UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant X
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X Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Section 240.14a-12
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ORTHOFIX INTERNATIONAL N.V.
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(Name of Registrant as Specified In Its Charter)
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Orthofix International N.V.
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
AND
PROXY STATEMENT
Meeting Date:
June 15, 2005
at 11:00 a.m. (local time)
Meeting Place:
Orthofix International N.V.
7 Abraham de Veerstraat
Curacao, Netherlands Antilles
Dear Shareholders:
We will hold the Annual General Meeting of Shareholders on Wednesday,
June 15, 2005, at 11:00 a.m. at Orthofix's offices, located at 7 Abraham de
Veerstraat, Curacao, Netherlands Antilles.
This booklet includes the notice of annual general meeting and the
proxy statement. The proxy statement describes the business that we will conduct
at the meeting.
Your vote is important. Please refer to the proxy card or other voting
instructions included with these proxy materials for information on how to vote
by proxy or in person.
Sincerely,
/s/ CHARLES W. FEDERICO
Charles W. Federico
Chief Executive Officer
May 5, 2005
NOTICE AND PROXY STATEMENT
for Shareholders of
ORTHOFIX INTERNATIONAL N.V.
7 Abraham de Veerstraat
Curacao, Netherlands Antilles
for
ANNUAL GENERAL MEETING OF SHAREHOLDERS
to be held on Wednesday, June 15, 2005
This Notice and the accompanying Proxy Statement are being furnished to
the Shareholders of Orthofix International N.V., a Netherlands Antilles
corporation ("Orthofix" or the "Company"), in connection with the forthcoming
Annual General Meeting of Shareholders, and the solicitation of proxies by the
Board of Directors of Orthofix from holders of outstanding shares of common
stock, par value $0.10 per share, of Orthofix for use at the Annual General
Meeting and at any adjournment thereof.
Time, Date and Place of Annual General Meeting
Notice is hereby given that the Annual General Meeting will be held on
June 15, 2005 at 11:00 a.m., local time, at Orthofix's offices, located at 7
Abraham de Veerstraat, Curacao, Netherlands Antilles.
Purpose of the Annual Meeting
1. Election of Board of Directors. Shareholders will be asked to consider,
and, if thought fit, approve a resolution to elect the following persons to the
Board of Directors of Orthofix: Charles W. Federico, James F. Gero, Robert
Gaines-Cooper, Jerry C. Benjamin, Peter J. Hewett, Walter P. von Wartburg,
Thomas J. Kester, Kenneth R. Weisshaar, Guy J. Jordan and Stefan Widensholer.
The Board of Directors recommends that shareholders vote FOR the proposal to
elect the foregoing persons to the Board of Directors of Orthofix.
2. Approval of Amendments to the Articles of Association. Shareholders will
be asked to consider, and, if thought fit, approve a resolution of the Board of
Directors to approve amendments of the Articles of Association of Orthofix
further described in Proposal 2. The Board of Directors recommends that
shareholders vote FOR the proposal to amend the Articles of Association.
3. Approval of Financial Statements for the Year Ended December 31, 2004.
Shareholders will be asked to consider, and, if thought fit, approve the balance
sheet and income statement at and for the year ended December 31, 2004. The
Board of Directors recommends that shareholders vote FOR the proposal to approve
the balance sheet and income statement at and for the year ended December 31,
2004.
4. Ratification of the Selection of Ernst & Young LLP. Shareholders will be
asked to consider, and, if thought fit, approve a resolution to ratify the
selection of Ernst & Young LLP as independent auditors for Orthofix and its
subsidiaries for the fiscal year ending December 31, 2005. The Board of
Directors recommends that shareholders vote FOR the proposal to ratify the
selection of Ernst & Young LLP as independent auditors.
5. Miscellaneous. Shareholders will be asked to transact such other
business as may come before the Annual General Meeting or any adjournment
thereof.
Please read a detailed description of proposals 1 through 4 stated
above beginning on page 24 of the proxy statement.
Shareholders Entitled to Vote
All record holders of shares of Orthofix common stock at the close of
business on May 2, 2005 have been sent this notice and will be entitled to vote
at the Annual General Meeting. Each record holder on such date is entitled to
cast one vote per share of common stock.
Documents Available for Inspection
A copy of the financial statements for the year ended December 31, 2004
and a copy of the draft deed of amendment to the Articles of Association of
Orthofix have been filed at the offices of Orthofix at 7 Abraham de Veerstraat,
Curacao, Netherlands Antilles, and are available for inspection by shareholders
until the conclusion of the Annual General Meeting.
By Order of the Board of Directors
/s/ RAYMOND C. KOLLS
RAYMOND C. KOLLS
Corporate Secretary
May 5, 2005
TABLE OF CONTENTS
About Voting...................................................................1
Who can vote?.........................................................1
Quorum, vote required.................................................1
Proxies .............................................................1
Voting is confidential................................................1
The costs of soliciting these proxies and who will pay them...........1
Obtaining an Annual Report on Form 10-K...............................2
The voting results....................................................2
Whom to call if you have any questions................................2
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholders.....................................................3
Who are the principal owners of Orthofix common stock?................3
Common stock owned by Orthofix's directors and executive officers.....4
Section 16(a) Beneficial Ownership Reporting Compliance...............5
Information about Directors....................................................6
The Board of Directors................................................6
The Committees of the Board...........................................6
Code of Ethics........................................................7
Shareholder Communication with the Board of Directors.................7
Nomination of Directors...............................................8
Director Compensation.................................................8
Certain Relationships and Related Transactions........................9
Report of the Audit Committee.................................................11
Executive Compensation........................................................12
The Executive Officers...............................................12
Executive Compensation Summary.......................................13
Stock Options........................................................14
Option Exercises and Year-End Option Values..........................15
Equity Compensation Plan Information.................................15
Executive Employment Agreements......................................17
Indebtedness of Management...........................................19
Compensation Committee Interlocks and Insider Participation..........19
Report of the Compensation Committee on executive compensation................20
Performance Graph.............................................................23
Proposal 1: Election of Directors............................................24
Directors Standing for Election......................................24
Proposal 2: Approval of Amendments to the Articles of Association.............27
Proposal 3: Approval of Financial Statements for the Year
Ended December 31, 2004.....................................................28
Proposal 4: Ratification of the Selection of Ernst &
Young LLP as Independent Auditors for 2005..................................29
Principal Accountant Fees and Services...............................29
Information About Shareholder Proposals.......................................31
PROXY STATEMENT FOR THE ORTHOFIX INTERNATIONAL N.V.
2005 ANNUAL GENERAL MEETING OF SHAREHOLDERS
THIS PROXY STATEMENT AND THE ENCLOSED PROXY ARE BEING MAILED TO SHAREHOLDERS ON
OR ABOUT MAY 5, 2005.
ABOUT VOTING
Who can vote?
All record holders of shares of Orthofix common stock at the close of
business on May 2, 2005 have been sent this notice and will be entitled to vote
at the Annual General Meeting. Each record holder on such date is entitled to
cast one vote per share of common stock. On April 28, 2005, there were
15,810,396 shares of Orthofix common stock outstanding.
Quorum, vote required
The presence, in person or by proxy, of the holders of fifty percent
(50%) of the shares of Orthofix common stock outstanding on the Record Date
shall be considered a quorum at the Annual General Meeting. An absolute majority
of the votes cast will be required in order to approve the proposals before the
Annual General Meeting, except that the directors shall be elected by a
plurality of the votes cast. Abstentions and "broker non-votes" are counted as
shares that are present and entitled to vote on the proposal for purposes of
determining the presence of a quorum, but abstentions and broker non-votes will
not have any effect on the outcome of voting on the proposals. A broker
"non-vote" occurs when a broker holding shares for a beneficial owner does not
vote on a particular proposal because the broker does not have discretionary
voting power for that particular item and has not received instructions from the
beneficial owner.
Proxies
This Proxy Statement is being furnished to holders of shares of
Orthofix common stock in connection with the solicitation of proxies by and on
behalf of the Board of Directors of Orthofix for use at the Annual General
Meeting.
All shares of Orthofix common stock that are represented at the Annual
General Meeting by properly executed proxies received prior to or at the Annual
General Meeting and which are not revoked, will be voted at the Annual General
meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated on a properly executed proxy, such proxy will be
voted in favor of each of the proposals. The Board of Directors of Orthofix does
not know of any other matters that are to be presented for consideration at the
Annual General Meeting.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (1)
filing with Orthofix, at or before the taking of the vote at the Annual General
Meeting, a written notice of revocation bearing a later date than the proxy, or
(2) duly executing a subsequent proxy relating to the same shares of Orthofix
common stock and delivering it to Orthofix before the Annual General Meeting.
Attending the Annual General Meeting will not in and of itself constitute a
revocation of a proxy. Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to: Orthofix International N.V., 7 Abraham
de Veerstraat, Curacao, Netherlands Antilles, at or before the taking of the
vote at the Annual General Meeting.
Voting is confidential
We maintain a policy of keeping all the proxies, ballots and voting
tabulations confidential.
The costs of soliciting these proxies and who will pay them
We will pay all the costs of soliciting these proxies. Although we are
mailing these proxy materials, our directors and employees may also solicit
proxies by telephone, by fax or other electronic means of communication, or in
person. We will reimburse banks, brokers, nominees and other fiduciaries for the
expenses they incur in forwarding the
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proxy materials to you. Georgeson Shareholder is assisting us with the
solicitation of proxies for a fee of $6,000 plus out-of-pocket expenses.
Obtaining an Annual Report on Form 10-K
We have filed our Annual Report on Form 10-K for the year ended
December 31, 2004 with the U.S. Securities and Exchange Commission. Our Form
10-K contains information that is not included in our Annual Report that we are
sending you with this proxy statement. Our Form 10-K is available on our website
at www.orthofix.com. If you would like to receive a copy of our Form 10-K, we
will send you one without charge. Please write to:
Investor Relations
Orthofix International N.V.
10115 Kincey Ave., Suite 250
Huntersville, NC 28078
Attention: Ms. Pat Fitzgerald
You may also contact Ms. Fitzgerald at (704) 948-2600 or at
patfitzgerald@orthofix.com.
The voting results
We will publish the voting results in our Form 10-Q for the second
quarter of 2005, which we will file with the U.S. Securities and Exchange
Commission (the "SEC") in August 2005. You will also be able to find the Form
10-Q on our website at www.orthofix.com.
Whom to call if you have any questions
If you have any questions about the annual meeting, voting or your
ownership of Orthofix common stock, please contact Thomas Hein, CFO, at (704)
948-2600 or at tomhein@orthofix.com or Raymond C. Kolls, General Counsel and
Corporate Secretary, at (704) 948-2600 or at raykolls@orthofix.com.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDERS
Who are the principal owners of Orthofix common stock?
The following table shows each person, or group of affiliated persons,
who beneficially owned, directly or indirectly, at least 5% of Orthofix common
stock as of December 31, 2004. Our information is based on reports filed with
the SEC by each of the firms or individuals listed in the table below. You may
obtain these reports from the SEC.
The Percent of Class figures for the common stock are based on
15,711,943 shares of our common stock outstanding as of December 31, 2004, other
than with respect to shares owned by Mr. Robert Gaines-Cooper, for which
information is given and calculations are made as of April 15, 2005. Except as
otherwise indicated, each shareholder has sole voting and dispositive power with
respect to the shares indicated.
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Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
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FMR Corp. .................................. 1,812,090 (1) 11.5%
82 Devonshire Street
Boston, MA 02109
Robert Gaines-Cooper ....................... 620,200 (2) 3.9%
Orthofix International N.V. 1,143,000 (3) 7.2%
7 Abraham de Veerstraat
Curacao, Netherlands Antilles
Kayne Anderson Rudnick Investment 1,247,625 (4) 7.9%
Management, LLC ..........................
1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067
Paradigm Capital Management Inc. ........... 1,205,500 (5) 7.7%
9 Elk Street, Albany, NY 12207
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(1) Based on an amendment to a Schedule 13G filed on February 14, 2005 by FMR
Corp., a parent holding company, Edward C. Johnson 3d, Abigail P. Johnson,
Fidelity Management and Research Company, Fidelity Low Priced Stock Fund.
FMR Corp. reported sole voting power with respect to 247,500 of the
reported shares and sole dispositive power with respect to all of the
reported shares. Fidelity Management & Research Company ("Fidelity"), an
investment adviser and wholly owned subsidiary of FMR Corp., is the
beneficial owner of 1,564,590 of the reported shares. Fidelity Management
Trust Company, a bank and a wholly-owned subsidiary of FMR Corp., is the
beneficial owner of 247,500 of the reported shares. Edward C. Johnson,
Chairman of FMR. Corp., and FMR Corp., through their control of Fidelity
and Fidelity Management Trust Company, each have sole power to dispose of
the shares beneficially owned by the Fidelity funds and Fidelity Management
Trust Company, and sole voting power with respect to the shares
beneficially owned by Fidelity Management Trust Company. The power to vote
the shares beneficially owned by the Fidelity funds resides with the Board
of Trustees of the Fidelity funds. The ownership of one investment company,
Fidelity Low Priced Stock Fund, amounted to 1,413,200 of the reported
shares. We have not attempted to independently verify any of the foregoing
information, which is based solely upon the information, contained in the
Schedule 13G.
(2) Amount consists of 432,700 shares owned directly and 187,500 currently
exercisable stock options.
(3) Amount shown consists of 693,000 shares owned by a trust in which Mr.
Gaines-Cooper has an indirect interest, and 450,000 shares owned by Venner
Capital S.A. (formerly LMA International S.A.) A trust, of which Mr.
Gaines-Cooper is a settlor, owns a 100% interest in Venner Capital S.A.
(4) Based on an amendment to a Schedule 13G filed on February 4, 2005 by Kayne
Anderson Rudnick Investment Management, LLC, an investment advisor. Kayne
Anderson Rudnick Investment Management, LLC reported
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sole voting and dispositive power with respect to the reported shares. We
have not attempted to independently verify any of the foregoing
information, which is based solely upon the information contained in the
Schedule 13G/A.
(5) Based on Schedule 13G filed on February 14, 2005 by Paradigm Capital
Management, Inc., an investment advisor. Paradigm Capital Management, Inc.
reported sole voting and dispositive power with respect to the reported
shares. We have not attempted to independently verify any of the foregoing
information, which is based solely upon the information, contained in the
Schedule 13G.
Common stock owned by Orthofix's directors and executive officers
The following table sets forth the beneficial ownership of our common
stock, including stock options currently exercisable and exercisable within 60
days, as of April 15, 2005 by each director, each nominee for director, each
executive officer listed in the Summary Compensation Table and all directors and
executive officers as a group. The percent of class figure is based on
15,799,026 shares of our common stock outstanding as of April 15, 2005. All
directors and executive officers as a group beneficially owned 2,477,029 shares
of Orthofix common stock as of such date. Unless otherwise indicated, the
beneficial owners exercise sole voting and/or investment power over their
shares.
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Name of Director or Amount and Nature Percent
Executive Officer of Beneficial Ownership of Class
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Robert Gaines-Cooper ................... 620,200 (1) 3.9%
1,143,000 (2) 7.2%
Charles W. Federico .................... 204,953 (3) 1.3%
Bradley R. Mason ....................... 185,754 (4) 1.2%
Peter J. Hewett ........................ 94,300 (5) *
Jerry C. Benjamin ...................... 69,282 (6) *
Thomas Hein ............................ 56,403 (7) *
Gary Henley ............................ 51,490 (8) *
James F. Gero .......................... 50,572 (9) *
Thomas J. Kester........................ 1,000 (10) *
Raymond C. Kolls........................ 75 (11) *
Walter P. von Wartburg.................. -0- -0-
Kenneth R. Weisshaar.................... -0- -0-
Guy J. Jordan........................... -0- -0-
Stefan Widensohler...................... -0- -0-
Directors and executive officers
as a group (14 persons).............. 2,477,029 15.1%
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* Represents less than one percent.
(1) Amount shown consists of 432,700 shares owned directly and 187,500
currently exercisable stock options.
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(2) Amount shown consists of 693,000 shares owned by a trust in which Mr.
Gaines-Cooper has an indirect interest, and 450,000 shares owned by Venner
Capital S.A. (formerly LMA International S.A.) A trust, of which Mr.
Gaines-Cooper is a settlor, owns a 100% interest in Venner Capital S.A.
(3) Amount shown consists of 4,053 shares owned directly, 200,000 currently
exercisable stock options, and 900 shares owned indirectly.
(4) Amount consists of 170,754 shares owned indirectly and 15,000 currently
exercisable stock options.
(5) Amount consists of 31,000 shares owned directly and 63,300 currently
exercisable stock options.
(6) Amount consists of 69,282 shares owned directly.
(7) Amount consists of 1,403 shares owned directly and 55,000 currently
exercisable stock options.
(8) Amount consists of 490 shares owned directly, 50,000 currently exercisable
stock options, and 1,000 shares owned indirectly.
(9) Amount consists of 50,572 shares owned directly.
(10) Amount consists of 1,000 shares owned directly.
(11) Amount consists of 75 shares owned directly.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that our insiders--our directors, executive officers, and
greater-than-10% shareholders--file reports with the SEC on their initial
beneficial ownership of Orthofix common stock and any subsequent changes. They
must also provide us with copies of the reports.
To our knowledge, based solely on a review of the copies of such
reports furnished to us and, with respect to our officers and directors, written
representations that no other reports were required, during the fiscal year
ended December 31, 2004, all Section 16(a) filing requirements applicable to our
officers, directors and greater-than-ten-percent beneficial owners were complied
with except as follows: Mr. Benjamin reported on a Form 4 filed on June 28,
2004, the acquisition of shares of common stock he acquired through the exercise
of stock options on June 21, 2004. Mr. von Wartburg filed a Form 3 on November
4, 2004 noting his Section 16(a) requirements began on June 29, 2004 with the
approval of his directorship by the shareholders. Mr. von Wartburg also reported
on a Form 4 filed on November 4, 2004, the acquisition of stock options he
acquired through an option grant on October 4, 2004. Mr. Peter Clarke, a former
director, reported on a Form 4 filed on May 18, 2004, the exercise of stock
options and the sale of common stock he acquired through the exercise of such
options on May 10, 2004.
In making the above statements, we have relied on the written
representations of our directors and officers and copies of the reports that
have been filed with the SEC.
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INFORMATION ABOUT DIRECTORS
The Board of Directors
The Board of Directors oversees the business of Orthofix and monitors
the performance of management. The directors keep themselves informed by
discussing matters with the Chief Executive Officer, other key executives and
our principal external advisers, by reading the reports and other materials that
we regularly send them and by participating in Board and committee meetings.
The directors are elected at the annual general meeting of shareholders
by a plurality of the votes cast, in person or by proxy by the shareholders.
Because we are required by Netherlands Antilles law to hold the annual general
meeting in the Netherlands Antilles, we do not have a policy regarding director
attendance at the annual general meeting. Last year, Alberto C d'Abreu de Paulo
(a director during 2004) attended the annual general meeting. Our Articles of
Association provide that the Board of Directors shall consist of not less than
seven and no more than fifteen directors, the exact number to be determined by
the annual general meeting of shareholders.
Our Board usually meets four times per year in regularly scheduled
meetings, but will meet more often if necessary. The Board met six times during
2004. All directors attended at least 75% of the Board meetings and meetings of
the committees of which they were members. The Board has determined that the
following directors and nominees are independent under Nasdaq Rule 4200: Messrs.
Benjamin, Kester, von Wartburg, Weisshaar, Jordan and Widensohler. A list of our
current directors and background information for each of them is presented in
the section "Proposal 1: Election of Directors", beginning on page 24.
The Committees of the Board
We have three standing committees: the Audit Committee, the
Compensation Committee and the Nominating Committee.
The Audit Committee
Our Audit Committee is a separately-designated standing audit committee
established in accordance with section 3(a) (38) (A) of the Securities Exchange
Act of 1934, as amended. The Audit Committee is responsible for the appointment,
compensation and oversight of our independent auditors, approves the scope of
the annual audit by the independent auditors, reviews audit findings and
accounting policies, assesses the adequacy of internal controls and risk
management and reviews and approves Orthofix's financial disclosures. The
Committee also meets privately, outside the presence of Orthofix management,
with the independent auditors. The Audit Committee's Report for 2004 is printed
below at page 11.
The Board has adopted a written charter for the Audit Committee, a copy
of which was attached as an appendix to our 2003 proxy statement and is
available for review on our website at www.orthofix.com.
The Committee met seven times during 2004.
Messrs. Benjamin, Kester and Weisshaar currently serve as members of
the Audit Committee. Mr. Benjamin serves as Chairman of the Committee. Under the
current rules of the Nasdaq and pursuant to Item 7(d) (3) (iv) of Schedule 14A
under the Securities Exchange Act of 1934, as amended, all of the members of the
Audit Committee are independent. Our Board of Directors has determined that
Messrs. Benjamin, Kester and Weisshaar are "audit committee financial experts"
in accordance with current SEC rules.
The Compensation Committee
The Compensation Committee establishes and approves all elements of
compensation for the executive officers. Each year, as the SEC requires, the
Compensation Committee will report to you on executive compensation. The
Compensation Committee's Report on Executive Compensation for 2004 is printed
below, starting at page 20.
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The Compensation Committee administers the 2004 Long-Term Incentive
Plan, the Staff Share Option Plan (including the Performance Accelerated Stock
Option program) and the Employee Stock Purchase Plan, and has sole authority for
awards under these plans. The Compensation Committee is also responsible for
periodically reviewing Orthofix's plans regarding succession of senior
management.
The Compensation Committee met five times during 2004.
The Compensation Committee acts under a written charter adopted by the
Board of Directors, a copy of which is available for review on our website at
www.orthofix.com.
Messrs. Kester, Jordan, von Wartburg and Widensohler currently serve as
members of the Compensation Committee, and each satisfies the qualification
standards of Section 162(m) of the U.S. Internal Revenue Code of 1986, as
amended, and Section 16 of the Securities Exchange Act of 1934, as amended. All
members are independent under the current rules of the Nasdaq and the Securities
and Exchange Commission. Mr. Kester serves as Chairman of the Compensation
Committee.
The Nominating Committee
The Nominating Committee assists the Board in identifying qualified
individuals to become Board members, determining the composition of the Board of
Directors and its Committees, monitoring a process to assess Board effectiveness
and developing Director Compensation policy.
The Nominating Committee met four times in 2004 and will meet at least
twice annually, and more frequently as circumstances dictate. Committee meetings
and communications shall be either in person or by conference telephone call.
The Board has adopted a written charter for the Nominating Committee, a
copy of which was attached as an appendix to our 2004 proxy statement.
Messrs. Jordan, Benjamin, Widensohler and Weisshaar currently serve as
members of the Committee. Mr. Jordan serves as Chairman of the Committee. All of
the members of the Nominating Committee are independent as defined by current
Nasdaq rules.
Code of Ethics
We have adopted a code of ethics to comply with SEC and Nasdaq rules.
Our code of ethics applies to our directors, officers and employees worldwide,
including our Chief Executive Officer and Chief Financial Officer. A copy of our
Code of Ethics was filed as an exhibit to our 2003 annual report on Form 10-K
and is available on our website at www.orthofix.com.
Shareholder Communication with the Board of Directors
To facilitate the ability of shareholders to communicate with our Board
of Directors, we have established an electronic mailing address and a physical
mailing address to which communications may be sent:
boardofdirectors@orthofix.com, or The Board of Directors, c/o Mr. James F. Gero,
Chairman of the Board of Directors, Orthofix International N.V., 10115 Kincey
Avenue, Suite 250, Huntersville, NC 28078.
Mr. Gero reviews all correspondence addressed to the Board of Directors
and regularly presents to the Board a summary of all such correspondence and
forwards to the Board or individual directors, as the case may be, copies of all
correspondence that, in the opinion of Mr. Gero, deals with the functions of the
Board or committees thereof or that he otherwise determines requires their
attention. Examples of communications that would be logged, but not
automatically forwarded, include solicitations for products and services or
items of a personal nature not relevant to us or our shareholders. Directors may
at any time review the log of all correspondence received by Orthofix that is
addressed to members of the Board and request copies of any such correspondence.
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Nomination of Directors
As provided in its charter, the Nominating Committee identifies and
recommends to the Board nominees for election or re-election to the Board and
will consider nominations submitted by shareholders. The Nominating Committee
Charter was attached as an appendix to our 2003 proxy statement.
The Nominating Committee seeks to create a Board of Directors that is
strong in its collective diversity of skills and experience with respect to
finance, leadership, business operations and industry knowledge. The Nominating
Committee reviews with the Board of Directors, on an annual basis, the current
composition of the Board of Directors in light of the characteristics of
independence, age, skills, experience and availability of service to our company
of its members and of anticipated needs. If necessary, we will retain a third
party to assist us in identifying or evaluating any potential nominees for
director. When the Nominating Committee reviews a potential new candidate, they
look specifically at the candidate's qualifications in light of the needs of the
Board of Directors at that time given the then current mix of director
attributes.
Generally, in nominating director candidates, the Nominating Committee
strives to nominate directors that exhibit high standards of ethics, integrity,
commitment and accountability. In addition, all nominations attempt to ensure
that the Board of Directors shall encompass a range of talent, skills and
expertise sufficient to provide sound guidance with respect to our operations
and activities.
Under our Nominating Committee guidelines, directors must inform the
Chairman of the Board and the Chair of the Nominating Committee in advance of
accepting an invitation to serve on another public company board. In addition,
no director may sit on the Board of Directors, or beneficially own more than 1%
of the outstanding equity securities, of any of our competitors in our principal
lines of business. The Board of Directors has not established any term limits to
an individual's membership as a director.
To recommend a nominee, a shareholder shall give notice to the Board of
Directors, at our registered address c/o Mr. James F. Gero, Chairman of the
Board of Directors, Orthofix International N.V., 10115 Kincey Avenue, Suite 250,
Huntersville, NC 28078. This notice should include the candidate's brief
biographical description, a statement of the qualifications of the candidate,
taking into account the qualification requirements set forth above and the
candidate's signed consent to be named in the proxy statement and to serve as a
director if elected. The notice must be given not later than 180 days before the
first anniversary of the last Annual General Meeting of Shareholders. Once we
receive the recommendation, we will contact the candidate and request that he or
she provide us with additional information about the candidate's independence,
qualifications and other information that would assist the Nominating Committee
in evaluating the candidate, as well as certain information that must be
disclosed about the candidate in our proxy statement, if nominated. Candidates
must respond to our inquiries within the time frame provided in order to be
considered for nomination by the Nominating Committee.
The Nominating Committee paid fees to the Cassie Shipherd Group, LLC to
assist us in identifying or evaluating potential nominees for director during
2004. The Nominating Committee has not received any nominations for director
from shareholders for the 2005 Annual General Meeting of Shareholders.
Director Compensation
Directors who are our employees do not receive additional compensation
for their service on the Board of Directors or any Board committee.
We reimburse our directors for travel and other related expenses
incurred in connection with the business of Orthofix, including attending
shareholder meetings, meetings of the Board of Directors or any Board committee.
During 2004, our directors were also reimbursed for travel and other related
expenses of their respective spouses for one Board of Directors meeting.
During 2004, each of our non-employee directors received an annual fee
of approximately $55,000 for their services. The Audit Committee chair received
an additional annual fee of $10,000 for his service. Each of the Nominating
Committee and Compensation Committee chairs received an additional annual fee of
$5,000 for their services.
8
In addition, we grant options from time to time to our non-employee
directors under our equity compensation plans. The decision to grant options to
non-employee directors will be reviewed by the Board of Directors on an annual
basis. The number of options that can be granted to non-employee directors is
limited by the 2004 Long Term Incentive Plan and may not exceed 30,000 shares of
common stock during any consecutive sixty (60)-month period.
The following table contains information regarding option grants
during the fiscal year ended December 31, 2004 to the individuals who are
currently serving as our non-employee directors.
--------------------------------------------------------------------------------
Option Grants in Last Fiscal Year to Non-Employee Directors
Number of Securities Exercise or Base
Underlying Options Price Expiration
Name Granted(1) ($/Share)(2) Date
--------------------------------------------------------------------------------
Jerry C. Benjamin 6,000 (3) 34.81 10/4/14
24,000 (4) 37.76 12/2/14
Thomas J. Kester 6,000 (3) 34.81 10/4/14
24,000 (4) 37.76 12/2/14
Walter P. von Wartburg 6,000 (3) 34.81 10/4/14
24,000 (4) 37.76 12/2/14
--------------------------------------------------------------------------------
(1) All option grants to the non-employee directors were made pursuant to our
2004 Long Term Incentive Plan and have a ten-year term.
(2) All options were granted to the non-employee directors at an exercise price
equal to the fair market value of the underlying stock on the date of
grant.
(3) Options vest and become exercisable over three years in equal annual
one-third increments from the option grant date.
(4) Options vest and become exercisable over a five year period in installments
of 4,000, 4,000, 4,000, 6,000 and 6,000.
During 2004, the Company also granted Mr. Gero options to purchase its
shares of common stock pursuant to our 2004 Long Term Incentive Plan. The first
grant was 6,000 options, which were granted at an exercise price of $34.81 with
an expiration date of October 4, 2014. These options vest and become exercisable
over three years in equal annual one-third increments from the option grant
date. The second grant was 44,000 options, which were granted at an exercise
price of $37.76 with an expiration date of December 2, 2014. These options vest
and become exercisable over five years in equal annual one-fifth increments from
the option grant date.
Mr. Peter Hewett, a non-employee director, also serves as a consultant
to the Company and as Chairman of the Board of Directors of Orthofix Inc., a
wholly-owned subsidiary of the Company. In this capacity, he provides consulting
and advisory services, at such times and on such special projects, as we
request. Mr. Hewett reports directly to the Board of Directors. In 2004, we paid
$148,425 in consulting fees to Mr. Hewett, which is in addition to his director
fees. We also reimbursed him for travel and other related expenses incurred in
connection with the performance of such consulting and advisory services. In
2005, he will receive a fee of $1,500 per day for each day of requested
consulting and advisory services, in addition to his director fees.
Certain Relationships and Related Transactions
Mr. Gaines-Cooper is the Chairman of Venner Capital S.A. (formerly LMA
International S.A.) and is the settlor of a trust which owns 100% of Venner
Capital S.A. Venner Capital S.A., which owns the distribution rights in Italy to
9
the Laryngeal Mask (used to administer anesthesia) produced by The Laryngeal
Mask Company Ltd., has awarded the distribution rights for the Laryngeal Mask in
Italy to Orthofix S.r.l., a subsidiary of Orthofix.
Effective January 14, 2003, we completed a Share Purchase Agreement to
acquire the remaining 48% minority interest in our United Kingdom distribution
company, Intavent Orthofix Limited (IOL). We purchased the 48% interest from
Intavent Limited ("Intavent") for a cash purchase price of $20,450,000. IOL
distributes Orthofix products, Laryngeal Mask products and other orthopedic
products. Concurrent with the completion of the Share Purchase Agreement, we
completed a Distribution Agreement with Intavent and a Guarantee Agreement with
Venner Capital S.A. for the supply of Laryngeal Mask products in the United
Kingdom, Ireland and Channel Islands for an initial period of seven years. Mr.
Robert Gaines-Cooper, a director of Orthofix, is a settlor of trusts, which own
a 30% interest in Intavent and a 100% interest in Venner Capital S.A. IOL has
been and will continue to be a consolidated subsidiary of Orthofix.
Arrow Medical Limited (Arrow) supplies impads for use with the A-V
Impulse System to Novamedix Distribution Limited, a wholly owned subsidiary of
Orthofix. Venner Capital S.A. owns a 30% interest in Arrow. Mr. Gaines-Cooper is
the Chairman of Venner Capital S.A. and is the settlor of a trust which owns
100% of Venner Capital S.A. In 2004, Novamedix purchased $0.8 million from Arrow
for the supply of impads.
Inter Medical Supplies, a wholly owned subsidiary of Orthofix, which
manufactures Orthofix products, rents facilities in the Seychelles from Venner
Capital S.A. under a three year lease which started in 2002. The annual rent
paid to Venner Capital S.A. is approximately $75,000.
Gregory Federico, the son of Orthofix Group President and CEO Charles
W. Federico, is the owner of OrthoPro, Inc. ("OrthoPro"), which acts as an
independent third-party distributor for Breg. In 2004, Breg paid commissions to
OrthoPro of $841,798.46. The OrthoPro distributor relationship with Breg
predates Orthofix's acquisition of Breg in December of 2003 and commissions paid
to OrthoPro are at a rate that is generally accepted in the industry.
10
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of Orthofix is responsible for providing
independent, objective oversight of Orthofix's accounting functions, internal
controls and risk management. The Audit Committee recommends the selection of
the independent auditors to the Board. The Audit Committee operates under a
written charter adopted by the Board of Directors, which was filed as an
appendix to our 2003 proxy statement and is available for review on our website
at www.orthofix.com.
Management is responsible for Orthofix's internal controls and
financial reporting process. The independent registered public accounting firm
is responsible for performing an independent audit of Orthofix's consolidated
financial statements in accordance with auditing standards of the Public Company
Accounting Oversight Board and to issue a report thereon. Additionally, the
independent registered public accounting firm is also responsible for auditing
management's assessment and opinion on the effectiveness of Orthofix's internal
control over financial reporting. The Audit Committee's responsibility is to
monitor and oversee these processes. The Committee relies without independent
verification on the information provided to it and on the representations made
by management and the independent auditors.
We held seven meetings during fiscal 2004. The meetings were designed,
among other things, to facilitate and encourage communication among the
Committee, management and Orthofix's independent registered public accounting
firm, Ernst & Young LLP. The Committee reviewed management's assessment of the
effectiveness of the design and operation of Orthofix's disclosure controls over
financial reporting. We discussed with Ernst & Young LLP the overall scope and
plans for their audit. We met with Ernst & Young LLP, with and without
management present, to discuss the results of their examinations and their
evaluations of Orthofix's internal controls.
We have reviewed and discussed the audited consolidated financial
statements for the fiscal year ended December 31, 2004 with management and Ernst
& Young LLP. We also discussed with management and Ernst & Young LLP
management's report and the independent registered public accounting firm's
report and attestation on Orthofix's internal control over financial reporting
in accordance with Section 404 of the Sarbanes-Oxley Act. We also discussed with
Ernst & Young LLP matters required to be discussed with audit committees,
including, among other things, matters related to the conduct of the audit of
Orthofix's consolidated financial statements and the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees).
Ernst & Young LLP also provided to us the written disclosures and the
letter required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and we discussed with them their
independence from Orthofix. When considering Ernst & Young LLP's independence,
we considered whether their provision of services to Orthofix beyond those
rendered in connection with their audit of Orthofix's consolidated financial
statements was compatible with maintaining their independence. We also reviewed,
among other things, the audit and non-audit services performed by, and the
amount of fees paid for such services to, Ernst & Young LLP. The Committee has
determined that Ernst & Young LLP is independent of Orthofix and its management.
Based upon the review and discussions referred to above, we recommended
to the Board of Directors, and the Board of Directors has approved, that
Orthofix's audited financial statements be included in Orthofix's Annual Report
on Form 10-K for the fiscal year ended December 31, 2004. We also recommended
the selection of Ernst & Young LLP as Orthofix's independent auditors for 2005
and, based on that recommendation, the Board has selected Ernst & Young LLP as
Orthofix's independent auditors for 2005.
The Audit Committee
Jerry C. Benjamin, Chairman
Thomas J. Kester
Kenneth R. Weisshaar
11
EXECUTIVE COMPENSATION
The Executive Officers
These are the biographies of Orthofix's current executive officers.
Charles W. Federico Chief Executive Officer, President and
Director
Mr. Federico, 56, became a Director of
Orthofix International N.V. in October 1996
and was the President of Orthofix Inc. from
October 1996 to January 1, 2002. On January
1, 2001, Mr. Federico became President and
Chief Executive Officer of Orthofix
International. From 1985 to 1996, Mr.
Federico was the President of Smith & Nephew
Endoscopy (formerly Dyonics, Inc.). From 1981
to 1985, Mr. Federico served as Vice
President of Dyonics, initially as Director
of Marketing and subsequently as General
Manager. Previously, he held management and
marketing positions with General Foods
Corporation, Air Products Corporation,
Puritan Bennett Corporation and LSE
Corporation.
James F. Gero Chairman of the Board of Directors
Mr. Gero, 60, became Chairman of Orthofix
International N.V. on January 1, 2005
and has been a Director of Orthofix
International N.V. since 1998. Mr. Gero
became a Director of AME Inc. in 1990 and
served from 1995 to 1998 as a Director
of Orthofix Inc. He is a Director of each of
Intrusion, Inc., Drew Industries
Inc., and Greenleaf Inc., and Chairman of
Thayer Aerospace.
Gary Henley Senior Vice President and President,
Americas Division
Mr. Henley, 56, joined Orthofix International
N.V. in January 1997 as Senior Vice
President. On January 1, 2002, Mr. Henley
succeeded Mr. Federico as President of
Orthofix Americas Division. Prior to joining
Orthofix, Mr. Henley was President of Smith
and Nephew Video Division from 1987 until
1996. Mr. Henley was founder and President of
Electronic Systems Inc. from 1975 to 1984 and
CeCorp Inc. from 1984 until 1987.
Thomas Hein Chief Financial Officer
Mr. Hein, 57, became the Chief Financial
Officer of Orthofix International N.V. on
July 1, 2002. For the prior three years, Mr.
Hein had been the Chief Financial Officer of
Orthofix Inc., our wholly owned U.S.
subsidiary. From 1996 to 1999, Mr. Hein was
the Chief Financial Officer for Prime Vision
Health Inc., a diversified healthcare
services company. From 1988 to 1996, Mr. Hein
was V.P. of Finance and Chief Financial
Officer of MDT Corporation, a sterilization
and hospital capital equipment company.
Previously, he held financial management
positions with Metheus Corporation, Memorex
Corporation and Kaiser Aetna. Mr. Hein is a
CPA.
Raymond C. Kolls Vice President, General Counsel and Corporate
Secretary
Mr. Kolls, 42, became Vice President, General
Counsel and Corporate Secretary of Orthofix
International N.V. on July 1, 2004. Prior to
joining Orthofix, Mr. Kolls was Associate
General Counsel for CSX Corporation. Mr.
Kolls began his legal career as an attorney
in private practice with Morgan, Lewis &
Bockius.
Galvin Mould Vice President and President, International
Division
Mr. Mould, 59, became Vice President and
President of the International Division of
Orthofix International N.V. on January 1,
2004. He joined Orthofix in 1995 as
12
Managing Director of Intavent Orthofix Ltd.
Prior to joining Orthofix, Mr. Mould served
in several Director of Sales and Marketing
Positions in the healthcare market.
Bradley R. Mason Vice President and President, Breg, Inc.
Mr. Mason, 51, became a Vice President of
Orthofix International N.V. in December 2003
upon the acquisition of Breg, Inc. He is also
the President of Breg, Inc., which he founded
in 1989 with six other principal
shareholders. Mr. Mason has over 20 years in
the medical device industry, some of which
were spent with dj Orthopedics (formally
DonJoy) where he was a founder and held the
position of Executive Vice President. Mr.
Mason is the named inventor on 35 issued
patents in the orthopedic product arena with
several other patents pending.
Executive Compensation Summary
The following table sets forth the compensation paid or accrued by us
during the fiscal years ended December 31, 2004, 2003 and 2002 to, or on behalf
of, our chief executive officer and our four most highly compensated executive
officers as of December 31, 2004. We refer to these officers collectively as the
"named executive officers."
-----------------------------------------------------------------------------------------------------------------------
Summary Compensation Table
Long Term
Annual Compensation Compensation
----------------------------------------------- --------------------------------
Name and Principal Position Year Salary ($) Bonus ($) Number of
Other Annual Shares
Compensation Underlying All Other
($)(1) Options(#) Compensation($)
-----------------------------------------------------------------------------------------------------------------------
Charles W. Federico ................ 2004 481,921 48,224 -0- 34,400 12,143 (2)
Chief Executive Officer and President 2003 450,944 171,755 -0- 30,000 11,355
2002 450,640 40,000 -0- -0- 9,450
Thomas Hein ........................ 2004 258,469 45,000 -0- 13,800 9,266 (3)
Chief Financial Officer 2003 239,099 100,000 -0- 10,000 8,979
2002 213,980 53,900 -0- 12,500 7,249
Gary Henley......................... 2004 288,446 36,120 -0- 14,500 9,415 (4)
Senior Vice President and President, 2003 269,673 133,000 -0- 10,000 8,603
Americas Division 2002 256,965 45,126 -0- -0- 7,327
Galvin Mould ....................... 2004 273,723 11,500 37,773 (5) 13,300 28,570 (6)
Vice President and President, 2003 -0- -0- -0- -0- -0-
International Division 2002 -0- -0- -0- -0- -0-
Bradley R. Mason ................... 2004 253,630 53,000 -0- -0- 1,020 (7)
Vice President and President, 2003 422,300 249,536 -0- 150,000 1,020
Breg Division 2002 -0- -0- -0- -0- -0-
-----------------------------------------------------------------------------------------------------------------------
(1) Excludes perquisites and other personal benefits unless the aggregate
amount of such annual compensation exceeded $50,000 or 10% of the total of
annual salary and bonus reported for the named executive officer.
(2) Amount shown consists of $8,200 for contributions to vested and unvested
accounts attributable under the Company's defined contribution plans and
$3,943 for insurance premiums paid by, or on behalf of, the Company with
respect to term life insurance.
13
(3) Amount shown consists of $8,200 for contributions to vested and unvested
accounts attributable under the Company's defined contribution plans and
$1,066 for insurance premiums paid by, or on behalf of, the Company with
respect to term life insurance.
(4) Amount shown consists of $8,200 for contributions to vested and unvested
accounts attributable under the Company's defined contribution plans and
$1,215 for insurance premiums paid by, or on behalf of, the Company with
respect to term life insurance.
(5) Amount shown consists of $37,773 for automobile and fuel allowances.
(6) Amount shown consists of $20,756 for contributions to a private retirement
plan and $7,814 for insurance premiums paid by, or on behalf of, the
Company with respect to private health insurance.
(7) Amount shown consists of $750 for contributions to vested and unvested
accounts attributable under the Company's defined contribution plans and
$270 for insurance premiums paid by, or on behalf of, the Company with
respect to term life insurance.
Stock Options
The following table contains information regarding option grants by us
to our named executive officers during the fiscal year ended December 31, 2004.
----------------------------------------------------------------------------------------------------------------------
Option Grants in Last Fiscal Year
Individual Grants
--------------------------------------------------------------------
Name Number of % of Total
Securities Options
Underlying Granted to Employees Exercise or Grant Date
Options in Base Price Expiration Present Value
Granted(#)(1) Fiscal Year ($/Share)(2) Date ($)(3)
----------------------------------------------------------------------------------------------------------------------
Charles W. Federico ....... 25,000 5.8 34.81 10/4/14 269,196
9,400 2.2 37.76 12/2/14 119,963
Thomas Hein ............... 10,000 2.3 34.81 10/4/14 107,677
3,800 0.9 37.76 12/2/14 48,496
Gary Henley ............... 10,000 2.3 34.81 10/4/14 107,677
4,500 1.0 37.76 12/2/14 57,430
Galvin Mould .............. 10,000 2.3 34.81 10/4/14 107,677
3,300 0.8 37.76 12/2/14 42,115
Bradley R. Mason .......... -0- -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------
(1) All option grants to the named executive officers were made pursuant to our
2004 Long Term Incentive Plan and have a ten-year term. Options vest and
become exercisable over three years in equal annual one-third increments
from the option grant date.
(2) All options were granted to the named executive officers at an exercise
price equal to the fair market value of the underlying stock on the date of
grant.
(3) This estimated hypothetical value is based on a Black-Scholes option
pricing valuation model in accordance with SEC rules. We used the following
assumptions in estimating this value: expected option term, 4.5 years;
risk-free interest rate, 3.5%; expected volatility, 35%; and an expected
dividend yield of 0%.
14
Option Exercises and Year-End Option Values
The following table provides information about the number of our shares
of common stock issued upon the exercise of options by our named executive
officers during the fiscal year ended December 31, 2004, and the value realized
by our named executive officers. The table also provides information about the
number and value of our options held by our named executive officers at December
31, 2004.
------------------------------------------------------------------------------------------------------------------------------------
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
Number of Number of Securities Underlying Value of Unexercised In-the-
Shares Acquired Value Unexercised Options at Fiscal Money Options at Fiscal Year
Name on Exercise (#) Realized ($) Year End (#) End($) (1)
------------------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
Charles W. Federico ...... 165,000 5,559,341 200,000 64,400 4,241,000 326,158
Thomas Hein ............... 5,000 145,575 42,500 36,300 926,525 192,716
Gary Henley ............... 50,000 1,509,750 50,000 24,500 1,060,250 117,640
Galvin Mould ............. 3,000 80,580 7,000 50,050 170,560 464,431
Bradley R. Mason ......... -0- -0- 15,000 135,000 16,200 145,800
------------------------------------------------------------------------------------------------------------------------------------
(1) Based on the closing price of common stock, as reported on the Nasdaq
National Market, at December 31, 2004, which was $39.08 per share.
Equity Compensation Plan Information
We maintain three equity compensation plans, the Staff Share Option
Plan (including the Performance Accelerated Stock Option program), the 2004 Long
Term Incentive Plan and the Employee Stock Purchase Plan, each of which has been
approved by our shareholders. We no longer grant awards under the Staff Share
Option Plan (including the Performance Accelerated Stock Option program). We
have also granted inducement stock option awards (described below) that have not
been approved by our shareholders.
15
The following table provides aggregate information regarding the shares
of our common stock that may be issued upon the exercise of options, warrants
and rights under all of our equity compensation plans as of December 31, 2004.
The table does not include shares subject to outstanding warrants that we
assumed in an acquisition.
-----------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
Number of Securities
Remaining Available for
Future Issuance Under
Number of Securities to Weighted-Average Exercise Equity Compensation
Be Issued upon Exercise Price of Outstanding Plans (Excluding
of Outstanding Options, Options, Warrants and Securities Reflected in
Plan Category(1) Warrants and Rights(#) Rights Column (a))(#)
----------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans Approved 1,559,165 (2) $25.90 1,803,340 (3)
by Security Holders
----------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans Not 200,000 (4) $38.00 -0-
Approved by Security Holders
----------------------------------------------------------------------------------------------------------------------
Total 1,759,165 $27.28 1,803,340
----------------------------------------------------------------------------------------------------------------------
(1) The table does not include information for an equity compensation plan we
assumed in conjunction with the acquisition of Kinesis Medical Inc. As of
December 31, 2004, a total of 24,528 shares of common stock were issuable
upon the exercise of warrants assumed in this acquisition. The weighted
average exercise price of the warrants granted under this plan and
outstanding at December 31, 2004, was $33.57. We cannot grant additional
awards under this assumed plan.
(2) Options were granted pursuant to the following plans: the Staff Share
Option Plan (including the Performance Accelerated Stock Option program)
and the 2004 Long Term Incentive Plan. As mentioned above, there are
currently no more shares available for issuance under the Staff Share
Option Plan (including the Performance Accelerated Stock Option program).
(3) Included are 222,340 registered shares available for issuance pursuant to
the Employee Stock Purchase Plan and 1,581,000 registered shares available
for grant under the 2004 Long Term Incentive Plan.
(4) On December 30, 2003, in conjunction with the acquisition of Breg, Inc., we
granted inducement stock option awards to two key executives of Breg, Inc.
These option grants were not approved by shareholders, and were granted in
reliance on the NASD exception to shareholder approval for equity grants to
new hires. The exercise price was fixed at $38.00 per share on November 20,
2003, which was the date we announced the agreement to acquire Breg, Inc.
The inducement grants include both service-based and performance-based
vesting provisions. Under the service-based provisions, subject to the
continued employment of the executive, the inducement grants become 100%
non-forfeitable and exercisable on the fourth anniversary of the grant
date. Vesting of a portion of the options under the inducement agreement
will be accelerated if certain stock price targets are achieved. The
performance-based vesting provisions generally provide for the vesting of
one-fifth of the inducement grants for each $5.00 increase in the price of
our common stock above $40.00 per share. The total number of shares
eligible for the accelerated vesting on an annual basis is limited to 25%
of the number of shares subject to the inducement grants with a cumulative
carryover for the unvested portion of shares eligible for accelerated
vesting for each of the prior years. Prior to the expiration of the term of
the options, only one-half of the vested options can be exercised in any
one year.
16
Executive Employment Agreements
Executive Employment Agreement for Charles W. Federico
On April 15, 2005, we entered into a new employment agreement with
Charles W. Federico for him to continue to serve as our President and Chief
Executive Officer. The agreement provides for a two-year employment term and
supercedes and terminates his prior employment agreement dated July 1, 2001. The
Agreement provides that Mr. Federico will receive a minimum annual base salary
of $464,473. He will be eligible for bonuses as determined by our Board of
Directors and benefits provided to other senior executives.
If, prior to expiration of the two-year employment term, Mr. Federico's
employment is terminated by the Company without "cause" or by Mr. Federico for
"good reason" (each term as defined in the Agreement), he will be entitled to
receive a severance amount equal to (a) a lump sum equal to the highest monthly
base salary in effect in the preceding three years multiplied by the number of
months remaining in the employment term, payable immediately following
termination, plus (b) a prorated annual bonus through the date of termination,
to the extent he was otherwise entitled to a bonus, payable in the next fiscal
year that bonuses are otherwise paid to senior executives. In addition, Mr.
Federico's outstanding options will continue to vest through the end of the full
two-year employment term and he and his dependents will continue to receive
employee welfare benefits (or their monetary value) during that period.
In contrast, if prior to expiration of the full employment term, Mr.
Federico's employment is otherwise terminated by the Company for cause, by Mr.
Federico other than for "good reason," or as a result of his death or
disability, Mr. Federico is generally entitled to limited salary and benefits
accrued through his date of termination or as otherwise required by law.
Mr. Federico's right to terminate the agreement for good reason
includes the right to terminate (a) if there is a significant diminution in his
duties, compensation or benefits, (b) if there is an uncured breach of the
agreement by the Company and (c) following a "change in control" (as defined in
the agreement). In order to terminate for good reason following a change in
control, Mr. Federico must remain employed for six months after the date of the
change in control (unless he is earlier terminated by the Company) and,
thereafter, may only exercise his right to terminate for such good reason during
the three-month period after the six-month waiting period.
The agreement includes a binding commitment of the Company to enter
into a consulting agreement with Mr. Federico effective as of the end of the
employment term, but only if he (a) remains an employee through the end of the
employment term, (b) is terminated without cause prior to such time or (c)
terminates for good reason (but not if he voluntarily terminates for good reason
following a change in control). The consulting period would continue until
December 31, 2010 and during such time the Company would pay Mr. Federico (a)
$50,000 per year so long as he remains a director of the Company and (b)
$110,000 per year during such time as he provides consulting services, but is
not a director. In addition, he and his dependents are entitled to group health
benefits (or the financial equivalent thereof) during the consulting period. Mr.
Federico will also be provided with secretarial support in order to assist him
in the performance of his consulting duties. In the event of termination of Mr.
Federico's employment without cause during the employment term, the Company
reserves the right to make an annual payment to Mr. Federico in the amount
otherwise required to be paid to him for consulting services until the end of
the consulting term rather than require Mr. Federico to provide any consulting
services. Such amounts are in addition to the severance rights described above.
The employment agreement contains a non-solicitation of employees and
customers restrictive covenant that extends for two years following the end of
the employment term, a non-competition restrictive covenant that remains in
effect for so long as Mr. Federico is employed by us and a confidentiality
restrictive covenant that lasts indefinitely. Such restrictive covenants will
extend during the period of any post-termination consulting agreement and for
various periods following the end of the consulting period.
Executive Employment Agreements for Thomas Hein, Gary Henley and
Bradley R. Mason
We entered into employment agreements with Mr. Hein and Mr. Henley,
effective as of March 1, 2003. We also entered into an employment agreement with
Mr. Mason, which became effective on December 30, 2003. Mr. Hein serves as the
Chief Financial Officer, Mr. Henley serves as the President of Orthofix Americas
Division and Mr. Mason serves as the President of Breg, Inc. The initial term of
each agreement is two years, but each agreement will be automatically renewed
for two successive one-year periods unless either party notifies the other party
of its intention not to renew within the requisite time period. The agreements
for Messrs. Hein and Henley were automatically renewed for another one-year
period on March 1, 2005. Under the agreements, the executives are entitled to
base salaries and
17
bonuses as determined by our Board of Directors. The agreements provide annual
base salaries of at least $231,000 for Mr. Hein, $270,000 for Mr. Henley and
$250,000 for Mr. Mason, which may only be decreased if such decrease is a result
of a general reduction (on the same percentage basis) affecting the base
salaries of substantially all other executive officers. For 2004, the base
salaries of each of Messrs. Hein, Henley and Mason were $258,469, $288,446, and
$253,630, respectively. In addition, for 2004, Messrs. Hein, Henley and Mason
received annual bonuses of $45,000, $36,120 and $53,000, respectively. Mr.
Mason's employment agreement provides that he was granted an inducement stock
option award to purchase 150,000 shares of common stock in accordance with the
terms and conditions specified in the Performance Accelerated Stock Option
Inducement Agreement, which is described below.
If an executive is terminated without cause, he is entitled to receive
a lump sum payment equal to: (1) the average of his base salary at the highest
rate in effect in the 90-day period immediately before the termination and his
base salary for the year preceding the termination and (2) the average of his
annual bonuses for the two years before the year in which the termination
occurs. Upon a resignation for good reason (as such term is defined in the
agreements), the executive is entitled to half the amount that he would receive
had he been terminated without cause. In addition, the executives will be
entitled to continuation of their welfare benefits for up to one year following
their termination without cause or resignation for good reason. Similarly, any
stock options held by the executives will remain outstanding for at least one
year following a termination without cause and six months following a
resignation for good reason (provided, however, that the inducement stock award
granted to Mr. Mason will be governed by the terms and conditions of the
applicable Performance Accelerated Stock Option Inducement Agreement). We are
also obliged to provide the executives with reimbursement for outplacement
services of up to $20,000 upon a termination without cause or resignation for
good reason.
If there is a change in control of the Company, (1) the agreements
automatically extend for one year from the date of the change in control (unless
the then current term is greater than one year), (2) all stock options and stock
appreciation rights will vest automatically (provided, however, that the
inducement stock award granted to Mr. Mason will be governed by the terms and
conditions of the applicable Performance Accelerated Stock Option Inducement
Agreement) and (3) any forfeiture provisions included in the executives'
restricted stock awards will immediately lapse. In addition, in the event that
any of the executives is terminated without cause or resigns for good reason
following a change in control, the individual is entitled to receive a lump sum
payment equal to: (1) the greater of (a) the average of his base salary at the
highest rate in effect in the 90-day period immediately before the termination
and his base salary for the year preceding the termination and (b) the average
of his base salary in effect immediately before the change in control and his
base salary for the year preceding the change in control; (2) the greater of (x)
the average of his annual bonuses for the two years before the year in which the
termination occurs and (y) the average of his annual bonuses for the two years
before the year in which the change in control occurs and (3) the executive's
annual automobile allowance. The agreements also provide that, in the event that
any payments made to the executive constitute "excess parachute payments" under
Section 280G of the Internal Revenue Code of 1986, as amended, then the amounts
to be paid to the executives will be reduced so that no excess parachute
payments exist.
The agreements contain a non-competition provision that lasts for one
year following a termination of employment for any reason, and confidentiality
and assignment of inventions provisions that last indefinitely. In addition, Mr.
Mason's agreement contains a no solicitation of clients, customers and employees
provision that lasts for two years following a termination of employment for any
reason.
Change in Control Agreement for Raymond C. Kolls
We entered into a change of control agreement with Raymond C. Kolls,
effective as of February 18, 2005. Mr. Kolls serves as Vice President, General
Counsel and Corporate Secretary of Orthofix International N.V. The agreement
provides that if, during Mr. Kolls's employment, his employment is terminated
without cause or he resigns for good reason during a change in control period
(as such terms are defined in the agreement), Mr. Kolls will be entitled to
certain payments and benefits. Those payments and benefits are as follows: a
lump sum severance payment equal to the sum of Mr. Kolls' average annual base
salary, average annual incentive compensation and annual automobile allowance;
immediate vesting of previously granted stock options and stock appreciation
rights, if any, and immediate lapse of any risk of forfeiture included in any
restricted stock grants, if any; continuation of basic employee group welfare
benefits (but not pension, retirement or similar compensatory benefits) for him
and his dependents substantially similar to those being received immediately
prior to termination for the lesser of one year after termination or until Mr.
Kolls secures new employment.
18
The agreement also contains a non-competition restrictive covenant for
the one-year period following termination of employment to the extent Mr. Kolls
has received, or will be receiving, any payments or benefits pursuant to the
agreement. The agreement provides that, in the event that any payments made to
Mr. Kolls, constitutes "excess parachute payments" under Section 280G of the
Internal Revenue Code of 1986, as amended, then the amounts to be paid to Mr.
Kolls will be reduced so that no excess parachute payments exists.
Performance Accelerated Stock Option Inducement Agreement with Bradley Mason
On December 30, 2003, in conjunction with the acquisition of Breg,
Inc., Mr. Mason was granted an inducement stock option award pursuant to a
Performance Accelerated Stock Option Inducement Agreement. The exercise price
was fixed at $38.00 per share on November 20, 2003, which was the date we
announced the agreement to acquire Breg, Inc. The inducement grant includes both
service-based and performance-based vesting provisions. Under the service-based
provisions, subject to the continued employment of Mr. Mason, the inducement
grant becomes 100% non-forfeitable and exercisable on the fourth anniversary of
the grant date. Vesting of a portion of the options under the inducement
agreement will be accelerated if certain stock price targets are achieved. The
performance-based vesting provisions generally provide for the vesting of
one-fifth of the inducement grant for each $5.00 increase in the price of our
common stock above $40.00 per share. The total number of shares eligible for the
accelerated vesting on an annual basis is limited to 25% of the number of shares
subject to the inducement grant with a cumulative carryover for the unvested
portion of shares eligible for accelerated vesting for each of the prior years.
Prior to the expiration of the term of the options, only one-half of the vested
options can be exercised in any one year.
Indebtedness of Management
On January 10, 2002 we entered into full-recourse loans with Charles
Federico and Gary Henley, each with a principal amount of $145,200. The loans
were entered into to assist the executives in purchasing shares of OrthoRx Inc.
common stock. Each loan has an annual interest rate of 3.97%, compounded
annually and matures on the earlier of (1) January 10, 2007 and (2) the date
that the executive ceases to be our employee, officer or director. The loans are
secured by stock pledge agreements covering shares of OrthoRx Inc. common stock
owned by Messrs. Federico and Henley. As of December 31, 2004, no payments had
been made on either of the loans, and the aggregate amount outstanding under
each of the loans was $163,189 plus accrued interest.
Compensation Committee Interlocks and Insider Participation
During 2004, the Compensation Committee of our Board of Directors
consisted of three members, John W. Littlechild, James F. Gero and Thomas J.
Kester. In early 2005, following the resignation of Mr. Littlechild from our
Board of Directors, the appointment of Mr. Gero as Chairman of the Board of
Directors and the appointment of several new directors, the Compensation
Committee was reconstituted to include Messrs. Kester (Chairman), Jordan,
Widensohler and von Wartburg all of whom satisfy the independent director
standards as defined by current Nasdaq rules and are "independent directors" for
purpose of Rule 162(m) of the U.S. Internal Revenue Code of 1986, as amended,
and are "non-employee directors" for purposes of Section 16 of the Securities
Exchange Act of 1934, as amended. No interlocking relationship, as defined in
the Securities Exchange Act of 1934, as amended, exists between our Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other entity.
Mr. Peter Hewett, a non-employee director, also serves as a consultant
to the Company and as Chairman of Orthofix Inc.'s Board of Directors. In this
capacity, he provides consulting and advisory services, at such times and on
such special projects, as we request. Mr. Hewett reports directly to the Board
of Directors. In 2004, we paid $148,425 in consulting fees to Mr. Hewett, which
is in addition to his director fees. We also reimbursed him for travel and other
related expenses incurred in connection with the performance of such consulting
and advisory services. In 2005, he will receive a fee of $1,500 per day for each
day of requested consulting and advisory services, in addition to his director
fees.
19
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for advising on and
administering our compensation policies. The Committee has overall
responsibility for evaluating and making recommendations to the Board of
Directors regarding the compensation of directors, executive officers (including
our chief executive officer) and key employees. The Compensation Committee acts
under a written charter adopted by the Board of Directors, which is available
for review on our website at www.orthofix.com.
In 2004, the Compensation Committee of the Board of Directors was
composed of Messrs. Littlechild, Gero and Kester, each of whom were an
independent, non-employee, non-affiliated director during the period in which
they were a member of the Compensation Committee. During 2004, Mr. Littlechild
served as Chairman of the Compensation Committee until December 2004. In early
2005, following the resignation of Mr. Littlechild from our Board of Directors,
the appointment of Mr. Gero as Chairman of the Board of Directors and the
appointment of several new directors, the Compensation Committee was
reconstituted to include Messrs. Kester, Jordan, Widensohler and von Wartburg
each of whom is an independent, non-employee, non-affiliated director. Mr.
Kester was appointed Chairman of the Compensation Committee in December 2004.
Unless specifically noted, the Compensation Committee as composed during 2004
furnished the following report on executive compensation for 2004 and made all
determinations with respect to executive officer compensation for fiscal year
2004.
Overview
The Compensation Committee believes that executive compensation
programs should be designed to attract, retain and motivate executive officers
and key employees, while enhancing and increasing shareholder value. We
accomplish this through incentive compensation plans that link executive and
staff compensation to our overall Company performance, thereby aligning their
interests with the interests of our shareholders.
Our compensation program for our executive officers and key employees
consists of three major components: (1) annual salary; (2) performance-based
incentives in the form of cash bonuses; and (3) long-term equity-based
incentives. The Compensation Committee determines what portion of an executive's
compensation should be in the form of salary, performance-based cash bonus and
equity-based compensation. Long-term equity-based compensation for executive
officers and key employees is in the form of stock options that have been
granted under our Staff Share Option Plan (including the Performance Accelerated
Stock Option program) and the 2004 Long Term Incentive Plan.
It is the Compensation Committee's objective to provide incentives that
promote both short-and-long-term objectives of the Company. Achievement of
short-term objectives is rewarded through base salary and annual performance
incentives in the form of cash bonuses, while long-term equity-based incentive
grants encourage executives to focus on the Company's long-term goals. These
incentives are based on financial objectives that are important to the Company
including revenue and earnings growth both on an absolute basis and against
pre-established performance goals, the successful integration in 2004 of the
Breg acquisition and the creation of shareholder value. The compensation program
also accounts, to a lesser degree, for individual performance, which enables the
Committee to differentiate among executives and emphasize the link between
personal performance and compensation.
In 2003 and 2004 the Company engaged Towers Perrin, an outside
executive benefits consulting firm, to assist the Company with a review of its
compensation program, philosophy and long-term incentive practices for 17 senior
management positions. The Towers Perrin review included Board and executive
interviews combined with a market analysis of a select group of 16 peer
organizations using publicly available proxy statements as well as published
survey data sized to reflect our annual revenues. The peer group was reviewed
and confirmed by both executive management and the Compensation Committee.
20
The Company's compensation philosophy is oriented to reflect a
"pay-for-performance" outlook based around the following pay structure
philosophy:
Pay Element Market Position Rationale
--------------------------------------------------------------------------------
Annual Salary 50th Percentile "Competitive" annual salary
levels
Target Total Cash(1) 75th Percentile Opportunity for greater than
"Competitive" cash
compensation if performance
exceeds expectations.
Target Total Direct 60th to 75th Long-term incentive plus
Compensation(2) Percentile total cash must align with
shareholder interest and
reward long-term performance.
(1) Total cash compensation equals annual salary plus incentive cash bonus.
(2) Total direct compensation equals total cash plus annualized expected value
of long-term incentives.
Annual Salary
The Compensation Committee makes annual determinations with respect to
executives' salaries. In making these decisions, the Compensation Committee
reviews each executive's performance, the market compensation levels for
comparable positions, our performance goals and objectives and other relevant
information.
Performance-Based Incentives
The Compensation Committee believes that a portion of the compensation
for each executive should be in the form of annual performance-based incentives.
Short-term incentives, such as the annual cash bonus programs, tie executive
compensation to the Company's financial performance as well as individual
performance in specified areas. The Compensation Committee establishes
Company-wide and business segment performance goals and targets at the beginning
of each fiscal year.
The Committee does not exclusively use a fixed formula in determining
incentive awards. Instead it exercises discretion in light of pre-established
goals and in view of its compensation objectives to determine individual
incentive award amounts.
For 2004, the Compensation Committee set sales attainment, income
attainment and individual objective goals. Incentive payments were funded based
upon performance levels attained against these goals as well as upon Committee
judgment. Messrs. Kester, Jordan, Widensohler and von Wartburg participated in
the determination of the cash bonus amounts to be paid to the executive officers
for their performance and services during fiscal year 2004.
Long-Term Incentives
The goal of our equity incentive plans is to create an ownership
interest in the Company in order to align the interests of executives with
shareholders, to more closely tie executive compensation to Company performance,
and to create long-term performance and service incentives for executives and
key employees. Pursuant to our 2004 Long Term Incentive Plan, stock options were
granted in 2004 to our employees, including our executive officers and to
certain of our independent directors. Employee grants under our 2004 Long Term
Incentive Plan are based on the employee's performance and his or her
anticipated contributions to the achievement of our goals and objectives.
21
Other Compensation
Executive management members participate in the Company's defined
contribution plans and our Employee Stock Purchase Plan on the same basis as
other similarly situated employees.
Compliance with Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), limits the deductibility of compensation payments to
our named executive officers in excess of $1 million per year per person, unless
certain requirements are met. To the extent that it is practicable and
consistent with our executive compensation philosophy, we intend to comply with
Section 162(m) of the Internal Revenue Code. Compensation paid to the named
executive officers has historically not exceeded deductibility limits under
Section 162(m) of the Internal Revenue Code. If compliance with Section 162(m)
of the Internal Revenue Code conflicts with our compensation philosophy or is
determined not to be in the best interest of our stockholders, the Compensation
Committee will abide by our compensation philosophy.
Chief Executive Officer Compensation
The base salary for Mr. Charles Federico, our Group President and Chief
Executive Officer, was $481,921 for 2004 and his annual cash bonus was $48,224.
For a description of the employment agreement for Mr. Federico, see "Executive
Employment Agreements - Charles Federico" above. The Compensation Committee
determined the foregoing compensation of Mr. Federico based on the policies
described above for all executive officers. In determining the incentive
compensation awards for Mr. Federico, the Compensation Committee considered both
our performance, as measured by specific targets and performance objectives, as
well as Mr. Federico's leadership role in the achievement of these targets and
objectives as outlined in the discussion above.
The Compensation Committee
Thomas J. Kester
James F. Gero
Guy P. Jordan *
Stefan Widensohler *
Walter von Wartburg *
* Solely with respect to the determination of the cash bonus amounts
paid to the executive officers for their performance and services
during fiscal 2004.
This information contained in the Report of the Compensation Committee on
Executive Compensation above shall not be deemed to be "soliciting material" or
to be "filed" with the Securities Exchange Commission, nor shall such
information be incorporated by reference into any future filing under the
Exchange Act or the Securities Act of 1933, as amended, except to the extent
that we specifically incorporate it by reference in such filing.
22
PERFORMANCE GRAPH
The graph below compares the five-year total return to shareholders for
Orthofix common stock with the comparable return of two indexes: the NASDAQ
Stock Market and NASDAQ stocks for surgical, Medical, and Dental Instruments and
Supplies.
The graph assumes that you invested $100 in Orthofix common stock and in
each of the indexes on December 31, 1999. Points on the graph represent the
performance as of the last business day of each of the years indicated.
Comparison of Five-Year Cumulative Total Returns
Performance Graph for Orthofix International N.V.
[Object omitted]
------------------------------------------------------------------------------------------------------------------------------------
Legend
Symbol CRSP Total Returns Index for: 12/1999 12/2000 12/2001 12/2002 12/2003 12/2004
------ ----------------------------- ------- ------- ------- ------- ------- -------
|| Orthofix International N.V. 100.0 133.6 259.2 196.7 342.2 273.0
* Nasdaq Stock Market (US & Foreign) 100.0 60.4 47.6 32.8 49.4 53.8
// NASDAQ Stocks (SIC 3840-3849 US Companies) 100.0 103.2 113.4 91.7 135.7 159.0
Surgical, Medical, and Dental Instruments and Supplies
Notes:
A. The lines represent monthly index levels derived from compounded
daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization
on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on 12/31/1999.
--------------------------------------------------------------------------------
Prepared by CRSP (www.crsp.uchicago.edu), Center for research in
Security Prices, Graduate School of Business, The University of
Chicago. Used with permission. All rights reserved.
None of the Report of the Compensation Committee, the Report of the
Audit Committee or the Performance Graph shall be deemed incorporated by
reference by any general statement incorporating this proxy statement into
any filing under the Securities Act of 1933, as from time to time in
effect, or under the Securities Exchange Act of 1934, as from time to time
in effect, except to the extent that the Company specifically incorporates
this information by reference and shall not otherwise be deemed filed under
such acts.
23
PROPOSAL 1: ELECTION OF DIRECTORS
The current term of office for all of our directors expires at the 2005
annual general meeting. The Board of Directors proposes that the following
nominees, all of whom are currently serving as directors, be re-elected for a
new term of one year and/or until their successors have been elected.
We know of no reason why any nominee may be unable to serve as a
director. If any nominee is unable to serve, your proxy may vote for another
nominee proposed by the Board, or the Board may reduce the number of directors
to be elected. If any director resigns, dies or is otherwise unable to serve out
his term, or the Board increases the number of directors, the Board may fill the
vacancy until the next annual general meeting.
Directors Standing for Election
Charles W. Federico Chief Executive Officer, President and
Director
Mr. Federico, 56, became a Director of
Orthofix International N.V. in October 1996
and was the President of Orthofix Inc. from
October 1996 to January 1, 2002. On January
1, 2001, Mr. Federico became President and
Chief Executive Officer of Orthofix
International. From 1985 to 1996, Mr.
Federico was the President of Smith & Nephew
Endoscopy (formerly Dyonics, Inc.). From 1981
to 1985, Mr. Federico served as Vice
President of Dyonics, initially as Director
of Marketing and subsequently as General
Manager. Previously, he held management and
marketing positions with General Foods
Corporation, Air Products Corporation,
Puritan Bennett Corporation and LSE
Corporation.
James F. Gero Chairman of the Board of Directors
Mr. Gero, 60, became Chairman of Orthofix
International N.V. on January 1, 2005
and has been a Director of Orthofix
International N.V. since 1998. Mr. Gero
became a Director of AME Inc. in 1990 and
served from 1995 to 1998 as a Director
of Orthofix Inc. He is a Director of each of
Intrusion, Inc., Drew Industries Inc., and
Greenleaf Inc., and Chairman of Thayer
Aerospace.
Robert Gaines-Cooper Director
Mr. Gaines-Cooper, 67, is one of the founders
of Orthofix and stepped down as Chairman of
Orthofix International N.V. on January 1,
2005. He became Chairman of Orthofix
International N.V. in 1989 and has been a
Director of Orthofix International since our
formation in 1987. He is Managing Director of
Chelle Medical Ltd, Seychelles. Mr.
Gaines-Cooper is also Chairman of LMA
International N.V., a Publicly Listed Company
on the Singapore Stock Exchange (SGX).
Peter J. Hewett Director
Mr. Hewett, 69, has been a nonexecutive
Director of Orthofix International N.V. since
March 1992. He is Chairman of the Board of
Orthofix Inc. He was the Deputy Group
Chairman of Orthofix International N.V.
between March 1998 and December 2000.
Previously, Mr. Hewett served as the Managing
Director of Caradon Plc, Chairman of the
Engineering Division, Chairman and President
of Caradon Inc., Caradon Plc's U.S.
subsidiary and a member of the Board of
Directors of Caradon Plc of England. In
addition, he was responsible for Caradon
Plc's worldwide human resources function, and
the development of its acquisition
opportunities.
24
Jerry C. Benjamin Director
Mr. Benjamin, 64, became a non-executive
Director of Orthofix International N.V. in
March 1992. He has been a General Partner of
Advent Venture Partners, a venture capital
management firm in London, since 1985. In the
past, Mr. Benjamin was a Director for a
number of private health care companies.
Walter P. von Wartburg Director
Mr. von Wartburg, 65, became a Director of
Orthofix International N.V. in June 2004. He
is an attorney and has practiced privately in
his own law firm in Basel, Switzerland since
1999, specializing in life sciences law. He
has also been a Professor of administrative
law and public health policy at the Saint
Gall Graduate School of Economics in
Switzerland for 25 years. Previously, he held
top management positions with Ciba
Pharmaceuticals and Novartis at their
headquarters in Basel, Switzerland. In
addition, Mr. von Wartburg currently serves
as a director on the board of Nymox
Pharmaceutical Corporation.
Thomas J. Kester, CPA Director
Mr. Kester, 58, became a non-executive
Director of Orthofix International N.V. in
August 2004. Mr. Kester retired after 28
years, 18 as an audit partner, from KPMG LLP
in 2002. While at KPMG, he served as the lead
audit engagement partner for both public and
private companies and also served four years
on KPMG's National Continuous Improvement
Committee. Mr. Kester earned a bachelor of
science degree in mechanical engineering from
Cornell University and an MBA degree from
Harvard University.
Kenneth R. Weisshaar Director
Mr. Weisshaar, 54, became a non-executive
Director of Orthofix International N.V. in
December 2004. Most recently, Mr. Weisshaar
has served as Chief Operating Officer and
strategy advisor for Sensatex, Inc. Also, Mr.
Weisshaar spent 12 years as a corporate
officer at Becton Dickson, a medical device
company, where at different times he was
responsible for global business in medical
devices and diagnostic products and served as
Chief Financial Officer and Vice President,
Strategic Planning. Mr. Weisshaar earned a
bachelor of science degree from MIT and an
MBA from Harvard University. He currently
also serves on the boards of Digene
Corporation.
Guy J. Jordan, Ph D Director
Dr. Jordan, 56, became a non-executive
Director of Orthofix International N.V. in
December 2004. Most recently, Dr. Jordan
served as a Group President at CR Bard, Inc.,
a medical device company, where he had
strategic and operating responsibilities for
Bard's global oncology business and
functional responsibility for all of Bard's
research and development. Dr. Jordan earned a
Ph D in organic chemistry from Georgetown
University as well as an MBA from Fairleigh
Dickinson University. He also currently
serves on the boards of Specialized Health
Products International, Inc. Xillix
Technologies Corporation, and EsophyX, Inc.
Stefan Widensohler Director
Mr. Widensohler, 45, became a non-executive
Director of Orthofix International N.V. in
February 2005. Mr. Widensohler is the
President and Chief Executive Officer
25
of KRAUTH medical group, a European medical
supply distributor based in Germany.
Previously, he was General Manager of
MEDICALIS, now a GE Company. Mr. Widensohler
holds a degree in economics from the Private
Academy of Bad Harzburg, Germany. He is
Deputy Chairman of the Board of BV-Med, the
German Health Industry Manufacturer's
Association and is an Active Member of the
German Economic Council. He currently also
serves on the board of St. Jude Medical, Inc.
The Board recommends that you vote "FOR" the election of all nominees for
director.
26
PROPOSAL 2: APPROVAL OF AMENDMENTS TO THE ARTICLES OF ASSOCIATION
Our Board of Directors has approved and recommended for submission to
the shareholders an amendment to Articles 10 and 11 of the Orthofix
International N.V. Articles of Association. A copy of Article 10 and Article 11
of the Articles of Association as proposed to be amended is attached as Appendix
I and Appendix II to this proxy statement, respectively.
The Board adopted the amendment to Article 10 to the Articles of
Association on April 14, 2005 subject to shareholder approval. The revisions to
the Articles of Association are intended to clarify that the Chief Financial
Officer and the General Counsel are authorized to represent the Company in
addition to any persons occupying the titles and offices identified in the
current Articles of Association; and to further clarify that the Chief Financial
Officer and General Counsel are entitled to indemnity under the applicable
provisions of the Articles of Association, or otherwise as provided by law, on
the same basis as other similarly situated officers whose titles and offices are
set forth in the current Articles of Association.
The Board adopted the amendment to Article 11 of the Articles of
Association on April 14, 2005 subject to shareholder approval. The revisions to
the Articles of Association are intended to provide the company with the ability
to retain and attract highly qualified directors and officers by requiring the
Company to indemnify directors and officers and advance the payment of legal
fees and expenses arising out of legal proceedings in which directors and
officers become involved including violations of securities laws and derivative
actions. Any director or officer who becomes involved in a legal proceeding and
to whom payments are advanced will be required to execute a written certificate
that any such advances will be repaid in the event it is ever ultimately
determined by a court of competent jurisdiction that the director or officer has
engaged in misconduct and is not entitled to indemnification or payment of
expenses.
The Board of Directors recommends that you vote "FOR" the
proposal to amend the Articles of Association.
27
PROPOSAL 3: APPROVAL OF FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 2004
Shareholders will be asked to consider, and, if thought fit, approve
the balance sheet and income statement at and for the year ended December 31,
2004.
Pursuant to Article 116 of Book 2 Civil Code of the Netherlands
Antilles, the Board of Directors is required to draw up the company's balance
sheet and income statement within eight months after the end of the fiscal year
and to submit the same to the annual general meeting of shareholders for
approval.
A copy of the company's balance sheet and income statement at and for
the year ended December 31, 2004 is included in our Annual Report, a copy of
which accompanies this proxy statement, and in our Annual Report on Form 10-K
for the year ended December 31, 2004 filed with the SEC. If you would like
additional copies of our Annual Report or a copy of our Annual Report on Form
10-K, please contact our Investor Relations department.
The Board of Directors recommends that you vote
"FOR" the proposal to approve the balance sheet and income
statement at and for the year ended December 31, 2004.
28
PROPOSAL 4: RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP
AS INDEPENDENT AUDITORS FOR 2005
We are asking you to ratify the Board's selection of Ernst & Young LLP
as independent auditors for 2004. The Audit Committee recommended the selection
of Ernst & Young LLP to the Board. Ernst & Young LLP has served as the
independent auditors of Orthofix since 2002. They have unrestricted access to
the Audit Committee to discuss audit findings and other financial matters.
We do not anticipate that representatives of Ernst & Young LLP will be
at the annual meeting. The work performed by Ernst & Young LLP during 2004 and
2003 and the related fees are set forth below.
The Board recommends that you vote "FOR" ratification of
the selection of Ernst & Young LLP as independent auditors for 2004.
Principal Accountant Fees and Services
The following table sets forth by category of service the total fees
for services performed by Ernst & Young LLP during the fiscal years ended
December 31, 2004 and December 31, 2003:
2004 2003
---------- ----------
Audit Fees....................................... $2,188,464 $638,312
Audit-Related Fees............................... $53,659 $200,396
Tax Fees......................................... $771,309 $1,048,725
All Other Fees................................... $3,320 $7,912
---------- ----------
Total....................................... $3,016,752 $1,895,345
Audit Fees
Audit fees in 2004 and 2003 consisted of the aggregate fees, including
expenses, billed in connection with the audit of our annual financial
statements, quarterly reviews of the financial information included in our
quarterly reports on Form 10-Q, statutory audits of our subsidiaries and
services that are normally provided by the independent auditors. For fiscal
2004, these fees include fees billed for professional services rendered for the
audit of management's assessment of the effectiveness of internal control over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of
2002.
Audit-Related Fees
Audit-related fees in 2004 and 2003 consists of the aggregate fees
billed for assurance and related services and are not reported under "Audit
Fees". These fees included fees billed for acquisition-related due diligence
services, employee benefit plan audits and accounting consultations. A
substantial portion of the audit-related fees in 2003 were acquisition-related
due diligence services in connection with our December 2003 acquisition of Breg,
Inc.
Tax Fees
Tax fees in 2004 and 2003 consist of the aggregate fees billed for
professional services rendered for tax compliance, tax advice and tax planning.
These fees included fees billed for federal and state tax review and consulting
services, tax audit services and other tax consulting services.
29
All Other Fees
All Other Fees consist of aggregate fees billed for products and
services other than the services reported above. For fiscal years 2004 and 2003,
this category included fees related to professional reference materials and
publications. For fiscal year 2004, one hundred percent of these services were
approved by the Audit Committee pursuant to the de minimis exception established
under the Sarbanes-Oxley Act of 2002 and the regulations of the Securities and
Exchange Commission.
Pre-Approval Policies and Procedures
The Audit Committee approves all audits, audit-related services, tax
services and other services provided by Ernst & Young LLP. Any services provided
by Ernst & Young LLP that are not specifically included within the scope of the
audit must be either (i) pre-approved by the entire Audit Committee in advance
of any engagement or (ii) pre-approved by the Chairman of the Audit Committee
pursuant to authority delegated to him by the other independent members of the
Audit Committee, in which case the Audit Committee is then informed of his
decision. Under the Sarbanes-Oxley Act of 2002, these pre-approval requirements
are waived for non-audit services where (i) the aggregate of all such services
is no more than 5% of the total amount paid to the external auditors during the
fiscal year in which such services were provided, (ii) such services were not
recognized at the time of the engagement to be non-audit services and (iii) such
services are approved by the Audit Committee prior to the completion of the
audit engagement. In 2004, less than 2% of the fees paid to Ernst & Young LLP
for non-audit services were approved pursuant to the above exception.
In making its recommendation to appoint Ernst & Young LLP as our
independent auditor for the fiscal year ending December 31, 2005, the Audit
Committee has considered whether the services provided by Ernst & Young LLP are
compatible with maintaining the independence of Ernst & Young LLP and has
determined that such services do not interfere with that firm's independence in
the conduct of its auditing function.
30
INFORMATION ABOUT SHAREHOLDER PROPOSALS
If you wish to submit a proposal to be included in our 2006 proxy
statement pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as
amended, we must receive your written proposal on or before January 5, 2006.
Please address your proposals to: Raymond C. Kolls, Corporate Secretary,
Orthofix International N.V., 7 Abraham de Veerstraat, Curacao, Netherlands
Antilles.
Pursuant to Rule 14a-4(c) (1) under the Securities Exchange Act of
1934, as amended, our proxy holders may use discretionary authority to vote with
respect to shareholder proposals presented in person at the 2006 annual general
meeting if the shareholder making the proposal has not notified Orthofix by
March 21, 2006 of its intent to present a proposal at the 2006 annual general
meeting.
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Appendix I
ARTICLE 10 OF THE ARTICLES OF ASSOCIATION
A copy of the proposed amendment to Article 10 of the Articles of
Association is included in this Appendix I. Language added to Article 10 appears
in all capital letters.
10.1 The Board of Directors annually shall elect or appoint the following
officers: a Chairman, a President, a Secretary and a Treasurer, each
to serve until his successor is elected and qualified. The Board of
Directors from time to time also may elect or appoint a Chairman of
the Executive Committee, one or more Vice Chairmen of the Board of
Directors, one or more Vice Presidents (who may have such additional
descriptive designations as the Board of Directors may determine), a
Controller, one or more Assistant Treasurers, Assistant Controllers
and any such other officers and agents as it determines proper, all
of whom shall hold office at the pleasure of the Board of Directors.
The same person may hold any two or more of the aforesaid offices but
no officer shall execute, acknowledge or verify an instrument in more
than one capacity if such instrument is required by law or by these
Articles of Association to be executed, acknowledged or verified by
two or more officers. The Chairman and the Vice Chairman of the
Executive Committee shall be chosen from among the Board of
Directors, but the other officers of the Company need not be members
of the Board of Directors.
10.2 The Company shall be represented at law and otherwise, and shall be
bound with respect to third parties by:
(a) those directors authorized by the Board of Directors to represent
the Company, who shall have the following titles and occupy the
following offices:
(i) Chairman; or
(ii) Vice Chairman;
(b) persons, who may, but are not required to, be directors,
authorized by the Board of Directors to represent the Company,
who shall have the following titles and occupy the following
offices:
(i) President;
(ii) one or more Vice Presidents;
(iii) Chief Executive Officer;
(iv) Chief Operating Officer;
(v) Controller;
(vi) Treasurer; or
(vii) Secretary.
(c) Persons, who the Board of Directors may also from time to time
authorize, who may or may not be directors, to represent the
Company, who shall have such titles and occupy such additional
offices as the Board of Directors may determine, INCLUDING BUT
NOT LIMITED TO THE FOLLOWING OFFICES:
(i) CHIEF FINANCIAL OFFICER, WHO SHALL HAVE PRINCIPAL
RESPONSIBILITY FOR THE FINANCIAL ACCOUNTING AFFAIRS OF THE
COMPANY, AND TO WHOM, IN THE ABSENCE OF SPECIFIC CONTRARY
DETERMINATION OF THE BOARD OF DIRECTORS, THE CONTROLLER AND
TREASURER SHALL REPORT, DIRECTLY OR INDIRECTLY; AND
(ii) A GENERAL COUNSEL, WHO SHALL HAVE PRINCIPAL RESPONSIBILITY
FOR THE LEGAL AFFAIRS OF THE COMPANY, AND WHOSE DUTIES SHALL
INCLUDE PROVIDING LEGAL COUNSEL TO THE BOARD OF
I-1
Appendix I
ARTICLE 10 OF THE ARTICLES OF ASSOCIATION
DIRECTORS, THE OFFICERS, AND THE EMPLOYEES AND AGENTS OF THE
COMPANY AS REQUESTED IN CONNECTION WITH THEIR ACTIVITIES ON
BEHALF OF THE COMPANY.
10.3 The General Meeting of Shareholders may grant specific authority to
the Chairman, the President or any member of the Board of Directors
to represent the Company with respect to any particular matter as
specified by such General Meeting of Shareholders.
10.4 The persons holding the above-mentioned offices or any other offices
which the Board of Directors may from time to time authorize as
herein provided shall, respectively, have such power and authority as
the Board of Directors may from time to time grant to the holders of
the offices held by them.
10.5 The Board of Directors may grant general or specific authority to
additional agents or to committees, giving such agents or committees
such general or limited powers or duties as it may deem appropriate.
10.6 The Board of Directors may adopt and may amend and repeal such rules
and regulations as it may deem appropriate for the conduct of the
affairs and the management of the Company, including rules,
regulations and resolutions setting forth the specific powers and
duties of the holders of the above-mentioned offices and other
persons authorized by the Board of Directors to represent the Company
(the "By-laws"). Such rules, regulations and resolutions must be
consistent with these Articles of Association.
10.7 The directors, the holders of the above-mentioned offices and other
persons authorized by the Board of Directors to represent the Company
shall receive such compensation as the Board of Directors may from
time to time prescribe.
I-2
Appendix II
ARTICLE 11 OF THE ARTICLES OF ASSOCIATION
A copy of the proposed amendment to Article 11 of the Articles of
Association is included in this Appendix II. As Article 11 has been restated in
its entirety, specific changes have not been highlighted.
11.1 The Company shall promptly indemnify, to the full extent permitted by
law, any person made or threatened to be made a party to any Action
by reason of the fact that the person, or his or her testator or
intestate, is or was a director or officer of the Company or serves
or served any other enterprise as a director or officer at the
request of the Company or any predecessor of the Company (such
person, an "Executive") against all Liabilities and Expenses he or
she may incur in connection with such Action.
The following terms as used in this Article 11 shall be defined
as follows:
a) "Action(s)" includes, without limitation, any threatened,
pending or completed action, claim, litigation, suit or
proceeding, whether civil, criminal, administrative,
arbitrative or investigative, predicated on any applicable
law of any jurisdiction, including, without limitation, the
Securities Act of 1933, as amended, and/or Securities
Exchange Act of 1934, as amended, and/or their respective
state counterparts and/or any rule or regulation promulgated
there under, whether a Derivative Action and/or whether
formal or informal.
b) "Expenses" shall include, without limitation, any and all
reasonable expenses, fees, costs, charges, attorneys' fees
and disbursements, other out-of-pocket costs, reasonable
compensation for time spent by the Executive in connection
with the Action for which he or she is not otherwise
compensated by the Company, any affiliate, any third party
or other entity and any and all other reasonable direct and
indirect costs of any type or nature whatsoever.
c) "Liabilities" shall include, without limitation, judgments,
amounts incurred in settlement, fines, penalties and, with
respect to any employee benefit plan, any excise tax or
penalty incurred in connection therewith, all Expenses and
any and all other reasonable liabilities of every type or
nature whatsoever incurred in connection with the subject
Action.
11.2 The Company shall from time to time pay to or reimburse an Executive,
or such other person or entity as the Executive may designate in
writing to the Company, Expenses incurred by or on behalf of such
Executive in connection with any Action in advance of the final
disposition or conclusion of any such Action within ten days after the
receipt of the Executive's written request therefore; provided, that
the Executive furnishes to the Company an executed written certificate
affirming his or her good faith belief that he or she has not engaged
in misconduct which would render indemnification impermissible under
Section 11.1 or applicable law, and agrees in writing to repay any
advances made under this Section 11.2 if it is ultimately determined by
a court of competent jurisdiction, or other panel or authority
consented to by the Executive, that he or she is not entitled to be
indemnified by the Company.
11.3 The Company may purchase and maintain insurance on behalf of any person
who is or was an Executive of the Company, and/or is or was serving as
an Executive of an affiliate, against Liabilities asserted against him
or her and/or incurred by or on behalf of him or her in any such
capacity, or arising out of his or her status as such an Executive,
whether or not the Company would have the power to indemnify him or her
against such Liabilities under this Article 11 or under applicable law.
Except as expressly provided herein, the purchase and maintenance of
such insurance shall not in any way limit or affect the rights and
obligations of the Company and/or any Executive under this Article 11.
Such insurance may, but need not, be for the benefit of all Executives
of the Company and those serving as Executives of one or more
affiliates. The Company may also create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters
of credit, surety bonds and/or other similar arrangements), as well as
enter into contracts providing indemnification to the full extent
permitted by law and including as part thereof provisions with respect
to any or all of the foregoing to ensure the payment of such amounts as
may become necessary to effect indemnification as provided herein,
therein or elsewhere. Such contracts may also include, without
limitation, procedures for the determination of the right to
indemnification (including the choice of venues and courts, agencies,
panels or other authorities designated to make such determination),
burden of proof, remedies for failure to make prompt payment, and other
matters pertaining to both the substance of and procedures for
indemnification.
II-1
Appendix II
ARTICLE 11 OF THE ARTICLES OF ASSOCIATION
11.4 To the extent determined appropriate by the Board of Directors, the
Company may indemnify and hold harmless any person who is or was a
party, or is threatened to be made a party to any Action by reason of
his or her status as, or the fact that he or she is or was an employee
or authorized agent or representative of the Company and/or an
affiliate as to Liabilities incurred in connection with an Action
arising out of acts performed in the course and within the scope of
such employee's, agent's or representative's duties to the Company
and/or an affiliate, in accordance with and to the fullest extent
permitted by applicable law.
11.5 If any provision of this Article 11 shall be deemed invalid or
inoperative, or if a court of competent jurisdiction determines that
any of the provisions of this Article 11 contravene public policy, this
Article 11 shall be construed so that the remaining provisions shall
not be affected, but shall remain in full force and effect, and any
such provisions which are invalid or inoperative or which contravene
public policy shall be deemed, without further action or deed by or on
behalf of the Company, to be modified, amended and/or limited, but only
to the extent necessary to render the same valid and enforceable, and
the Company shall indemnify and hold harmless an Executive against
Liabilities incurred with respect to any Action to the fullest extent
permitted by any applicable provision of this Article 11 that shall not
have been invalidated and to the fullest extent otherwise permitted by
applicable law; it being understood that the intention of the Company
is to provide the Executives with the maximum protection against
personal liability available under applicable law.
11.6 The right to indemnification against Liabilities and advancement of
Expenses provided to an Executive by this Article 11 shall not be
deemed exclusive of any other rights to indemnification against
Liabilities and advancement of Expenses which any Executive or other
employee or agent of the Company and/or of an affiliate may be entitled
under any charter provision, written agreement, resolution, vote of
shareholders or disinterested directors of the Company or otherwise,
both as to acts in his or her official capacity as such Executive or
other employee or agent of the Company and/or of an affiliate or as to
acts in any other capacity while holding such office or position,
whether or not the Company would have the power to indemnify against
Liabilities or advance Expenses to the Executive under this Article 11
or under applicable law.
11.7 The terms and provisions of this Article 11 shall continue as to an
Executive subsequent to the cessation of his or her tenure as such, and
such terms and provisions shall be binding upon and inure to the
benefit of the heirs, estate, executors and administrators of such
Executive and the successors and assigns of the Company, including,
without limitation, any successor to the Company by way of merger,
consolidation and/or sale or disposition of all or substantially all of
the assets or capital stock of the Company. Except as provided herein,
all rights and obligations of the Company and the Executive hereunder
shall continue in full force and effect despite the subsequent
amendment or modification of the Company's Articles of Association, as
it is in effect on the date hereof, and such rights and obligations
shall not be affected by any such amendment or modification, any
resolution of directors or shareholders of the Company, or by any other
corporate action which conflicts with or purports to amend, modify,
limit or eliminate any of the rights or obligations of the Company
and/or of the Executive hereunder.
11.8 This Article 11 shall be deemed to be a contract between the Company
and each Executive and any repeal or other limitation of this Article
11 or any repeal or limitation of any applicable law shall not limit
any rights of indemnification against Liabilities or allowance of
Expenses then existing or arising out of events, acts or omissions
occurring prior to such repeal or limitation, including, without
limitation, the right to indemnification against Liabilities or
allowance of Expenses for Actions commenced after such repeal or
limitation to enforce this Article 11 with regard to acts, omissions or
events arising pr prior to such repeal or limitation.
II-2
Appendix III
FORM OF PROXY
--------------------------------------------------------------------------------
ORTHOFIX INTERNATIONAL N.V.
This Proxy is Solicited on Behalf of the Board of Directors of
Orthofix International N.V.
The undersigned hereby appoints Mr. Thomas Hein and Mr. Raymond C. Kolls
and each of them with the power of substitution attorneys, proxies of the
undersigned to vote the number of Orthofix shares the undersigned would be
entitled to vote if personally present at the annual general meeting of
shareholders of Orthofix International N.V. ("Orthofix"), in Curacao,
Netherlands Antilles, at 11:00 a.m., local time, on June 15, 2005 and at any
adjournments thereof, for the transaction of such business as may come before
the meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSALS 1, 2,
3 and 4.
This proxy when properly executed will be voted in the manner directed
by the undersigned. If no instructions are given, this proxy will be voted FOR
proposals 1, 2, 3 and 4.
(continued, and to be dated and signed on the reverse side.)
----
PLEASE CHECK BOX IF YOU INTEND / / COMMENTS/ADDRESS CHANGE:
TO BE PRESENT AT MEETING. ---- PLEASE MARK COMMENT/ADDRESS
ORTHOFIX INTERNATIONAL N.V. BOX ON THE REVERSE SIDE
P.O. BOX 11144
NEW YORK, N.Y. 10203-0144 ----------------------------
----------------------------
----------------------------
DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
Sign, Date and Return the
Proxy Card Promptly Using ----
the Enclosed Envelope. / X /
----
Votes must be indicated
(x) in Black or Blue ink.
1. Election of the following persons to the Board of Directors:
---- ---- ----
FOR ALL NOMINEES / / WITHHOLD AUTHORITY / / *EXCEPTIONS / /
---- ---- ----
Nominees: Charles W. Federico, James F. Gero, Robert Gaines-Cooper, Jerry C.
Benjamin, Peter J. Hewett, Walter P. von Wartburg, Thomas J. Kester,
Kenneth R. Weisshaar, Guy J. Jordan and Stefan Widensohler.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exception" box and write that nominee's name in the space provided below).
*Exceptions
--------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to approve amendments to the Articles ---- ---- ----
of Association (Article 10 and Article 11). / / / / / /
---- ---- ----
FOR AGAINST ABSTAIN
3. Proposal to approve balance sheet and income ---- ---- ----
statement at and for the year ended December / / / / / /
31, 2004. ---- ---- ----
FOR AGAINST ABSTAIN
4. Proposal to ratify the selection of Ernst & ---- ---- ----
Young as independent auditors for Orthofix and / / / / / /
its subsidiaries for the fiscal year ending ---- ---- ----
December 31, 2005.
COMMENT/ADDRESS CHANGE ----
Please mark this box if you have written / /
comment/address change on the reverse side. ----
SCAN LINE
IMPORTANT: Please date this proxy and sign below exactly as your name appears
hereon. Executors, administrators, trustees, guardians and officers signing in
a representative capacity should give full title. If Orthofix shares are held
in more than one capacity, this proxy will be deemed to vote all Orthofix shares
held in all capacities.
--------------------------------- ----------------------------------
Date Share Owner sign here Co-Owner sign here
III-1