UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________ to ____________.
Commission File Number: 0-19961
ORTHOFIX INTERNATIONAL N.V.
(Exact name of registrant as specified in its charter)
Netherlands Antilles N/A
----------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 Abraham de Veerstraat
Curacao
Netherlands Antilles N/A
----------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
599-9-4658525
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ X ] No [ ]
The aggregate market value of registrant's common stock held by non-affiliates,
based upon the closing price of the common stock on the last business day of the
registrant's most recently completed second fiscal quarter, June 30, 2003, as
reported by the Nasdaq National Market, was approximately $178.5 million. Shares
of common stock held by executive officers and directors and persons who own 5%
or more of the outstanding common stock have been excluded since such persons
may be deemed affiliates. This determination of affiliate status is not a
determination for any other purpose.
As of April 28, 2004, 15,230,662 shares of common stock were issued and
outstanding.
EXPLANATION
The purpose of the amendment to our Form 10-K for the fiscal year ended
December 31, 2003 is to include the Section 16(a) Beneficial Ownership Reporting
Compliance information required by Item 10 of Part III of Form 10-K and all of
the information required by Item 11, Item 12, Item 13 and Item 14 of Part III of
Form 10-K, which we indicated in our Form 10-K would be provided in our
definitive proxy statement or in an amendment to our Form 10-K not later than
120 days after the end of the fiscal year covered by that Form 10-K.
Item 10. Directors and Executive Officers of the Registrant
---------------------------------------------------------------
New Director Nominee
Mr. Walter von Wartburg, 64, is being nominated for Director of
Orthofix International N.V. for the first time this year. He is an attorney and
has practiced privately in his own law firm in Basel, Switzerland since 1999,
specializing in life sciences law. Mr. von Wartburg 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.
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, 2003, 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. Wallner reported on a Form 4 filed on May 21, 2003,
shares of common stock he acquired indirectly on May 9, 2003, and Messrs.
Benjamin, Brown, d'Abreu de Paulo, Federico, Gero, Hartsuiker, Hein and Henley
reported on Form 4s filed on August 26, 2003, option grants to purchase shares
of our common stock that they received on August 6, 2003, and Mr. Littlechild
reported on a Form 4 filed on August 27, 2003, an option grant to purchase
shares of our common stock that he received on August 6, 2003.
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.
1
Item 11. Executive Compensation
-----------------------------------
Executive Compensation Summary
The following table sets forth the compensation paid or accrued by us
during the fiscal years ended December 31, 2003, 2002 and 2001 to, or on behalf
of, our chief executive officer and our four most highly compensated executive
officers as of December 31, 2003. We refer to these officers collectively as the
"named executive officers."
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Summary Compensation Table
Annual Compensation
Number of
Other Annual Shares
Compensation Underlying All Other
Name and Principal Position Year Salary Bonus (1) Options Compensation
Charles Federico ................... 2003 $450,944 $171,755 -0- 30,000 $11,355 (2)
Chief Executive Officer and President 2002 450,640 40,000 -0- -0- 9,450
2001 437,810 150,000 -0- -0- 9,424
Robert Gaines-Cooper ............... 2003 200,625 -0- -0- -0- -0-
Chairman of the Board 2002 260,813 -0- -0- -0- -0-
2001 321,000 80,250 -0- -0- -0-
Edgar Wallner ...................... 2003 183,718 -0- -0- -0- -0-
Vice Chairman 2002 256,826 -0- -0- -0- -0-
2001 324,680 79,200 -0- -0- -0-
Gary Henley......................... 2003 269,673 133,000 -0- 10,000 8,603 (3)
Senior Vice President and President, 2002 256,965 45,126 -0- -0- 7,327
Americas Division 2001 219,710 88,000 -0- -0- 7,249
Thomas Hein ........................ 2003 239,099 100,000 -0- 10,000 8,979 (4)
Chief Financial Officer 2002 213,980 53,900 -0- 12,500 7,249
2001 188,826 76,072 $83,486 (5) 7,500 7,186
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(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 $8,000 for contributions to vested and
unvested accounts attributable under the Company's defined
contribution plans and $3,355 for insurance premiums paid by, or on
behalf of, the Company with respect to term life insurance.
(3) Amount shown consists of $8,000 for contributions to vested and
unvested accounts attributable under the Company's defined
contribution plans and $603 for insurance premiums paid by, or on
behalf of, the Company with respect to term life insurance.
(4) Amount shown consists of $8,000 for contributions to vested and
unvested accounts attributable under the Company's defined
contribution plans and $979 for insurance premiums paid by, or on
behalf of, the Company with respect to term life insurance.
(5) Amount shown consists of $2,228 for long-term disability premiums,
$10,800 for car allowance, and $70,458 for relocation expenses.
2
Stock Options
The following table contains information regarding option grants by us
to our named executive officers during the year ended December 31, 2003.
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Option/SAR Grants in Last Fiscal Year
Individual Grants
--------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to Employees Exercise or Grant Date
Options/SARs in Base Price Expiration Present
Name Granted(1) Fiscal Year ($/Share)(2) Date Value(3)
Charles Federico .......... 30,000 6.7 32.18 8/6/13 $286,827
Robert Gaines-Cooper ...... -0- -0- -0- -0- -0-
Edgar Wallner ............. -0- -0- -0- -0- -0-
Gary Henley ............... 10,000 2.2 32.18 8/6/13 $95,609
Thomas Hein ............... 10,000 2.2 32.18 8/6/13 $95,609
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(1) All option grants to the named executive officers were made pursuant
to our Staff Share Option Plan and have a ten-year term. All options
will vest and become exercisable on August 6, 2006.
(2) All options were granted to the named executive officers at an
exercise price equal to the fair market value of the underlying stock
on the date of grant.
(3) This estimated hypothetical value is based on a Black-Scholes option
pricing valuation model in accordance with SEC rules. We used the
following assumptions in estimating this value: expected option term,
4.5 years; risk-free interest rate, 3.5%; expected volatility, 35%;
and an expected dividend yield of 0%.
Option Exercises and Year-End Option Values
The following table provides information about the number of our shares
of common stock issued upon the exercise of options by our named executive
officers during the year ended December 31, 2003, and the value realized by our
named executive officers. The table also provides information about the number
and value of our options held by our named executive officers at December 31,
2003.
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Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
Number of Number of Securities Underlying Value of Unexercised In-the-
Shares Acquired Value Unexercised Options at Fiscal Money Options at Fiscal Year
Name on Exercise(#) Realized($) Year End(#) End($)(1)
Exercisable Unexercisable Exercisable Unexercisable
Charles Federico ......... -0- -0- 265,000 130,000 9,055,400 3,614,500
Robert Gaines-Cooper...... 275,000 2,596,000 100,000 87,500 3,110,500 2,721,688
Edgar Wallner............. -0- -0- 100,000 87,500 3,110,500 2,721,688
Gary Henley .............. 30,000 454,810 50,000 60,000 1,555,250 1,723,250
Thomas Hein .............. -0- -0- 40,000 30,000 1,337,950 547,600
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3
(1) Based on the closing price of common stock, as reported on the Nasdaq
National Market, at December 31, 2003, which was $48.98 per share.
Director Compensation
Directors who are our employees do not receive fees for service on the
Board of Directors or any Board committee. During 2003, each of our non-employee
directors received an annual retainer 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.
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.
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.
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 connection with these consulting and advisory services. In 2003,
we paid $128,675 in consulting fees to Mr. Hewett, which is in addition to his
director fees. We also reimbursed Mr. Hewett for travel and other related
expenses incurred in connection with the performance of such consulting and
advisory services. In 2004, Mr. Hewett will receive a fee of $1,500 per day for
each day of requested consulting and advisory services, in addition to his
director fees.
Executive Employment Agreements
Executive Employment Agreement for Charles Federico
On July 1, 2001, we entered into an employment agreement with Mr.
Charles W. Federico under which Mr. Federico serves as our President and Chief
Executive Officer. The initial three-year term of the agreement ends on July 1,
2004, and automatically renews for successive one-year periods, unless either
party notifies the other party of its intention not to renew the agreement
within the requisite time period. Mr. Federico is entitled to the base salary
and bonus as determined by our Board of Directors. For 2003, Mr. Federico
received a base salary of $450,944 and a bonus of $171,755. Mr. Federico is also
eligible to participate in all employee benefit plans, programs and arrangements
in effect for senior executives.
If Mr. Federico is terminated without cause or resigns for good reason
(as such terms are defined in his employment agreement) during the term of the
agreement, he is entitled to convert his current position with us to a
consultancy for the remainder of the then-existing term of employment, and
receive a consulting fee of at least $50,000 per year. Upon a change in control
of the Company, Mr. Federico agrees to remain employed for at least six months
from the effective date of such change in control, unless his employment is
terminated earlier by the Company. During the three-month period immediately
following such six-month period, Mr. Federico may terminate his employment for
good reason and convert his agreement into a consulting agreement as described
above. The employment agreement contains a non-solicitation of employees and
customers provision that extends through the third anniversary of Mr. Federico's
termination of employment, a non-competition provision that remains in effect
for so long as Mr. Federico is employed by us and a confidentiality provision
that lasts indefinitely.
Employment Agreements for Edgar Wallner and Robert Gaines-Cooper
On July 1, 1999, we entered into employment agreements with Messrs.
Edgar Wallner and Robert Gaines-Cooper. Mr. Wallner originally served as our
President and Chief Executive Officer until January 1, 2001 when he resigned as
President and Chief Executive Officer and began serving as our Deputy Chairman
of the Board of Directors under the same employment agreement. Mr. Wallner
currently serves as Vice Chairman, and Mr. Gaines-Cooper serves as the Chairman
of the Board of Directors.
4
The initial three-year term of these agreements ended on July 1, 2002,
but these agreements have been subject to automatic renewal for successive
one-year periods since that time. We have notified each of Messrs. Wallner and
Gaines-Cooper of our intention not to extend their respective agreements beyond
the term currently in effect. Therefore, the employment agreements with Messrs.
Wallner and Gaines-Cooper will terminate as of July 1, 2004. Following the
termination of these employment agreements, Mr. Wallner will continue to serve
as Vice Chairman, and Mr. Gaines-Cooper will continue to serve as the Chairman
of the Board of Directors.
The agreements provide that the executives are entitled to base
salaries and bonuses as determined by our Board of Directors. For 2003, Mr.
Wallner received a base salary of $183,718 and a bonus of $0 and Mr.
Gaines-Cooper received a base salary of $200,625 and a bonus of $0. Messrs.
Wallner and Gaines-Cooper are also eligible to participate in all employee
benefit plans, programs and arrangements in effect for senior executives.
The effects of a termination without cause, a resignation for good
reason or a change of control on Messrs. Wallner and Gaines-Cooper's service
with the Company would be substantially similar to those described above for Mr.
Federico. In addition, the agreements contain a non-solicitation of employees
and customers provision that extends through the third anniversary of the
executive's respective termination of employment, a non-competition provision
that remains in effect for so long as the executive is employed by us and a
confidentiality provision that lasts indefinitely.
Executive Employment Agreements for Thomas Hein, Gary Henley and
Bradley 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. Under the
agreements, the executives are entitled to base salaries and 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 2003, the base salaries of each
of Messrs. Hein and Henley were $239,099 and $269,673, respectively. In
addition, for 2003, Messrs. Hein and Henley received annual bonuses of $100,000
and $133,000, 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 prior to 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
5
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 nonsolicitation of clients, customers and employees
provision that lasts for two years following a termination of employment for any
reason.
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 of
$38.00 per share represents the fair market value of our common stock 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.
Compensation Committee Interlocks and Insider Participation
During 2003, the Compensation Committee of our Board of Directors
consisted of two members, John W. Littlechild and James F. Gero. Both Mr.
Littlechild and Mr. Gero 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, 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 connection with these consulting and advisory services. In 2003,
we paid $128,675 in consulting fees to Mr. Hewett, which is in addition to his
director fees. We also reimbursed Mr. Hewett for travel and other related
expenses incurred in connection with the performance of such consulting and
advisory services. In 2004, Mr. Hewett will receive a fee of $1,500 per day for
each day of requested consulting and advisory services, in addition to his
director fees.
6
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholders
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Security Ownership of Certain Beneficial Owners
The following table shows each person, or group of affiliated persons,
who beneficially owns, directly or indirectly, at least 5% of Orthofix common
stock as of December 31, 2003. 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 figure for the common stock is based on 14,980,010
shares of our common stock outstanding as of December 31, 2003, other than with
respect to Mr. Robert Gaines-Cooper for which information is given and
calculations are made as of April 15, 2004. 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
FMR Corp. ......................................... 2,133,147 (1) 14.2%
82 Devonshire Street
Boston, MA 02109
Robert Gaines-Cooper .............................. 620,200 (2) 4.0%
Orthofix International N.V. 873,000 (3) 5.7%
7 Abraham de Veerstraat
Curacao, Netherlands Antilles
Federated Investors, Inc. ......................... 1,177,860 (4) 7.9%
Federated Investors Tower
Pittsburgh, PA 15222-3779
Kayne Anderson Rudnick Investment
Management, LLC ................................. 973,913 (5) 6.5%
1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067
Wellington Management Company, LLP ................ 873,590 (6) 5.8%
75 State Street
Boston, MA 02109
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(1) Based on an amendment to a Schedule 13G filed on February 17, 2004 by
FMR Corp., a parent holding company, Edward C. Johnson 3d, Abigail P.
Johnson, Fidelity Management and Research Company, Fidelity Low Priced
Stock Fund and Fid Diversified International. FMR Corp. reported sole
voting power with respect to 94,347 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
2,039,647 of the reported shares. Fidelity Management Trust Company, a
bank and a wholly-owned subsidiary of FMR Corp., is the beneficial
owner of 80,300 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. Fidelity
International Limited ("FIL"), an investment adviser and former
subsidiary of Fidelity and FMR Corp., is the beneficial owner of, and
has sole voting and dispositive power with respect to, 13,200 of the
reported shares.
(2) Amount consists of 432,700 shares owned directly and 187,500 currently
exercisable stock options.
7
(3) Amount shown consists of 693,000 shares owned by a trust in which Mr.
Gaines-Cooper has an indirect interest and 180,000 shares owned by LMA
International S.A. A trust, of which Mr. Gaines-Cooper is a settlor,
owns a 40% interest in LMA International S.A.
(4) Based on an amendment to a Schedule 13G filed on February 13, 2004 by
Federated Investors, Inc., a parent holding company, Voting Shares
Irrevocable Trust and John F. Donahue, Rhodora J. Donohue and J.
Christopher Donahue, collectively, as the Trustees of the Voting
Shares Irrevocable Trust. Federated Investors, Inc., Voting Shares
Irrevocable Trust and the Trustees reported sole voting and
dispositive power with respect to, and disclaimed beneficial ownership
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/A.
(5) Based on an amendment to a Schedule 13G filed on February 10, 2004 by
Kayne Anderson Rudnick Investment Management, LLC, an investment
advisor. Kayne Anderson Rudnick Investment Management, LLC 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/A.
(6) Based on an amendment to a Schedule 13G filed on February 12, 2004 by
Wellington Management Company, LLP, an investment advisor. Wellington
Management Company, LLP reported shared voting power with respect to
646,140 of the reported shares and shared dispositive power with
respect to all 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/A.
8
Security Ownership of Management
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, 2004 by each director, each nominee for director, each
executive officer listed in Summary Compensation Table and all directors and
executive officers as a group. The percent of class figure is based on
15,227,362 shares of our common stock outstanding as of April 15, 2004. All
directors and executive officers as a group beneficially owned 2,957,281 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
Robert Gaines-Cooper .............................. 620,200 (1) 4.0%
873,000 (2) 5.7%
Edgar Wallner ..................................... 436,100 (3) 2.8%
Charles Federico .................................. 254,591 (4) 1.6%
Thomas Hein ....................................... 48,121 (5) *
Peter Clarke ...................................... 200,000 (6) 1.3%
Gary Henley ....................................... 51,000 (7) *
Galvin Mould ...................................... 10,000 (8) *
Bradley R. Mason .................................. 170,754 (9) 1.1%
Jerry Benjamin .................................... 69,282 (10) *
Alberto d'Abreu de Paulo........................... 12,000 (11) *
Frederik Hartsuiker ............................... 18,500 (12) *
Peter Hewett ...................................... 97,300 (13) *
John Littlechild .................................. 45,861 (14) *
James Gero ........................................ 50,572 (15) *
Walter von Wartburg (16)........................... -0- -0-
Directors and executive officers
as a group (15 persons)......................... 2,957,281 18.2%
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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.
(2) Amount shown consists of 693,000 shares owned by a trust in which Mr.
Gaines-Cooper has an indirect interest, and 180,000 shares owned by
LMA International S.A. A trust, of which Mr. Gaines-Cooper is a
settlor, owns a 40% interest in LMA International S.A.
9
(3) Amount shown consists of 45,000 shares owned directly, 142,500
currently exercisable stock options, and 248,600 shares owned
indirectly.
(4) Amount shown consists of 3,691 shares owned directly, 250,000
currently exercisable stock options, and 900 shares owned indirectly.
(5) Amount consists of 621 shares owned directly and 47,500 currently
exercisable stock options.
(6) Amount consists of 200,000 currently exercisable stock options.
(7) Amount consists of 50,000 currently exercisable stock options and
1,000 shares owned indirectly.
(8) Amount consists of 10,000 currently exercisable stock options.
(9) Amount consists of 170,754 shares owned indirectly.
(10) Amount consists of 59,282 shares owned directly and 10,000 currently
exercisable stock options.
(11) Amount consists of 2,000 shares owned directly and 10,000 currently
exercisable stock options.
(12) Amount consists of 8,500 shares owned directly and 10,000 currently
exercisable stock options.
(13) Amount consists of 24,000 shares owned directly and 73,300 currently
exercisable stock options.
(14) Amount consists of 35,861 shares owned directly and 10,000 currently
exercisable stock options.
(15) Amount consists of 25,572 shares owned directly and 25,000 currently
exercisable stock options.
(16) Mr. von Wartburg is a new nominee for director.
Equity Compensation Plan Information
We maintain three equity compensation plans, the Staff Share Option
Plan (including the Performance Accelerated Stock Option program), the Executive
Share Option Plan and the Employee Stock Purchase Plan, which have been approved
by our shareholders. There are currently no more shares available for issuance
under the Executive Share Option Plan or the Performance Accelerated Stock
Option program. We have also granted inducement stock option awards (described
below) that have not been approved by our shareholders.
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, 2003.
The table does not include information about the proposed 2004 Long-Term
Incentive Plan, which has not yet been approved by our shareholders and under
which no grants have been made. In addition, the table does not include shares
subject to outstanding options and warrants that we have assumed in mergers and
other acquisitions. Footnote 1 to the table sets forth the total number of
shares of common stock issuable upon the exercise of options and warrants
granted under plans assumed in mergers and outstanding at December 31, 2003, and
the weighted average exercise price of those options. We cannot grant additional
awards under those plans.
10
----------------------------------------------------------------------------------------------------------------------
(c)
Number of Securities
(a) (b) 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 1,819,629 (2) $19.67 413,158 (3)
by Security Holders
----------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans Not 200,000 (4) $38.00 0
Approved by Security Holders
----------------------------------------------------------------------------------------------------------------------
Total 2,019,629 $21.48 413,158
----------------------------------------------------------------------------------------------------------------------
(1) The table does not include information for equity compensation plans
we assumed in mergers and other acquisitions. As of December 31, 2003,
a total of 31,873 shares of common stock was issuable upon the
exercise of options and warrants assumed in mergers and other
acquisitions, including 6,054 shares issuable upon the exercise of
options and warrants granted under plans assumed in connection with
our acquisition of American Medical Electronics Inc., and 25,819
shares issuable upon the exercise of warrants granted under plans
assumed in connection with our acquisition of Kinesis Medical Inc. The
weighted average exercise price of all options and warrants granted
under plans assumed in mergers and other acquisitions and outstanding
at December 31, 2003, was $30.39. We cannot grant additional awards
under these assumed plans.
(2) Options were granted pursuant to the following plans: the Staff Share
Option Plan (including the Performance Accelerated Stock Option
program) and the Executive Share Option Plan. As mentioned above,
there are currently no more shares available for issuance under the
Executive Share Option Plan or the Performance Accelerated Stock
Option program.
(3) Includes 255,845 shares available for issuance pursuant to the
Employee Stock Purchase Plan and 157,313 shares available for grant
under the Staff Share Option 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 of $38.00
per share represents the fair market value of our common stock 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.
11
Item 13. Certain Relationships and Related Transactions
-----------------------------------------------------------
Certain Relationships and Related Transactions
Certain of our directors own beneficial interests in LMA International
S.A., or LMA. Mr. Gaines-Cooper is the Chairman of LMA and is the settlor of a
trust which owns 40% of LMA. Mr. Peter Clarke and Mr. Peter Hewett serve as
directors of Laryngeal Mask North America, a subsidiary of LMA. LMA, which owns
the distribution rights in Italy to 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 D.M.O. S.r.l, a
subsidiary of Orthofix International.
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
LMA International S.A. (LMA) 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, Chairman of Orthofix, is a settlor of trusts,
which own a 30% interest in Intavent and a 40% interest in LMA. 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. LMA owns a 27% interest in Arrow. Mr. Gaines-Cooper is the Chairman of
LMA and is the settlor of a trust which owns 40% of LMA. Mr. Wallner is the
settlor of a trust which owns a 10% interest in Arrow. In 2003, Novamedix
purchased $5.6 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 LMA
under a three year lease which started in 2002. The annual rent paid to LMA is
approximately $65,000.
In 2003, Verona Controllo Qualita provided quality control and
logistics services to Orthofix S.r.l. and Inter Medical Supplies Limited
(Seychelles), wholly owned subsidiaries of Orthofix. LMA owns a 50% interest in
Verona Controllo Qualita. Mr. Gaines-Cooper is the Chairman of LMA and is the
settlor of a trust that owns 40% of LMA. In 2003, Orthofix purchased $0.3
million from Verona Controllo Qualita for quality control, goods and logistics
services. In March 2004, Orthofix S.r.l terminated its relationship with Verona
Controllo Qualita for quality control and logistics services.
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, 2003, no payments had
been made on either of the loans, and the aggregate amount outstanding under
each of the loans was $156,958 including accrued interest.
12
Item 14. Principal Accountant Fees and Services
---------------------------------------------------
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, 2003 and December 31, 2002:
2003 2002
------------ ------------
Audit Fees.................................................................... $638,312 $502,640
Audit-Related Fees............................................................ 200,396 15,000
Tax Fees...................................................................... 1,048,725 129,678
All Other Fees................................................................ 7,912 0
------------ ------------
Total.................................................................... $1,895,345 $647,318
Audit Fees
Audit fees in 2003 and 2002 consisted of the aggregate fees, including
expenses, billed in connection with the audit of our annual consolidated
financial statements, quarterly reviews, statutory audits of our subsidiaries
and accounting consultations on audit matters.
Audit-Related Fees
Audit-related fees in 2003 and 2002 were for acquisition-related due
diligence services, employee benefit plan audits and accounting consultations. A
substantial portion of the increase in audit-related fees in 2003 from 2002 was
due to acquisition-related due diligence services in connection with our
December 2003 acquisition of Breg, Inc.
Tax Fees
Tax fees in 2003 and 2002 related to services for tax compliance, tax
planning and tax advice. The increase in tax fees in 2003 from 2002 was due to
tax consulting services related to our acquisition of Breg, Inc.
All Other Fees
The remaining fees paid to Ernst & Young LLP in 2003 were related to
access to professional reference materials and publications.
Pre-Approval Policies and Procedures
The Audit Committee approves all audit, 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 2003, less than 2% of the fees paid to Ernst & Young LLP
for non-audit services were approved pursuant to the above exception.
13
In making its recommendation to appoint Ernst & Young LLP as our
independent auditor for the fiscal year ending December 31, 2004, 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.
14
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
----------------------------------------------------------------------------
(a) Documents filed as part of report on Form 10-K
(3) Exhibits
Exhibit
Number Description
------- -----------
3.1* Certificate of Incorporation of the Company (filed as an
exhibit to the Company's annual report on Form 20-F for the
fiscal year ended December 31, 2000 and incorporated herein by
reference).
3.2* Articles of Incorporation of the Company (filed as an exhibit
to the Company's annual report on Form 20-F for the fiscal
year ended December 31, 2000 and incorporated herein by
reference).
10.1* Orthofix Inc. Employee Stock Purchase Plan (filed as an
exhibit to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2002 and incorporated herein by
reference). (1)
10.2* Orthofix International N.V. Staff Share Option Plan (filed as
an exhibit to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2002 and incorporated herein by
reference). (1)
10.3* Form of Performance Accelerated Stock Option under the Staff
Share Option Plan (filed as an exhibit to the Company's annual
report on Form 10-K for the fiscal year ended December 31,
2002 and incorporated herein by reference). (1)
10.4* Orthofix International N.V. Executive Share Option Plan (filed
as an exhibit to the Company's annual report on Form 10-K for
the fiscal year ended December 31, 2002 and incorporated
herein by reference). (1)
10.5* Form of Performance Accelerated Stock Option Inducement
Agreement. (1)
10.6* Employment Agreement, dated as of July 1, 2001, between
Orthofix International N.V. and Charles W. Federico (filed as
an exhibit to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2002 and incorporated herein by
reference). (1)
10.7* Employment Agreement, dated as of March 1, 2003, between the
Company and Thomas Hein (filed as an exhibit to the Company's
annual report on Form 10-K for the fiscal year ended December
31, 2002 and incorporated herein by reference). (1)
10.8* Employment Agreement, dated as of March 1, 2003, between the
Company and Gary D. Henley (filed as an exhibit to the
Company's annual report on Form 10-K for the fiscal year ended
December 31, 2002 and incorporated herein by reference). (1)
10.9* Employment Agreement, dated as of July 1, 1999, between
Orthofix International N.V. and Robert Gaines-Cooper (filed as
an exhibit to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2002 and incorporated herein by
reference). (1)
10.10* Employment Agreement, dated as of July 1, 1999, between
Orthofix International N.V. and Edgar Wallner (filed as an
exhibit to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2002 and incorporated herein by
reference). (1)
15
10.11* Employment Agreement, dated as of November 20, 2003, between
Orthofix International N.V. and Bradley R. Mason. (1)
10.12* Full Recourse Promissory Note between Orthofix International
N.V. and Charles W. Federico dated January 10, 2002 (filed as
an exhibit to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2002 and incorporated herein by
reference).
10.13* Full Recourse Promissory Note between Orthofix International
N.V. and Gary D. Henley dated January 10, 2002 (filed as an
exhibit to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2002 and incorporated herein by
reference).
10.14* Share Purchase Agreement, dated as of March 20, 2003, between
Orthofix International N.V. and Intavent Limited (filed as an
exhibit to the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 2003 and incorporated herein by
reference).
10.15* Acquisition Agreement dated as of November 20, 2003, among
Orthofix International N.V., Trevor Acquisition, Inc., Breg,
Inc. and Bradley R. Mason, as shareholders' representative
(filed as an exhibit to the Company's current report on Form
8-K filed January 8, 2004 and incorporated herein by
reference).
10.16* Voting and Subscription Agreement dated as of November 20,
2003, among Orthofix International N.V. and the significant
shareholders of Breg, Inc. identified on the signature pages
thereto (filed as an exhibit to the Company's current report
on Form 8-K filed January 8, 2004 and incorporated herein by
reference).
10.17* Credit Agreement dated as of December 30, 2003, among Colgate
Medical Limited, as borrower, and Orthofix International N.V
and certain subsidiaries of the borrower, as guarantors,
certain limited guarantors party thereto, the lenders parties
thereto, Wachovia Bank, National Association, as
administrative agent, and Wachovia Capital Markets, LLC, as
sole lead arranger and book manager (filed as an exhibit to
the Company's current report on Form 8-K filed January 8, 2004
and incorporated herein by reference).
14.1* Code of Ethics of the Company.
21.1* Subsidiaries of the Company.
23.1* Consent of Ernst & Young, independent auditors.
23.2* Consent of PricewaterhouseCoopers, independent accountants.
31.1** Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.
31.2** Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.
32.1* Section 1350 Certification of Chief Executive Officer.
32.2* Section 1350 Certification of Chief Financial Officer.
* Previously filed as an exhibit to this Annual Report on Form 10-K.
** Filed herewith.
(1) Management Contract or Compensatory Plan or Arrangement.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ORTHOFIX INTERNATIONAL N.V.
Dated: April 29, 2004 By: /s/ Thomas Hein
-----------------------------
Name: Thomas Hein
Title: Chief Financial Officer
17