, to
the Employee’s or Director’s beneficiary, as applicable) a certificate or
certificates representing the number of whole shares of Orthofix Stock
determined by dividing (i) the amount of the EmployeeParticipant’s
contributions for the Plan Year plus interest on such contributions through the
end of the Plan Year by (ii) with
respect to each Employee who is an officer or director of the Company or who is
a beneficial owner of 10% or more of any class of equity security of Orthofix
International N.V. registered under Section 12 of the Securities Exchange Act of
1934 as amended (as such terms are defined under such Act and the rules and
regulations promulgated thereunder), the Fair Market Value of the Orthofix Stock
on the first day of the Plan Year, and with respect to any other Employee,
85% of the Fair Market Value of the Orthofix Stock on the first day of
the Plan Year.
If or, if
lower, on the firstlast
day of the Plan Year
is not a business day, the Fair Market Value of the Orthofix Stock shall be
determined as of the nearest preceding business day. Cash in the amount
of any fractional share shall be paid to the Participant by check as soon as
practicable following the last day of each Plan Year, but in any event, no later
than the date that is two and one-half months following the last day of such
Plan Year.
(b) The shares of Orthofix
Stock distributed to Participants pursuant to the Plan may
be authorized but previously unissued shares of Orthofix Stock or share of Orthofix Stock held
in Orthofix
International N.V.’s treasury, or may be purchased by the Company or Orthofix
International N.V in the open market or in
privately negotiated transactions. The Company or Orthofix International
N.V. shall
bear all costs in connection with issuance or transfer of any shares and all
commissions, fees and other charges incurred in purchasing shares for
distribution pursuant to the Plan.
(b) (c) The
Committee may, in its discretion, require a Participant to pay to the
Company or its
Subsidiary, as appropriate, prior to the distribution of the Orthofix
Stock, the amount that the Committee deems necessary to satisfy the Company’s
obligation to withhold federal,
state or local income or other taxesapplicable
taxes, at the minimum statutory rate, that the Participant incurs as a
result of the Participant’s participation in the Plan. To satisfy the minimum
statutory tax withholding requirements, a Participant may (i) deliver to
the Company or its
Subsidiary, as appropriate, sufficient shares of Orthofix Stock (based
upon the Fair Market Value of the Orthofix Stock at the date of withholding) to
satisfy the Company’s tax withholding obligations, (ii) deliver sufficient cash
to the Company or its
Subsidiary, as appropriate, to satisfy
its tax withholding obligations, or (iii) irrevocably elect for the
Company or its
Subsidiary, as appropriate, to withhold from the shares of Orthofix Stock
to be distributed to the Participant the number of shares necessary (based upon
the Fair Market Value of the Orthofix Stock at the date of withholding) to
satisfy the Company’s tax withholding obligations. In the event the
Committee subsequently determines that the aggregate Fair Market Value (on the
date of withholding) of shares of Orthofix Stock withheld as payment of any tax
withholding obligation is insufficient to discharge that tax withholding
obligation, then the Participant shall pay to the Company, or its
Subsidiary, as appropriate, immediately upon the Committee’s request, the
amount of that deficiency. The
Company or its Subsidiary, as appropriate, shall also have the right to deduct
from all cash payments made to a Participant (whether or not such payment is
made in connection with the Plan) any applicable taxes
required to be withheld with
respect to such payments.
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7.
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6.
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Administration of the
Plan
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(a) The
Committee shall administer the Plan and shall keep a written record of its actionactions
and proceedings regarding the Plan and all dates, records and documents relating
to its administration of the Plan. The Committee is authorized to interpret the
Plan, to make, amend and rescind such rules as it deems necessary for the proper
administration of the Plan, to make all other determinations necessary or
advisable for the administration of the Plan and to correct any defect or supply
any omission or reconcile any inconsistency in the Plan in the manner and to the
extent that the Committee deems desirable to carry the Plan into effect. The
powers and duties of the Committee shall include, without limitation, the
following:
(i) (a) Determining
the amount of benefits payable to Participants and authorizing and directing the
Company with respect to the payment of benefits under the Plan;
(ii)
(b) Construing
and interpreting the Plan in its
sole discretion whenever necessary to carry out its intention and purpose
and making and publishing such rules for the regulation of the Plan as are not
inconsistent with the terms of the Plan;
and
(iii) (c) Compiling
and maintaining all records it determines to be necessary, appropriate or
convenient in connection with the administration of the Plan.;
and
(iv) Administering the Plan as
necessary to take account of tax, securities law and other regulatory
requirements of foreign jurisdictions.
(b) Any
action taken or determination made by the Committee shall, except as otherwise
provided in Section 78
below, be conclusive on all parties. No member of the Committee shall vote on
any matter relating specifically to such member. In the event that a majority of
the members of the Committee would be specifically affected by any action
proposed to be taken (as opposed to being affected in the same manner as each
other Participant in the Plan), such action shall be taken by the Board of
Directors.
(c) The Committee may designate
one or more of its members or the Chief Executive Officer or the Chief Financial
Officer to carry out its responsibilities under such conditions or limitations
as it may set, except that the Committee may not delegate its authority with
regard to participation in the Plan by eligible Directors or by eligible
Employees who are officers for purposes of Section 16(b) of the Securities
Exchange Act of 1934, as amended.
(d) No member of the Board of
Directors or the Committee, the Chief Executive Officer, the Chief Financial
Officer, or any other officer or employee of the Company or any of its
Subsidiaries to whom any duties or responsibilities are delegated hereunder
shall be liable for any action or determination made in connection with the
operation, administration or interpretation of the Plan, and the Company shall
indemnify, defend and hold harmless each such person from any liability arising
from or in connection with the Plan, except where such liability results
directly from such person’s fraud, willful misconduct
or failure to act in good faith. In the performance of its responsibilities with
respect to the Plan, the Committee shall be entitled to rely upon information
and advice furnished by the Company’s officers, the Company’s accountants, the
Company’s counsel and any other person the Committee deems necessary, and no
member of the Committee shall be liable for any action taken or not taken in
reliance upon any such advice.
(e) Anything in the Plan to the
contrary notwithstanding, any authority or responsibility that, under the terms
of the Plan, may be exercised by the Committee may alternatively be exercised by
the Board of Directors.
(a) (a) If
a Participant does not receive the timely payment of the benefits which the
Participant believes are due under the Plan, the Participant may make a claim
for benefits in the manner hereinafter provided.
All
claims for benefits under the Plan shall be made in writing and shall be signed
by the Participant. Claims shall be submitted to the Committee, or to a
representative designated by the Committee. If the Participant does not furnish
sufficient information with the claim for the Committee to determine the
validity of the claim the Committee shall indicate to the Participant any
additional information which is necessary for the Committee to determine the
validity of the claim.
Each
claim hereunder shall be acted on and approved or disapproved by the Committee
within 90 days following the receipt by the Committee of the information
necessary to process the claim.
In the
event the Committee denies a claim for benefits in whole or in part, the
Committee shall notify the Participant in writing of the denial of the claim and
notify the Participant of his or her right to a review of the Committee’s
decision. Such notice by the Committee shall also set forth, in a manner
calculated to be understood by the Participant, the specific reason for such
denial, the specific provisions of the Plan on which the denial is based and a
description of any additional material or information necessary to perfect the
claim with an explanation of the Plan’s appeals procedure as set forth in this
Section.
If no
action is taken by the Committee on a Participant’s claim within 90 days after
receipt by the Committee, such claim shall be deemed to be denied for purposes
of the following appeals procedure.
(b) (b) Any
Participant whose claim for benefits is denied in whole or in part may appeal
for a review of the decision by the full Committee. Such appeal must be made
within three months after the Participant has received actual or constructive
notice of the denial as provided above. An appeal must be submitted
in writing within such period and must:
(i)
(i) request
a review by the full Committee of the claim for benefits under the
Plan;
(ii) (ii) set
forth all of the grounds upon which the Participant’s request for review is
based and
any facts in support thereof; and
(iii) (iii) set
forth any issues or comments which the Participant deems pertinent to the
appeal.
The
Committee shall regularly review appeals by Participants. The Committee shall
act upon each appeal within 60 days after receipt thereof unless special
circumstances require an extension of the time for processing, in which case a
decision shall be rendered by the Committee as soon as possible but not later
than 120 days after the appeal is received by the Committee.
The
Committee shall make a full and fair review of each appeal and any written
materials submitted by the Participant in connection therewith. The Committee
may require the Participant to submit such additional facts, documents or other
evidence as the Committee in its discretion deems necessary or advisable in
making its review. The Participant shall be given the opportunity to review
pertinent documents or materials upon submission of a written request to the
Committee, provided the Committee finds the requested documents or materials are
pertinent to the appeal.
On the
basis of its review, the Committee shall make an independent determination of
the Participant’s eligibility for benefits under the Plan. The
decision of the Committee on any claim for benefits shall be final and
conclusive upon all parties thereto.
In the
event the Committee denies an appeal in whole or in part, the Committee shall
give written notice of the decision to the Participant, which notice shall set
forth, in a manner calculated to be understood by the Participant, the specific
reasons for such denial and which shall make specific reference to the pertinent
provisions of the Plan on which the Committee’s decision is based.
8.
Miscellaneous
(a) Nothing in the Plan shall
confer upon a Participant the right to continue in the employ of the Company or a
Subsidiary or shall limit or restrict the right of the Company or a Subsidiary
or shall limit or restrict the right of the Company or a Subsidiary to terminate
the employment of a Participant at any time with or without
cause.
(b) No right or benefit under
the Plan shall be subject to anticipation, alienation, sale assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber or charge such right or benefit shall be void. No
such right or benefit shall in any manner be liable for or subject to the debts,
liabilities or torts of a Participant.
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9.
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Amendment and
Termination
|
(a) (c) The
Plan may be amended or terminated by the Board of Directors at any time,
provided that no such action shall have the effect of decreasing a Participant’s
accrued benefits as of the effective date of such action. Upon termination of
the Plan, each Participant shall receive a refund of his or her contributions
for the Plan Year plus interest accrued through the date of
termination.
(b) Without shareholder consent
and without regard to whether any Participant rights may be considered to have
been “decreased,” the Committee shall be entitled to establish the exchange
ratio applicable to payroll and other deductions, in a currency other than
United States Dollars, permit payroll and other deductions in excess of the
amount designated by a Participant in order to adjust for delays or mistakes in
the Company’s processing of properly completed payroll and other deduction
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
shares of Orthofix Stock for each Participant properly correspond with amounts
deducted from the Participant’s compensation, and establish such other
limitations or procedures as the Committee determines in its sole discretion
advisable which are consistent with the Plan.
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10.
|
Beneficiary
Designation
|
A Participant may file a
written designation of a beneficiary who is to receive any Orthofix Stock or
cash under the Plan in the event of such Participant’s death prior to delivery
to such Participant of such Orthofix Stock or cash. If a
Participant is married and the designated beneficiary is not the spouse, spousal
consent shall be required for such designation to be effective to the extent
required by applicable law. Such beneficiary designation may be
changed by the Participant at any time by written notice to the
Committee. All beneficiary designations shall be made in such form
and manner as the Committee may prescribe from time to
time.
(d) All federal, state and
local income and employment taxes required to be
withheld by
the Company or any Subsidiary as a result of an Employee’s participation in the
Plan shall be deducted and withheld from the Employee’s compensation without
reducing his or her contributions to the Plan.
The Plan, as amended and
restated herein, shall become effective on the first day of the Plan Year
following the date it is approved by the shareholders of the Company; provided,
however, that the shares available for issuance in Section 3(a) hereof shall be
available for issuance on and after the date the Plan, as amended and restated
herein, is approved by the shareholders of the
Company. Notwithstanding the foregoing, if the Plan is not approved
by the shareholders upon submission to them for approval, the Plan shall be void
ab initio and of no further force and effect.
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12.
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Participants in
Non-U.S. Jurisdictions
|
(a) To the extent that
Participants are domiciled or resident outside of the U.S. or are domiciled or
resident in the U.S. but are subject to the tax laws of a jurisdiction outside
of the U.S., the Committee shall have the authority and discretion to adopt such
modifications and procedures as it shall deem necessary or desirable to comply
with the provisions of the laws of such non-U.S. jurisdictions in order to
assure the viability of the benefits paid to such Participants. The
authority granted under the previous sentence shall include the discretion for
the Committee to adopt, on behalf of the Company, one or more sub-plans
applicable to separate classes of eligible Employees and Directors who are
subject to the laws of jurisdictions outside of the U.S.
(b) Notwithstanding any other
provision of the Plan to the contrary, to the extent the Company is required to
comply with the EU Prospectus Directive in any jurisdiction with respect to
awards made to eligible Employees or Directors in such jurisdiction, the
Committee may suspend the right of all eligible Employees and Directors in such
jurisdiction to participate in the Plan.
(a) Nothing in the Plan shall
confer upon a Participant the right to continue in the employ or continue to be a Director
of the Company or a Subsidiary or shall limit or restrict the right of the
Company or a Subsidiary to terminate the employment of a Participant at any time
with or without cause.
(b) No right or benefit under
the Plan shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber or charge such right or benefit shall be void. No
such right or benefit shall in any manner be liable for or subject to the debts,
liabilities or torts of a Participant.
(c) (e)
The Neither
the Company and
Orthofix International N.V.nor any
Subsidiary shall be under noany
obligation to issue or deliver certificates for shares of Orthofix Stock
pursuant to the Plan if such issuance or delivery would, in the opinion of the
Committee, cause the Company to violate any provision of federal
or state securities law or state corporationapplicable
law. The Company and Orthofix
International N.V.its
subsidiaries will use their best efforts to comply with applicable provisions
of such laws but will not be liable for any failure to
comply.
(d) (f)
If any provision in the
Plan is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remaining provisions shall nevertheless continue in full
force and effect without being impaired or invalidated in any way.,
(e) (g) The
Plan shall be construed and governed in accordance with the law of the State of
Texas.
New York
and without giving effect to principles of conflicts of
laws.
(f)
All notices or other
communications by a Participant to the Committee, the Company, or any Subsidiary
under or in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Committee at the location, or by the
person, designated by the Committee for the receipt thereof.
(g)
Notwithstanding anything to
the contrary contained in the Plan, notices and other elections under this Plan
may be delivered or made electronically, in the discretion of the Committee. In
addition, in the discretion of the Committee, shares otherwise deliverable under
the Plan may be delivered or otherwise evidenced through book entry or other
electronic format without the need to deliver an actual share certificate;
provided, however, an actual share certificate shall be delivered if requested
by the Participant.
(h)
The Board of Directors or
the Committee may extend or terminate the benefits of the Plan to any Subsidiary
at any time without the approval of the shareholders of the
Company.
(i)
The proceeds received by the
Company from the sale of Orthofix Stock pursuant to the Plan shall be used for
general corporate purposes.
(j) No shares of Orthofix Stock
may be issued under this Plan unless the issuance of such shares has been
registered under the Securities Act of 1933, as amended, and qualified under
applicable state “blue sky” laws and any applicable non-U.S. securities laws, or
the Company has determined that an exemption from registration and from
qualification under such state “blue sky” laws and applicable non-U.S.
securities laws is available. The Committee may require each Participant
purchasing shares under the Plan to represent to and agree with the Company in
writing that such eligible Employee or Director, as applicable, is acquiring the
shares for investment purposes and not with a view to the distribution thereof.
All certificates for shares delivered under the Plan shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the Securities and
Exchange Commission, any exchange upon which the shares are then listed, and any
applicable securities law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such
restrictions.
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14.
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Compliance with Code
Section 409A
|
The Plan and any options
granted hereunder are intended to meet the short term deferral exemption from
Code Section 409A and shall be interpreted and construed consistent with this
intent. Notwithstanding any provision of the Plan to the contrary, in
the event that the Board of Directors determines that the Plan or any option
granted hereunder may be subject to Code Section 409A, the Board of Directors
may, without the consent of Participants, including the affected Participant,
adopt such amendments to the Plan or adopt other policies and procedures
(including amendments, policies and procedures with retroactive effect), or take
any other actions, that the Board of Directors determines are necessary or
appropriate to (i) exempt the Plan or any option granted hereunder from Code
Section 409A or (ii) comply with the requirements of Code Section 409A and
Department of Treasury regulations and other interpretive guidance issued
thereunder. Notwithstanding the foregoing, the Company shall not be
required to assume any increased economic burden in connection
therewith.
AMENDMENT
AND RESTATEMENT OF SECTION 8.3 OF THE ARTICLES OF ASSOCIATION
A copy of
Section 8.3 of the proposed amendment and restatement of Section 8.3 of the
Articles of Association is set forth below. As Section 8.3 has been
restated in its entirety, specific changes have not been
highlighted.
|
8.3
|
The
number of persons constituting the whole Board of Directors shall be
determined by a resolution of a majority of the Board of Directors, but in no event shall
the number of directors be less than six or more than fifteen. Save as set
out in article 8.5, the directors shall be elected at a
General Meeting of Shareholders by a plurality of votes cast, in person or
by proxy, by the shareholders. Directors may be removed or suspended at
any time by the General Meeting of Shareholders. At any General Meeting of
Shareholders at which action is taken to remove a director, the
shareholders may by a plurality of votes cast, in person or by proxy,
appoint one or more persons to fill any vacancy or vacancies created by
such action. At any meeting of the Board of Directors at which action is
taken to increase the number of persons constituting the whole Board of
Directors, a resolution of a majority of the Board of Directors may
appoint one or more persons to fill any vacancy or vacancies created by
such action until the next General Meeting of
Shareholders.
|
[FORM OF PROXY
CARD]
[FORM OF
FACE OF PROXY CARD]
ORTHOFIX
INTERNATIONAL N.V.
This
Proxy is Solicited on Behalf of the Board of Directors of
Orthofix
International N.V.
The
undersigned hereby appoints Mr. Alan W. Milinazzo, Mr. Thomas Hein and Mr.
Raymond C. Kolls and each of them, with the power of substitution attorneys,
proxies of the undersigned to vote the number of Orthofix shares the undersigned
would be entitled to vote if personally present at the annual general meeting of
shareholders of Orthofix International N.V. (“Orthofix”), in Curacao,
Netherlands Antilles, at 11:00 a.m., local time, on June 19, 2008 and at any
adjournments thereof, for the transaction of such business as may come before
the meeting.
THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4, 5 and
6.
This
proxy when properly executed will be voted in the manner directed by the
undersigned. If no instructions are given, this proxy will be voted FOR
proposals 1, 2, 3, 4, 5 and 6.
(continued
and to be dated and signed on the reverse side.)
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COMMENTS/ADDRESS
CHANGE: PLEASE
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MARK
COMMENT/ADDRESS BOX ON REVERSE SIDE
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ORTHOFIX
INTERNATIONAL N.V.
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[ ]
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[ ]
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[FORM OF
REVERSE OF PROXY CARD]
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FOR
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AGAINST
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ABSTAIN
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o
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Sign,
Date and Return
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o
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2.
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Proposal
to approve
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o
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o
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o
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the
Proxy Card
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Votes
must be
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amendment
of the
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Promptly
Using
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indicated
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Amended
and Restated
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the
Enclosed Envelope
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(x)
in Black or Blue
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2004
Long-Term
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Incentive
Plan
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1.
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Election
of the following persons to the:
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3.
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Proposal
to approve
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o
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o
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o
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Board
of Directors
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Amended
and Restated
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Stock
Purchase Plan
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FOR
ALL
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WITHHOLD
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NOMINEES o
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AUTHORITY o
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EXCEPTIONS o
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4.
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Proposal
to approve
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o
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o
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o
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Amendment
and restatement of Section 8.3 of the Articles of
Assocation
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Nominees:
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James
F. Gero, Peter J. Hewett, Jerry C. Benjamin,
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5.
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Proposal
to approve the
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o
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o
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o
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Charles
W. Federico, Dr. Guy J. Jordan, Thomas J.
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balance
sheet and
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Kester, Alan
W. Milinazzo, Maria Sainz, Dr. Walter
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income
statement at and
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P.
von Wartburg and Kenneth R. Weisshaar.
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for
the year ended
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December
31, 2007
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(INSTRUCTIONS: To
withhold authority to vote for any
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6.
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Proposal
to ratify the
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individual
nominee, mark the “Exceptions” box and write that
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selection
of Ernst &
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nominee’s
name in the space provided below).
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Young
as the independent
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registered
public
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*Exceptions
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accounting
firm for
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Orthofix
and its subsidiaries
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for
the fiscal year ending
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December
31, 2008.
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PLEASE
CHECK BOX IF YOU
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INTEND
TO BE PRESENT AT
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MEETING.
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COMMENT/ADDRESS
CHANGE
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Please
mark this box if you
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have
written
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comment/address
change on
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the
reverse side
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SCAN
LINE
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IMPORTANT: Please
date this proxy and sign
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exactly
as your name appears hereon. Executors,
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administrators,
trustees, guardians and officers
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signing
in a representative capacity should give
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full
title. If Orthofix shares are held in more
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than
one capacity, this proxy will be deemed to
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vote
all Orthofix shares held in all capacities.
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Date Share
Owner sign here Co-Owner
sign here
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