SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X] Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
(AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-12
Orthovita, Inc.
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(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):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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ORTHOVITA, INC.
45 GREAT VALLEY PARKWAY
MALVERN, PENNSYLVANIA 19355
NOTICE OF 2003 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
Thursday, June 12, 2003
DEAR ORTHOVITA, INC. SHAREHOLDERS:
On Thursday, June 12, 2003, ORTHOVITA, INC. will hold its Annual Meeting of
Shareholders at our offices, 45 Great Valley Parkway, Malvern, Pennsylvania,
19355, USA. The meeting will begin at 10:00 a.m., local time.
Holders of Orthovita's stock of record at the close of business on April 9, 2003
are entitled to receive this notice and to vote at the meeting and any
adjournment. The meeting is being held for the following purposes:
1. To elect a Board of Directors to hold office until the next Annual Meeting
of Shareholders or until their respective successors have been elected or
appointed;
2. To approve an amendment to the 1997 Equity Compensation Plan to increase
the number of shares of Orthovita's Common Stock available for issuance
pursuant to grants thereunder from 3,850,000 to 4,850,000;
3. To approve an amendment to the Amended and Restated Articles of
Incorporation to increase the number of authorized shares of Orthovita's
Common Stock from 50,000,000 to 100,000,000; and
4. To attend to other business properly brought before the meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE THREE PROPOSALS
OUTLINED IN THIS PROXY STATEMENT.
A list of our shareholders allowed to vote at the meeting will be available for
inspection by any shareholder at our offices, during normal business hours, for
the ten business days prior to the Annual Meeting.
By Order of the Board of Directors,
JOSEPH M. PAIVA
Corporate Secretary
Malvern, Pennsylvania, USA
April 30, 2003
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
CARD IN THE ENCLOSED ENVELOPE OR VIA THE INTERNET.
ORTHOVITA, INC.
45 GREAT VALLEY PARKWAY
MALVERN, PENNSYLVANIA 19355
PROXY STATEMENT
QUESTIONS AND ANSWERS
1. Q: WHO IS SOLICITING MY VOTE?
A: This proxy solicitation is being made on behalf of the Board of Directors
of Orthovita, Inc. for use at the 2003 Annual Meeting of Shareholders. In
addition to solicitation by mail, arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxy materials
to beneficial owners, and Orthovita will, upon request, reimburse them for
their reasonable expenses in doing so. To the extent necessary in order to
ensure sufficient representation at the meeting, we may request, in person,
by telephone or telecopy, the return of proxy cards. This solicitation may be
made by our directors, officers or regular employees. We may also employ an
outside firm to assist in the solicitation of proxies at our expense.
Orthovita will pay the cost of solicitation of proxies.
2. Q: WHEN WAS THIS PROXY STATEMENT MAILED TO SHAREHOLDERS?
A: This proxy statement and accompanying form of proxy were first mailed to
shareholders on or about April 30, 2003.
3. Q: WHAT MAY I VOTE ON?
A: (1) The election of nominees to serve on our Board of Directors;
(2) The amendment to the 1997 Equity Compensation Plan to increase the
number of shares of Orthovita's Common Stock available for issuance
pursuant to grants there under from 3,850,000 to 4,850,000; and
(3) The amendment to the Amended and Restated Articles of Incorporation to
increase the number of authorized shares of Orthovita's Common Stock from
50,000,000 to 100,000,000.
4. Q: HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
A: The Board recommends a vote FOR each of the nominees, and the Board
recommends a vote FOR the amendment to the 1997 Equity Compensation Plan and
FOR the amendment to the Amended and Restated Articles of Incorporation.
5. Q: WHO IS ENTITLED TO VOTE?
A: Only stockholders of record on April 9, 2003 will be entitled to notice,
and to vote at, the Annual Meeting or any adjournment thereof.
6. Q: HOW DO I VOTE?
A: There are two ways to vote - by mail OR online via the Internet.
(1) To vote by mail, sign and date each proxy card you receive and return it
in the prepaid envelope.
(2) To vote online via the Internet, follow the "online voting" instructions
on the proxy card. The proxy card has your unique and confidential login
number and password. You will access our Transfer Agent's web site
directly to vote the shares. Do not destroy your login number and
password, since it will be needed if you choose to revoke your vote at a
later time (see (d) below).
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You have the right to revoke your proxy, whether voted by mail or via the
Internet, at any time before the meeting by:
(a) notifying the Corporate Secretary, Joseph M. Paiva, at the address
shown on the Notice of the Annual Meeting;
(b) voting in person;
(c) returning a later dated proxy card, OR;
(d) voting via the Internet at a later date.
Proxies that are voted in accordance with these instructions and are
received by Orthovita by no later than the business day preceding the
meeting will be voted in accordance with the instructions contained thereon.
If you return your signed proxy card but do not mark the boxes showing how
you wish to vote, your shares will be voted FOR the three proposals.
7. Q: WHO WILL COUNT THE VOTES?
A: Representatives of our Transfer Agent, StockTrans, will count the votes.
8. Q: IS MY VOTE CONFIDENTIAL?
A: Proxy cards, ballots and voting tabulations that identify individual
shareholders are mailed or returned directly to the Transfer Agent, and
handled in a manner that protects your voting privacy. Your vote will not be
disclosed except: (1) as needed to permit the Transfer Agent to tabulate and
certify the vote; and (2) as required by law. Additionally, all comments
written on the proxy card or elsewhere will be forwarded to management. Your
identity will be kept confidential unless you ask that your name be
disclosed.
9. Q: HOW MANY SHARES CAN VOTE?
A: The holder of each outstanding share of Common Stock on the record date
is entitled to one vote on each matter to be considered; and the holder of
each outstanding share of Series A 6% Adjustable Cumulative Convertible
Voting Preferred Stock ("Series A Preferred Stock") on the record date is
entitled, as to each matter to be considered, to that number of votes as is
equal to the number of full shares of Common Stock into which shares of
Series A Preferred Stock held by such holder are convertible in the
aggregate on the record date (calculated by rounding any fractional share to
the nearest whole number, with one-half or above being rounded upward and
below one-half being rounded downward), subject to a 4.95% beneficial
ownership cap applicable to holders of Series A Preferred Stock other than
OrbiMed Associates, LLC, PW Juniper Crossover Fund, L.L.C. and Caduceus
Private Investments, LP. However, with respect to the separate class vote of
the Series A Preferred holders for the proposal to amend the Amended and
Restated Articles of Incorporation, the holder of each outstanding share of
Series A Preferred Stock on the record date is entitled to one vote. As of
the record date of the Annual Meeting, each share of Series A Preferred
Stock was convertible into 5,862 shares of Common Stock, and Orthovita had
outstanding 20,835,947 shares of Common Stock and 1,815 shares of Series A
Preferred Stock.
10. Q: WHAT IS A "QUORUM"?
A: The presence at the Annual Meeting, by person or by proxy, of
shareholders representing a majority of the votes represented by the Common
Stock and the Series A Preferred Stock and entitled to be cast is necessary
to constitute a quorum for the transaction of business. There must be a
quorum
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for the meeting to be held. If you submit a properly executed proxy card,
even if you abstain from voting, then you will be considered part of the
quorum. A WITHHELD vote will also be counted for quorum purposes.
11. Q: WHAT ARE THE VOTING REQUIREMENTS TO APPROVE A PROPOSAL?
A: Other than with respect to the proposal to amend the Amended and Restated
Articles of Incorporation, the holders of the Common Stock and the Series A
Preferred Stock vote together, and not as separate classes, on all matters
to be submitted to shareholders at the Annual Meeting. The proposal to amend
the Amended and Restated Articles of Incorporation is subject to two votes:
(i) the holders of the Series A Preferred Stock are entitled to a separate
class vote, and (ii) the holders of the Common Stock and the Series A
Preferred Stock vote together as a class. Assuming a quorum is present,
nominees for directors must receive a plurality of the votes cast to be
elected. The proposal to amend the 1997 Equity Compensation Plan must
receive more than 50% of the votes cast to be approved. In order to be
approved, the proposal to amend the Amended and Restated Articles of
Incorporation must receive both (i) the consent of the holders of at least a
majority of the shares of Series A Preferred Stock at the time outstanding,
and (ii) more than 50% of the votes cast by holders of the Common Stock and
the Series A Preferred Stock voting together as a class. You may abstain
from voting on the proposal to amend the 1997 Equity Compensation Plan and
on the proposal to amend the Amended and Restated Articles of Incorporation,
or withhold votes with regard to the election of directors. Neither
abstentions nor withheld votes will be taken into account in determining
the outcome of the vote other than with respect to the separate class vote
of the Series A Preferred holders for the proposal to amend the Amended and
Restated Articles of Incorporation, but both abstentions and withheld votes
will be counted for the purposes of determining a quorum. Abstentions will
count as negative votes with respect to the separate class vote of the
Series A Preferred holders for the proposal to amend the Amended and
Restated Articles of Incorporation.
12. Q: WHAT ARE BROKER NON-VOTES?
A: A broker non-vote occurs when a nominee holding shares for a beneficial
owner does not vote on a particular matter because the nominee does not have
discretionary voting power with respect to that item and has not received
instructions from the beneficial owner. Broker non-votes are counted as
present and entitled to vote for purposes of determining a quorum. Non-votes
have no effect on the election of directors or the approval of the amendment
to the 1997 Equity Compensation Plan. Non-votes will have the effect of
negative votes with respect to the separate class vote of the Series A
Preferred holders for the proposal to amend the Amended and Restated
Articles of Incorporation, but will have no effect on the vote of holders of
Common Stock and Series A Preferred Stock, voting together as a single
class, on the proposal to amend the Amended and Restated Articles of
Incorporation.
13. Q: WHO CAN ATTEND THE ANNUAL MEETING?
A: All shareholders of record on April 9, 2003 may attend.
14. Q: HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A: We do not know of any business to be considered at the 2003 Annual
Meeting other than the proposals described in this proxy statement. If any
other business is presented at the Annual Meeting, your signed proxy card
gives authority to Joseph M. Paiva, our Chief Financial Officer and
Secretary, to vote on such matters at his discretion.
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15. Q: WHO ARE THE LARGEST PRINCIPAL SHAREHOLDERS?
A: See "SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"
beginning on page 5 of this proxy for the largest principal shareholders as
of April 9, 2003.
16. Q: WHEN ARE THE SHAREHOLDER PROPOSALS FOR THE 2004 ANNUAL MEETING DUE?
A: All shareholder proposals to be considered for inclusion in next year's
proxy statement must be submitted in writing to Joseph M. Paiva, Secretary,
Orthovita, Inc., 45 Great Valley Parkway, Malvern, Pennsylvania 19355 prior
to January 2, 2004.
If a shareholder notifies us after March 16, 2004 of the intent to present a
proposal at our 2004 Annual Meeting of Shareholders, we may use our
discretionary voting authority with respect to such proposal, if presented
at the meeting, without including the information regarding such proposal in
our proxy statement.
17. Q: CAN A SHAREHOLDER NOMINATE SOMEONE TO BE A DIRECTOR OF THE COMPANY?
A: As a shareholder, you may recommend any person as a nominee for director
by writing to the Nominating Committee of the Board of Directors, c/o
Orthovita, Inc., 45 Great Valley Parkway, Malvern, PA 19355. Recommendations
must be received between February 14, 2004 and March 14, 2004, for the 2004
Annual Meeting. They must be accompanied by the name, residence and business
address of the nominating shareholder. They must include a representation
that the shareholder is a record holder of the stock or holds the stock
through a broker. They must state the number of shares held. The
recommendations must include a representation that the shareholder intends
to appear in person or by proxy at the meeting of the shareholders to
nominate the individual(s) if the nominations are to be made at a
shareholder meeting. They must include information regarding each nominee
that would be required to be included in a proxy statement. They must also
include a description of any arrangement or understanding between the
shareholder and each and every nominee. Finally, the recommendations must
include the written consent of each nominee to serve as a director, if
elected.
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SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Common Stock
The following table sets forth certain information known to Orthovita
regarding the beneficial ownership of the Common Stock as of April 9, 2003
by (1) all beneficial owners of 5% or more of the Common Stock (including
Series A Preferred Stock convertible into Common Stock); (2) each director
and nominee for election as director; (3) each executive officer named in
the Summary Compensation Table included elsewhere herein and employed by
Orthovita as of April 9, 2003; and (4) all executive officers, directors
and nominees of Orthovita as a group. The number of shares beneficially
owned by each person is determined under the rules of the Securities and
Exchange Commission and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under the rules of the SEC, a
person is also deemed to be a beneficial owner of any securities of which
that person has a right to acquire beneficial ownership within 60 days.
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Total Number Shares Issuable
------------ ---------------
of Shares upon Conversion of Shares Issuable upon Ownership
--------- ------------------ -------------------- ---------
Name and Address Beneficially Series A Preferred Exercise of Options or Percent of
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Owned /(1)/ Stock /(2)/ Warrants /(3)/ Total /(4)/
----- ----- -------- -----
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Five Percent (5%) Shareholders:
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Caduceus Private Investments, L.P. /(5)/
c/o OrbiMed Advisors, LLC 6,947,411 3,927,315 2,945,486 25.1%
767 Third Avenue, 30/th/ floor
New York, NY 10017
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DMG Advisors LLC /(6)/
53 Forest Avenue, Second Floor 1,547,764 (6) (6) 7.7% /(6)/
Old Greenwich, Connecticut 06870
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Hambrecht & Quist Capital Management
LLC /(7)/ 1,700,000 -- -- 8.2%
30 Rowes Wharf, 4/th/ floor
Boston, MA 02110-3328
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Samuel D. Isaly
OrbiMed Advisors Inc. 10,369,272 5,861,664 4,396,249 33.3%
OrbiMed Advisors LLC
OrbiMed Capital LLC
c/o OrbiMed Advisors, LLC
767 Third Avenue, 30/th/ floor
New York, NY 10017
PW Juniper Management, L.L.C.
PW Fund Advisor, L.L.C.
PW Alternative Asset Management, Inc. /(5)/
1285 Avenue of the Americas
New York, NY 10019
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5
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Total Number Shares Issuable
------------ ---------------
of Shares upon Conversion of Shares Issuable upon Ownership
--------- ------------------ -------------------- ---------
Name and Address Beneficially Series A Preferred Exercise of Options or Percent of
- ---------------- ------------- ----------------- ---------------------- ----------
Owned /(1)/ Stock /(2)/ Warrants /(3)/ Total /(4)/
----- ----- -------- -----
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PW Juniper Crossover Fund,
L.L.C. /(5)/
c/o OrbiMed Advisors Inc. 3,276,691 1,852,286 1,389,215 13.7%
767 Third Avenue, 30th Floor
New York, NY 10017
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Paul Capital Royalty Acquisition Fund, L.P.
99 Park Avenue, 8/th/ floor 1,721,763 -- -- 8.3%
New York, NY 10016
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The Rennes Fondation
Aeulestrasee 38 2,112,874 -- -- 10.1%
FL-9490 Vaduz
Principality of Liechtenstein
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Directors and Named Executive Officers:
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Morris Cheston, Jr. 25,155 -- 18,750 *
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Paul Ducheyne, Ph.D. 467,859 /(8)/ -- 2,500 2.2%
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Erik M. Erbe, Ph.D. 202,000 -- 202,000 *
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David Fitzgerald 20,000 -- 20,000 *
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David S. Joseph /(9)/ 717,492 -- 2,500 3.4%
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Antony Koblish 94,300 -- 92,000 *
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Robert M. Levande 34,155 -- 28,750 /(10)/ *
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David J. McIlhenny 50,250 -- 50,250 *
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Mary Paetzold 20,000 -- 20,000 *
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Joseph M. Paiva 103,875 -- 101,875 *
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Bruce A. Peacock 259,500 -- 210,000 1.2%
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Maarten Persenaire 70,750 -- 65,250 *
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Jonathan Silverstein /(11)/ 15,000 (11) 15,000 *
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Directors and executive officers as a group
(13 persons) 2,080,336 -- 828,875 9.6%
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* Less than 1%
(1) This table is based on information supplied by officers, directors and
principal shareholders of Orthovita and on any Schedules 13D or 13G filed
with the SEC. On that basis, Orthovita believes that each of the
shareholders named in this table has sole voting and dispositive power with
respect to the shares indicated as beneficially owned except as otherwise
indicated in the footnotes to this table. The total number of shares
beneficially owned includes shares of outstanding Common Stock, shares of
Common Stock issuable upon the conversion of Series A Preferred Stock, and
shares of Common Stock issuable upon the exercise of stock options or
warrants.
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(2) Shares of Common Stock that can be acquired upon the conversion of the
Series A Preferred Stock within sixty days of April 9, 2003.
(3) Shares of Common Stock that can be acquired upon the exercise of stock
options or warrants exercisable currently or within sixty days of April 9,
2003.
(4) Applicable percentages are based on 20,835,947 shares of Common Stock
outstanding on April 9, 2003.
(5) Based solely on information contained in the Amendment to Schedule 13D
dated as of October 21, 2002 filed with the SEC by Samuel D. Isaly, OrbiMed
Advisors Inc., OrbiMed Advisors LLC, OrbiMed Capital LLC, PW Juniper
Management, L.L.C., PW Fund Advisor, L.L.C. and PW Alternative Asset
Management, Inc.: (i) OrbiMed Advisors LLC is a registered investment
adviser under the Investment Advisers Act of 1940, as amended, that acts as
managing member of OrbiMed Associates LLC ("Associates") pursuant to the
terms of its limited liability company agreement; (ii) OrbiMed Advisors
Inc. is a registered investment adviser under the Investment Advisers Act
of 1940, as amended, that, through a joint venture with PW Fund Advisor,
L.L.C. entitled PW Juniper Management, L.L.C., acts as an investment
manager of PW Juniper Crossover Fund, L.L.C., a registered investment
company ("Juniper"), pursuant to the terms of the PW Juniper Crossover
Fund, L.L.C. investment advisory agreement; (iii) OrbiMed Capital LLC is a
limited liability company that acts as general partner to Caduceus Private
Investments, LP, a private equity fund ("Caduceus"), pursuant to the terms
of its limited partnership agreement; (iv) PW Fund Advisor, L.L.C. is a
limited liability company that serves as the managing member of PW Juniper
Management, L.L.C.; and (v) PW Alternative Asset Management, Inc. is the
sole member of PW Fund Advisor, L.L.C. and is a wholly-owned subsidiary of
PaineWebber Capital Inc. Pursuant to these agreements and relationships,
OrbiMed Advisors LLC, OrbiMed Advisors Inc. and OrbiMed Capital LLC have
discretionary investment management authority with respect to the assets of
Associates, Juniper and Caduceus. Such authority includes the power to vote
and otherwise dispose of securities purchased by Associates, Juniper and
Caduceus. Mr. Isaly, a natural person, owns all of the outstanding stock
of, and controls the management and operation of OrbiMed Advisors Inc. Mr.
Isaly also owns a controlling interest in OrbiMed Advisors LLC and OrbiMed
Capital LLC. PW Fund Advisor, L.L.C., PW Juniper Management, L.L.C. and PW
Alternative Asset Management, Inc. disclaim beneficial ownership of all
shares of Orthovita that are not held by Juniper.
(6) Based solely on information contained in Amendment No. 1 to Schedule 13G
dated as of February 14, 2003 (the "DMG Amendment") filed by DMG Advisors,
LLC ("DMG"). DMG indicated in the DMG Amendment that it shares power to
vote and dispose of 1,547,764 shares. DMG did not disclose in the DMG
Amendment the allocation of the number of these shares that are outstanding
or issuable upon the conversion of Series A Preferred Stock or warrants.
(7) Based solely on information contained in the Amendment to Schedule 13G
dated as of January 22, 2003 filed with the SEC by Hambrecht & Quist
Capital Management LLC ("HQCM") with the SEC (the "HQCM Amendment"), HQCM
disclaims any beneficial interest in the 1,020,000 shares of Orthovita
common stock held by H&Q Healthcare Investors, a registered investment
company, and the 680,000 shares of Orthovita common stock held by H&Q Life
Science Investors. Moreover, as stated in the HQCM Amendment, HQCM is of
the view that the client accounts that it manages are not acting as a
"group" for purposes of Section 13(d) under the Securities and Exchange Act
of 1934 (the "1934 Act") and that it and such clients are not otherwise
required to attribute to each other the "beneficial ownership" of
securities "beneficially owned" under Rule 13d-3 promulgated under the 1934
Act. Therefore, as stated in the HQCM Amendment, HQCM is of the view that
the shares held in such accounts should not be aggregated for purposes of
Section 13(d). However, HQCM stated in the HQCM Amendment that it made the
filing on a voluntary basis as if all the shares were beneficially owned by
HQCM on a joint basis. Of the 1,700,000 shares of Common Stock, H&Q
Healthcare Investors holds 1,020,000 shares and H&Q Life Sciences holds
680,000 shares.
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(8) As of April 9, 2003, Dr. Ducheyne serves as a director; however, he will
not stand for re-election at the 2003 Annual Meeting of Shareholders. Does
not include 712,647 shares held in trust for the benefit of Dr. Ducheyne's
children, of which 63,573 shares are obtainable upon the exercise of
warrants granted to certain shareholders. Dr. Ducheyne disclaims beneficial
ownership of the shares held in the foregoing trusts.
(9) As of April 9, 2003, Mr. Joseph serves as a director; however, he will not
stand for re-election at the 2003 Annual Meeting of Shareholders.
(10) Includes options to purchase 18,750 shares of Common Stock owned by Mr.
Levande. Also includes options to purchase 10,000 shares of Common Stock
owned by Palantir Group, Inc. Mr. Levande is the President of Palantir
Group, Inc.
(11) Mr. Silverstein is employed by an affiliate of OrbiMed Associates LLC, PW
Juniper Crossover Fund, L.L.C. and Caduceus Private Investments, LP, which
collectively beneficially own 33.3% of our outstanding Common Stock as of
April 9, 2003. Mr. Silverstein disclaims beneficial ownership of the
referenced securities.
Preferred Stock
The following table sets forth certain information known to Orthovita
regarding the beneficial ownership of the Series A Preferred Stock as of
April 9, 2003 by all beneficial owners of 5% or more of the Series A
Preferred Stock. As of April 9, 2003, none of the following persons
beneficial owns any shares of Series A Preferred Stock: (1) any director
and nominee for election as director; or (2) any executive officer named in
the Summary Compensation Table included elsewhere herein and employed by
Orthovita as of April 9, 2003. One of our directors, Mr. Silverstein, is
employed by an affiliate of Caduceus Private Investments, LP and PW Juniper
Crossover Fund, L.L.C., which collectively beneficially own 33.3% of our
outstanding Common Stock as of April 9, 2003. Mr. Silverstein disclaims
beneficial ownership of the referenced securities. The number of shares
beneficially owned by each person is determined under the rules of the SEC
and the information is not necessarily indicative of beneficial ownership
for any other purpose.
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Number
------
of Shares
---------
Beneficially Ownership Percent of
------------ --------------------
Name and Address Owned Total /(1)/
- ---------------- ----- -----
- ----------------------------------------------------------------------------------------------
Five Percent (5%) Shareholders:
- -------------------------------
- ----------------------------------------------------------------------------------------------
Caduceus Private Investments, L.P. 670 36.9%
c/o OrbiMed Advisors, LLC
767 Third Avenue, 30/th/ floor
New York, NY 10017
- ----------------------------------------------------------------------------------------------
DMG Legacy Institutional Fund LLC 150 8.3%
c/o DMG Advisors LLC
53 Forest Avenue, Second Floor
Old Greenwich, Connecticut 06870
- ----------------------------------------------------------------------------------------------
8
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Number
------
of Shares
---------
Beneficially Ownership Percent of
------------ --------------------
Name and Address Owned Total /(1)/
- ---------------- ---- -----------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
DMG Legacy International Fund LLC 173 9.5%
c/o DMG Advisors LLC
53 Forest Avenue, Second Floor
Old Greenwich, Connecticut 06870
- -----------------------------------------------------------------------------------------
PW Juniper Crossover Fund, L.L.C. 316 17.4%
c/o OrbiMed Advisors Inc.
767 Third Avenue, 30th Floor
New York, NY 10017
- -----------------------------------------------------------------------------------------
SDS Merchant Fund L.P. 350 19.3%
53 Forest Avenue, Second Floor
Old Greenwich, Connecticut 06870
- -----------------------------------------------------------------------------------------
(1) Applicable percentages are based on 1,815 shares of Series A Preferred Stock
outstanding on April 9, 2003.
9
ELECTION OF DIRECTORS
There are currently eight members of the Board of Directors and we are seeking
election for six members. Of the eight current members, Dr. Paul Ducheyne, PhD.
and Mr. David S. Joseph will not stand for re-election. Immediately prior to the
Annual Meeting, the size of the Board of Directors will be decreased to six
members. All directors are elected annually and serve a one-year term until the
next Annual Meeting of Shareholders or until a respective successor is duly
elected and qualified, or until the earliest of his or her death, retirement or
resignation.
Pursuant to the terms of our Bylaws, so long as holders of Series A Preferred
Stock collectively hold 375 shares of Series A Preferred Stock, they are
entitled to nominate a director of Orthovita who may be an employee of or
affiliated with OrbiMed and, so long as holders of Series A Preferred Stock
collectively hold 1,125 shares of Series A Preferred Stock, they are entitled to
approve the nomination of up to two additional independent directors who are not
affiliated with the holders of the Series A Preferred Stock. In accordance with
the Bylaws, holders of Series A Preferred Stock have nominated Jonathan
Silverstein to serve as a director, and have approved the nomination of David
Fitzgerald and Mary Paetzold.
The Board of Directors believes that the nominees will be able to serve as
directors, if elected. If any nominee is unable to stand for re-election,
proxies will be voted for the election of such other person as the Board of
Directors may recommend, unless the Board reduces the number of directors.
Set forth below is certain information concerning the nominees for election as
directors:
NOMINEES FOR THE BOARD OF DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------
Name and Length of
Service as Director Age Principal Occupation and Certain Directorships
- ------------------ --- ----------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Morris Cheston, Jr. 65 Mr. Cheston has been a partner in the law firm of Ballard Spahr Andrews & Ingersoll, LLP
Director since 2001 since 1971. His practice focuses on securities, mergers and acquisitions and technology
transfer, principally in the biotechnology industry. Mr. Cheston is active in numerous
civic and charitable organizations and currently serves as the Chairman of the Board of
Managers of Pennsylvania Hospital, a Trustee of Penn Medicine and a Member of the Executive
Committee of Penn Medicine. Mr. Cheston received a Bachelor of Arts degree from Princeton
University and a Juris Doctor degree from Harvard Law School.
- ------------------------------------------------------------------------------------------------------------------------
David Fitzgerald 69 Mr. Fitzgerald has been involved in a number of start-up and development stage companies,
Director since serving as a consultant, Chief Executive Officer and director. He is currently a Director
December 2002 at LifeCell Corporation (Nasdaq: LIFC), a tissue implant company, and Arthrocare, Corp.
(Nasdaq: ARTC), a developer of a technology platform for soft tissue surgical procedures.
From 1980 to 1995, Mr. Fitzgerald served in several capacities as President and CEO of
Howmedica, Inc., Executive Vice President of Pfizer Hospital Products Group, and Vice
President of Pfizer, Inc. Mr. Fitzgerald has a Bachelor of Science degree from American
International College and a Master degree in Business Administration from New York
University.
- ------------------------------------------------------------------------------------------------------------------------
10
- -------------------------------------------------------------------------------------------------------------------------
Name and Length of
Service as Director Age Principal Occupation and Certain Directorships
- ------------------ --- ----------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Anthony Koblish 37 Mr. Koblish was promoted in April 2002 to President and Chief Executive Officer of
Director since April Orthovita after serving as Senior Vice President of Commercial Operations since June 2001.
2002 From December 1999 to June 2001, Mr. Koblish was Orthovita's Vice President of Worldwide
Marketing and, from January 1999 to December 1999, served as Orthovita's Director of
Worldwide Marketing. Prior to 1999, Mr. Koblish served as Director of Marketing and Product
Development, Reconstructive Specialty Group of Howmedica, a subsidiary of Stryker Corp., a
supplier of PMMA for joint implants. Mr. Koblish earned a Bachelor of Science degree in
Mechanical Engineering from Worcester Polytechnic Institute and completed a Master of
Science degree in Engineering, Mechanical Engineering and Applied Mechanics at the
University of Pennsylvania.
- -------------------------------------------------------------------------------------------------------------------------
Robert M. Levande 54 Mr. Levande has been Managing Director - Life Sciences at Gilford Securities, Inc., an
Director since 2000 investment firm, since April 2002. Previously, he founded and served as president of the
Palantir Group, Inc., a private consulting firm specializing in providing strategic advice
to entrepreneurs in the medical technology industry since January 1999. From 1972 to 1998,
Mr. Levande served in various managerial positions with Pfizer Inc., including Vice
President - Business Analysis & Development of its Medical Technology Group and Senior Vice
President of Howmedica Inc., its largest business unit. Mr. Levande received his Bachelor
of Science degree from Wharton School of Finance & Commerce of the University of
Pennsylvania and a Master degree in Business Administration from Columbia University.
- ------------------------------------------------------------------------------------------------------------------------
Mary Paetzold 53 Ms. Paetzold is a retired Certified Public Accountant with thirty years of experience with
Director since public and private companies. Ms. Paetzold was affiliated with KPMG Peat Marwick, LLP from
February 2003 1973 through 1994 and, in 1979, was nominated to a three-year assignment in the firm's
Executive Office, Department of Professional Practice - Professional Standards and Quality
Assurance. Ms. Paetzold was elected partner in 1984 and appointed as an SEC Reviewing
Partner in 1986. Ms. Paetzold subsequently served from 1994 through February 2000 as Chief
Financial Officer of Ecogen, Inc. (Nasdaq: ECGN), a publicly traded agricultural
biotechnology company. Ms. Paetzold currently serves as a director and chairman of the
audit committee for Immunomedics, Inc. (Nasdaq: IMMU), a publicly traded biotechnology
company. Ms. Paetzold has a Bachelor of Arts degree in Mathematics from Montclair State
University.
- -------------------------------------------------------------------------------------------------------------------------
Jonathan Silverstein 36 Mr. Silverstein is a Director at OrbiMed Advisors LLC ("OrbiMed"). OrbiMed manages roughly
Director since $3 billion dollars in global healthcare assets through eight different funds. Mr.
September 2002 Silverstein joined OrbiMed in 1999 to focus on private equity and structured investments in
small-capitalization public companies. From 1996 to 1999, Mr. Silverstein was the Director
of Life Sciences, in the investment banking department, at Sumitomo Bank, Limited. During
his tenure, Mr. Silverstein directed strategic alliances, mergers and acquisitions for the
Bank's clients in the biotechnology and medical technology sectors. Mr. Silverstein has a
Bachelor of Arts degree in Economics from Denison University and a Juris Doctor degree and
Master degree in Business Administration from the University of San Diego. Currently, Mr.
Silverstein is a Director of Given Imaging, Ltd. (Nasdaq: GIVN) and LifeCell Corporation
(Nasdaq: LIFC).
------------------------------------------------------------------------------------------------------------------------
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES TO THE BOARD OF DIRECTORS.
11
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Orthovita, Inc.'s business is managed under the direction of the Board of
Directors (the "Board"). The Board delegates the conduct of business to our
senior management team. Our Board generally meets four times a year in
regularly scheduled meetings; however, it may meet more often if necessary.
The Board held six meetings during 2002. The Chief Executive Officer
("CEO") usually determines the agenda for the meetings. Board members
receive the agenda and supporting information in advance of the meetings;
however, Board members may raise other matters at the meetings. The CEO,
Chief Financial Officer and, from time to time, other senior management
make presentations to the Board at the meetings. A substantial portion of
the meeting time is devoted to the Board's discussion of these
presentations. Significant matters that require Board approval are voted on
at the meetings.
The Board considers all major decisions. The Board has established four
standing committees so that certain areas can be addressed in more depth
than may be possible at a full Board meeting.
- ------------------------------------------------------------------------------------------------------------------
Meetings
--------
Name of Committee and Members Functions of the Committee in 2002
- ----------------------------- -------------------------- -------
- ------------------------------------------------------------------------------------------------------------------
Audit Committee and Nominating . provides oversight of our financial reporting process and 7
Committee: our internal controls,
Morris Cheston, Jr. . meets at least quarterly with our management and outside
Robert Levande independent auditors to discuss our financial statements
Mary Paetzold and earnings press releases prior to any public filing of
the information,
. reviews the independence of our independent auditors;
. selects the firm of independent auditors for appointment by
Orthovita,
. approves all audit and non-audit services rendered by
Orthovita's independent auditors,
. operates pursuant to a charter approved by the Board,
. reports on its activities to the Board,
. identifies individuals with the experience, judgment and
skills to become Board members, and
. recommends to the Board and our shareholders the slate of
directors for nomination and election each year.
- ------------------------------------------------------------------------------------------------------------------
12
- -------------------------------------------------------------------------------------------------------------
Meetings
--------
Name of Committee and Members Functions of the Committee in 2002
- ----------------------------- -------------------------- -------
- -------------------------------------------------------------------------------------------------------------
Compensation Committee: . reviews and approves the compensation and other benefits of
David Fitzgerald the CEO and other senior management, as well as our general 2
Jonathan Silverstein employee compensation and benefits policies and practices,
. approves the goals for our incentive plans and monitors
results against those goals,
. administers our Equity Compensation Plan, and
. recommends to the board the compensation of directors.
- -------------------------------------------------------------------------------------------------------------
Special Dividend Committee: . approves for payment the required quarterly dividends on our
David Fitzgerald Series A Preferred Stock, and 2
Anthony Koblish . determines if the quarterly dividend should be paid in cash
or in-kind.
- -------------------------------------------------------------------------------------------------------------
At the beginning of fiscal 2002, the Audit Committee of the Board of
Directors was comprised of three outside directors, Messrs. Cheston, Garvey
and Levande, appointed by the Board. In February 2003, Mr. Garvey resigned
as a director and Ms. Paetzold was named a director and member of the Audit
Committee to replace Mr. Garvey. As a result, the Audit Committee presently
consists of three outside directors.
13
DIRECTORS' COMPENSATION
Outside directors are eligible to receive an initial grant of non-qualified
stock options, an annual grant of non-qualified stock options and an annual
remuneration paid in the form of either a restricted stock grant or a
non-qualified stock option grant. Outside directors are reimbursed for
travel expenses to the Board meetings. Employee directors are not eligible
for any additional compensation for service on the Board or its committees.
We pay for liability insurance on behalf of all directors. The following
table sets forth the compensation paid to directors in 2002, as well as the
expected compensation to be paid in 2003.
- -----------------------------------------------------------------------------------------------------------------------
Non-qualified Stock Non-qualified Stock Options: Restricted Stock or
------------------- ---------------------------- -------------------
Effective Date Cash Compensation Options: Initial Grant Annual Grant Non-qualified Stock
- -------------- ----------------- ---------------------- ------------ -------------------
Options: Annual
---------------
Remuneration
------------
- -----------------------------------------------------------------------------------------------------------------------
February 19, 2003 Not eligible. Travel 25,000 fully vested 10,000 per calendar year under $15,000 annual
expenses to meetings non-qualified stock our Equity Compensation Plan. remuneration paid
are reimbursed. options upon election The exercise price is the in the form of a
to the Board. market price of our Common restricted stock
Stock on the date of the grant or a non-
Annual Meeting of qualified stock
Shareholders. Half of the option grant.
options granted vest
immediately and 25% vest for
each of the following two
years.
- -----------------------------------------------------------------------------------------------------------------------
May 24, 2002 Not eligible. Travel 15,000 fully vested 5,000 per calendar year under $10,000 annual
expenses to meetings non-qualified stock our Equity Compensation Plan. remuneration paid
are reimbursed. options upon election The exercise price is the in the form of a
to the Board. market price of our Common restricted stock
Stock on the date of the grant.
Annual Meeting of
Shareholders. Half of the
options granted vest
immediately and 25% vest for
each of the following two
years.
- -----------------------------------------------------------------------------------------------------------------------
April 11, 2001 Not eligible. Travel 15,000 fully vested 5,000 per calendar year under N/A
expenses to meetings non-qualified stock our Equity Compensation Plan.
are reimbursed. options upon election The exercise price is the
to the Board. market price of our Common
Stock on the date of the
Annual Meeting of
Shareholders. Half of the
options granted vest
immediately and 25% vest for
each of the following two
years.
- -----------------------------------------------------------------------------------------------------------------------
14
Executive Officers and Significant Employees of Orthovita
The names, business experience and ages of Orthovita's executive officers
are listed below:
- ------------------------------------------------------------------------------------------------------
Name Business Experience Age
- ---- ------------------- ---
- ------------------------------------------------------------------------------------------------------
Antony Koblish Mr. Koblish became our President and Chief Executive Officer in 37
April 2002. Mr. Koblish has served in the following positions at
Orthovita: Senior Vice President of Commercial Operations (June
2001 to April 2002); Vice President of Worldwide Marketing
(December 1999 to June 2001); Director of Worldwide Marketing
(January 1999 to December 1999). Prior to 1999, Mr. Koblish served
as Director of Marketing and Product Development, Reconstructive
Specialty Group of Howmedica, a subsidiary of Stryker Corp., a
supplier of PMMA for joint implants.
- ------------------------------------------------------------------------------------------------------
David S. Joseph Mr. Joseph has served as Orthovita's Chairman since May 1999, 60
after having previously served as President and Chief Executive
Officer since 1993. He is a member of the Board of Directors of
Highway to Health, a private web based travel/health insurance
company and Animas Corporation, a diabetes device technology
company. He is also a member of Board of Directors of Morphotek,
Inc., a genomics platform technology company. He was a co-founder,
President and CEO of Site Microsurgical Systems acquired by
Johnson and Johnson, and co-founder, President and CEO of Surgical
Laser Technologies Inc. Mr. Joseph formerly served as a board
member of the Corporation of The Jackson Laboratory, a leading
genetic research institute, and as a member of the Board of
Directors of King's College.
- ------------------------------------------------------------------------------------------------------
Maarten Persenaire, M.D. Dr. Persenaire has served as Orthovita's Chief Medical Officer 46
since April 1999. Currently, Dr. Persenaire is responsible for
Orthovita's strategic direction in clinical research and medical
education as well as marketing program. Prior to joining
Orthovita, Dr. Persenaire was Vice President of Clinical Affairs
at AcroMed Corporation, a DePuy-Johnson & Johnson company. Dr.
Persenaire joined AcroMed, Netherlands in 1992 as Medical
Director, coming to the U.S. to become Vice President for Clinical
Affairs of AcroMed, headquartered in Cleveland, Ohio.
- ------------------------------------------------------------------------------------------------------
Erik M. Erbe, Ph.D. Dr. Erbe was promoted to Chief Science Officer of Orthovita in 38
April of 2002 after having served as Vice President, Research and
Development of Orthovita since May 1995. Prior thereto, Dr. Erbe
was the Senior Product Development Engineer of 3M's Dental
Products Division and Ceramic Technology Center from 1991 to 1995,
where he developed expertise in chemical ceramic synthesis and
fabrication technologies. His focus was on customer-defined
product development, applied research and scale-up in polymer
composites, and glass and glass-ceramics technologies related to
the dental and orthopaedic fields.
- ------------------------------------------------------------------------------------------------------
15
- ------------------------------------------------------------------------------------------------------
Name Business Experience Age
- ---- ------------------- ---
- ------------------------------------------------------------------------------------------------------
Joseph M. Paiva Mr. Paiva has been Orthovita's Vice President and Chief Financial 47
Officer since December 1997. Prior thereto, Mr. Paiva was the
Controller of Cephalon, Inc., an international biopharmaceutical
company, from December 1995 to December 1997; the Chief Financial
Officer of ActiMed Laboratories, Inc., a medical device company,
from August 1994 to December 1995; and the Chief Financial Officer
of Argus Pharmaceuticals, Inc., a publicly-traded biotechnology
company, from September 1993 to April 1994. Mr. Paiva was also
employed by Cytogen Corporation, a biotechnology company, from
September 1983 to September 1993 in a variety of positions of
increasing responsibility, ultimately serving as Director of
Finance and as Chief Financial Officer of its affiliated company,
CytoRad Incorporated, a publicly-traded biotechnology company. Mr.
Paiva is a Certified Public Accountant.
- ------------------------------------------------------------------------------------------------------
David J. McIlhenny Mr. McIlhenny was promoted in December 2002 to Senior Vice 69
President, Operations after serving as Orthovita's Vice President
of Quality Assurance and Regulatory Affairs. Mr. McIlhenny has
previously been Orthovita's Vice President of Quality Systems and
Operations Support. From 1995 to 1999, Mr. McIlhenny also served
as Orthovita's Director of Manufacturing and Quality Control. From
1991 to 1995, Mr. McIlhenny was Director of Operations and
Engineering at Surgical Laser Technology, a company which
developed, manufactured and marketed regulatory approved medical
lasers and disposable fiber optic laser delivery systems. From
1979 to 1991, Mr. McIlhenny was Executive Vice President of Ethox
Corp., an OEM medical device manufacturer for most of the major
medical device companies.
- ------------------------------------------------------------------------------------------------------
The names, business experience and ages of Orthovita's significant employees
are listed below:
- ------------------------------------------------------------------------------------------------------
Name Business Experience Age
- ---- ------------------- ---
- ------------------------------------------------------------------------------------------------------
Charanpreet Mr. Bagga was promoted in January 2003 to Orthovita's Vice 33
Bagga President of Product Development after serving as Senior
Director of Design & Development, and Director of Design &
Development since May 2000. Before joining Orthovita, Mr. Bagga
worked as Product Development Manager for Sulzer Spinetech.
Prior thereto, Mr. Bagga was employed by Howmedica, a subsidiary
of Stryker Corp., since January of 1992. During his Howmedica
tenure, Mr. Bagga worked on the product development of spinal
and knee prostheses and instrumentation.
- ------------------------------------------------------------------------------------------------------
Steven Lopez Mr. Lopez was promoted to Orthovita's Vice President - US Sales 54
in March 2002. Previously, Mr. Lopez was Orthovita's Western
Area Sales Director. Mr. Lopez has more than 27 years of
experience in the orthopedics marketplace, including senior
management responsibility both at large orthopaedic device
companies and at large regional orthopaedic distributorships, as
well as experience in running his own orthopaedic
distributorship.
- ------------------------------------------------------------------------------------------------------
Douglas Low Mr. Low was promoted to Orthovita's Vice President, European 42
Operations in May 2002 after having served as Orthovita's Director
of European Operations since September 2001. Mr. Low has 13 years
experience in the healthcare industry. He has held senior
marketing positions at both Stryker Corp., Howmedica, and DePuy,
Inc., a Johnson & Johnson Company, where he was responsible for
the International Knee Business Unit.
- ------------------------------------------------------------------------------------------------------
16
EXECUTIVE COMPENSATION: REPORT OF THE COMPENSATION COMMITTEE
Compensation Philosophy - The Compensation Committee of the Board of Directors
attempts to create a balanced compensation package by combining components based
upon the achievement of long-term value for shareholders with components based
upon the execution of shorter-term strategic goals. The Compensation Committee
of the Board of Directors has instituted a management compensation plan that:
- Attracts and retains talented management;
- Provides both short-term and long-term incentives; and
- Focuses performance on the achievements of Orthovita's objectives.
Compensation Methodology. The Compensation Committee develops and implements
compensation policies, plans and programs which seek to enhance shareholder
value of Orthovita by closely aligning the financial interests of Orthovita's
senior management with those of its shareholders.
The Compensation Committee's compensation program for senior management is
comprised of the following:
Base salary. The annual base salary is designed to compensate executives
for their sustained performance and level of responsibility. Base salary
is based on individual performance and the executives' experience. The
Committee approves all salary increases for executive officers.
Annual performance bonus. An annual discretionary cash bonus program is
established in order to promote the achievement of Orthovita's annual
performance objectives. Company and individual goals and milestones are
established at the beginning of the year, and include targets for progress
in sales, cash flow, research and development, clinical activities, and
financing activities. The Compensation Committee provides bonus incentives
for achievements of these goals because they believe attainment of these
goals will be in the best long-term interests of Orthovita's shareholders.
Bonus amounts for each executive are dependent upon the level of
achievement of Orthovita as well as the individual.
Long-term incentive compensation. The Committee determines the number of
incentive stock option grants, restricted stock awards or other grants
under the Equity Compensation Plan, if any, to be granted to each
executive. These recommendations are based on the executive's ability to
impact the financial and operational performance of Orthovita; the
executive's past performance; and the expectation of the executive's
future performance and contributions. All stock options and restricted
stock awards are granted with an exercise price equal to the closing
market price of Orthovita's Common Stock on the date of grant.
17
Compensation of the Chief Executive Officer - The Committee meets at least
annually to evaluate the performance of the CEO. Based on this evaluation, the
Committee may recommend for approval a salary increase, annual bonus and/or
long-term incentive award, if any. The CEO's compensation reflects a higher
degree of policy-making and decision-making authority and a higher level of
responsibility with respect to our strategic direction and its financial and
operating results. It also reflects the CEO's long-term commitment and
contributions to our success. In order to determine appropriate compensation for
the CEO, the Compensation Committee reviews the executive compensation plans for
companies in industries similar to Orthovita's and with comparable revenue. The
CEO's compensation for fiscal year 2002 included an annual base salary of
$209,600. In connection with Mr. Koblish's position during 2001 as Orthovita's
Senior Vice President of Commercial Operations, he earned a bonus of $30,000,
which was paid in cash during January 2002. In addition, during 2002, Orthovita
granted Mr. Koblish options to purchase 178,000 shares of Orthovita's Common
Stock. Of the 178,000 shares in total, options to purchase 100,000 shares were
granted in connection with Mr. Koblish's commencement as Chief Executive Officer
in April 2002, options to purchase 20,000 shares were granted in December 2002
for meeting performance objectives as CEO, and options to purchase 58,000 shares
were granted in January 2002 for meeting 2001 performance objectives as Senior
Vice President of Commercial Operations.
Certain provisions of the Internal Revenue Code provide generally that publicly
held corporations might not deduct compensation for its chief executive officer
or each of other specified executive officers to the extent that such
compensation exceeds $1 million for the executive. It is not expected that these
provisions will adversely affect Orthovita based on its current compensatory
structure. In this regard, base salary and bonus levels are expected to remain
well below the $1 million limitation in the foreseeable future. In addition,
Orthovita's 1997 Equity Compensation Plan is designed to preserve, to the extent
otherwise available, the deductibility of income realized upon the exercise of
stock options under the plan regardless of whether such income, together with
salary, bonus and other compensation, exceeds the limitation.
At the beginning of fiscal 2002, the Compensation Committee of the Board of
Directors was comprised of two outside directors, Messrs. Garvey and Levande,
appointed by the Board. Mr. Jonathan Silverstein joined the Board of Directors
in September 2002 and at that time replaced Mr. Levande on the Compensation
Committee. In February 2003, Mr. Garvey resigned as a director and Mr. David
Fitzgerald was named a member of the Compensation Committee to replace Mr.
Garvey.
Respectfully submitted,
Mr. David Fitzgerald
Mr. Jonathan Silverstein
April 4, 2003
18
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation paid by
Orthovita with respect to the two persons who served as Orthovita's Chief
Executive Officer during 2002 and Orthovita's four other most highly
compensated executive officers ("Named Executive Officers").
- -------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Incentive Compensation
-------------------- --------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Executive Officer Restricted Stock Securities Underlying All Other
- ------------------ ---------------- --------------------- ---------
Principal Position Year Salary ($) Bonus ($) Awards ($) Options (#) Compensation ($)
- ------------------ ---- ---------- --------- --------- ---------- -----------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Antony Koblish, Chief 2002 209,600 30,000 -- 178,000 7,608
Executive Officer (1) 2001 156,048 25,500 -- 25,000 6,352
2000 137,500 27,500 -- -- 3,737
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Bruce A. Peacock 2002 102,943 45,000 -- -- 3,200
Former Chief Executive 2001 300,000 68,750 52,000 50,000 57,699
Officer (2) 2000 235,417 -- 172,500 100,000 142,097
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
David S. Joseph, 2002 93,750 45,000 10,000 (4) 5,000 20,356
Chairman (3) 2001 225,000 61,875 -- -- 25,057
2000 225,000 63,000 -- -- 14,580
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Maarten Persenaire, 2002 186,500 25,000 -- 63,000 8,603
M.D., Chief Medical 2001 183,750 22,500 -- 15,000 8,331
Officer (5) 2000 175,000 30,000 -- 60,000 7,331
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Erik M. Erbe, Ph.D., 2002 183,270 32,500 -- 80,000 7,003
Chief Science Officer (6) 2001 174,000 31,000 -- 15,000 6,762
2000 162,100 35,000 -- 5,000 7,056
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Joseph M. Paiva, 2002 181,525 33,000 -- 81,000 7,182
Chief Financial Officer 2001 172,000 30,000 -- 15,000 6,937
(7) 2000 162,100 40,000 -- -- 6,897
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
David J. McIlhenny, 2002 148,615 28,000 -- 71,000 13,668
Senior Vice President, 2001 140,000 21,500 -- 20,000 12,892
Operations (8) 2000 130,050 25,000 -- 5,000 14,184
- -------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Koblish has been Chief Executive Officer since April 23, 2002. See
"Executive Compensation: Report of the Compensation Committee" for details
of the 2002 bonus and securities underlying options granted during 2002.
The All Other Compensation amounts disclosed for Mr. Koblish include
$2,108, $1,102, and $1,581 for life and disability insurance premiums in
2002, 2001 and 2000, respectively, and $5,500, $5,250 and $2,156 in 2002,
2001 and 2000, respectively, of Orthovita's matching contributions under
Orthovita's 401(k) plan.
19
(2) Mr. Peacock served as Chief Executive Officer from June 23, 1999 until
April 22, 2002. The All Other Compensation amounts disclosed for Mr.
Peacock for the year ended December 31, 2001 include life and disability
insurance premiums of $12,003, Orthovita's matching contributions under
Orthovita's 401(k) plan of $5,250, and payment of taxes on his restricted
stock award of $40,446. The All Other Compensation amounts disclosed for
Mr. Peacock for the year ended December 31, 2000 include life and
disability insurance premiums of $8,062, and payment of taxes on his
restricted stock award of $134,035.
(3) Mr. Joseph resigned his employment on May 24, 2002. The All Other
Compensation amounts disclosed for Mr. Joseph include life and disability
insurance premiums.
(4) At December 31, 2002, Mr. Joseph held 5,405 restricted shares, 100% of
which vested in May 2002. At December 31, 2002, the value of such shares,
based on the $4.35 last sale price per share of Orthovita's Common Stock as
reported by Nasdaq on December 31, 2002, was $23,512.
(5) The All Other Compensation amounts disclosed for Dr. Persenaire include
$3,103, $3,175, and $2,231 for life and disability insurance premiums in
2002, 2001 and 2000, respectively, and $5,500, $5,156 and $5,100 in 2002,
2001 and 2000, respectively, of Orthovita's matching contributions under
Orthovita's 401(k) plan.
(6) The All Other Compensation amounts disclosed for Dr. Erbe include $1,503,
$1,512 and $1,806 for life and disability insurance premiums in 2002, 2001
and 2000, respectively, and $5,500, $5,250 and $5,250 in 2002, 2001 and
2000, respectively, of Orthovita's matching contributions under Orthovita's
401(k) plan.
(7) The All Other Compensation amounts disclosed for Mr. Paiva include $1,682,
$1,687 and $1,647 for life and disability insurance premiums in 2002, 2001
and 2000, respectively, and $5,500, $5,250 and $5,250 in 2002, 2001 and
2000, respectively, of Orthovita's matching contributions under Orthovita's
401(k) plan.
(8) The All Other Compensation amounts disclosed for Mr. McIlhenny include
$8,168, $7,642 and $8,934 for life and disability insurance premiums in
2002 and 2001, respectively, and $5,500, $5,250 and $5,250 in 2002, 2001
and 2000, respectively, of Orthovita's matching contributions under
Orthovita's 401(k) plan.
20
OPTION GRANTS IN FISCAL 2002 (1). The following table presents information
concerning the options granted under the 1997 Equity Compensation Plan to Named
Executive Officers during 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Number of % of Total
--------- ----------
Securities Options Potential Realizable Value at
---------- ------- -----------------------------
Underlying Granted to Exercise Assumed Annual Rates of Stock
---------- ---------- -------- -----------------------------
Options Employees in Price Price Appreciation for
------- ------------ ----- ----------------------
Name Granted (1) Fiscal Year ($/share) Expiration Date Option Term (2)
---- ------- ----------- --------- --------------- -----------
- ---------------------------------------------------------------------------------------------------------------------------------
5% Annual 10% Annual
--------- ----------
Growth Rate Growth Rate
----------- -----------
- ---------------------------------------------------------------------------------------------------------------------------------
Antony Koblish 28,000 $ 3.00 January 24, 2012
30,000 15.7% $ 2.48 January 24, 2012 $ 1,261,253 $ 2,008,335
100,000 $ 2.28 April 23, 2012
20,000 $ 2.80 December 18, 2012
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce A. Peacock -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
David S. Joseph 5,000 .4% $ 1.85 May 24, 2012 $ 35,428 $ 56,414
- ---------------------------------------------------------------------------------------------------------------------------------
Maarten Persenaire 18,000 $ 3.00 January 24, 2012
15,000 5.6% $ 2.48 January 24, 2012 $ 446,399 $ 710,815
30,000 $ 2.80 December 18, 2012
- ---------------------------------------------------------------------------------------------------------------------------------
Erik M. Erbe, Ph.D. 40,000 $ 3.00 January 24, 2012
20,000 7.1% $ 2.48 January 24, 2012 $ 566,855 $ 902,622
20,000 $ 2.80 December 18, 2012
- ---------------------------------------------------------------------------------------------------------------------------------
Joseph M. Paiva 26,000 $ 3.00 January 24, 2012
20,000 7.2% $ 2.48 January 24, 2012 $ 573,941 $ 913,905
5,000 $ 2.60 September 16, 2012
30,000 $ 2.80 December 18, 2012
- ---------------------------------------------------------------------------------------------------------------------------------
David J. McIlhenny 21,000 $ 3.00 January 24, 2012
20,000 4.5% $ 2.48 January 24, 2012 $ 503,084 $ 801,077
30,000 $ 2.80 December 18, 2012
- ---------------------------------------------------------------------------------------------------------------------------------
(1) All options granted to Named Executive Officers have an exercise price per
share equal to the closing price of Orthovita's Common Stock on the date of
grant. Options granted with an expiration date of January 24, 2012 and an
exercise price of $3.00 are vested 25% at grant of date and 25% per year
each year thereafter. All other option grants are vested at a rate of 25%
per year beginning one year from date of grant. In addition, all option
grants have a ten-year term.
21
(2) These amounts are based on an assumption that the stock price of the shares
of Common Stock appreciate at the annual rate shown (compounded annually)
from the date of grant until the end of the option term. Actual gains, if
any, on stock option exercises are dependent on the future performance of
Orthovita's Common Stock and overall market conditions. These values do not
take into account contractual provisions of the options, which provide for
termination of an option following termination of employment,
non-transferability or vesting. These amounts are calculated based on the
requirements promulgated by the SEC and are not intended to forecast
possible future increases, if any, in the market price of Orthovita's
Common Stock.
AGGREGATED OPTION EXERCISES AND YEAR-END VALUES. The following table presents
information about the number and value of options held by the Named Executive
Officers at December 31, 2002. No options were exercised during 2002.
- -----------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
-------------------- --------------------
Underlying Unexercised Options In-the-Money Options
------------------------------ --------------------
at December 31, 2002 at December 31, 2002 (1)
-------------------- ------------------------
- ------------------------------------------------------------------------------ ----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
- -----------------------------------------------------------------------------------------------------
Antony Koblish 46,500 201,500 $ 9,450 $ 322,450
- -----------------------------------------------------------------------------------------------------
Bruce A. Peacock 210,000 -- -- --
- -----------------------------------------------------------------------------------------------------
David S. Joseph 2,500 2,500 $ 6,250 $ 6,250
- -----------------------------------------------------------------------------------------------------
Maarten Persenaire 57,000 81,000 $19,200 $ 97,150
- -----------------------------------------------------------------------------------------------------
Erik M. Erbe, Ph.D. 183,250 88,750 $79,500 $ 108,900
- -----------------------------------------------------------------------------------------------------
Joseph M. Paiva 90,375 85,125 $13,775 $ 118,975
- -----------------------------------------------------------------------------------------------------
David J. McIlhenny 40,000 82,000 $ 7,388 $ 105,163
- -----------------------------------------------------------------------------------------------------
(1) Based upon the difference between (i) the $4.35 per share closing price of
our Common Stock on the Nasdaq National Market on December 31, 2002, and
(ii) the exercise price of unexercised in-the-money options.
DISCLOSURE OF EQUITY COMPENSATION PLAN INFORMATION
AS OF DECEMBER 31, 20002
The following table provides information on all existing Equity Compensation
Plans as of December 31, 2002. All of Orthovita's equity compensation plans have
been approved by Orthovita's shareholders.
- -------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
Number of Weighted- Number of Securities
Securities to be Average Remaining Available for
Issued Upon Exercise Price of Future Issuance Under
Exercise of Outstanding Compensation Plans
Outstanding Options (excludes securities
Options reflected in column (a))
- -------------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans Approved by
Shareholders:
Orthovita, Inc. 1993 Stock Option Plan and 3,102,550 $ 3.73 801,331
Orthovita, Inc. 1997 Equity Compensation Plan
- -------------------------------------------------------------------------------------------------------------------------
22
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
In May 2002, Orthovita entered into employment agreements with each of Messrs.
Koblish, Paiva and Erbe. Mr. Koblish's agreement provides for employment as our
Chief Executive Officer and President through April 23, 2003 at an annual salary
of $225,000 plus an automobile allowance of $800 per month. Mr. Paiva's
agreement provides for employment as our Chief Financial Officer through April
23, 2003, at an annual salary of $185,000 plus an automobile allowance of $600
per month. Dr. Erbe's agreement provides for employment as our Chief Science
Officer through April 23, 2003, at an annual salary of $186,600 plus an
automobile allowance of $600 per month. Each of the employment agreements with
Messrs. Koblish, Paiva and Erbe contains terms customarily found in executive
officer employment agreements, including provisions relating to the
reimbursement of certain business expenses, participation in employee benefit
plans generally available to the other executive officers of Orthovita, life
insurance, and confidentiality and non-competition provisions. Each of the
agreements with Messrs. Koblish, Paiva and Erbe provides for renewable one-year
terms and also contains the following severance benefits and change of control
provisions:
. If the executive officer is terminated without "cause" (as defined in
the respective employment agreement) or suffers a "constructive
termination without cause", Orthovita or its successor entity will:
(i) pay him up to eighteen months of salary as a severance benefit and
one hundred percent (100%) of any stock option, restricted stock or
other stock awards granted to the executive officer that have not yet
become exercisable or vested shall become exercisable or vested; (ii)
provide him with any other benefits in accordance with the terms of
any benefit plans and incentive programs of Orthovita, and for a
period of eighteen months following each termination or constructive
termination, continue health insurance coverage for the executive
officer and eligible family members and disability insurance for the
executive officer; (iii) pay him for unused vacation time and
unreimbursed expenses; and (iv) pay him a pro rata portion of any
incentive programs to the extent that such amount would have been
earned in accordance with the terms of such incentive programs, for
the then current fiscal year of Orthovita.
. The receipt of the severance payment described above is conditioned
upon the executive executing a release in favor of Orthovita. If the
executive does not execute and deliver the release, he will be
entitled to: (i) the amount of his base salary for the remainder of
his employment term in addition to earned salary; (ii) a payment equal
to any unused vacation and unreimbursed expenses; and (iii) any other
benefits in accordance with the terms of any benefits plans or
incentive programs of Orthovita.
. The severance benefit will end or be decreased if the executive begins
comparable employment, subject to certain conditions.
. Upon the occurrence of a change of control, one hundred percent (100%)
of any stock option, restricted stock or other stock awards granted to
the executive officer that have not yet become exercisable or vested
shall become exercisable or vested.
Under each of the employment agreements, a "change of control" is defined
generally as meaning the acquisition by a person of securities having more than
50% of the voting power of Orthovita's outstanding securities; a sale or other
disposition of all or substantially all of Orthovita's assets; a liquidation or
dissolution of Orthovita; any transaction in which the shareholders of Orthovita
do not beneficially own at least 50% of the voting power of the surviving
company in the election of directors; or a change in the composition of the
board as a result of which incumbent board members constitute less than a
majority of the board. A "constructive termination without cause" means the
executive officer's resignation following a reduction in the officer's
compensation, a material diminution in the officer's duties and
responsibilities, or assignment to the officer of duties and responsibilities
that are materially inconsistent with the duties and responsibilities held by
the officer on the date of the agreement or that materially impair his ability
to function in his then current
23
position, or the failure of Orthovita to comply with any of the material terms
of the agreement after, other than with respect to a decrease in the officer's
compensation, notice and an opportunity to cure.
In addition, Orthovita has entered into change of control agreements with
Charanpreet Bagga, Vice President - Product Development, Steven Lopez, Vice
President - Sales, Douglas Low, Vice President - European Operations, David J.
McIlhenny, Senior Vice President, Operations, and Maarten Persenaire, MD, Chief
Medical Officer, that provide for the following severance benefits:
. If within one year after a Change of Control of Orthovita (as defined
in Orthovita's 1997 Equity Compensation Plan), (a) Orthovita
terminates the executive's employment for any reason other than
"Cause" (as defined in Orthovita's 1997 Equity Compensation Plan),
their disability or death, or (b) the executive voluntarily terminates
employment with Orthovita on account of a "Constructive Termination"
(as defined below), the executive officer will receive a series of
payments that is equal to a continuation of his base salary, as in
effect immediately prior to the termination of employment, for a
minimum of six months but not to exceed twelve months.
. A "Constructive Termination" is a termination of employment at the
officer's initiative after the occurrence of any of the following
events without their consent within one (1) year after a Change of
Control of Orthovita: (a) a material diminution in his duties,
responsibilities, authority or status, (b) a reduction in any amount
of his annual base salary, or (c) the assignment to him of duties or
responsibilities which are materially inconsistent with the duties,
responsibilities, authority, or status of his position prior to the
Change of Control or materially impairs his ability to function in his
then current position.
. Payment of the base salary will continue until the earlier of: (a) the
commencement of "Comparable Employment" (as defined below), or (b) the
first anniversary of termination of employment with Orthovita. Each
executive's entitlement to receive the payments described above will
depend upon his execution of Orthovita's standard separation of
employment and general release at the time of termination of
employment.
. "Comparable Employment" means that new employment with another
employer after the executive's termination that (i) pays a salary that
is no less than 75% of his base salary on the termination date and
(ii) requires performance of the same or similar skill levels as when
employed by Orthovita.
. If an executive officer be entitled to receive severance benefits
under the terms of a written employment agreement, severance agreement
or offer letter, he will receive the benefits from either this
arrangement or the prior arrangement, but not both. The executive will
receive severance benefits under the arrangement that provides the
higher level of benefits.
David S. Joseph had an employment agreement with Orthovita under which Mr.
Joseph was employed as Chairman until May 24, 2002 at an annual salary of
$225,000. Mr. Joseph resigned his position as Chairman of Orthovita effective
May 24, 2002; however, he will remain a director until the 2003 Annual Meeting
of Shareholders. In consideration of Mr. Joseph's execution of a release in our
favor effective May 24, 2002, Mr. Joseph will receive his base salary and health
and other benefits for a period of one year after termination of his employment.
Bruce A. Peacock resigned as Orthovita's Chief Executive Officer effective April
22, 2002. In connection with Mr. Peacock's resignation, Orthovita agreed to
extend the exercise period of certain previously vested stock options from
July 21, 2002 until April 23, 2004.
24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended December 31, 2002, Orthovita sold 1,000 shares of
Series A Preferred Stock and Warrants to purchase 4,396,249 shares of Common
Stock to OrbiMed Associates LLC, Caduceus Private Investments, LP and PW Juniper
Crossover Fund, L.L.C. (collectively, "OrbiMed") for an aggregate purchase price
of $10 million. Pursuant to the terms of this financing, the holders of Series A
Preferred Stock (including OrbiMed) are entitled, so long as they collectively
hold 375 shares of Series A Preferred Stock, to nominate a director of Orthovita
who may be an employee of or affiliated with OrbiMed. Jonathan Silverstein
became a director of Orthovita in September 2002 and has been nominated by the
holders of Series A Preferred Stock to serve another term as a director of
Orthovita. Mr. Silverstein is employed by an affiliate of OrbiMed. OrbiMed
collectively beneficially owns 33.3% of our outstanding Common Stock as of April
9, 2003.
David S. Joseph received $134,225 during the fiscal year ended December 31, 2002
in consideration for providing management consulting services to Orthovita. Mr.
Joseph is a director of Orthovita. This arrangement was approved by a majority
of the outside directors.
AUDIT COMMITTEE REPORT
Membership and Role of the Audit Committee. The Audit Committee is comprised
solely of independent directors as defined in Rule 4200(a)(15) of the National
Association of Securities Dealers' listing standards. The Audit Committee
operates under a written charter adopted by the Board of Directors. At the
beginning of fiscal 2002, the Audit Committee of the Board of Directors was
comprised of three outside directors, Messrs. Cheston, Garvey and Levande,
appointed by the Board. In February 2003, Mr. Garvey resigned as a director and
Ms. Paetzold was named a director and member of the Audit Committee to replace
Mr. Garvey. As a result, the Audit Committee presently consists of three outside
directors: Messrs. Cheston and Levande and Ms. Paetzold. The composition of the
Audit Committee, the attributes of its members and the responsibilities of the
Committee, as reflected in its charter, are intended to be in accordance with
applicable requirements for corporate audit committees. The Committee reviews
and assesses the adequacy of its charter on an annual basis.
As described more fully in its charter, the primary purpose of the Audit
Committee is to assist the Board of Directors in its general oversight of
Orthovita's financial reporting, internal control and audit functions.
Management is responsible for the preparation, presentation and integrity of the
financial statements, accounting and financial reporting principles, internal
controls and procedures designed to ensure compliance with accounting standards,
applicable laws and regulations. KPMG LLP, Orthovita's independent public
auditing firm, is responsible for performing an independent audit of the
consolidated financial statements in accordance with generally accepted auditing
standards and to issue a report on those financial statements. The Audit
Committee's responsibility is to monitor and oversee this process.
Among other matters, the Audit Committee monitors the activities and performance
of Orthovita's external independent public auditor, including the audit
scope, external audit fees, auditor independence matters and the extent to which
the independent public auditor may be retained to perform non-audit services.
The Audit Committee and the Board of Directors have ultimate authority and
responsibility to select, evaluate and, when appropriate, replace Orthovita's
independent public auditor. During July
25
2002, KPMG LLP was appointed as Orthovita's independent public auditor for the
fiscal year ending December 31, 2002. The appointment of KPMG LLP was made after
careful consideration by the Board of Directors and upon the recommendation of
Orthovita's Audit Committee. Prior to the selection of KPMG LLP, Arthur Andersen
LLP had served as Orthovita's independent auditor since 1995. The decision to
change the independent auditor for the fiscal year 2002 was not the result of
any disagreement between Orthovita and Arthur Andersen LLP on any matter of
accounting principles or practices, financial statement disclosures, or auditing
scope or procedure.
The Audit Committee also reviews the results of the external audit work with
regard to the adequacy and appropriateness of Orthovita's financial, accounting
and internal controls. Management and independent public auditor presentations
to, and discussions with, the Audit Committee cover various topics and events
that may have significant impact on, or are the subject of, discussions between
management and the independent public auditor.
The Audit Committee has reviewed and discussed the audited consolidated
financial statements with management and the independent public auditor.
Management represented to the Audit Committee that Orthovita's consolidated
financial statements were prepared in accordance with generally accepted
accounting principles. The Audit Committee has discussed with the independent
public auditor the matters required to be discussed in accordance with Statement
on Auditing Standards No. 61, as amended, "Communications with Audit
Committees."
Orthovita's independent public auditor also provided the Committee with the
written disclosures and letter required by Independence Standards Board Standard
No. 1, "Independence Discussions with Audit Committees," and the Committee
discussed with the independent public auditor that firm's independence.
Following the Committee's discussions with management and the independent public
auditor, the Committee recommended that the Board of Directors include the
audited consolidated financial statements in Orthovita's annual report on Form
10-K for the year ended December 31, 2002.
Respectfully submitted,
Mr. Morris Cheston Mr.
Robert M. Levande
Ms. Mary Paetzold
April 4, 2003
26
INDEPENDENT PUBLIC AUDITOR
The Audit Committee has selected KPMG LLP as the independent public auditor
to examine the consolidated financial statements of Orthovita for 2003. A
representative of KPMG LLP is expected to be present at the meeting and will
have an opportunity to make a statement if he or she desires to do so and will
also be available to respond to appropriate questions raised at the meeting.
Audit Fees: The aggregate fees billed for professional services rendered by KPMG
LLP for the audit of Orthovita's annual consolidated financial statements and
the reviews of Orthovita's consolidated financial statements included in
Orthovita's Quarterly Reports on Form 10-Q for the year ended December 31, 2002
were $69,500.
Financial Information Systems Design and Implementation Fees: Orthovita did not
engage KPMG LLP to provide, during 2002, any professional services related to
financial information systems design and implementation.
All Other Fees: The aggregate fees billed by KPMG LLP for professional services
rendered to Orthovita during 2002, other than for the audit services referred to
above, were $107,000, and related primarily to services rendered in connection
with a shelf registration of Orthovita's Common Stock and tax compliance and
consulting services.
The Audit Committee has considered the fees paid to the outside independent
public auditor for services unrelated to the audit of the financial
statements and the reviews of the interim financial statements referred to
above, and believes the fees are compatible with maintaining the outside
independent public auditor's independence.
Information Concerning Independent Public Auditors
On July 15, 2002, Orthovita, upon the recommendation and approval of its Audit
Committee, dismissed Arthur Andersen LLP ("Andersen") as principal independent
public auditor for Orthovita and engaged KPMG LLP ("KPMG") as Orthovita's
principal independent public auditor.
In connection with the audits for the two years ended December 31, 2001 and 2000
and the subsequent interim period through July 15, 2002 for the fiscal year
ended December 31, 2002, there were no disagreements with Andersen on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures which, if not resolved to the satisfaction of
Andersen, would have caused Andersen to make reference to the subject matter of
such disagreements in connection with their reports on Orthovita's consolidated
financial statements for such years; and there were no reportable events as
defined in Item 304(a)(1)(v) of Regulation S-K.
The reports of Andersen on the consolidated financial statements of Orthovita,
as of and for the years ended December 31, 2001 and 2000, did not contain any
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope, or accounting principles.
27
Orthovita provided Andersen with the foregoing disclosures and requested
Andersen to furnish a letter addressed to the Securities and Exchange Commission
stating whether it agrees with the above statements. While Orthovita has
received no information from Andersen that Andersen has a basis for disagreement
with such statements, Orthovita has been unable to obtain such a letter due to
the fact that the personnel primarily responsible for Orthovita's account
(including the engagement partner and manager) have left Andersen.
During the years ended December 31, 2001 and 2000 and through July 15, 2002 for
the fiscal year ended December 31, 2002, neither Orthovita nor someone on its
behalf consulted KPMG regarding the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on Orthovita's financial statements, or any other
matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of
Regulation S-K.
PROPOSAL TO AMEND THE 1997 EQUITY COMPENSATION PLAN
Our Board has proposed to amend and restate Section 3(a) of our 1997 Equity
Compensation Plan (the "Plan"). The effect of the amendment will be to increase
the aggregate number of shares of Common Stock of Orthovita that may be issued
under the Plan from 3,850,000 shares of Common Stock to 4,850,000 shares of
Common Stock. This is an increase to the Plan of 1,000,000 shares of Common
Stock.
Purpose and Effect of the Proposed Amendment
The Plan currently has 3,850,000 shares of Common Stock reserved for issuance
and as of April 9, 2003, the Plan has 575,281 shares of Common Stock available
for issuance. The Plan is intended to encourage participants to contribute to
our long-term growth, to align their interests with our shareholders' and to aid
us in attracting and retaining officers, employees, consultants and directors of
outstanding ability. Our Board of Directors believes it is in our best interest
to increase the number of shares of Common Stock authorized under the Plan to
4,850,000, in order to be able to make additional awards under the Plan.
Description of the Plan
Except as described below, the Plan is administered by a committee (the
"Compensation Committee") consisting of two or more outside directors, as
defined under section 162(m) of the Internal Revenue Code of 1986, as amended.
These "outside directors" are non-employee directors, as defined in Rule 16b-3
under the Securities and Exchange Act of 1934, as amended, and references in the
Plan to the Board shall be deemed to refer to the Compensation Committee. All
grants made to non-employee directors are subject to the approval of the Board
of Directors.
The Compensation Committee approves all grants made to our executive officers.
Management selects the key employees to receive grants and determines the number
of shares of Common Stock that will be subject to each such grant. Except as
described below, the Compensation Committee approves all such grants. Employees
may receive incentive stock options, nonqualified stock options, restricted
stock or stock appreciation rights ("SARs") under the Plan. Non-employee
directors and consultants may receive non-qualified stock options, restricted
stock or SARs.
In November 2001, the Board created a one-person committee of the board and
delegated to that committee the authority to make grants under the Plan to
employees of Orthovita and its subsidiaries who are not subject to the
restrictions of section 16(b) of the Exchange Act and who are not expected to be
subject to
28
the limitations of section 162(m) of the Internal Revenue Code. Under the terms
of this delegation specified by the Board, the one-person committee may not make
annual grants that exceed an aggregate of 25,000 shares of Common Stock per
employee. The Board may also prescribe other limitations and conditions on this
committee's ability to make grants under the Plan. Antony Koblish, our Chief
Executive Officer, is currently the director serving on the one-person
committee.
The Plan provides for grants of non-qualified stock options to non-employee
directors. In addition, the Plan authorizes the Board of Directors to make
changes to the number of shares of Common Stock granted to non-employee
directors. The Board, as authorized under the Plan, has approved a $15,000
annual remuneration to non-employee directors, which will be paid in the form of
a restricted stock grant or non-qualified stock options.
The stock option exercise prices may be equal to, greater than or less than the
fair market value of a share of Common Stock on the date of grant, provided that
(i) the option exercise price of an incentive stock option may not be less than
the fair market value of a share of Common Stock on the date of grant and (ii)
an incentive stock option that is granted to a 10% shareholder must have an
exercise price of not less than 110% of the fair market of the Common Stock on
the date of grant.
The Compensation Committee or, if applicable, the one-person board committee
described above, determines the term of each stock option, which cannot exceed
ten years from the date of grant. However, an incentive stock option granted to
a 10% shareholder may not have a term longer than five years from the date of
grant. The grantee may pay the exercise price (i) in cash, (ii) with the consent
of the Compensation Committee, by tendering shares of Common Stock owned by the
grantee, or (iii) by a combination of the two. Options may be exercised while
the grantee is an employee, consultant or member of the Board or within a
specified time after termination of employment or service.
The Compensation Committee may make restricted stock awards to key employees,
consultants or, with Board approval, non-employee directors as it deems
appropriate. The Compensation Committee will establish the amount and terms of
each restricted stock grant.
The Compensation Committee may grant SARs to a key employee, consultant or, with
Board approval, non-employee director separately or in tandem with any stock
option grant. Unless the Compensation Committee determines otherwise, the base
amount of each SAR shall be equal to the option price of the related option or,
if there is no related option, the fair market value of a share of Common Stock
on the date of grant of the SAR. When an SAR is exercised, the grantee will
receive an amount equal to the difference between the fair market value of the
Common Stock on the date of exercise and the base price of the SAR. Payments
shall be made in cash, Common Stock, or a combination of the two in such
proportion as the Committee determines.
Grants under the Plan may not be transferred except upon the grantee's death or,
with respect to grants other than incentive stock options, if permitted by the
Compensation Committee pursuant to a domestic relations order. The Compensation
Committee may permit a grantee to transfer non-qualified stock options to family
members or other persons or entities on such terms as the Compensation Committee
deems appropriate.
The Plan provides that, unless the Board of Directors determines otherwise,
outstanding options, SARs and restricted stock awards will automatically fully
vest in the event of a Change of Control. A "Change of
29
Control" will be deemed to occur if (i) any person (other than Orthovita or
certain related entities or persons) acquires securities of Orthovita
representing more than 50% of the voting power of the then outstanding
securities of Orthovita, or (ii) the shareholders approve (or, if shareholder
approval is not required, the Board approves) an agreement providing for (x) the
merger or consolidation of Orthovita where the shareholders immediately before
the transaction will not hold, immediately after the transaction, a majority of
the stock of the surviving corporation, (y) a sale of substantially all of the
assets of Orthovita or (z) a liquidation or dissolution of Orthovita.
In the event of a Change of Control, the Compensation Committee may require that
grantees surrender their outstanding options and SARs in exchange for payment by
us, in cash or Common Stock, of an amount equal to the amount by which the fair
market value of the Common Stock exceeds the option price or base price of the
options or SARS, and the Compensation Committee may terminate unexercised
options and SARs. Unless the Compensation Committee determines otherwise, upon a
Change of Control where Orthovita is not the surviving corporation (or survives
only as a subsidiary of another corporation), outstanding grants shall be
assumed by the surviving corporation.
In the event of certain changes in the number or kind of Common Stock
outstanding, the Board may adjust proportionally the maximum number of shares of
Common Stock that any individual participating in the Plan may be granted in any
year, the number of shares covered by outstanding grants, the kind of shares
issued under the Plan, and the exercise price per share of existing grants under
the Plan to reflect any increase or decrease in the number or kind of issued
shares.
Federal Income Tax Consequences
The current United States federal income tax treatment of grants under the Plan
is generally described below. This description of tax consequences is not a
complete description. There may be different income tax consequences under
certain circumstances, and there may gift and estate tax consequences. Local,
state and other taxing authorities may also tax grants under the Plan. Tax laws
are subject to change. Participants are urged to consult with their personal tax
advisors concerning the application of the general principles discussed below to
their own situations and the application of other tax laws.
Non-qualified Stock Options
There generally are no federal income tax consequences to a participant or to
Orthovita upon the grant of a non-qualified stock option.
Upon the exercise of a non-qualified stock option, a participant will recognize
ordinary income in an amount equal to the excess of the fair market value of the
shares of Orthovita's Common Stock at the time of exercise over the exercise
price. Orthovita, generally, will be entitled to a corresponding federal income
tax deduction.
Upon the sale of the shares of stock acquired upon the exercise of a
non-qualified stock option, a participant will have a capital gain or loss in an
amount equal to the difference between the amount realized on the sale and the
participant's adjusted tax basis in the shares (the exercise price plus the
amount of income recognized at the time of exercise). The capital gain tax rate
will depend on the length of time the shares are held and other factors.
30
Incentive Stock Options
There generally are no federal income tax consequences to a participant or to
Orthovita upon the grant of an incentive stock option.
A participant will not recognize income for purposes of the regular federal
income tax upon the exercise of an incentive stock option. However, for purposes
of the alternative minimum tax, in the year in which an incentive stock option
is exercised, the amount by which the fair market value of the shares acquired
upon exercise exceeds the exercise price will be treated as an item of
adjustment and included in the computation of the recipient's alternative
minimum taxable income.
A participant will recognize income when he or she sells stock acquired upon
exercise of an incentive stock option. If the shares acquired upon exercise of
an incentive stock option are disposed of after two years from the date the
option was granted and after one year from the date the shares were transferred
upon the exercise of the option, the participant will recognize long-term
capital gain or loss in the amount of the difference between the amount realized
on the sale and the exercise price. Orthovita will not be entitled to any
corresponding tax deduction.
If a participant disposes of the shares acquired upon exercise of an incentive
stock option before satisfying both holding period requirements (a disqualifying
disposition), any gain recognized on the disposition will be taxed as ordinary
income to the extent of the difference between the fair market value of the
shares on the date of exercise and the exercise price. Orthovita generally will
be entitled to a deduction in that amount. The gain, if any, in excess of the
amount recognized as ordinary income will be a long-term or short-term capital
gain, depending upon the length of time the shares were held before the
disposition.
Restricted Stock Awards
A participant normally will not recognize taxable income upon receipt of a
restricted stock awards, and Orthovita will not be entitled to a deduction until
the stock is transferable by the participant or no longer subject to a
substantial risk of forfeiture for federal tax purposes, whichever occurs
earlier. When the stock is either transferable or is no longer subject to a
substantial risk of forfeiture, the participant will recognize ordinary income
in an amount equal to the fair market value of the shares (less any amounts paid
for the shares) at that time. Orthovita generally will be entitled to a
deduction in the same amount.
A participant may elect to recognize ordinary income in the year when the
restricted stock grant is awarded in an amount equal to the fair market value of
the shares subject to the restricted stock grant (less any amounts paid for such
shares) at that time, determined without regard to any restrictions. In that
event, Orthovita generally will be entitled to a corresponding deduction in the
same year. Any gain or loss recognized by the participant upon a later
disposition of the shares will be a capital gain or loss.
31
Stock Appreciation Rights
There generally are no federal income tax consequences to the participant or to
Orthovita upon the grant of a SAR under the Plan. Upon the exercise of an SAR,
if the participant receives the appreciation inherent in the SAR in cash, the
participant will recognize ordinary compensation income equal to the cash
received. If the participant receives the appreciation in shares, the
participant will recognize ordinary compensation income in an amount equal to
the fair market value of the shares received. Orthovita generally will be
entitled to a corresponding federal income tax deduction at the time of the
exercise of the SAR.
Upon the sale of any shares acquired by the exercise of an SAR, a participant
will have a capital gain or loss (long-term or short-term depending upon the
length of time the shares were held) in an amount equal to the difference
between the amount realized upon the sale and the participant's adjusted tax
basis in the shares (the amount of ordinary income recognized by the participant
at the time of exercise of the SAR). The capital gain tax rate will depend on
the length of time the shares were held and certain other factors.
Tax Withholding
Orthovita has the right to deduct from all grants paid in cash or other
compensation, any taxes required to be withheld with respect to grants under the
Plan. Orthovita may require the participant to pay to Orthovita the amount of
any required withholding. The Committee may permit the participant to elect to
have withheld from the shares issuable to him or her with respect to an option,
SAR, and restricted stock a number of shares with a value equal to the required
tax withholding amount.
Transfer of Stock Options
The Committee may permit a participant to transfer non-qualified stock options
to family members. Generally, a participant will not recognize income at the
time they make a gift of a non-qualified stock option to a family member. When
the transferee later exercises the option, the participant (and not the
transferee) must recognize ordinary income on the difference between the fair
market value of the stock and the exercise price.
For federal gift tax purposes, if a participant transfers an option before the
option has become exercisable, the transfer will not be considered by the
Internal Revenue Service to be a completed gift until the option becomes
exercisable. The value of the gift will be determined when the option becomes
exercisable. Gifts of options may qualify for the $10,000 gift tax annual
exclusion.
If a participant dies after transferring an option in a completed gift
transaction, the transferred option may be excluded from the participant's
estate for estate tax purposes if the applicable estate tax requirements have
been met.
Section 162(m) of the Internal Revenue Code disallows a public company's
deductions for employee compensation exceeding $1,000,000 per year for the chief
executive officer and the four other most highly compensated executive officers.
Section 162(m) contains an exception for performance-based compensation that
meets specific requirements. The Plan is intended to permit all options to
qualify as performance-based compensation.
32
In order to be approved, this proposal must receive the affirmative vote of more
than 50% of the shares cast during the Annual Meeting, a quorum being present.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE 1997 EQUITY COMPENSATION PLAN.
PROPOSAL TO AMEND THE AMENDED AND RESTATED ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
In April 2003, the Board of Directors adopted, subject to shareholder approval,
an amendment to Orthovita's Amended and Restated Articles of Incorporation to
increase the number of Orthovita's authorized shares of Common Stock from
50,000,000 shares to 100,000,000 shares. The first sentence of Article 5 of the
Amended and Restated Articles of Incorporation, as proposed to be amended, is
attached to this proxy statement as Exhibit A (the "Common Stock Amendment").
On April 9, 2003, there were 20,835,947 shares of Common Stock issued and
outstanding. In addition, approximately 25,000,000 shares of Common Stock have
been reserved for issuance upon the conversion of Series A Preferred Stock and
various other purposes, including, but not limited to, issuance under
outstanding warrants and options, Orthovita's 1993 Stock Option Plan, 1997
Equity Compensation Plan, Employee Stock Purchase Plan, and upon conversion of
outstanding shares of Series A Preferred Stock. The total of all shares of
Common Stock outstanding and currently reserved for issuance exceeds 45,000,000
shares. Orthovita also has an obligation to pay quarterly dividends on
outstanding shares of Series A Preferred Stock, which may, at Orthovita's
election, be paid in the form of shares of Common Stock. Further, if the
shareholders approve the proposal described above to amend the 1997 Equity
Compensation Plan to increase the number of shares available for issuance
pursuant to grants thereunder, Orthovita will reserve an additional 1,000,000
shares of Common Stock for such grants. No change is being proposed with respect
to the number of authorized shares of preferred stock.
The purpose of increasing the number of authorized shares of Common Stock is to
provide additional shares that could be used for proper corporate purposes,
including and without limitation: raising additional capital; making
acquisitions through the use of Orthovita's equity securities; issuing
additional warrants or options; granting awards under equity compensation plans;
and stock dividends and stock splits. If the proposed Common Stock Amendment is
approved, the Board of Directors will have the authority to issue the additional
authorized shares or any part thereof to such persons and for such consideration
as it may determine without further action by the shareholders except as
shareholder action may be required by law, contractual arrangements or Nasdaq
rules.
Orthovita has no present plan, arrangement or understanding involving the
issuance of its capital stock except for shares required or permitted to be
issued under employee benefit plans or director compensation plans, upon
exercise of outstanding stock options and warrants, upon conversion of
outstanding shares of Series A Preferred Stock, or as payment of quarterly
dividends on outstanding shares of Series A Preferred Stock. It is possible,
however, that merger and acquisition opportunities involving the issuance of
shares of capital stock may develop. Orthovita believes that an increase in the
number of authorized shares of Common Stock will enhance its ability to respond
promptly to any of these opportunities. Under Pennsylvania law, a plan of merger
may not require shareholder approval, if certain conditions specified in
33
the Pennsylvania Business Corporation Law of 1988, as amended, are satisfied.
Orthovita is required by Nasdaq rules, however, to submit certain transactions
to a vote of its shareholders, including, without limitation, mergers involving
subsidiaries (which otherwise are not subject to required approval of
Orthovita's shareholders), where the issuance of shares of Common Stock could
result in an increase in the number of then outstanding shares by 20% or more.
Although the Board of Directors presently intends to employ the additional
shares of Common Stock solely for the purposes set forth above, the issuance of
these shares (or an issuance of authorized but unissued preferred stock) could
be used by the Board of Directors to dilute the stock ownership of persons
seeking to obtain control of Orthovita, thereby possibly discouraging or
deterring an attempt to acquire control of Orthovita and making removal of
incumbent management more difficult. The proposal, however, is not a result of,
nor does the Board of Directors have knowledge of, any effort to accumulate
Orthovita capital stock or to obtain control of Orthovita by means of a merger,
tender offer, solicitation in opposition to the Board of Directors or otherwise.
The Board of Directors believes that it would be in the best interest of
Orthovita and its shareholders to amend the Amended and Restated Articles of
Incorporation by the Common Stock Amendment.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION.
34
COMPARATIVE STOCK PERFORMANCE GRAPH
The following graph shows how an initial investment of $100 in Orthovita's
Common Stock would have compared to an equal investment in the Nasdaq National
Market Index and the Nasdaq Europe Stock Market Index. The graph compares the
total cumulative return since June 25, 1998 (the date we began public trading of
our Common Stock on the EASDAQ Exchange, now Nasdaq Europe). We began trading on
the Nasdaq National Market on August 2, 2000.
- -------------------------------------------------------------------------------------------------------------------------
Orthovita: Nasdaq Europe Stock Orthovita: Nasdaq National
Measurement Period Nasdaq Europe Market Index Nasdaq Market Index
------------------ ------------- ------------ ------ ------------
- -------------------------------------------------------------------------------------------------------------------------
June 25, 1998 100 100 -- --
- -------------------------------------------------------------------------------------------------------------------------
June 30, 1998 106 102 -- --
- -------------------------------------------------------------------------------------------------------------------------
September 30, 1998 90 77 -- --
- -------------------------------------------------------------------------------------------------------------------------
December 31, 1998 45 82 -- --
- -------------------------------------------------------------------------------------------------------------------------
March 31, 1999 54 98 -- --
- -------------------------------------------------------------------------------------------------------------------------
June 30, 1999 48 112 -- --
- -------------------------------------------------------------------------------------------------------------------------
September 30, 1999 53 90 -- --
- -------------------------------------------------------------------------------------------------------------------------
December 31, 1999 48 153 -- --
- -------------------------------------------------------------------------------------------------------------------------
March 31, 2000 78 208 -- --
- -------------------------------------------------------------------------------------------------------------------------
June 30, 2000 67 141 -- --
- -------------------------------------------------------------------------------------------------------------------------
August 2, 2000 -- -- 100 100
- -------------------------------------------------------------------------------------------------------------------------
September 30, 2000 58 126 104 99
- -------------------------------------------------------------------------------------------------------------------------
December 31, 2000 36 66 66 67
- -------------------------------------------------------------------------------------------------------------------------
March 31, 2001 42 54 105 50
- -------------------------------------------------------------------------------------------------------------------------
June 30, 2001 35 39 62 59
- -------------------------------------------------------------------------------------------------------------------------
September 30, 2001 19 20 28 41
- -------------------------------------------------------------------------------------------------------------------------
December 31, 2001 31 22 51 53
- -------------------------------------------------------------------------------------------------------------------------
March 31, 2002 20 19 39 50
- -------------------------------------------------------------------------------------------------------------------------
June 30, 2002 15 12 27 39
- -------------------------------------------------------------------------------------------------------------------------
September 30, 2002 23 8 44 32
- -------------------------------------------------------------------------------------------------------------------------
December 31, 2002 29 8 69 36
- -------------------------------------------------------------------------------------------------------------------------
April 8, 2003 29 8 45 37
- -------------------------------------------------------------------------------------------------------------------------
35
[GRAPH]
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
directors, certain of our officers, and persons or entities who own more than
ten percent of our Common Stock, to file with the Securities and Exchange
Commission reports of beneficial ownership and changes in beneficial ownership
of our Common Stock. These directors, officers and shareholders beneficially
owning more than ten percent of our Common Stock are required by regulations to
furnish us with copies of all forms they file under Section 16(a).
Based solely upon a review of the copies of such reports furnished to us and
written representations from such directors, officers and shareholders
beneficially owning more than ten percent of our Common Stock, we believe that
all Section 16(a) filing requirements were satisfied during 2002.
SHAREHOLDERS' PROPOSALS FOR 2004 ANNUAL MEETING OF SHAREHOLDERS
Shareholders may submit proposals on matters appropriate for shareholder action
at annual meetings in accordance with regulations adopted by the Securities and
Exchange Commission governing the solicitation of proxies. To be considered for
inclusion in the proxy statement and form of the proxy card relating to the 2004
Annual Meeting of Shareholders, we must receive such proposals no later than
January 1, 2004. Proposals should be directed to the attention of the
Secretary of Orthovita.
36
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Annual Report for the year ended December 31, 2002 is enclosed for
your information. No material contained in the Annual Report is to be considered
a part of the proxy solicitation material.
A copy of Orthovita's Annual Report on Form 10-K for the year ended December 31,
2002 as filed with the Securities and Exchange Commission, excluding exhibits
thereto, may be obtained, without charge, by contacting Joseph M. Paiva of
Orthovita.
By Order of the Board of Directors,
JOSEPH M. PAIVA
Corporate Secretary
37
EXHIBIT A
PROPOSED AMENDMENT TO ARTICLE 5 OF THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF ORTHOVITA, INC.
The aggregate number of shares which the Corporation shall have authority to
issue is 100,000,000 common shares, $.01 par value per share (the "Common
Shares"), and 20,000,000 preferred shares, $.01 par value per share.
38
[FRONT]
- -------
ORTHOVITA, INC.
2003 Annual Meeting of Shareholders -- June 12, 2003
This Proxy Is Solicited on Behalf of the Board of Directors of Orthovita, Inc.
The undersigned, having duly received notice of the meeting, the proxy
statement, and annual report of Orthovita, Inc., and revoking all prior proxies,
hereby appoints Joseph M. Paiva, proxy of the undersigned (with full power of
substitution), for and in the name(s) of the undersigned, to vote all shares of
stock which the undersigned would be entitled to vote if personally present at
the Annual Meeting of Shareholders of Orthovita, Inc. to be held at Orthovita's
offices, 45 Great Valley Parkway, Malvern, Pennsylvania, 19355 at 10:00 a.m.
(Eastern daylight time), on Thursday, June 12, 2003 and any adjourned sessions
thereof, subject to the directions indicated on this proxy. Each of the matters
set forth herein is being proposed by Orthovita, Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE LISTED NOMINEES AND "FOR"
PROPOSALS 2 AND 3.
[X] Please mark your votes as in this example.
1. TO ELECT A BOARD OF DIRECTORS (nominees Morris Cheston, Jr., David
Fitzgerald, Antony Koblish, Robert M. Levande, Mary Paetzold and Jonathan
Silverstein).
[_] FOR [_] WITHHELD [_] FOR ALL EXCEPT
To withhold authority to vote for a particular nominee(s), mark the "FOR ALL
EXCEPT" box and write the name of the nominee(s) on the line provided:
________________________________________________________________________________
________________________________________________________________________________
2. TO APPROVE AN AMENDMENT TO THE 1997 EQUITY COMPENSATION PLAN.
[_] FOR [_] AGAINST [_] ABSTAIN
[REVERSE]
3. TO APPROVE AN AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.
[_] FOR [_] AGAINST [_] ABSTAIN
IN HIS DISCRETION, THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE MEETING OR AT ANY ADJOURNMENTS THEREOF.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY PROPOSAL SPECIFIED ON
THIS PROXY CARD, THIS PROXY WILL BE VOTED "FOR" SUCH PROPOSAL.
Attendance of the undersigned at the meeting or at any adjournment session
thereof will not be deemed to revoke this proxy unless the undersigned shall
affirmatively indicate at such meeting or session the intention of the
undersigned to revoke said proxy in person. If the undersigned hold(s) any of
the shares of Orthovita, Inc. in a fiduciary, custodial or joint capacity or
capacities, this proxy is signed by the undersigned in every such capacity, as
well as individually.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD IN THE
ENCLOSED ENVELOPE.
DATE:_____________________________
__________________________________
SIGNATURE:________________________
__________________________________
PRINTED
NAME:_____________________________
__________________________________
SIGNATURE (if held
jointly):_________________________
Note: Please sign name(s) exactly as appearing hereon.
When signing as attorney, executor, administrator or
other fiduciary, please give your full title as such,
and if signed as a corporation or other entity, please
sign with the entity name by duly authorized officer
or officers. Joint owners should each sign personally.