UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. [ ])
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Filed by a Party other than the Registrant [ ]
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[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
WEST PHARMACEUTICAL SERVICES, INC.
(Name of Registrant as Specified in Its Charter)
---------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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[ X ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously paid:
(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
[GRAPHIC OMITTED]
NOTICE OF 2004 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 4, 2004
Dear Shareholder,
The 2004 Annual Meeting of Shareholders of West Pharmaceutical
Services, Inc. will be held at the Company's headquarters, 101 Gordon Drive,
Lionville, Pennsylvania 19341, on Tuesday, May 4, 2004, at 9:30 AM, to consider
and take action on the following:
1. Election of four Class II directors: George W. Ebright, L.
Robert Johnson, John P. Neafsey and Geoffrey F. Worden, each
for a term of three years;
2. Approval of the 2004 Stock-Based Compensation Plan;
3. Ratification of the appointment of PricewaterhouseCoopers LLP
as independent auditors for 2004; and
4. Any other matters that properly come before the meeting.
Your Board of Directors recommends a vote "FOR" Proposals 1, 2 and 3.
Only shareholders of record at the close of business on Thursday, March
25, 2004, are entitled to notice of and to vote at the meeting or any
postponement or adjournment of the meeting.
Please date, sign and return the enclosed proxy in the enclosed
envelope, whether or not you expect to attend the meeting in person.
By Order of the Board of Directors,
JOHN R. GAILEY III
Secretary
March 31, 2004
TABLE OF CONTENTS
Page
General Information About The Meeting..........................................1
Purpose of the Meeting....................................................1
Shareholders Entitled to Vote.............................................1
Voting at the Meeting.....................................................1
Required Vote.............................................................2
Voting on Other Matters...................................................2
Cost of Proxy Solicitation................................................2
Stock Ownership................................................................2
The Company's Largest Shareholders........................................2
Stock Ownership of Directors and Executive Officers.......................3
Section 16(a) Beneficial Ownership Reporting Compliance...................4
Governance of the Company......................................................4
Information About the Board and its Committees............................4
Board Meetings............................................................5
Determination of Independence.............................................6
The Chairman, Independent Directors.......................................6
Recommending Candidates for the Board of Directors........................6
Communicating With the Board..............................................7
Code of Business Conduct..................................................7
Compensation of Directors.................................................7
Audit Committee Report.........................................................8
Executive Compensation.........................................................9
Report of the Compensation Committee......................................9
Employment and Other Agreements..........................................11
Summary Compensation Table...............................................12
Stock Option Grants......................................................13
Option Exercises and Values for 2003.....................................14
Retirement Plan..........................................................14
Equity Compensation Plans................................................15
Shareholder Return Performance Graph..........................................16
Proposal #1 - Election of Directors...........................................17
Class II Nominees for Terms to Expire in 2004............................17
Class III Directors Whose Terms Expire in 2005...........................17
Class I Directors Whose Terms Expire in 2006.............................18
Proposal #2 - Approval of the 2004 Stock-Based Compensation Plan..............18
Summary Description of the 2004 Plan.....................................19
U.S. Tax Treatment of Options and Awards.................................21
New Plan Benefits........................................................22
Proposal #3 - Ratification of Appointment of Independent Auditors.............24
Audit and Non-Audit Fees.................................................24
Audit Committee Policy on Approval of Audit and Non-Audit Services.......24
Shareholder Proposals for the 2005 Annual Meeting.............................26
[GRAPHIC OMITTED]
101 Gordon Drive
Lionville, Pennsylvania 19341
---------------------------
PROXY STATEMENT
---------------------------
We, the Board of Directors of West Pharmaceutical Services, Inc. (the
"Company"), invite you to submit the enclosed proxy for use at the Company's
2004 Annual Meeting of Shareholders. The meeting will be held on Tuesday, May 4,
2004, at 9:30 AM, at the Company's headquarters, 101 Gordon Drive, Lionville,
Pennsylvania 19341. The proxy and this proxy statement are being mailed on or
about March 31, 2004.
GENERAL INFORMATION ABOUT THE MEETING
Purpose of the Meeting
At the Annual Meeting, shareholders will act on the matters outlined in
the notice of meeting on the cover page of this proxy statement, including the
election of directors, approval of the 2004 Stock-Based Compensation Plan and
ratification of the Company's independent auditors. In addition, management will
report on the performance of the Company and respond to questions from
shareholders.
Shareholders Entitled to Vote
You may vote at the meeting only if you were a shareholder of record at
the close of business on March 25, 2004. If you were a shareholder of record on
that date, you will be entitled to vote all of the shares that you held on that
date. Each outstanding share of the Company's common stock, par value $.25 per
share, will be entitled to one vote on each matter considered at the meeting.
Voting at the Meeting
A quorum is necessary to take action at the meeting. A quorum means
that shareholders of record holding at least a majority of the outstanding
shares of the Company's common stock are present, either in person or
represented by proxy. As of the record date, 14,820,729 shares of common stock
were outstanding. Proxies received but marked as abstentions and broker
non-votes will be included in the calculation of the number of votes considered
to be present at the meeting.
If you complete and properly sign the accompanying proxy card and
return it to the Company, your shares will be voted as you direct. A
pre-addressed envelope is enclosed for your convenience. If you return your
signed proxy card without indicating any voting instructions, the proxy holders
will vote your shares according to our recommendations, which are to vote "FOR"
each of the three proposals listed in the accompanying notice of meeting.
If you are a shareholder of record and attend the meeting, you may
deliver your completed proxy card in person. If you have shares held in "street
name" (that is, through a broker or other nominee) and you wish to vote those
shares at the meeting, you will need to follow the procedures of the institution
that holds those shares. Even after you have submitted your proxy, you may
revoke or change your vote at any time before the proxy is exercised by filing
with the Company's Secretary either a notice of revocation or a duly executed
proxy bearing a later date. You may also vote in person at the meeting, although
attendance at the meeting will not by itself revoke a previously granted proxy.
Required Vote
Directors will be elected by plurality vote. Other matters to be voted
on at the meeting will be determined by a majority of the votes cast at the
meeting. Votes withheld from director nominees, abstentions and broker non-votes
(that is, shares held in street name that cannot be voted by a broker on
specific matters without instructions from the beneficial owner) are not
considered to be "votes," and therefore will have no effect on the outcome of
the vote.
Voting on Other Matters
If other matters are properly presented at the Annual Meeting for
consideration, the persons named in the proxy will have the discretion to vote
on those matters for you. At the date this proxy statement was printed, we did
not know of any other matters to be raised at the Annual Meeting.
Cost of Proxy Solicitation
We will pay the cost of soliciting proxies. Proxies may be solicited on
our behalf by directors, officers or employees in person or by telephone,
facsimile or other electronic means.
STOCK OWNERSHIP
The Company's Largest Shareholders
The following table contains information about persons who beneficially
owned more than 5% of the issued and outstanding common stock as of December 31,
2003. Except as indicated below, the beneficial owners have sole voting and
investment power over the shares shown opposite their names. This table was
compiled from Securities and Exchange Commission reports.
Amount and Percent
Name and Address of Nature of Beneficial Of
Beneficial Owner Ownership Class
----------------------------------------------------------------- --------------------- -------------------
Private Capital Management
Bruce S. Sherman
Gregg J. Powers................................................ 1,843,069(1) 12.70%
8889 Pelican Bay Blvd.
Naples, FL 34108
Franklin Advisory Services, LLC ............................... 1,664,900(2) 11.40%
One Parker Plaza, Sixteenth Floor
Fort Lee, NJ 07024
Robert B. Arthur............................................... 1,160,726(3) 7.97%
5115 Cary Street Road
Richmond, VA 23226
Wachovia Corporation .......................................... 1,059,503(4) 7.28%
One Wachovia Center
Charlotte, NC 28288-0137
Wilmington Trust Corporation ................................. 889,918(5) 6.10%
1100 North Market Street
Wilmington, DE 19890
------------
(1) Based upon information set forth in a Schedule 13G/A filing made by Private
Capital Management ("PCM"), Bruce S. Sherman and Gregg J. Powers dated
February 13, 2004. The reporting persons share voting and investment power
with respect to all of the shares owned. Mr. Sherman is Chief Executive
Officer of PCM and Mr. Powers is President of PCM. They disclaim beneficial
ownership of shares held by PCM's clients and disclaim the existence of a
group.
2
(2) Based upon information set forth in a Schedule 13G/A filing made by
Franklin Resources, Inc. ("FRI"), Charles B. Johnson, Rupert H. Johnson,
Jr. and Franklin Advisory Services, LLC dated February 9, 2004. Represents
shares beneficially owned by one or more open or closed-end investment
companies or other managed accounts, which are advised by direct and
indirect investment advisory subsidiaries of FRI. Charles B. Johnson and
Rupert H. Johnson, Jr. are principal owners of FRI, and they, along with
FRI and each of FRI's advisory subsidiaries, disclaim any economic interest
or beneficial ownership in any of the shares covered by the Schedule. They
disclaim the existence of a group.
(3) Based on information set forth in a Schedule 13G filing made by Robert B.
Arthur dated February 17, 2004. Mr. Arthur shares voting and investment
power with respect to all of the shares owned.
(4) Based upon information set forth in a Schedule 13G filing made by Wachovia
Corporation dated February 11, 2004. The total amount includes (i) sole
voting power with respect to 859,503 shares, (ii) sole investment power
with respect to 460,202 shares and (iii) shared investment power with
respect to 466,161 shares.
(5) Based upon information set forth in a Schedule 13G/A filing made by
Wilmington Trust Corporation ("WTC") dated February 5, 2004. WTC, together
with its affiliates Wilmington Trust Company and Wilmington Trust Federal
Savings Bank, has (i) sole voting and investment power with respect to
439,620 shares and (ii) shared voting and investing power with respect to
450,298 shares.
Stock Ownership of Directors and Executive Officers
The following table shows amounts of Company common stock beneficially
owned as of February 27, 2004 by our directors, the executive officers named in
the Summary Compensation Table and all directors and executive officers as a
group. The table includes shares held in participant accounts under various
Company-maintained compensation and retirement plans and "stock-equivalent
units" credited to directors' accounts under the Non-Qualified Deferred
Compensation Plan for Non-Employee Directors (the "Director Deferred
Compensation Plan"). Shares underlying stock options are treated as beneficially
owned by the individual and as outstanding when computing the percentages owned
by the individual and group. All directors and officers as a group beneficially
own less than 1% of the outstanding shares of common stock.
Aggregate Number of Options Aggregate Number of
Shares Beneficially Exercisable Stock-Equivalent
Owned (1)(2) Within 60 Days Units Beneficially
Name Owned
-------------------------------------------- --------------------- ------------------ ----------------------
Tenley E. Albright......................... 28,301(3) 7,500 5,369
Linda R. Altemus........................... 3,635 39,500 --
John W. Conway............................. 800 7,500 2,934
George W. Ebright.......................... 2,928 7,500 6,012
Steven A. Ellers........................... 17,094 168,000 --
Herbert L. Hugill.......................... 13,058 69,000 --
L. Robert Johnson.......................... 7,500 7,500 7,331
Robert J. Keating.......................... 770 39,000 --
William H. Longfield....................... 2,500 7,500 17,419
Donald E. Morel, Jr........................ 13,755 285,000 --
John P. Neafsey............................ 7,466 7,500 21,287
Anthony Welters............................ 300 7,500 3,243
Geoffrey F. Worden......................... 3,762 7,500 12,681
Robert C. Young........................... 250 1,000 1,966
Patrick J. Zenner......................... - 0 - 1,250 506
All directors and executive officers as a
group 130,724 870, 250 78,748
(22 persons)...............................
--------------
3
(1) Includes restricted shares awarded under various Company incentive
compensation plans as follows: Dr. Morel -- 568 shares; Mr. Ellers --
373 shares; Mr. Keating -- 146 shares; Ms. Altemus -- 188 shares; Mr.
Hugill -- 232 shares; and all directors and executive officers as a
group -- 2,153 shares. The holders of restricted shares have voting
power over the shares. The restricted shares are subject to transfer
and forfeiture restrictions.
(2) Includes shares held in participant accounts under the Company's
Savings Plan, the Non-Qualified Deferred Compensation Plan for
Designated Officers and the 2003 Employee Stock Purchase Plan,
respectively, as follows: Dr. Morel -- 375, 1,793 and 94 shares; Mr.
Ellers -- 1,359, 1,377 and 1,000 shares; Mr. Keating -- -0-, -0- and
-0- shares; Ms. Altemus -- 678, 630 and -0- shares; Mr. Hugill -- -0-,
856 and 1,000 shares; and all directors and officers as a group --
5,332, 7,000 and 5,094 shares. Plan participants have voting power
over the shares held in their accounts.
(3) Includes 26,620 shares held by the Company's charitable foundation.
Dr. Albright and Richard D. Luzzi, an executive officer of the
Company, are trustees of the foundation and, in that capacity, are
each deemed to be the beneficial owner of the shares held by the
foundation because they share voting and dispositive power over those
shares. Dr. Albright and Mr. Luzzi disclaim any economic interest in
shares held by the foundation.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on a review of filings with the Securities and Exchange
Commission and written representations that no other reports were required, we
believe that all of our directors and executive officers complied during 2003
with the reporting requirements of Section 16(a) of the Securities Exchange Act
of 1934, with the exception of Robert C. Young, who filed a late report relating
to the crediting of stock-equivalents to his account, and Robert J. Keating, who
filed a late report relating to the award of bonus shares. Both of the late
filings were due to an administrative error of the Company.
GOVERNANCE OF THE COMPANY
Information About the Board and its Committees
The members of the Board of Directors on the date of this proxy
statement, and the committees of the Board on which they serve, are identified
below:
Nominating and
Audit Compensation Finance Corporate
Director Committee Committee Committee Governance Committee
------------------------- ------------- --------------- --------------- ---------------------
Tenley E. Albright *
John W. Conway.......... * *
George W. Ebright....... * *
L. Robert Johnson....... * *
William H. Longfield.... * **
Donald E. Morel, Jr. ...
John P. Neafsey ........ * **
Anthony Welters......... **
Geoffrey F. Worden...... ** *
Robert C. Young......... *
Patrick J. Zenner....... * *
--------------
* Member
** Chairman
The Board has four standing committees: Audit; Compensation; Finance;
and Nominating and Corporate Governance. Each committee has adopted a written
charter, which can be found on the Company's website, www.westpharma.com.
4
Audit Committee. The functions of the Audit Committee are described
below under the heading "Audit Committee Report." The charter of the Audit
Committee is attached to this proxy statement as Appendix A. Each member of the
Audit Committee is independent within the meaning of Securities and Exchange
Commission regulations, the listing standards of the New York Stock Exchange
("NYSE") and the Company's Corporate Governance Principles. Messrs. Ebright,
Worden and Zenner are each qualified as an audit committee financial expert
within the meaning of Securities and Exchange Commission Regulations, and the
Board has determined that all of the members of the Committee are financially
literate within the meaning of the listing standards of the NYSE. The Audit
Committee met twelve times during 2003.
Compensation Committee. The Compensation Committee's responsibilities
include monitoring the effectiveness of the Company's executive compensation
programs in achieving the Board's compensation philosophy; reviewing and
approving corporate goals and objectives relevant to the Chief Executive
Officer's compensation and evaluating the Chief Executive Officer's performance
against those goals and objectives; and, either as a committee or together with
the other independent directors, determining and approving the Chief Executive
Officer's compensation level based on this evaluation. The Committee also makes
recommendations to us with respect to other executive compensation and incentive
and equity-based compensation plans. In overseeing the administration of those
plans, the Compensation Committee approves all grants and awards to executive
officers, establishes performance goals and determines whether or not such goals
have been attained. Each year, the Committee produces a report on executive
compensation, which is contained in this proxy statement under the heading
"Executive Compensation - Report of the Compensation Committee." In carrying out
its responsibilities, the Committee is authorized to engage, and has engaged,
outside advisors to consult with it as the Committee deems appropriate.
Each member of the Compensation Committee is independent within the
meaning of the NYSE listing standards and the Company's Corporate Governance
Principles. The Compensation Committee met six times during 2003.
Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee identifies qualified individuals to serve as
board members; recommends nominees for director and officer positions;
determines the appropriate size and composition of the Board and its committees;
monitors a process to assess Board effectiveness; and considers matters of
corporate governance, including developing and recommending to us a set of
effective corporate governance principles applicable to the Company. After
review by the independent directors, this Committee formally recommends to us a
successor to the Chief Executive Officer.
Each member of the Nominating and Corporate Governance Committee is
independent within the meaning of the NYSE listing standards and the Company's
Corporate Governance Principles. The Nominating and Corporate Governance
Committee met six times during 2003.
Finance Committee. The Finance Committee serves as our liaison with
management on important financial transactions and financial-policy matters.
This Committee consults with and advises management on financial strategies,
policies and procedures, acquisitions, divestitures and capital-expenditure
requests. This Committee also monitors the performance of the Company's savings
and retirement plan investment committee. The Finance Committee met four times
during 2003.
Board Meetings
The Board met seven times during 2003. The independent directors held
five executive sessions without management. Each director attended more than 75%
of the total number of meetings of the Board and the committees on which he or
she served. Under the Company's Corporate Governance Principles, each director
is expected to attend the Annual Meeting of Shareholders unless prevented from
doing so by illness or emergency. All directors attended the 2003 Annual Meeting
of Shareholders.
5
Determination of Independence
We adopted our Corporate Governance Principles in October 2003. The
Principles meet or exceed NYSE corporate governance listing requirements. The
Principles can be found on the Company's website at www.westpharma.com. A copy
may also be obtained upon request from the Company's Secretary.
We conducted our annual review of director independence at our March 6,
2004 board meeting, during which we considered transactions and relationships
between each director or any member of his or her immediate family and the
Company, its subsidiaries and affiliates and members of executive management and
their affiliates. As a result of the review, we determined that all of the
directors, with the exception of Dr. Morel, are independent of the Company and
its management under the standards set forth in our Corporate Governance
Principles.
The Chairman, Independent Directors
One independent director is designated as "Chairman, Independent
Directors." The Chairman, Independent Directors confers with the Chief Executive
Officer on the Board's agenda items and information requirements. He also calls
meetings of the independent directors and presides at executive sessions of the
independent directors. Mr. Longfield is the current Chairman, Independent
Directors.
Recommending Candidates for the Board of Directors
The Nominating and Governance Committee serves as our Nominating
Committee. To identify new, non-management director candidates, the Nominating
Committee considers individuals suggested or recommended from a variety of
sources, including members of the Nominating Committee, other members of the
Board, members of management, customers, suppliers, advisors to the Board and
the Company's security holders. The Nominating Committee has not in the past
employed a third-party search firm, but it reserves the right to do so should it
deem it appropriate. All persons recommended for nomination to the Board,
regardless of the source of the recommendation, are evaluated in the same manner
by the Nominating Committee.
Any recommendations for director candidates should be submitted in
writing to the Chairman of the Nominating Committee at the address listed below.
The written recommendation must contain or be accompanied by the following
information:
o the name and address of the nominating shareholder as they appear on the
Company's books;
o the number and class of shares of the Company that are beneficially owned
by the nominating shareholder;
o as to each recommended nominee: (1) his or her name, age, business
address and, if known, residence address, (2) his or her principal
occupation or employment, (3) the number and class of the Company's
securities beneficially owned by him or her, (4) information necessary to
determine if such recommended nominee is an "independent director" as
outlined in the Company's Bylaws and (5) any other information regarding
the recommended nominee that is required to be included in a proxy
statement filed with the Securities and Exchange Commission;
o a description of all arrangements or understandings among the shareholder
and each recommended nominee and any other persons pursuant to which the
recommended nomination is to be made by the nominating shareholder;
o the consent of each recommended nominee to serve as a director of the
Company if so elected; and
o reasons that the person recommended would be a desirable member of the
Board.
6
We believe that diversity and a mix of backgrounds and expertise among
members of the Board collectively enhances our ability to understand issues and
challenges facing the Company. The particular background, experience or
expertise required in this mix may vary from time to time.
Qualifications for Board membership are described in greater detail in
our Corporate Governance Principles, which are posted on the Company's website
at www.westpharma.com. At a minimum, the Nominating Committee requires
candidates with high standards of integrity and independence of judgment who can
devote sufficient time to their Board responsibilities and who are free of any
conflict which, in the view of the Committee, would disqualify them from Board
membership. The Nominating Committee also looks for candidates who have
demonstrated significant achievement in areas such as business, academia,
government or military service, public service or other professional endeavors.
Other criteria include the ability to learn the Company's business and to master
business concepts and issues.
Communicating with the Board
Shareholders can communicate directly with us by sending a letter
addressed as follows:
The Board of Directors
c/o John R. Gailey III
Vice President, General Counsel and Secretary
West Pharmaceutical Services, Inc.
101 Gordon Drive
Lionville, PA 19341
Communications to a particular director should be addressed to that
director at the address shown above. The Vice President, General Counsel and
Secretary maintains a log of all communications received by us through this
process. Communications to specific directors are forwarded to those directors.
All other communications to us are transmitted directly to the Chairman,
Independent Directors who makes the determination as to whether these messages
should, in turn, be forwarded to a particular Board committee or to management
for further handling.
Code of Business Conduct
We have approved a Code of Business Conduct. Every employee, officer
and director of the Company is responsible for complying with the Code. The full
text of the Code can be found on the Company's website at www.westpharma.com,
along with all amendments to and waivers of the Code.
Compensation of Directors
Each director who is not an employee of the Company or any of its
subsidiaries receives an annual retainer of $20,000. The chairman of each board
committee and the Chairman, Independent Directors also receive an annual
retainer of $3,500. Non-employee directors receive meeting fees of $1,500 for
each board and independent-director meeting and $1,000 for each committee
meeting attended.
The Company maintains the Director Deferred Compensation Plan under
which each non-employee director may defer some or all of his or her director's
fees. Deferred fees are deposited each calendar quarter into either an
interest-bearing account or into a stock-equivalents account. Amounts in the
interest-bearing account earn interest at the prime rate in effect on the last
day of each quarter. Amounts deposited into the stock-equivalents account are
converted into common stock-equivalent units based on the fair market value of
one share of the Company's common stock on the last day of the quarter. Upon
termination of board service, the director receives a cash payment equal to the
balance in the interest-bearing account and the value of the stock-equivalents
account, which is determined by multiplying the number of stock-equivalents in
the account by the fair market value of one share of the Company's common stock
on the date of termination.
7
Each non-employee director also receives an annual grant of 600
stock-equivalents units under the 1999 Stock-Equivalents Plan for Non-Employee
Directors (the "Stock-Equivalents Plan"). These stock-equivalents are eligible
for deferral and held in a separate account under the Director Deferred
Compensation Plan. When dividends are paid on common stock, additional
stock-equivalents are credited to each director's account as if those dividends
were used to purchase additional shares.
William G. Little, the Company's former Chief Executive Officer, served
as Chairman of the Board until his retirement on March 31, 2003. His annual base
compensation was $575,000, and he participated in the Company's 2002 annual
incentive bonus plan. Mr. Little also has a non-competition agreement with the
Company that restricts his activities with competitors of the Company in any
market or territory through October 18, 2007. As compensation for his agreement
to these restrictions, Mr. Little received enhanced retirement benefits, and
will be entitled to continued medical and insurance coverage through October 18,
2007. Stock options awarded to Mr. Little under the Company's long-term
incentive plan will continue to vest during that time.
AUDIT COMMITTEE REPORT
The following Audit Committee Report does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report by reference therein.
The current charter of the Audit Committee of the Board, which is set
forth in Appendix A to this proxy statement, specifies that the purpose of the
Committee is to assist the Board in its oversight of (1) the integrity of the
Company's financial statements; (2) the independence and qualifications of the
independent auditors; (3) the performance of the Company's internal audit
function and of the Company's independent auditors; and (4) the compliance by
the Company with legal and regulatory requirements.
In carrying out these responsibilities, the Audit Committee, among other
things:
o Reviews and discusses the Company's annual and quarterly financial
statements with management and the independent auditors;
o Manages the relationship between the Company and the independent
auditors, including: having sole authority for their appointment,
retention and compensation; reviewing the scope of their work; approving
non-audit and audit services; and confirming the independence of the
independent auditors; and
o Oversees management's implementation and maintenance of effective systems
of internal and disclosure controls and the Company's compliance with
legal and regulatory requirements.
As part of its oversight function, the Committee has reviewed and
discussed all annual and quarterly financial statements before their issuance
with the Company's management and the independent auditors. The Company's
management is responsible for the Company's financial-reporting process,
including its system of internal control, and for the preparation of
consolidated financial statements that are complete and accurate and in
accordance with generally accepted accounting principles and with applicable
laws and regulations. During 2003, management advised the Committee that each
set of financial statements reviewed had been prepared in accordance with such
principles, and reviewed with the Committee significant accounting and
disclosure issues.
The Audit Committee also has discussed with the independent auditors
the matters required to be discussed by Statement on Auditing Standards No. 61
(Communications with Audit Committees), including among other things, the
quality of the Company's accounting principles, the reasonableness of
significant judgments and the clarity of disclosures in the financial
statements. The Committee also discussed with PricewaterhouseCoopers LLP matters
relating to its independence, including a review of audit and non-audit fees and
the written disclosures and letter from PricewaterhouseCoopers LLP as required
by Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees). As the Company's independent auditors, PricewaterhouseCoopers
LLP is responsible for auditing the Company's annual financial statements in
accordance with generally accepted auditing standards and for expressing an
opinion based on its audit as to the conformity of those financial statements
with generally accepted accounting principles.
8
In addition, the Audit Committee reviewed initiatives and programs
designed to strengthen the effectiveness of the Company's internal and
disclosure controls structure. As part of this process, the Committee continued
to monitor the scope and adequacy of the Company's internal audit program,
reviewing staffing and resource levels and actions taken to implement
improvements in internal procedures and controls.
The Committee members are not employees of the Company and do not serve
as accountants or auditors by profession or experts in the fields of accounting
or auditing. Therefore, the Committee has relied, without independent
verification, on management's representation that the financial statements have
been prepared with integrity and objectivity and in conformity with generally
accepted accounting principles and on the representations of the independent
auditors included in their report on the Company's financial statements.
Taking all of these reviews and discussions into account, and subject
to the limitations on the role and responsibilities of the Committee, certain of
which are referred to above, the Committee recommended that the Board approve
the inclusion of the Company's audited financial statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003, for filing with
the Securities and Exchange Commission.
Geoffrey F. Worden, Chairman
John W. Conway
George W. Ebright
Patrick J. Zenner
EXECUTIVE COMPENSATION
Report of the Compensation Committee
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation for 2003.
The overall goal of the Compensation Committee is to develop executive
compensation policies and practices that attract and retain the highest caliber
executives and align management and shareholder interests. This goal is
accomplished by rewarding management for adding value to the business and
contributing to the achievement of superior corporate performance.
The components of executive compensation are base salary, annual
incentive bonus and long-term incentive compensation, including stock options
and restricted shares.
Base Salaries
Base salaries are targeted to the median of comparable positions, as
shown by compensation data from a group of six peer companies and general
industry surveys provided by an outside compensation consulting firm. The
peer-group companies, which are the same group used in the Shareholder Return
Performance Graph on page 16, were selected based on the comparability of their
size, markets served, technology base and operational complexity.
9
Annual Incentive Compensation
The purpose of annual incentives is to provide a significant portion of
"at-risk" compensation that is contingent on achievement of annual business and
strategic objectives. All executive officers participate in the Company's
Management Incentive Bonus Plan (the "Bonus Plan"). Awards under the Bonus Plan
for 2003 were based on earnings per share ("EPS") and cash flow performance
targets at the corporate level, and a combination of net sales, operating profit
and free cash flow goals at the divisional level. A portion of a division-level
participant's bonus was tied to achievement of personal objectives relating to
business and strategic priorities that are specific to that participant's
division or region. The 2003 EPS performance target was weighted more heavily
(65%) than the cash flow target (35%).
Each Bonus Plan participant has a target bonus opportunity measured as
a percentage of base salary. For executive officers other than the Dr. Morel
this percentage ranges from 40% to 50%. Dr. Morel's target bonus opportunity is
75% of his base salary. A full payout is made if the Bonus Plan performance
goals are met, with higher payouts for exceeding goals and lower payouts for
falling short of targets. No payouts are made if actual performance falls below
85% of the targeted performance measures.
Long-Term Incentive Compensation
Long-term incentive programs are designed to provide management with
the opportunity to create wealth by participating in the consistent improvement
of shareholder value. When added to annual incentive compensation and base
salary, long-term incentive compensation is intended to yield total compensation
levels within the top quartile of comparable companies as measured by the peer
group and general industry surveys. However, individual executive compensation
levels may vary depending on experience level and performance appraisals.
The Committee uses stock options as the major component of long-term
incentive compensation because stock options have value only to the extent that
the share price of the Company's common stock exceeds the exercise price of the
option. To encourage longer-term holding of stock, executives also have received
bonus and restricted shares as part of the annual Bonus Plan. The restricted
shares vest if the underlying bonus shares are held for at least four years.
Compensation of the Chairman and Chief Executive Officer
In April 2003, Dr. Morel's annual base salary was set at $500,000, an
increase of 11% from his prior base salary of $450,000. The increase reflects
Dr. Morel's assumption of the additional responsibilities of Chairman of the
Board in 2003.
Dr. Morel received a bonus of $545,510 under the Bonus Plan for 2003.
The bonus amount was based on performance that exceeded 2003 Bonus Plan EPS
objectives, as well as discretionary amounts that reflect superior Company
performance and Dr. Morel's leadership in the aftermath of the fire and
explosion that destroyed the Company's North Carolina manufacturing facility. If
the 2004 Plan described under Proposal #2 of this proxy statement is approved by
shareholders, 17% of Dr. Morel's bonus will be paid in the form of 2,591 bonus
shares, and he will receive an additional 648 restricted shares. If the 2004
Plan is not approved, Dr. Morel's bonus will be paid entirely in cash and he
will receive no restricted shares.
Dr. Morel was awarded a stock option covering 60,000 shares of the
Company's common stock last year. The option vests fully one year from the date
of grant. The size of the award is based on historical practice and took into
consideration the number of remaining shares available for issuance under the
Company's shareholder-approved 1998 Key Employee Incentive Compensation Plan.
10
Additional Information
Stock Ownership Goals. To further align management and shareholder
interests, the Committee has developed share-ownership goals for senior
management.
Deductible Compensation Under the Tax Laws. Under section 162(m) of the
Internal Revenue Code, a publicly held corporation such as the Company is denied
a federal tax deduction for compensation in excess of $1,000,000, which is paid
to its chief executive officer and its four most-highly compensated executive
officers other than the chief executive officer. "Qualified performance-based
compensation" and certain other compensation are not subject to the deduction
limitation.
The Board of Directors has taken action to ensure that awards of stock
options, bonus and incentive shares under the Company's incentive plans will be
treated as qualified performance-based compensation and, therefore, remain tax
deductible by the Company. While there is no firm policy on whether to permit
executive compensation to exceed the $1,000,000 limit, the Committee
periodically monitors the compensation of Company executives and believes that
no tax deductions for executive compensation will be lost in the near future.
Anthony Welters, Chairman
L. Robert Johnson
William H. Longfield
John P. Neafsey
Employment and Other Agreements
Employment Agreement
Dr. Morel serves as Chief Executive Officer pursuant to an employment
agreement entered into on April 30, 2002. Under the agreement, his annual base
salary is $500,000, subject to review according to the Company's
compensation-review policies. The agreement entitles him to participate in the
Company's annual and long-term incentive compensation plans. The Company may
terminate his employment by giving two years' prior notice, or earlier upon his
death, due to a disability that prevents him from performing his duties for a
90-day period within any 360-day period, or is likely to persist for 90
consecutive days, or for "cause," which is defined as a conviction of a felony,
willful failure to perform the duties of his position, gross negligence or
willful misconduct. The Company may terminate his employment other than for
cause, or due to death or disability, but if it does so, he will be entitled to
receive a lump sum equal to two years' salary and bonus. In addition, if his
employment is terminated following a change in control, Dr. Morel will be
entitled to receive the severance compensation described below.
Severance Agreements
The Company has entered into agreements with each of the named
executive officers that provide benefits if their employment is terminated
following a change in control of the Company. These agreements are designed to
assist the Company in attracting and retaining highly qualified executives and
to help ensure that, if the Company is faced with an unsolicited tender offer
proposal, our executives will continue to manage the Company without being
unduly distracted by the uncertainties of their personal affairs and thereby
will be better able to assist in evaluating such a proposal in an objective
manner.
Each executive is entitled to receive severance compensation under his
or her agreement if, within two years following a change in control of the
Company, he or she resigns following a constructive termination of his or her
employment or his or her employment is terminated by the Company other than by
reason of death, disability, willful misconduct or normal retirement. The
agreement also permits the executive to receive severance upon a voluntary
resignation taken during a one-time, 30-day period beginning 12 months following
the change in control. The severance compensation includes the immediate vesting
of the executive's interest, if any, in the Company's employee-benefit plans,
continuing salary and bonus payments at the level prior to termination and
continuation of certain health and welfare benefits for up to three years
following termination. Each agreement prohibits the executive from being
employed by any competitor of the Company or competing with the Company in any
part of the United States (any market or territory, in the case of Dr. Morel)
for up to one year (two years, in the case of Dr. Morel) following employment
termination for any reason. The payment of severance compensation is not
conditioned upon the executive seeking other employment and is not subject to
reduction if the executive secures other employment consistent with the
agreement.
11
A "change in control" under the agreements is defined generally as any
such event that requires a report to the Securities and Exchange Commission, but
includes any acquisition or other transaction that results in a change in
ownership of more than 50% of the Company's stock or a change in the majority of
the Board over a two-year period that is not approved by at least two-thirds of
the directors.
Summary Compensation Table
The following table contains information on compensation paid to Dr.
Morel and each of the four other most highly compensated executive officers of
the Company who served in such capacities as of December 31, 2003 (the "named
executive officers") for services rendered to the Company during each of the
past three years.
EXECUTIVE COMPENSATION SUMMARY TABLE
Annual Compensation Long-Term Compensation Awards
--------------------------------------------------------------------------------
Restricted Number of
Name and Other Annual Stock Stock All Other
Principal Position Year Salary(1) Bonus(1) Compensation Awards(2) Options Compensation(3)
------------------------------------------------------------------------------------------------------------
Donald E. Morel, Jr., Ph.D. 2003 $482,902 $545,510 -- -- 60,000 $14,480
Chairman of the Board, 2002 398,288 151,878 -- $6,440 160,000 11,943
Chief Executive Officer 2001 278,756 162,010 -- 6,774 40,000 8,356
and President
Steven A. Ellers........... 2003 296,394 229,524 -- -- 40,000 8,885
President, Pharmaceutical 2002 280,010 92,626 -- 3,829 -- 8,394
Systems Division 2001 265,013 121,502 -- 5,044 35,000 7,944
Robert J. Keating(4)....... 2003 279,573(4) 214,066 165,268(4) -- 25,000 74,426(4)
President, Europe and 2002 205,318(4) 57,624 185,195(4) 1,759 8,000 38,501(4)
Asia Pacific,
Pharmaceutical
Systems Division
Linda R. Altemus........... 2003 245,680 129,851 -- -- 15,000 7,365
Vice President and 2002 232,469 43,202 -- 1,071 10,000 6,923
Chief Compliance 2001 184,629 72,005 -- 2,883 10,000 --
Officer
Herbert L. Hugill.......... 2003 228,737 157,437 -- -- 25,000 6,859
President of the Americas, 2002 216,613 61,601 -- 2,436 -- 6,496
Pharmaceutical Systems 2001 210,046 75,599 -- 3,055 20,000 6,299
Division
-------------.....
(1) For 2002 and 2001, the Bonus columns include the value of any bonus
(unrestricted) shares awarded under the Bonus Plan, but not the value
of any incentive (restricted) shares. Incentive share awards for these
years are reflected in the Restricted Stock Awards column. Bonuses are
paid in the fiscal year following the fiscal year in which they are
earned.
(2) Restricted stock awards are made in the fiscal year following the
fiscal year in which they are earned. Restricted stock awards vest 25%
per year for four years from the date of grant. Dividends are paid on
restricted stock and reinvested in additional shares of common stock.
The following table contains information on the restricted stock held
by the named executive officers at December 31, 2003. Values are
determined by multiplying the number of shares by $33.90, the December
31, 2003 closing price per share of the common stock.
12
Number of
Name Restricted Current Market Value
Shares Held of Restricted Shares Held
------------------------------- -------------------- ------------------------
Donald E. Morel, Jr............. 730 $24,747
Steven A. Ellers................ 538 18,238
Robert J. Keating............... 146 4,949
Linda R. Altemus................ 266 9,017
Herbert L. Hugill............... 232 7,864
(3) Represents Company contributions under the Company's Savings Plan and
the Non-Qualified Deferred Compensation Plan for Designated Officers,
except for Mr. Keating, who is employed overseas and is not eligible
to participate in these plans. In Mr. Keating's case, represents
Company contributions to the purchase of private retirement benefits.
(4) Information is provided only for fiscal years during which the
individual served as an executive officer of the Company. Mr. Keating
became an executive officer in April 2002. Amounts for all columns
except the bonus have been converted to U.S. Dollars as follows, by
year: 2003 - from Euros to U.S. Dollars based on a currency
translation rate of 1.26 as of December 31, 2003 as Mr. Keating was
employed in Germany in 2003; and 2002 - from Euros to U.S. Dollars
based on a currency translation rate of 1.04 as of December 31, 2002
and from Australian Dollars to U.S. Dollars based on a currency
translation rate of .56 as of December 31, 2002, as Mr. Keating was
employed in Australia and Germany in 2002.
Stock Option Grants
This table shows all options to purchase common stock granted to each
of the named executive officers in 2003 and the potential value of such grants
at stock price appreciation rates of 5% and 10%, compounded annually over the
maximum five-year term of the options. The assumed annual appreciation rates of
5% and 10% are required to be disclosed by Securities and Exchange Commission
rules and are not intended to forecast possible future appreciation, if any, in
our stock price.
Option Grants DURING 2003
Potential Realizable
Value at Assumed
Annual Rates of Stock
Individual Grants Price Appreciation for
Option Term
----------------- --------------- ----------- ------------ -----------
Number of % of Total
Shares Options
Underlying Granted to Exercise
Name Options Granted Employees in Price Expiration
(#)(1) 2003 ($/Share)(2) Date 5% 10%
---------------------- ----------------- --------------- ----------- ------------- ------------ -----------
---------------------- ----------------- --------------- ----------- ------------- ------------ -----------
Donald E. Morel, Jr.. 60,000 14.94 $22.59 4/28/08 $374,472 $827,485
Steven A. Ellers..... 40,000 9.96 22.59 4/28/08 249,648 551,656
Robert J. Keating.... 25,000 6.23 22.59 4/28/08 156,030 344,785
Linda R. Altemus..... 15,000 3.74 22.59 4/28/08 93,618 206,871
Herbert L. Hugill.... 25,000 6.23 22.59 4/28/08 156,030 344,785
----------
(1) Option grants have a five-year term and first became exercisable one
year after the date of grant.
(2) The exercise price represents the average of the highest and lowest
reported sale price on the date of grant. The exercise price (and any
applicable withholding taxes) may be paid in cash, shares of common
stock valued at fair market value on the date of exercise or pursuant
to a cashless exercise procedure under which the option holder provides
irrevocable instructions to a brokerage firm to sell the purchased
shares and to remit to the Company, out of the sale proceeds, an amount
equal to the exercise price plus all applicable withholding taxes.
13
Option Exercises and Values for 2003
This table shows how many stock options were exercised by each of the
named executive officers in 2003, and the number and value of their unexercised
options as of December 31, 2003.
Aggregated Option Exercises in Last Fiscal Year
and 2003 Year-End Option Values
Shares Value of Unexercised
Acquired on Value Number of Unexercised In-the-Money
Name Exercise(#) Realized($) Options at 12/31/03 Options at 12/31/03($)(1)
------------------------ ------------ ------------ --------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
Donald E. Morel, Jr. -- -- 175,000 230,000 $1,118,251 $1,781,835
Steven A. Ellers -- -- 116,000 64,000 735,739 641,248
Robert J. Keating -- -- 17,000 25,000 94,714 282,750
Linda R. Altemus -- -- 29,000 15,000 162,462 169,650
Herbert L. Hugill -- -- 45,000 37,000 295,311 377,174
---------------
(1) The dollar amounts shown under the Exercisable and Unexercisable columns of
this heading represent the number of exercisable and unexercisable options,
respectively, multiplied by the difference between the closing price of the
Company's common stock on December 31, 2003 ($33.90) and the exercise price
of the options.
Retirement Plan
The Company maintains a tax-qualified, noncontributory retirement plan,
called the West Pharmaceutical Services, Inc. Salaried Employees Retirement
Plan, for salaried employees who have completed one year of service. Benefits
are based primarily on the participant's credited years of service and average
compensation (including base salary, cash or stock bonuses and other cash
remuneration) for the highest five consecutive calendar years of compensation
during the ten years prior to retirement or termination, whichever is earlier.
Retirement benefits are non-forfeitable after five years of vesting service.
Although age 65 is the normal retirement age, participants with 10 years of
service who retire on or after age 55 are eligible for an actuarially reduced
benefit.
In 2003, the maximum compensation limit under a tax-qualified plan was
$200,000 and the maximum annual benefit that may be accrued under a
tax-qualified defined benefit plan was $160,000. To provide additional
retirement benefits to key salaried employees, the Company maintains the
Supplemental Employee Retirement Plan, a supplemental, non-qualified, unfunded
plan, which provides benefits in excess of the compensation and maximum annual
accrued benefit limits for tax-qualified plans.
The following table shows estimated annual retirement benefits payable
under these retirement plans to eligible participants for various years of
service assuming normal retirement (at age 65). The estimated benefits are
computed as straight-line annuity amounts.
14
Retirement Plan Table
Estimated Annual Retirement Benefits
Years of Pension Plan Participation
------------- -------------- -------------- -------------- -------------
Five-Year
Average Annual Earnings 15 20 25 30 35
--------------------------------- ------------- -------------- -------------- -------------- -------------
$200,000 $ 57,000 $ 76,000 $ 95,000 $100,000 $105,000
250,000 71,250 95,000 118,750 125,000 131,250
300,000 85,500 114,000 142,500 150,000 157,500
400,000 114,000 152,000 190,000 200,000 210,000
500,000 142,000 190,000 237,500 250,000 262,500
600,000 171,000 228,000 285,000 300,000 315,000
650,000 185,250 247,000 308,750 325,000 341,250
700,000 199,500 266,000 332,500 350,000 367,500
750,000 213,750 285,000 336,250 375,000 393,750
800,000 228,000 304,000 380,000 400,000 420,000
850,000 242,250 323,000 403,750 425,000 446,250
900,000 256,500 342,000 427,500 450,000 472,500
950,000 270,750 361,000 451,250 475,000 498,750
As of December 31, 2003, the credited full years of service for the
named executive officers were as follows: Dr. Morel-- 11 years; Mr. Ellers-- 20
years; Ms. Altemus-- 6 years; and Mr. Hugill-- 3 years. Mr. Keating is an
overseas employee and is not eligible to participate in the Retirement Plan.
Equity Compensation Plans
The following table sets forth information, as of December 31, 2003,
about the grants of stock options, restricted stock or other rights under all of
the Company's equity compensation plans.
Equity Compensation Plan Information
(a) (b) (c)
Number of Weighted-Average Number of Securities
Securities to be Exercise Price Remaining Available for
Issued Upon of Outstanding Future Issuance Under Equity
Plan Category Exercise of Options, Compensation Plans (Excluding
Outstanding Warrants and Securities
Options, Warrants Rights Reflected in Column (a))
and Rights
---------------------------------- --------------------- ------------------ -------------------------------
Equity compensation plans
approved by security holders(1).. 2,362,931(2) $27.03 1,511,700(3)
Equity compensation plans not
approved by security holders..... -- -- --
Total............................ 2,362,931 27.03 1,511,700
---------------------
(1) These plans are the 1998 Key Employee Incentive Compensation Plan, as
amended (the "1998 Employee Incentive Plan"), the 1999 Non-Qualified Stock
Option Plan for Non-Employee Directors (the "Director Option Plan") and the
Long Term Incentive Plan, as amended (the "LTIP").
(2) Includes 9,031 restricted shares awarded under the 1998 Employee Incentive
Plan, which have not yet vested, as well as 515,400 outstanding stock
options granted under the LTIP. The LTIP was terminated in 1998 and no
grants or awards may be made under that plan. Does not include
stock-equivalent units granted to directors under the Stock-Equivalents
Plan or credited to directors under the Director Deferred Compensation Plan
because such units are settled only in cash and do not involve the issuance
of any option, warrant or right to acquire the Company's common stock or
other securities.
15
(3) Represents 1,461,700 shares reserved under the Company's 2003 Employee
Stock Purchase Plan, 9,000 shares remaining available for issuance under
the 1998 Employee Incentive Plan and 41,000 shares reserved for issuance
pursuant to the grant of stock options under the Director Option Plan.
If the Company's 2004 Stock-Based Compensation Plan described under
Proposal #2 of this proxy statement is approved by our shareholders, the 1998
Employee Incentive Plan, the Director Option Plan and the Stock-Equivalents Plan
will be terminated and no further options or awards will be granted under those
plans.
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the cumulative total return to holders of
the Company's common stock with the cumulative total return of the Standard &
Poor's Small Cap 600 Index and of a Company-selected peer group for the five
years ended December 31, 2003. Cumulative total-return-to-shareholders is
measured by dividing total dividends (assuming dividend reinvestment) plus the
per-share price change for the period by the share price at the beginning of the
period. The Company's cumulative shareholder return is based on an investment of
$100 on December 31, 1998 and is compared to the cumulative total return of the
Small Cap 600 Index and peer group over the period with a like amount invested.
The peer-group companies were selected by the Company based principally
on nature of business, revenues, market complexity, products and manufacturing,
employee base, technology base, market share, type of customer and customer
relationship. The peer-group is composed of Cambrex Corp., AptarGroup, Inc.,
Alaris Medical Systems, Inc., Viasys Healthcare Inc., Andrx Corp. and Nektar
Therapeutics, Inc. (formerly Inhale Therapeutic Systems, Inc.).
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Total Return to Shareholders
(Includes reinvestment of dividends)
ANNUAL RETURN PERCENTAGE
Years Ending
Company Name / Index Dec99 Dec00 Dec01 Dec02 Dec03
--------------------------------------------------------------------------------------------------------------------------------
WEST PHARMACEUTICAL SERVICES INC -11.71 -18.29 11.41 -5.31 43.56
S&P SMALLCAP 600 INDEX 12.40 11.80 6.54 -14.63 38.79
PEER GROUP 17.78 92.78 -2.81 -54.41 44.05
INDEXED RETURNS
Base Years Ending
Period
Company Name / Index Dec98 Dec99 Dec00 Dec01 Dec02 Dec03
--------------------------------------------------------------------------------------------------------------------------------
WEST PHARMACEUTICAL SERVICES INC 100 88.29 72.15 80.38 76.11 109.26
S&P SMALLCAP 600 INDEX 100 112.40 125.67 133.88 114.30 158.63
PEER GROUP 100 117.78 227.06 220.68 100.61 144.93
16
PROPOSAL #1 - ELECTION OF DIRECTORS
Our Board of Directors is divided into three classes. Each year, the
directors in one class are elected to serve a three-year term. We may increase
or decrease the size of the Board, elect directors to fill vacancies on the
Board and assign directors to a class.
We have nominated George W. Ebright, L. Robert Johnson, John P. Neafsey
and Geoffrey F. Worden for election as Class II directors at the 2004 Annual
Meeting. The nominees have all agreed to be named and to serve if elected. If
any nominee becomes unavailable, which we do not expect, our Nominating and
Corporate Governance Committee will recommend to us a replacement nominee. We
may then designate the other nominee to stand for election. If you voted for the
unavailable nominee, your vote will be cast for his replacement.
--------------------------------------------------------------------------------
Class II Nominees For Terms to Expire in 2004
--------------------------------------------------------------------------------
George W. Ebright Mr. Ebright, age 65, is the retired
Director since 1992 Chairman of the Board and Chief Executive
Officer of Cytogen Corp., a biotechnology
pharmaceutical company, and prior to that,
retired as President and Chief Operating Officer
of SmithKline Beecham. He is a director of Nabi
and Arrow International Incorporated.
L. Robert Johnson Mr. Johnson, age 62, is Managing General Partner
Director since 1989 of Founders Capital Partners, L.P., a venture
capital partnership. He is a director of
CrystalVoice Communications, Inc. and Chairman
of the Board of HealthBanks Inc. Mr. Johnson
is a member of the Corporation of the
Massachusetts Institute of Technology and a
trustee of the Scholarship Foundation of Santa
Barbara.
John P. Neafsey Mr. Neafsey, age 64, is President of JN
Director since 1987 Associates, an investment consulting firm. He
is Chairman of the Board of Alliance Resources,
LP, a director of Longhorn Partners Pipeline
Company and a Director of Constar, Inc. Mr.
Neafsey is a trustee emeritus and
presidential counselor of Cornell University
and an overseer of Weill/Cornell Medical
College.
Geoffrey F. Worden Mr. Worden, age 64, is President of South
Director since 1993 Street Capital, Inc., a consulting and
investment company. Mr. Worden is a director
of Princess House, Inc. and the New York City
Outward Bound Center. He is a trustee and
member of the Executive Committee of Outward
Bound USA.
We recommend that you vote "FOR" these nominees.
--------------------------------------------------------------------------------
Class III Directors Whose Terms Expire in 2005
--------------------------------------------------------------------------------
Tenley E. Albright, M.D. Dr. Albright, age 68, is a physician and
Director since 1993 surgeon, a faculty member at Harvard Medical
School and is Chairman of Western Resources,
Inc.(a real estate holding company). She serves
on the boards of State Street Bank and Trust
Company, State Street Corporation, and the
Whitehead Institute for Biomedical Research.
She is Consultant to, and formerly Chairman of,
the Board of Regents of the National Library of
Medicine at the National Institutes of Health.
She is a member of the corporation of Woods Hole
Oceanographic Institution and of the New England
Baptist Hospital where she is also on the
surgical staff.
17
John W. Conway Mr. Conway, age 58, has been a director
Director since 1997 since 1997, and Chief Executive Officer and
Chairman of the Board since January 2001, of
Crown Holdings, Inc., a supplier of packaging
products. He was its President and Chief
Operating Officer from 1998 to January 2001
and, prior to that time, its Executive Vice
President.
Donald E. Morel, Jr., Ph.D. Dr. Morel, age 46, has been Chairman of the
Director since 2002 Board of the Company since March 2003 and
President and Chief Executive Officer since
April 2002. He was the Company's President and
Chief Operating Officer from May 2001 to April
2002, Division President, Drug Delivery Systems
from October 1999 to May 2001, Group President
from April 1998 to October 1999, and prior
thereto, Vice President, Scientific Services.
--------------------------------------------------------------------------------
Class I Directors Whose Terms Expire in 2006
--------------------------------------------------------------------------------
William H. Longfield Mr. Longfield, age 65, is the retired Chief
Director since 1995 Executive Officer and Chairman of the Board of
C. R. Bard, Inc., a medical device
manufacturer, where he continues to serve as
director. He is also a director of Manor
Care, Inc., Horizon Health Corporation and
Applera Corporation. He is a trustee
of Atlantic Health System.
Anthony Welters Mr. Welters, age 49, is President and
Director since 1997 Chief Executive Officer of AmeriChoice
Corporation, a managed health-care services
holding company, and its predecessor companies
n where he also served as Chairman until
September 2002. Mr. Welters is a director of
C. R. Bard, Inc., Health Care Leadership
Council, New York University School of Law,
the National Board of the Smithsonian
Institution and Vice Chair of Morehouse School
of Medicine.
Robert C. Young, M.D. Dr. Young, age 64, is President of Fox
Director since 2002 Chase Cancer Center. He is a member of the
National Cancer Policy Board at the
Institute of Medicine and the Board of
Scientific Advisors of the National Cancer
Institute. Dr. Young also is a Past President
of the American Cancer Society.
Patrick J. Zenner Mr. Zenner, age 57, is the retired President
Director since 2002 and Chief Executive Officer of Hoffmann-La
Roche Inc. Mr. Zenner is a member of the
Board of Directors of ArQule, Inc. Dendrite
International, Inc., Praecis Pharmaceuticals
Inc., Geron Corporation, Exact Sciences
Corporation, First Horizon Pharmaceutical
Corporation, Xoma Ltd. and CuraGen Corporation.
PROPOSAL #2 - APPROVAL OF THE 2004 STOCK-BASED COMPENSATION PLAN
The Company has two plans that provide for the awarding of equity-based
compensation to officers and directors: the 1998 Employee Incentive Plan and the
Director Option Plan. In addition, non-employee directors are eligible to
receive stock-equivalent units under the Company's Stock-Equivalents Plan. These
units track the value of the Company's stock and are settled only in cash upon
the termination of a director's board service. The 1998 Employee Incentive Plan
provides for eligible key employees to receive a variety of incentive
compensation awards involving or related to the Company's common stock, such as
the grant of non-qualified and incentive stock options and stock appreciation
rights and the award of restricted and non-restricted shares. Under the Director
Option Plan, each non-employee director in office on April 1998 received two
4,500-share stock options during the five-year plan term. Directors who joined
the Board after that date were eligible to receive up to three grants of stock
options covering a total of between 8,250 and 750 shares, depending on the date
of his or her first election. The 1998 Employee Incentive Plan originally
authorized the issuance of up to 1,500,000 shares of the Company's common stock.
The 1998 Employee Incentive Plan was later amended to authorize an additional
400,000 shares. The Director Option Plan authorized the issuance of up to
125,000 shares upon the exercise of stock options. Both plans and the
incentive-plan amendment were approved by our shareholders.
18
No more stock options are expected to be granted under Director Option
Plan and the shares authorized for issuance under the 1998 Employee Incentive
Plan are almost depleted. In order to continue providing equity-based
compensation, we adopted the 2004 Stock-Based Compensation Plan (the "2004
Plan") that will provide for such compensation to both key employees and
directors. We are seeking shareholder approval of the 2004 Plan as required by
NYSE rules.
If the 2004 Plan is approved by our shareholders, the 1998 Employee
Incentive Plan, the Director Option Plan and the Stock-Equivalents Plan will be
terminated and no further options or awards will be granted under those plans.
Summary Description of the 2004 Plan
The following is a summary of the 2004 Plan and is qualified in its
entirety by the plan document, which is attached to this proxy statement as
Appendix B.
Purpose
The purpose of the 2004 Plan is to align the interests of the eligible
individuals with the interests of the Company's shareholders, provide incentives
for eligible individuals to exert maximum efforts for the success of the Company
and its subsidiaries, and motivate key personnel, by means of appropriate
incentives, to achieve long-term goals.
Administration
The plan is administered by the Compensation Committee of the Board.
Our Nominating and Governance Committee has authority to make recommendations to
us regarding awards for non-employee directors of the Company. The Compensation
Committee cannot make awards to non-employee directors, but will administer
those awards as provided below once that they have been made by the full Board
upon the recommendation of the Nominating Committee.
The Compensation Committee has authority to interpret the plan and may
amend the plan as provided below. With respect to participants other than
non-employee directors, the Compensation Committee may:
o select the employees and consultants who are to receive awards under the
2004 Plan;
o determine the type and amount of awards to be granted to participants and
their terms and conditions;
o determine the times at which awards will be granted; and
o condition any awards upon the achievement of performance goals or after
the lapse of any period of deferral (as described more fully below).
The Compensation Committee may delegate all or a portion of its
responsibility to a person selected by it (to the extent permissible by
applicable law).
19
Participation
All consultants, directors and key salaried employees of the Company
are eligible to participate in the 2004 Plan. Approximately ten non-employee
directors and 150 key salaried employees will be eligible to participate in the
plan.
Unless otherwise determined by the Committee, certain awards (options,
deferred stock units, stock appreciation rights (SARs)) are exercisable only by
the recipient, and no awards will be transferable other than by will or the laws
of descent and distribution. Restricted stock and deferred stock awards are
transferable by the recipient once the period of restriction or deferral with
respect to such stock lapses; prior to the lapse of the restrictions or the
deferral period, the stock is not transferable.
Shares of Stock Available for Grant
If shareholder approval is obtained, a total of up to 1,500,000 shares
of common stock will be available for issuance under the 2004 Plan. Of this
total, a maximum limit of 500,000 shares may be issued pursuant to awards other
than stock options. The shares may be treasury shares or authorized but unissued
shares. The maximum number of shares subject to options or SARs that may be
granted to any one individual shall not exceed 200,000 shares during any
calendar year, and the maximum payment that can be made to one individual in any
one calendar year with respect to deferred stock, restricted stock, stock bonus
and stock units will be $500,000 as measured on the date of grant.
In the event of a reorganization, recapitalization, stock split,
spin-off, split-off, split-up, stock dividend, issuance of stock rights,
combination of shares, merger, consolidation or any other change in the
Company's corporate structure affecting its common stock, or any distribution to
shareholders other than a cash dividend, an appropriate adjustment in the number
and kind of shares authorized by the 2004 Plan and other adjustments to
outstanding awards will be made as the Compensation Committee deems appropriate.
Change in Control
Unless otherwise provided by the Compensation Committee, any award
granted under the 2004 Plan that was not vested on the date of a change in
control, will become fully exercisable and vest immediately. Any awards deferred
will be paid prior to or as soon as practicable following a change in control,
as determined by the Compensation Committee. A "change in control" is defined
generally as any such event that requires a report to the Securities and
Exchange Commission, but includes any acquisition or other transaction that
results in a change in ownership of more than 50% of the Company's stock or a
change in the majority of the Board over a two-year period that is not approved
by at least two-thirds of the directors.
Effective Date and Termination; Amendments
Subject to approval by our shareholders, the 2004 Plan will be
effective as of May 5, 2004. The 2004 Plan will terminate on May 4, 2014, unless
earlier terminated by the Board. Termination will not affect awards outstanding
at the time of plan termination. The Compensation Committee may amend, suspend
or terminate the 2004 Plan, provided shareholder approval of any amendment is
obtained as required by applicable laws or regulations. The Compensation
Committee may amend any outstanding award without a participant's consent,
provided the amendment does not adversely impact the participant unless it is
necessary to ensure deductibility of the payments under section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code").
Types of Awards under the 2004 Plan
Options. Options granted under the 2004 Plan may be either
non-qualified stock options or incentive stock options qualifying under Section
422 of the Code. The price of any option granted may not be less than the fair
market value of the stock on the date of grant.
20
The option price is payable in cash or, if the grant allows, shares of
common stock held by the option holder for at least six months. The Compensation
Committee may impose additional restrictions on the exercise of any option. The
term of a non-qualified stock option may not exceed ten years.
Stock Appreciation Rights. SARs may, but need not, relate to options.
The Compensation Committee determines the terms of each SAR at the time of
grant. Any freestanding SAR may not be granted for less than the fair market
value of the underlying stock at the time of grant and cannot have a term longer
than 10 years. Distribution may be made in common stock, in cash or a
combination of cash and stock, as determined by the Committee.
Stock Awards. The 2004 Plan provides for the granting of stock awards
and performance awards. It is expected that any executive performance award will
be based on consolidate and/or business unit financial performance criteria,
such as: the price of the common stock; market share; sales; earnings per share;
return on shareholder equity; cash flow; return on total assets; return on
invested capital; return on net assets; operating income; or net income. The
Compensation Committee may also grant restricted stock awards tied to the
completion of a specified period of service.
Stock Units. In a stock unit award, the Company will deliver, subject
to certain conditions, cash equal to the fair market value of a share of common
stock at the end of a vesting or deferral period, which may be determined based
on the achievement of one or more performance goals. The term of a stock unit
may not exceed 10 years. If approved by our shareholders, the 2004 Plan will
replace the current Stock-Equivalents Plan and no new stock-equivalent units
will be awarded to directors under that plan. Unless otherwise determined by the
Committee, settlement of a stock unit will occur upon termination of employment
or service. Unvested stock units will be forfeited.
Deferral Election
With the Compensation Committee's consent, a recipient may defer
receipt of unrestricted common stock or a cash payment to a specified date. If
the Compensation Committee determines that continued deferral of any common
stock or cash awarded under the 2004 Plan is not in the best interest of the
Company or that the amount would be taxable to the recipient immediately, the
Committee may provide for earlier distribution.
U.S. Tax Treatment of Options and Awards
Incentive Stock Options. In general, neither the grant nor the exercise
of an incentive stock option results in taxable income to an option holder or a
deduction to the Company. If the option holder holds the stock received upon
exercise for at least two years from date of grant and one year after the date
of exercise, then the gain realized on disposition of the stock is treated as a
long-term capital gain. If the shares are disposed of during this period (a
"disqualifying disposition"), then the option holder will include as
compensation income for the year of the disposition, in the amount equal to the
excess of the fair market value of the shares upon exercise over the option
price, or if less, the excess of the amount realized upon disposition over the
option price. The Company will be entitled to a corresponding deduction at that
time. Any proceeds in excess of the fair market value of the shares on the date
of exercise will be treated as short-term or long-term capital gain, depending
upon whether the shares have been held for more than one year. If the sales
price is less than the exercise price of the option, this amount will be treated
as a short-term or long-term capital loss, depending on whether the shares have
been held for more than one year. The Company will not be entitled to any
deduction for amounts the recipient treats as capital gain or loss.
Non-Qualified Stock Options. A non-qualified stock option results in no
taxable income to the option holder or deduction to the Company at the time it
is granted. An option holder will recognize ordinary income at the time a
non-qualified stock option is exercised in an amount equal to the excess of the
fair market value of the underlying common stock on the exercise date over the
exercise price. The Company will generally be entitled to a deduction for
federal income tax purposes in the same amount as the amount included in
ordinary income by the option holder. Gain or loss on a subsequent sale or other
disposition of the shares acquired upon the exercise of a non-qualified stock
option will be measured by the difference between the amount realized on the
disposition and the tax basis of such shares, and will generally be long-term
capital gain depending on the holding period involved. The tax basis of the
shares acquired upon the exercise of any non-qualified stock option will be
equal to the sum of its exercise price and the amount included in income with
respect to such option.
21
Stock Appreciation Rights. A recipient realizes no taxable income when
an SAR is granted. Upon exercising an SAR, a recipient will realize ordinary
income in an amount equal to the cash received. Generally, there will be no
federal income tax deduction allowed to the Company upon the grant or
termination of SARs. However, upon exercise of a SAR, the Company will be
entitled to a deduction equal to the amount of ordinary income the recipient is
required to recognize as a result of the exercise.
Restricted Stock; Performance Shares. Generally, no income will be
recognized at the time of grant of a stock award or performance award if such
award is subject to a substantial risk of forfeiture. The recipient will realize
ordinary income equal to the fair market value of the shares at the time the
restrictions lapse. A recipient's tax basis in shares of restricted stock will
be equal to their fair market value when the forfeiture restrictions lapse, and
the recipient's holding period for the shares will begin at that time. Upon sale
of the shares, the recipient will realize short-term or long-term gain or loss,
depending upon whether the shares have been held for more than one year at the
time of sale. Such gain or loss will be equal to the difference between the
amount realized upon the sale of the shares and the tax basis of the shares in
the recipient's hands.
Stock Bonus. Stock bonuses are unsecured, unfunded promises to
distribute stock at a designated time. Stock bonuses will not be taxable until
the stock is actually distributed to the recipients. The fair market value of
the stock will be immediately includible in the recipient's income and will be
deductible to the Company at that time.
Deferred Stock. A recipient realizes no taxable income when a deferred
stock award is made. When the deferral period for the award ends and the
recipient receives shares of common stock, the recipient will realize ordinary
income equal to the fair market value of the shares at that time, as applicable.
A recipient's tax basis in shares of common stock received at the end of a
deferral period will be equal to the fair market value of such shares when
received. Upon sale of the shares, the recipient will realize short-term or
long-term capital gain or loss, depending upon whether the shares have been held
for more than one year at the time of sale. Such gain or loss will be equal to
the difference between the amount realized upon the sale of the shares and the
tax basis of the shares in the recipient's hands.
Stock Units. A recipient realizes no taxable income when a stock unit
award is made. When the deferral period for the award ends and the recipient
receives cash, the recipient will realize ordinary income equal to amount of the
cash.
Deferral Elections. Generally, awards deferred by recipients and any
applicable non-qualified deferred compensation plan are not taxable until the
awards are paid to the recipient. At that time, the amounts will be includible
in income and the Company will be entitled to a deduction.
New Plan Benefits
The following table shows, for each named executive officer, all
executive officers as a group, all directors who are not executive officers as a
group and all employees, including officers who are not executive officers, as a
group: (i) the number and dollar value of stock awards (restricted and
non-restricted) that are expected to be awarded under the 2004 Plan with respect
to 2003 performance; (ii) the total number of shares subject to outstanding
stock options granted in 2003 under the 1998 Employee Incentive Plan; and (iii)
the total number of shares subject to stock options granted in 2003 under the
1998 Employee Incentive Plan.
22
2004 STOCK-BASED COMPENSATION PLAN
Bonus Shares Restricted Shares Stock Options Stock Units
------------ ----------------- ------------- ------------
Number Number Number
Name and Position Dollar of Dollar of Dollar Total Dollar of
Value(1) Shares(2) Value(1) Shares(2) Value(3) Granted(4) Value (5) Units(6)
--------------------------------- -------- --------- -------- ---------- ----------- --------- ---------- ---------
--------------------------------- -------- --------- -------- ---------- ----------- --------- ---------- ---------
Donald E. Morel, Jr., Ph.D...... $92,551 2,591 $23,146 648 $2,143,200 60,000 -- --
Chairman of the Board, Chief
Executive Officer, and
President
Steven A. Ellers................ 112,221 3,141 28,075 786 1,428,800 40,000 -- --
President, Pharmaceutical
Systems Division
Robert J. Keating............... 47,929 1,341 12,001 336 893,000 25,000 -- --
President, Europe and Asia
Pacific,
Pharmaceutical Systems
Division
Linda R. Altemus................ 27,602 772 6,929 194 535,800 15,000 -- --
Vice President and Chief
Compliance Officer
Herbert L. Hugill............... 38,518 1,078 9,644 270 893,000 25,000 -- --
President of the Americas,
Pharmaceutical Systems
Division
All officers as a group (12 513,367 14,371 128,566 3,599 10,841,020 303,500 -- --
persons)........................
All employees .................. 619,742 17,350 155,096 4,342 14,127,260 395,500 -- --
All non-executive directors as
a group (10 persons)............ -- -- -- -- 1,143,040 32,000 $357,200 10,000
------------
(1) The dollar value is determined by multiplying the number of shares by
$35.72, the average of the high and low prices of the Company's common
stock on March 22, 2004, the most recent practicable date.
(2) With respect to the named executive officers and the officer group,
represents unrestricted and restricted shares that will be awarded in
connection with the 2003 bonus under the 2004 Plan if the 2004 Plan is
approved by shareholders. If the 2004 Plan is not approved, no awards
will be made. With respect to all employees, represents the number of
unrestricted and restricted shares that were awarded in connection with
the 2002 bonus under the 1998 Employee Incentive Plan.
(3) The dollar value is determined by multiplying the number of shares
underlying each option by $35.72, the average of the high and low
prices of the Company's common stock on March 22, 2004, the most recent
practicable date.
(4) With respect to the named executive officers, officer group and
employees, represents the number of stock options granted in 2003 under
the 1998 Employee Incentive Plan. With respect to the director group,
represents a grant of 3,200 stock options that will be made to each
non-executive director under the 2004 Plan if the plan is approved by
shareholders. No options will be granted to directors if the 2004 Plan
is not approved.
(5) The dollar value is determined by multiplying the number of stock units
by $35.72, the average of the high and low prices of the Company's
common stock on March 22, 2004, the most recent practicable date.
(6) Represents stock units that will be awarded to non-executive directors
if the 2004 Plan is approved by shareholders. Stock units are settled
by the payment of cash equal to the fair market value of the common
stock times the number of stock units to be settled. If the 2004 is not
approved, no awards will be made.
We recommend that you vote "FOR" the approval
of the Company's 2004 Stock-Based Compensation Plan.
23
PROPOSAL #3 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee reappointed PricewaterhouseCoopers LLP as
independent auditors for the Company in 2004, subject to ratification by
shareholders. If the appointment is not ratified, the Audit Committee will
consider the appointment of other auditors. A representative of
PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting and
will have the opportunity to make a statement and to respond to appropriate
questions from shareholders.
We recommend that you vote "FOR" ratification of the appointment
of PricewaterhouseCoopers LLP as independent auditors for 2004.
Audit and Non-Audit Fees
The following table presents fees for professional audit services
rendered by PricewaterhouseCoopers LLP for the audit of the Company's annual
financial statements for the years ended December 31, 2003 and December 31,
2002, and fees billed for other services rendered by PricewaterhouseCoopers LLP
during those periods.
2003 2002
Audit Fees(1)...................................... $720,267 $ 650,600
Audit-Related Fees(2).............................. 30,000 22,500
Tax Fees(3)........................................ 584,914 472,000
All Other Fees..................................... 1,400(4) -0-
------------ ------------
Total.............................................. $1,336,581 $1,145,100
============= ============
----------
(1) Consists of fees associated with audits of the consolidated financial
statements, statutory audits, consents and the review of documents filed
with the Securities and Exchange Commission.
(2) Consists principally of completion of benefit plan audits.
(3) Includes tax compliance, tax advice and tax planning.
(4) Consists principally of the cost of accounting research software offered by
the independent auditors.
The Audit Committee considered whether the provision of non-audit
services by PricewaterhouseCoopers LLP, principal auditors during 2003, was
compatible with maintaining auditor independence.
Audit Committee Policy on Approval of Audit and Non-Audit Services
The Audit Committee pre-approves all audit and non-prohibited,
non-audit services provided by the Company's independent auditors. These
services may include audit services, audit-related services, tax services and
other services. The Committee has adopted a policy for the pre-approval of
services provided by the independent auditors. Unless a type of service to be
provided by the independent auditors has received general pre-approval, it will
require specific pre-approval by the Committee. The term of any pre-approval is
12 months from the date of pre-approval, unless the Committee specifically
provides for a different period. Pre-approval fee levels for all services to be
provided by the independent auditors are established periodically by the Audit
Committee and are set forth in the policy. Any proposed services exceeding
pre-approved cost levels will require specific pre-approval by the Committee
24
Audit Services. The annual audit services engagement terms and fees are
subject to the specific pre-approval of the Committee. The Committee will
approve, if necessary, any changes in terms, conditions and fees resulting from
changes in audit scope, Company structure or other matters. In addition, the
Committee has pre-approved the following services: statutory audits or financial
audits for subsidiaries or affiliates of the Company; services associated with
Securities and Exchange Commission registration statements; periodic reports and
other documents filed with the Securities and Exchange Commission or other
documents issued in connection with securities offerings (e.g., comfort letters,
consents) and assistance in responding to Securities and Exchange Commission
comment letters.
Audit-Related Services. Audit-related services are assurance and
related services that are reasonably related to the performance of the audit or
review of the Company's financial statements and that are traditionally
performed by the independent auditors. The Committee has pre-approved the
following audit-related services: due-diligence services pertaining to potential
business acquisitions/dispositions; financial statement audits of employee
benefit plans; agreed-upon or expanded audit procedures related to accounting
and/or billing records required to respond to or comply with financial,
accounting or regulatory reporting matters; internal control reviews and
assistance with internal control reporting requirements; consultations by the
Company's management as to the accounting or disclosure treatment of
transactions or events and/or the actual or potential impact of final or
proposed rules, standards or interpretations by the Securities and Exchange
Commission, FASB, or other regulatory or standard-setting bodies; and attest
services not required by statute or regulation. All other audit-related services
not listed above must be separately pre-approved by the Committee.
Tax Services. The Committee will not permit the retention of the
independent auditors in connection with a transaction initially recommended by
the independent auditors, the purpose of which may be tax avoidance and the tax
treatment of which may not be supported in the Code and related regulations. The
Committee has pre-approved the following tax services: U.S. federal, state and
local tax planning and advice and compliance; international tax planning and
advice and compliance; review of federal, state, local and international income,
franchise and other tax returns; and licensing of income tax preparation
software from the independent auditors, provided the functionality is limited to
preparation of tax returns. All tax services involving large and complex
transactions not listed above must be separately pre-approved by the Committee.
All Other Services. The Committee may grant pre-approval to those
permissible non-audit services classified as "all other services" that it
believes are routine and recurring services and would not impair the
independence of the auditor. At this time, the Committee has not granted
pre-approval of any other services. Therefore, any other services are subject to
the separate pre-approval of the Committee.
The Audit Committee will periodically revise the pre-approved services
and may delegate pre-approval authority to one or more of its members. Such
member will report any pre-approval decisions to the Committee at its next
scheduled meeting. With respect to each proposed pre-approved service, the
independent auditors must provide detailed back-up documentation to the
Committee regarding the specific services to be provided.
25
Shareholder Proposals for the 2005 Annual Meeting
Under the Company's Bylaws, any shareholder who desires to present a
proposal for consideration at the 2005 annual meeting must deliver timely
written notice to the Company's Secretary, 101 Gordon Drive, Lionville,
Pennsylvania 19341. In lieu of delivering to the Secretary, the notice may be
mailed to the Secretary by certified mail, return receipt request, at the same
address. To be timely, the notice must be received not later than February 2,
2005. The notice must contain or be accompanied by the following as to each
matter the shareholder proposes to bring before the annual meeting:
o A brief description of the business to be brought before the annual
meeting and the reasons for conducting the business at the meeting;
o The name and record address of the shareholder proposing the business as
they appear on the Company's books;
o The number and class of the Company's shares beneficially owned by the
shareholder; and
o Any material interest of the shareholder in the business.
You may obtain a copy of the Bylaw provisions relating to the
requirements for making shareholder proposals or nominations by contacting the
Company's Secretary, 101 Gordon Drive, Lionville, Pennsylvania 19341.
26
Appendix A
WEST PHARMACEUTICAL SERVICES, INC. AUDIT COMMITTEE CHARTER
As Restated June 17, 2003 and Amended March 6, 2004
Purpose
The purpose of the Audit Committee (the "Committee") is to assist the
Board of Directors (the "Board") in its oversight of (1) the integrity of the
Company's financial statements, (2) the independent auditor's qualifications and
independence, (3) the performance of the Company's internal audit function and
independent auditors and (4) the compliance by the Company with legal and
regulatory requirements.
The Committee shall prepare the report required by the rules of the
Securities and Exchange Commission ("SEC") to be included in the Company's
annual proxy statement.
Membership and Organization
The Committee shall consist of no fewer than three members of the Board
of Directors. Each member of the Committee, at all times, shall meet the
independence and experience requirements of the listing standards of the New
York Stock Exchange ("NYSE") (as may be modified or supplemented), Section
10A(m)(3) of the Securities Exchange Act of 1934 ("Exchange Act"), the rules and
regulations of the SEC and all other applicable legal requirements. On and after
December 31, 2003, at least one member of the Committee shall be an "audit
committee financial expert" as defined by the SEC.
The members of the Committee shall be appointed by the Board. Committee
members may be replaced by the Board. The Committee shall have the authority to
delegate any of its responsibilities to a subcommittee consisting of one or more
members of the Committee as the Committee may, in its sole discretion, deem
appropriate, subject to the limitations set forth in this Charter.
Meetings
The Committee shall meet as often as it determines, but not less
frequently than quarterly. The Committee shall meet periodically with
management, the internal auditors and the independent auditor in separate
executive sessions. The Committee may request any officer or employee of the
Company or the Company's outside counsel or independent auditor to attend a
meeting of the Committee or to meet with any members of, or consultants to, the
Committee without the consent of management or the Board.
Authority, Duties and Responsibilities
The Audit Committee shall have the power and authority of the Board to
perform the following duties and to fulfill the following responsibilities:
o The Committee shall have the sole authority to appoint or replace the
independent auditor (subject, if applicable, to shareholder ratification).
The Committee shall be directly responsible for the compensation and
oversight of the work of any accounting firm employed by the Company
(including resolving disagreements between management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an
audit report and related work. The accounting firm shall report directly to
the Committee. The Company shall provide for appropriate funding, as
determined by the Committee, for payment of compensation to the independent
auditor for the purpose of rendering or issuing an audit report.
o The Committee shall preapprove all permissible non-audit services and all
auditing services to be performed for the Company by its independent
auditor to the extent required by and in a manner consistent with
applicable law. The Committee may delegate to one or more members the
authority to grant required preapprovals, provided that decisions of any
such member or subcommittee shall be presented to the full Committee at its
next scheduled meeting.
A-1
o In addition, the Committee shall:
Financial Statement and Disclosure Matters
1. Review and discuss with management and the independent auditor the annual
audited financial statements, including disclosures made in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section, and recommend to the Board whether the audited
financial statements should be included in the Company's Form 10-K.
2. Review and discuss with management and the independent auditor the
Company's quarterly financial statements prior to the filing of the
Company's Form 10-Q, including the disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the results of the independent auditor's reviews of the quarterly
financial statements.
3. Review and discuss with management and the independent auditor significant
financial reporting issues and judgments made in connection with the
preparation of the Company's financial statements, including any
significant changes in the Company's selection or application of accounting
principles, any major issues as to the adequacy of the Company's internal
controls and any special audit steps adopted in light of material control
deficiencies.
4. Review and discuss quarterly reports from the independent auditor on:
(i) All critical accounting policies and practices used.
(ii) All alternative treatments of financial information within generally
accepted accounting principles ("GAAP") that have been discussed with
management, ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by the independent
auditor.
(iii) Other material written communications between the independent auditor
and management, such as any management letter or schedule of
unadjusted differences.
5. Discuss with management the Company's earnings press releases, including
the use of "pro forma", "adjusted" or other non-GAAP information, as well
as financial information and earnings guidance provided to analysts and
rating agencies.
6. Review and discuss with management, the internal auditor and the
independent auditor the effect of accounting and regulatory initiatives, as
well as off-balance sheet structures, on the Company's financial
statements.
7. Discuss with management the Company's major financial risk exposures and
the steps management has taken to monitor and control such exposures,
including the Company's risk-assessment and risk-management policies.
8. Review and discuss with the independent auditor the matters required to be
discussed by generally accepted auditing standards relating to the conduct
of the audit, including: the adoption of, or changes to, the Company's
significant auditing and accounting principles and practices; the
management letter provided by the independent auditor and the Company's
response to that letter; and any difficulties encountered in the course of
the audit work, including any restrictions on the scope of activities or
access to requested information or personnel and any significant
disagreements with management.
A-2
9. Review disclosures made to the Committee by the Chief Executive Officer and
the CFO during their certification process for the Form 10-Q and Form 10-K
about any significant deficiencies in the design or operation of internal
controls, any material weaknesses in internal controls and any fraud that
involves management or other employees who have a significant role in the
Company's internal controls.
Oversight of the Company's Relationship with the Independent Auditor
10. Review the experience and qualifications of the senior members of the
independent auditor team.
11. Obtain and review a written report from the independent auditor at least
annually regarding (i) the auditor's internal quality-control procedures,
(ii) any material issues raised by the most recent quality-control review
or peer review of the firm, or by any inquiry or investigation by
governmental or professional authorities within the preceding five years
concerning one or more independent audits carried out by the firm, (iii)
any steps taken to deal with any such issues; and (iv) all relationships,
both direct and indirect, between the independent auditor and the Company.
12. Evaluate the qualifications, performance and independence of the
independent auditor, including considering whether the auditor's quality
controls are adequate and the provision of non-audit services is compatible
with maintaining the auditor's independence. The evaluation shall take into
account the opinions of management and the internal auditor. The Committee
shall present its conclusions to the Board.
13. Assure the rotation of the lead (or coordinating) audit partner having
primary responsibility for the audit and the audit partner responsible for
reviewing the audit as required by law, and consider whether it is
appropriate to adopt a policy of rotating the independent auditing firm on
a regular basis in order to assure continuing auditor independence. The
Committee shall present its conclusions with respect to the independent
auditor to the full Board.
14. Set clear policies for the Company's hiring of employees or former
employees of the independent auditor who were engaged on the Company's
account.
15. Discuss with the independent auditor issues on which the independent
auditor communicated with its national office regarding auditing or
accounting issues.
16. Meet with the independent auditor prior to the audit to discuss the
planning and staffing of the audit.
Oversight of the Company's Internal Audit Function
17. Discuss with the independent auditor the responsibilities, budget and
staffing of the internal audit department and any recommended changes in
the planned scope of internal audit work.
18. Review the significant reports (or summaries thereof) to management
prepared by the internal auditing department and management's responses.
19. Review the appointment and compensation of the director of internal audit,
participate in the performance review of the director of internal audit and
participate in the prior review and concurrence with management regarding
any change of the director of internal audit.
A-3
Compliance Oversight
20. Establish procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls
or auditing matters, and the confidential, anonymous submission by
employees of concerns regarding questionable accounting or auditing
matters.
21. Obtain from the independent auditor such assurance as the Committee deems
adequate that such auditor has fulfilled its responsibilities under Section
10A(b) of the Exchange Act by informing the Committee and management of the
Company of any illegal acts that have been detected or otherwise come to
the attention of the auditor during the course of an audit.
22. Obtain reports from management and the Company's senior internal auditor
and the independent auditor relating to the Company's conformity with
applicable legal and regulatory requirements and its Code of Ethics for the
Chief Executive Officer and Senior Financial Executives. Review reports and
disclosures of insider and affiliated party transactions. Advise the Board
with respect to the Company's policies and procedures relating to
compliance with applicable laws and regulations.
23. Address and take any action, as it deems necessary or appropriate, with
respect to any issues relating to inquiries or investigations regarding the
quality of financial reports filed by the Company with the SEC or otherwise
distributed to the public.
24. Discuss with management and the independent auditor any significant or
material correspondence with regulators or governmental agencies, including
all examination reports received from the various supervisory authorities,
and any employee complaints or published reports that raise material issues
regarding the Company's financial statements or accounting policies. Review
management's replies to such correspondence, complaints or reports.
25. Receive regular reports from the General Counsel on legal risks facing the
Company, pending material litigation and other legal matters that may have
a material impact on the financial statements or the Company's compliance
policies.
Other Areas
26. Make regular reports to the Board, reviewing with the Board issues that
arise with respect to the quality or integrity of the Company's financial
statements, the Company's compliance with legal or regulatory requirements,
the performance and independence of the Company's independent auditor, or
the performance of the internal audit function. The Committee shall conduct
and present to the Board an annual evaluation of its own performance. The
Committee shall review and reassess the adequacy of this Charter at least
annually and recommend any proposed changes to the Board for approval.
27. Investigate any matter brought to its attention within the scope of its
duties. The Committee shall have the authority without the consent of
management or the Board, to the extent it deems necessary or appropriate,
to retain independent legal, accounting or other consultants to advise the
Committee in any such investigation or otherwise in carrying out its
duties. The Company shall provide for appropriate funding, as determined by
the Committee, for payment of compensation to any advisors engaged by the
Committee.
Statement of Policy
While the Committee shall have the responsibilities, duties and powers
set forth in this Charter, it shall not be the duty of the Committee to plan or
conduct audits or to determine that the Company's financial statements are
complete and accurate and in accordance with GAAP and applicable rules and
regulations. This is the responsibility of the independent auditors and
management.
A-4
Appendix B
WEST PHARMACEUTICAL SERVICES, INC.
2004 STOCK-BASED COMPENSATION PLAN
1. Purpose
The Plan has been established by the Sponsor (i) to attract and retain
persons eligible to participate in the Plan; (ii) motivate Participants, by
means of appropriate incentives, to achieve long-range goals; and (iii) link
participants' interests with those of the Sponsor's shareholders through
compensation that is based on the common stock, and thereby promote the
continued growth and financial success of the Company.
2. Definitions
For purposes of the Plan, the following terms shall have the meanings
set forth below:
(a) "Award" means an Option, SAR, Stock Bonus, Restricted Stock,
Deferred Stock, Stock Unit or other equity-based award granted
under the terms of the Plan.
(b) "Award Agreement" means an agreement, in such form and
including such terms as the Committee in its sole discretion
shall determine, evidencing an Award.
(c) "Board" means the Board of Directors of the Sponsor.
(d) "Cause" means: (i) the Participant's conviction of any crime
(whether or not involving the Company) constituting a felony
in the jurisdiction involved; (ii) conduct of the Participant
related to the Participant's employment or service for which
either criminal or civil penalties against the Participant or
the Company may be sought; (iii) material violation of the
Company's policies, including but not limited to those
relating to sexual harassment, the disclosure or misuse of
confidential information, or those set forth in Company
manuals or statements of policy; (iv) serious neglect or
misconduct in the performance of the Participant's duties for
the Company or willful or repeated failure or refusal to
perform such duties.
If, subsequent to a Participant's termination of employment or
service (whether voluntary or involuntary) without Cause, it
is discovered that the Participant's employment or service
could have been terminated for Cause, such Participant's
employment or service shall be deemed to have been terminated
for Cause. A Participant's termination of employment or
service for Cause shall be effective as of the date of the
occurrence of the event giving rise to Cause, regardless of
when the determination of Cause is made.
(e) "Change in Control" means a change in control of a nature that
would be required to be reported in response to Item 1 of a
Current Report on Form 8-K as in effect on the date the Plan
becomes effective under section 13 or 15(d) of the Exchange
Act, provided that, without limitation, a Change in Control
shall be deemed to have occurred if:
(i) Any "Person" (as such term is used in sections 13(d)
and 14(d) of the Exchange Act), other than:
(1) the Sponsor,
(2) any Person who on the date hereof is a director
or officer of the Sponsor, or
B-1
(3) a trustee or fiduciary holding securities under
an employee benefit plan of the Sponsor,
is or becomes the "beneficial owner," (as defined in
Rule 13-d3 under the Exchange Act), directly or
indirectly, of securities of the Sponsor representing
more than 50% of the combined voting power of the
Sponsor's then outstanding securities; or
(ii) During any period of two consecutive years during the
term of this Plan, individuals who at the beginning
of such period constitute the Board of Directors of
the Sponsor cease for any reason to constitute at
least a majority thereof, unless the election of each
director who was not a director at the beginning of
such period has been approved in advance by directors
representing at least two-thirds of the directors
then in office who were directors at the beginning of
the period; or
(iii) The shareholders of the Sponsor approve: (A) a
plan of complete liquidation of the Sponsor; or
(B) an agreement for the sale or disposition of
all or substantially all of the Sponsor's assets;
or (C) a merger, consolidation, or reorganization
of the Sponsor with or involving any other
corporation, other than a merger, consolidation,
or reorganization (collectively, a "Transaction"),
that would result in the voting securities of the
Sponsor outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity), at least 50%
of the combined voting power of the voting
securities of the Sponsor (or the surviving entity,
or an entity which as a result of the Transaction
owns the Sponsor or all or substantially all of the
Sponsor's assets either directly or through one or
more subsidiaries) outstanding immediately after the
Transaction.
(f) "Code" means the Internal Revenue Code of 1986, as amended. A
reference to any provision of the Code shall include reference
to any successor provision of the Code.
(g) "Committee" means the Compensation Committee of the Board;
provided, however, that the Committee shall at all times have
at least two members, all of whom are "non-employee directors"
within the meaning of Rule 16b-3 under the Exchange Act,
"outside directors" within the meaning of section 162(m) of
the Code, and independent within the meaning of any applicable
stock exchange rule.
(h) "Common Stock" means the common stock of the Sponsor, par
value $0.25 per share.
(i) "Company" means the Sponsor and any "subsidiary
corporation" (as that term is defined in Code
section 424(f)) with respect to the Sponsor.
(j) "Deferred Stock" means an Award made under Section 7 to
receive Common Stock at the end of a specified Deferral
Period.
(k) "Deferral Period" means the period during which the receipt
of a Deferred Stock Award under Section 7 will be deferred.
(l) "Disability" means a disability described in section 422(c)(6)
of the Code.
(m) "Employee" means an officer or salaried employee of the
Company providing key services to the Company, including a
director who is such an employee. Employee shall also include
individuals of the Company who are not salaried employees, but
who receive Awards under the Plan conditioned on their
becoming an Employee.
B-2
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(o) "Fair Market Value" of Common Stock on any given date shall be
determined according to the following rules:
(1) If the Common Stock is at the time listed or admitted
to trading on any stock exchange, then the "Fair
Market Value" shall be the mean between the highest
and lowest prices of the Common Stock on the date in
question on the principal national securities
exchange on which it is then listed or admitted to
trading. If no reported sale of Common Stock takes
place on the date in question on the principal
exchange, then the reported closing asked price of
the Common Stock on such date on the principal
exchange shall be determinative of "Fair Market
Value."
(2) If the Common Stock is not at the time listed or
admitted to trading on a stock exchange, the "Fair
Market Value" shall be the mean between the highest
reported asked price and lowest reported bid price
of the Common Stock on the date in question in the
over-the-counter market, as such prices are reported
in a publication of general circulation selected by
the Committee and regularly reporting the market
price of Common Stock in such market.
(3) If the Common Stock is not listed or admitted to
trading on any stock exchange or traded in the
over-the-counter market, the "Fair Market Value"
shall be as determined in good faith by the
Committee.
(p) "Incentive Stock Option" means an Option that meets the
requirements of an incentive stock option as defined in
section 422 of the Code.
(q) "Option" means the right granted under Section 6 to purchase
Common Stock for a specified period of time at a stated price.
An Option may be an Incentive Stock Option or a Non-Qualified
Stock Option.
(r) "Non-Qualified Stock Option" means an Option that is not
intended to be an Incentive Stock Option.
(s) "Participant" means an Employee, director or consultant who is
eligible to participate in the Plan in accordance with Section
3 and to whom an Award is granted under the Plan.
(t) "Performance Goal" means a goal that must be met by
the end of a period specified by the Committee (but that is
substantially uncertain to be met before the grant of the
Award) based on: (i) the price of the Common Stock; (ii) the
market share of the Company (or any business unit thereof);
(iii) sales by the Company (or any business unit thereof);
(iv) earnings per share of Common Stock; (v) return on
shareholder equity of the Sponsor; (vi) costs of the Company
(or any business unit thereof); (vii) cash flow of the Sponsor
(or any business unit thereof); (viii) return on total assets
of the Company (or any business unit thereof); (ix) return on
invested capital of the Company (or any business unit
thereof); (x) return on net assets of the Company (or any
business unit thereof); (xi) operating income of the Company
(or any business unit thereof); or (xii) net income of the
Company (or any business unit thereof).
(u) "Restricted Stock" means a share of Common Stock that is
awarded under Section 8 and that is subject to the
restrictions set forth in such Section.
B-3
(v) "Restriction Period" means the period during which Restricted
Stock is subject to forfeiture, which, if the Committee so
provides may not expire until Retirement.
(w) "Retirement" means: (i) with respect to a Participant who is
an active participant in any qualified pension plan maintained
by the Company, retirement with the Company under the
provisions of such plan; and (ii) with respect to any other
Participant, termination of employment or service (with
respect to directors, but not consultants) with the Company
under the procedures established by the Committee.
(x) "SAR" means a stock appreciation right awarded under Section
10 and subject to the terms and conditions contained therein.
(y) "Sponsor" means West Pharmaceutical Services, Inc., a
Pennsylvania corporation, or any successor thereto.
(z) "Stock Unit" means the right granted under Section 11 to
receive cash equal to the Fair Market Value of a share of
Common Stock multiplied by the number of Stock Units awarded.
For purposes of this Plan, fractional Stock Units, measured to
the nearest four decimal places, may be credited.
(aa) "Stock Bonus" means an award of a bonus payable in shares of
Common Stock under Section 9.
(bb) "Ten Percent Shareholder" means a person who on any given date
owns, either directly or indirectly (taking into account the
attribution rules contained in Code section 424(d)), stock
possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or any subsidiary
corporation under Code section 424(f).
3. Eligibility
Any Employee, non-Employee director of the Company or key consultant to
the Company who is designated by the Committee as eligible to participate in the
Plan shall be eligible to receive an Award under the Plan, provided that an
Incentive Stock Option may only be granted to an Employee of the Company.
4. Administration and Implementation of the Plan
(a) Subject to Section 4(b), the Plan shall be administered
by the Committee, which shall have full power to interpret and
administer the Plan and full authority to act in selecting the
Participants to whom Awards will be granted, in determining
the times at which Awards will be granted, in determining the
type and amount of Awards to be granted to each such
Participant, the terms and conditions of Awards granted under
the Plan (including whether Awards may be exchanged for cash,
made on a tandem basis, or deferrable or transferable by a
Participant) and the terms of agreements which will be entered
into with Participants. The Committee shall have the power to
establish different terms and conditions with respect to (i)
the various types of Awards granted under the Plan, (ii) the
granting of the same type of Award to different Participants
(regardless of whether the Awards are granted at the same time
or at different times), and (iii) the establishment of
different Performance Goals for different Participants.
(b) The Committee shall not have the power to make or grant Awards
to non-Employee directors of the Company. The Company's
Nominating and Corporate Governance Committee shall have the
authority to make recommendations to the full Board regarding
Awards that should be made to non-Employee directors of the
Company. The full Board shall have sole and absolute authority
to make Awards to non-Employee directors hereunder, upon the
Nominating and Corporate Governance Committee's
recommendation. Awards made to non-Employee directors shall be
subject to the other provisions of the Plan and shall be
administered by the Committee, unless the full Board provides
otherwise.
B-4
(c) The Committee shall have the power to adopt regulations for
carrying out the Plan (including regulations regarding the
form and timing of elections and notices under the Plan) and
to make changes in such regulations as it shall, from time to
time, deem advisable. Any interpretation by the Committee of
the terms and provisions of the Plan (including determinations
of existence Cause and Disability hereunder) and the
administration thereof, and all action taken by the Committee
shall be final, binding and conclusive for all purposes and
upon all Participants.
(d) The Committee may condition the grant of any Award or the
lapses of any Deferral or Restriction Period (or any
combination thereof) upon the Participant's achievement of a
Performance Goal that is established by the Committee before
the grant of the Award. The Committee shall have the
discretion to determine the specific targets with respect to
each of these categories of Performance Goals. Before granting
an Award or permitting the lapse of any Deferral or
Restriction Period, the Committee shall certify that an
individual has satisfied the applicable Performance Goal.
(e) Except to the extent prohibited by applicable law or the
applicable rules of a stock exchange, the Committee may
allocate all or any portion of its responsibilities and powers
to any one or more of its members and may delegate all or any
part of its responsibilities and powers to any person or
persons selected by it. Any such allocation or delegation may
be revoked by the Committee at any time.
(f) The Committee may employ attorneys, consultants, accountants
and other service providers. The Committee, the Board, the
Company and the Company's officers shall be entitled to rely
upon the advice and opinions of any such person. No member of
the Committee or the Board shall be personally liable for any
action, determination or interpretation made with respect to
the Plan and all members of the Committee and the Board shall
be fully protected by the Sponsor in respect of any such
action, determination or interpretation in the manner provided
in the Sponsor's bylaws.
5. Shares Subject to the Plan
(a) Subject to the following provisions of this Section, the
maximum number of shares that may be delivered to Participants
(or, if applicable, their heirs, legatees or permitted
transferees) under the Plan shall not exceed 1,500,000 shares
of Common Stock of which no more than 500,000 shares of Common
Stock shall be issued in awards of types other than options.
Any shares issued under the Plan may consist, in whole or in
part, of authorized and unissued shares or treasury shares.
(b) Any shares of Common Stock issued under the Plan that
are forfeited because of the failure to meet an Award
contingency or condition shall again be available for delivery
pursuant to new Awards granted under the Plan. To the extent
any shares of Common Stock covered by an Award are not
delivered to a Participant (or, if applicable, his heir,
legatee or permitted transferee) because the Award is
forfeited or canceled, or the shares are not delivered because
the Award is settled in cash, such shares shall not be deemed
to have been delivered for purposes of determining the maximum
number of shares of Common Stock available for delivery under
the Plan.
(c) If the Exercise Price of any Option granted under the Plan is
satisfied by tendering shares of Common Stock to the Sponsor
(by either actual delivery or by attestation), only the number
of shares issued net of the shares of Common Stock tendered
shall be deemed delivered for purposes of determining the
maximum number of shares of Common Stock available for
delivery under the Plan.
B-5
(d) Shares of Common Stock delivered under the Plan in settlement,
assumption or substitution of outstanding awards (or
obligations to grant future awards) under the plans or
arrangements of another entity shall not reduce the maximum
number of shares of Common Stock available for delivery under
the Plan, to the extent that such settlement, assumption or
substitution is a result of the Company acquiring another
entity (or an interest in another entity).
(e) Subject to the other provisions of this Section, the following
additional maximums are imposed under the Plan.
(1) The maximum number of shares of Common Stock that may
be covered by Awards granted to any one individual
under Sections 2 and 10 (relating to Options and
SARs) shall be 200,000 shares during any calendar
year.
(2) The maximum payment that can be made for Awards
granted to any one individual under Sections 7, 8,
and 9 (relating to Deferred Stock, Restricted Stock,
Stock Bonus and Stock Units) shall be $500,000 for
any single or combined performance goals established
for any performance period, as determined by
reference to the Fair Market Value on the date of
grant of the Award.
6. Options
The Committee may grant Options under the Plan. Options shall be
evidenced by a written Award Agreement. Such Award Agreements shall conform to
the requirements of the Plan, and may contain such other provisions as the
Committee shall deem advisable. The grant of Options shall comply with and be
subject to the following terms and conditions:
(a) Identification of Options. Each Option granted under the Plan
shall be clearly identified in the applicable Award Agreement
as either an Incentive Stock Option or as a Non-Qualified
Stock Option. In the absence of such identification, an Option
shall be deemed to be a Non-Qualified Stock Option.
(b) Number of Options. Subject to Section 5(e), the Award
Agreement for each Option award shall specify the number of
shares of Common Stock that a Participant may receive with
respect to the Participant's option.
(c) Exercise Price. The price per share at which Common Stock may
be purchased upon exercise of an Option shall be determined by
the Committee, but shall be not less than the Fair Market
Value of a share of Common Stock on the date of grant. In the
case of any Incentive Stock Option granted to a Ten Percent
Shareholder, the option price per share shall not be less than
110% of the Fair Market Value of a share of Common Stock on
the date of grant.
(d) Term and Exercise of Options
(1) An Award Agreement shall specify when an Option may
be exercisable and the terms and conditions
applicable thereto. The term of an Option shall in no
event be greater than ten years.
B-6
(2) An Option may be exercised only for a whole number
of shares of Common Stock. The Committee shall
establish the time and the manner in which an Option
may be exercised. The option price of the shares of
Common Stock received upon the exercise of an Option
shall be paid within three days of the date of
exercise: (i) in cash or, (ii) in cash received from
a broker-dealer whom the Participant has authorized
to sell all or a portion of the Common Stock covered
by the Option, or (iii) with the consent of the
Committee, in whole or in part in shares of Common
Stock held by the Participant for at least six months
and valued at their Fair Market Value on the date of
exercise. With the consent of the Committee, payment
upon the exercise of a Non-Qualified Option may be
made in whole or in part by Restricted Stock which
has been held by the Participant for at least six
months (based on the Fair Market Value of the
Restricted Stock on the date the Option is exercised,
as determined by the Committee). In such case the
Common Stock to which the Option relates shall be
subject to the same forfeiture restrictions
originally imposed on the Restricted Stock exchanged
therefor.
(e) Limitations on Grants of Incentive Stock Options.
(1) Each provision of the Plan and each Award Agreement
relating to an Incentive Stock Option shall be
construed so that each Incentive Stock Option shall
be an incentive stock option as defined in section
422 of the Code, and any provisions of the Option
Agreement thereof that cannot be so construed shall
be disregarded. Only an Employee may be granted an
Incentive Stock Option. In no event may a Participant
be granted an Incentive Stock Option which does not
comply with such grant and vesting limitations as may
be prescribed by section 422(b) of the Code. Without
limiting the foregoing, the aggregate Fair Market
Value (determined as of the time the Option is
granted) of the Common Stock with respect to which an
Incentive Stock Option may first become exercisable
by a Participant in any one calendar year under the
Plan shall not exceed $100,000.
(2) No Incentive Stock Option shall be transferable
otherwise than by will or the laws of descent and
distribution and, during the lifetime of the
Participant, shall be exercisable only by the
Participant. Upon the death of a Participant, the
person to whom the rights have passed by will or by
the laws of descent and distribution may exercise an
Incentive Stock Option only in accordance with this
Section.
7. Deferred Stock
The Committee may award Deferred Stock under the Plan, which shall be
evidenced by an Award Agreement in such form as the Committee shall from time to
time approve. Deferred Stock Awards shall comply with and be subject to the
following terms and conditions:
(a) Crediting of Deferred Stock. Upon determination of the number
of shares of Deferred Stock to be awarded to a Participant,
the Committee shall direct that the same be credited to the
Participant's account on the books of the Company but that
issuance and delivery of the same shall be deferred until the
date or dates provided in Section 7(e).
(b) Deferral Period and Performance Goals.
(1) The Committee may condition the grant of an Award of
Deferred Stock or the expiration of the Deferral
Period upon the Participant's achievement of one or
more Performance Goal(s) specified in the Award
Agreement. If the Participant fails to achieve the
specified Performance Goal(s), the Committee shall
not grant the Deferred Stock Award to the
Participant, or the Participant shall forfeit the
Award and no Common Stock shall be transferred to him
pursuant to the Deferred Stock Award.
B-7
(2) The Award Agreement shall specify the duration of
the Deferral Period taking into account termination
of employment or service on account of death,
Disability, Retirement or Cause. The Deferral Period
may consist of one or more installments. At the end
of the Deferral Period or any installment thereof the
shares of Deferred Stock applicable to such
installment credited to the account of a Participant
shall be issued and delivered to the Participant (or,
if applicable, his heir, legatee or permitted
transferee) in accordance with the terms of the Award
Agreement. Notwithstanding the Deferral Period
provided in an Award Agreement, the Committee may
accelerate the delivery of all or any part of a
Deferred Stock Award or waive the deferral
limitations for all or any part of a Deferred Stock
Award.
(c) Voting Rights and Dividends.
(1) Prior to issuance and delivery, the Participant
shall have no rights as a shareholder with respect to
any shares of Deferred Stock credited to the
Participant's account.
(2) Amounts equal to any dividends declared during the
Deferral Period with respect to the number of shares
covered by a Deferred Stock Award will be paid to the
Participant currently, or deferred and deemed to be
reinvested in additional Deferred Stock, or otherwise
reinvested on such terms as are determined at the
time of the Award and specified in the Award
Agreement.
8. Restricted Stock
The Committee may award shares of Restricted Stock. Each grant of
shares of Restricted Stock shall be evidenced by Award Agreements in such form
and containing such terms and conditions and subject to such agreements or
understandings as the Committee shall from time to time approve. Each grant of
shares of Restricted Stock shall comply with and be subject to the following
terms and conditions:
(a) Terms of Restricted Stock. The Award Agreement for a grant of
Restricted Stock shall conform to the requirements of the
Plan, and shall specify (i) the number of shares of Common
Stock subject to the Award, (ii) the Restriction Period
applicable to the Award, (iii) the events that will give rise
to a forfeiture of the Award, and (iv) the Performance Goals,
if any, that must be achieved in order for the restriction to
be removed from the Award. The agreement may contain such
other provisions not inconsistent with the terms of the Plan
as the Committee shall deem advisable.
(b) Issuance of Certificates. The Committee shall direct that a
certificate or certificates representing the number of shares
of Common Stock be issued to the Participant with the
Participant designated as the registered owner. The
certificate(s) representing such shares shall be legended as
to restrictions on the sale, transfer, assignment, pledge or
other encumbrances during the Restriction Period and deposited
by the Participant, together with a stock power endorsed in
blank, with the Company.
B-8
(c) Satisfaction of the Restriction Period. At the end of the
Restriction Period, the Committee shall determine, in light of
the terms and conditions set forth in the Award Agreement, the
number of shares of Restricted Stock with respect to which the
restrictions imposed hereunder have lapsed. The Restricted
Stock with respect to which the restrictions shall lapse shall
be converted to unrestricted Common Stock by the removal of
the restrictive legends from the Restricted Stock. Thereafter,
Common Stock equal to the number of shares of the Restricted
Stock with respect to which the restrictions hereunder shall
lapse shall be delivered to the Participant (or, where
appropriate, the Participant's legal representative).
(d) Voting Rights and Dividends.
(1) Unless otherwise determined by the Committee,
during the Restriction Period the Participant shall
have the right to vote all shares of Restricted
Stock.
(2) Dividends will be authorized by the Sponsor to be
paid to the Participant during the period the
restriction is enforced, subject to the same
restrictions as the underlying shares upon which the
restriction is declared.
9. Stock Bonus
The Committee may grant Stock Bonuses in such amounts as it shall
determine from time to time. A Stock Bonus shall be paid at such time (including
a future date selected by the Committee at the time of grant) and subject to
such conditions as the Committee shall determine at the time of the grant of
such Stock Bonus, including, if applicable, Section 14. By way of example and
not by way of limitation, the Committee may require, as a condition to the
payment of a Stock Bonus, that the Participant or the Company achieve such
performance criteria as the Committee may specify at the time of the grant.
Prior to the date on which a Stock Bonus awarded hereunder is required to be
paid, such Award shall constitute an unfunded, unsecured promise by the Company
to distribute Common Stock in the future.
10. Stock Appreciation Rights
The Committee may grant SARs under the Plan, which shall be evidenced
by Award Agreements in such form as the Committee shall from time to time
approve. SARs shall comply with and be subject to the following terms and
conditions:
(a) Benefits Upon Exercise.
(1) An SAR shall entitle the recipient to receive a
payment equal to the excess of the Fair Market Value
of the shares of Common Stock covered by the SAR on
the date of exercise over the base price of the SAR.
Such payment may be in cash, in shares of Common
Stock, in shares of Deferred Stock, in shares of
Restricted Stock or any combination, as the Committee
shall determine. An SAR may be granted in tandem with
all or a portion of a related Option under the Plan
("Tandem SAR"), or may be granted separately
("Freestanding SAR"). A Tandem SAR may be granted
either at the time of the grant of the Option or at
any time thereafter during the term of the Option and
shall be exercisable only to the extent that the
related Option is exercisable.
(2) Upon exercise of a Tandem SAR as to some or all of
the shares of Common Stock covered by the grant, the
related Option shall be canceled automatically to the
extent of the number of shares of Common Stock
covered by such exercise, and such shares shall no
longer be available for purchase under the Option.
Conversely, if the related Option is exercised as to
some or all of the shares of Common Stock covered by
the grant, the related Tandem SAR, if any, shall be
canceled automatically to the extent of the number of
shares of Common Stock covered by the Option
exercise.
B-9
(b) Exercise Price. The base price of a Tandem SAR shall be the
option price under the related Option. The base price of a
Freestanding SAR shall be determined by the Committee at the
time of the grant of such SAR but shall be not less than 100%
of the Fair Market Value of the Common Stock on the date of
grant of the Freestanding SAR.
(c) Other Restrictions. SARs shall generally be subject to the
same terms, conditions and limitations applicable to Options
granted under Section 6.
11. Stock Units
(a) Grant of Stock Units. Subject to the other terms of the Plan,
the Committee shall, in its discretion as reflected by the
terms of the applicable Award Agreement: (i) authorize the
granting of Stock Units to Participants and (ii) determine or
impose other conditions to the grant of Stock Units under the
Plan as it may deem appropriate.
(b) Term. The Committee may provide in an Award Agreement that any
particular Stock Unit shall expire at the end of a specified
term not to exceed 10 years.
(c) Vesting.
(1) Stock Units shall vest and first become exercisable
according to the terms and conditions set forth in
the Award Agreement, as determined by the Committee
at the time of grant. Stock Units may be payable upon
termination of employment or service or upon other
future event (including attainment of a Performance
Goal).
(2) Unless otherwise provided in the Award Agreement
(except due to a termination for Cause), if a
Participant terminates employment or service with the
Company, any and all of the Participant's Stock Units
which have not vested prior to or as of such
termination shall thereupon, and with no further
action, be forfeited and cease to be outstanding.
(3) If a Participant terminates employment or service
with the Company for Cause, any and all of the
Participant's Stock Units which have not vested prior
to or as of such termination shall thereupon, and
with no further action, be forfeited and cease to be
outstanding.
(d) Settlement of Stock Units.
(1) Each vested and outstanding Stock Unit shall be
settled by the payment to the Participant of cash
equal to the Fair Market Value of the Common Stock
times the number of Stock Units to be settled. The
Fair Market Value shall be determined by reference to
the date of termination or other future event as
specified in the Award Agreement.
(2) Unless otherwise provided in an Award Agreement,
each Stock Unit shall be settled with a single-sum
payment by the Company.
(3) Unless otherwise provided in an Award Agreement and
subject to Section 14, if applicable, the settlement
date with respect to a Participant is the first day
of the month to follow the Participant's termination
of employment or service.
B-10
(e) Nature of Stock Units. Stock Units are solely a device for
the measurement and determination of the amounts to be paid to
a Participant under the Plan. Each Participant's right in the
Stock Units is limited to the right to receive payment, if
any, as may herein be provided. The Stock Units do not
constitute Common Stock and shall not be treated as (or as
giving rise to) property or as a trust fund of any kind;
provided, however, that the Company may establish a mere
bookkeeping reserve to meet its obligations hereunder or a
trust or other funding vehicle that would not cause the Plan
to be deemed to be funded for tax purposes or for purposes of
Title I of the Employee Retirement Income Security Act of
1974, as amended. The right of any Participant of Stock Units
to receive payments by virtue of participation in the Plan
shall be no greater than the right of any unsecured general
creditor of the Company. Nothing contained in the Plan shall
be construed to give any Participant any rights with respect
to Shares or any ownership interest in the Company. Without
limiting Section 8, no provision of the Plan shall be
interpreted to confer any voting, dividend or derivative or
other similar rights with respect to any Stock Units.
12. Other Equity-Based Awards
The Committee may grant other types of equity-based Awards in such
amounts and subject to such terms and conditions, as the Committee shall in its
sole discretion determine, subject to the provisions of the Plan. Awards may
entail the transfer of actual shares of Common Stock to Participants, or payment
in cash or otherwise of amounts based on the value of shares of Common Stock.
13. Effect of Termination of Employment or Service on Awards
(a) Options and SARs.
(1) Unless otherwise provided in an applicable Award
Agreement and subject to Section 6(e), in the event
that the employment or service of a Participant with
the Company shall terminate for any reason other than
Retirement, Cause, Disability or death (i) Options or
SARs or SARs granted to such Participant, to the
extent that they were exercisable on the
Participant's termination date, shall remain
exercisable until the expiration of 90 days after
such termination date, on which date they shall
expire, and (ii) Options or SARs or SARs granted to
such Participant, to the extent that they were not
exercisable on his termination date, shall expire at
the close of business on such date; provided,
however, that no Option or SAR shall be exercisable
after the expiration of its term.
(2) Unless otherwise provided in an applicable Award
Agreement and subject to Section 6(e), in the event
that the employment or service of a Participant with
the Company shall terminate on account of the death
of the Participant, all Options or SARs or SARs
granted to such Participant, to the extent that they
were exercisable on the Participant's termination
date, shall remain exercisable until the expiration
of one year after such date, on which date they shall
expire.
(3) Unless otherwise provided in an applicable Award
Agreement and subject to Section 6(e), in the event
that the employment or service of a Participant with
the Company shall terminate on account of the
Disability or Retirement of the Participant, all
Options or SARs or SARs granted to such Participant,
to the extent that they were exercisable on the
Participant's termination date (or, in the case of
Retirement such later date determined by the
Committee), shall remain exercisable until the
expiration of the term specified in their applicable
Award Agreement, on which date they shall expire.
B-11
(4) In the event of the termination of a Participant's
employment or service for Cause, all outstanding
Options or SARs or SARs granted to such Participant
shall expire at the commencement of business on the
Participant's termination date (or deemed termination
under Section 2(e)).
(b) Restricted Stock and Deferred Stock.
(1) In the event that the employment or service of a
Participant with the Company shall terminate for any
reason (other than a termination that is for Cause)
prior to the expiration of the Restriction Period or
Deferral Period with respect to such shares of
Restricted Stock or Deferred Stock, unless otherwise
provided by the Committee in its sole discretion,
such termination shall cause the immediate forfeiture
of all shares of Restricted Stock, Deferred Stock or
Stock Bonus that have not vested as of the
Participant's termination date.
(2) In the event a Participant's employment or service is
or is deemed to have been terminated for Cause, all
shares of Restricted Stock still subject to a
Restriction Period and all shares of Deferred Stock
still subject to a Deferral Period as of his
termination date immediately shall be forfeited.
14. Deferral Election
Notwithstanding any provision of the Plan to the contrary, any
Participant may elect, with the concurrence of the Committee and consistent with
any rules and regulations established by the Committee, to defer to a specified
date the receipt of unrestricted Common Stock (or a cash payment hereunder) that
the Participant would otherwise be entitled to receive pursuant to an Award.
Such deferral may be, at the Committee's sole discretion, be made in accordance
with the terms of a non-qualified deferred compensation plan maintained by the
Company. Notwithstanding such an election, the Committee may distribute the
unrestricted Common Stock (or cash payment, if applicable) deferred by any
Participant under this Section if the Committee determines, in its discretion,
that the continued deferral of Common Stock hereunder is no longer in the best
interest of the Company or that such deferred Award would be immediately taxable
to the Participant.
15. Adjustments upon Changes in Capitalization
In the event of a reorganization, recapitalization, stock split,
spin-off, split-off, split-up, stock dividend, issuance of stock rights,
combination of shares, merger, consolidation or any other change in the
corporate structure of the Sponsor affecting Common Stock, any distribution to
shareholders other than a cash dividend, or any change in the corporate
structure of the Company (or any sub-unit of the Company), the Committee, in its
discretion, shall make appropriate adjustment in the number and kind of shares
authorized by the Plan and any other adjustments to outstanding Awards as it
determines appropriate. No fractional shares of Common Stock shall be issued
pursuant to such an adjustment. The Fair Market Value of any fractional shares
resulting from adjustments under this Section shall, where appropriate, be paid
in cash to the Participant. The determinations and adjustments made by the
Committee under this Section shall be conclusive.
16. Effect of a Change in Control
Unless otherwise provided by the Committee in an Award Agreement, any
Award granted hereunder that has not been vested hereunder, or been canceled or
forfeited under any provision of the Plan, shall become fully exercisable and
vest immediately. Any Awards deferred under Section 14 shall be paid prior to or
as soon as practicable following a Change in Control, as determined by the
Committee in its sole discretion.
B-12
17. Tax Withholding
Whenever the Company proposes or is required to issue or transfer
shares of Common Stock under the Plan, the Company shall have the right to
require the recipient to remit to the Company an amount sufficient to satisfy
any Federal, state or local withholding tax requirements prior to the delivery
of any certificate for such shares, or in the discretion of the Committee, the
Company may withhold from the shares to be delivered shares sufficient to
satisfy all or a portion of such tax withholding requirements. Whenever under
the Plan payments are to be made in cash, such payments may be net of an amount
sufficient to satisfy any Federal, state and local tax withholding requirements.
18. Award Forfeiture Provision
Notwithstanding any other provision of this Plan to the contrary, the
Committee may provide for the forfeiture of Awards under the Plan and the
benefits derived therefrom, in the event a Participant (or, if applicable, his
heir, legatee or permitted transferee) engages in conduct deemed to be harmful
to, or not in the best interests of, the Company or if the Participant (or, if
applicable, his heir, legatee or permitted transferee) fails to comply with any
of the terms and conditions of the Plan or the agreement executed by such
Participant (or, if applicable, his heir, legatee or permitted transferee)
evidencing an Award, unless such failure is remedied by within ten days after
having been notified of such failure by the Committee. Such provisions shall be
included in the Award Agreements approved from time to time by the Committee and
may be waived by the Committee, or its duly appointed agent, as determined in
the Committee's sole discretion.
19. Transferability
(a) Except as specifically provided in Section 19(b), no Awards
may be transferred by the Participant otherwise than by will,
by the laws of descent and distribution, and during the
Participant's lifetime an Option may be exercised only by him.
During the Restriction Period or Deferral Period, if
applicable, immediately upon any attempt to transfer any
rights under or to a share of Restricted Stock or Deferred
Stock, such share, and all of the rights related thereto,
shall be forfeited by the Participant and the transfer shall
be of no force or effect. Upon the death of a Participant,
outstanding Awards granted to such Participant may be
exercised (if applicable) only by those person or persons who
shall have acquired such right to exercise by will or the laws
of descent and distribution. Such Awards shall be subject to
the restrictions, conditions and limitations that were
applicable to such Award at the time of the Participant's
death and such other restrictions, conditions and limitations
that the Committee shall determine in its sole discretion upon
the death of the Participant.
(b) The Committee, in its discretion, may allow for
transferability of Non-Qualified Options by the Participant to
children, grandchildren, spouse or common law spouse, siblings
or parents of the Participant or to bona fide trusts,
partnerships or other entities controlled by and of which the
beneficiaries are Immediate Family Members of the Participant
("Immediate Family Members"). Any Awards that are transferable
are further conditioned on the Participant and Immediate
Family Members agreeing to abide by the Company's then current
transfer guidelines applicable to such types of Award.
20. Effective Date, Termination and Amendment
(a) Subject to the approval of the shareholders of the Sponsor at
the Sponsor's 2004 annual meeting of shareholders, the Plan
shall be effective as of May 5, 2004 (the "Effective Date").
The Plan shall remain in full force and effect until the
earlier of ten years from the date of shareholder approval, or
the date it is terminated by the Board. The Board shall have
the power to amend, suspend or terminate the Plan at any time,
provided that no such amendment shall be made without
shareholder approval to the extent such approval is required
under section 422 of the Code, section 162(m) of the Code, the
rules of a stock exchange or any other applicable law.
Termination of the Plan under this Section shall not affect
Awards outstanding under the Plan at the time of termination.
B-13
(b) The Committee shall have the power unilaterally and without
approval of a Participant to amend an existing Award in order
to carry out the purposes of the Plan so long as such an
amendment does not take away any benefit granted to a
Participant by the Award and as long as the amended Award
comports with the terms of the Plan; provided, however, that
prior to a Change in Control, if and to the extent that the
Committee determines the Sponsor's federal tax deduction in
respect of an Award may be limited as a result of section
162(m) of the Code, the Committee may take any and all actions
it deems necessary, in its sole and absolute discretion with
respect to any Award (including the amendment, delay or
cancellation of an Award to the detriment of a Participant)
hereunder to eliminate or minimize the non-deductible portion
of any Award. Nothing herein shall restrict the Committee's
ability to exercise its discretionary authority pursuant to
Section 4, which discretion may be exercised without amendment
to the Plan or an Award.
21. Limitation of Implied Rights
(a) Neither a Participant nor any other person shall, by reason of
the Plan, acquire any right in or title to any assets, funds
or property of the Company whatsoever, including, without
limitation, any specific funds, assets, or other property
which the Company, in their sole discretion, may set aside in
anticipation of a liability under the Plan. A Participant
shall have only a contractual right to the stock or amounts,
if any, payable under the Plan, unsecured by any assets of the
Company. Nothing contained in the Plan shall constitute a
guarantee that the assets of such companies shall be
sufficient to pay any benefits to any person.
(b) Nothing contained in the Plan or any Award shall confer upon
any Participant any right with respect to the continuation of
his employment or service by the Company or interfere in any
way with the right of the Company, subject to the terms of any
separate agreement to the contrary, at any time to terminate
such employment or service or to increase or decrease the
compensation of the Participant from the rate in existence at
the time of the grant of an Award.
(c) No person shall have any claim or right to receive an Award
hereunder. The Committee's granting of an Award to a
Participant at any time shall neither require the Committee to
grant an Award to such Participant or any other Participant or
other person at any time nor preclude the Committee from
making subsequent grants to such Participant or any other
Participant or other person.
(d) No person shall have any rights as a shareholder with respect
to any shares of Common Stock covered by or relating to any
Award granted under this Plan until the date that the
Participant becomes the registered owner of such shares.
Except as otherwise expressly provided in an Award Agreement,
no adjustment to any Award shall be made for dividends or
other rights for which the record date occurs prior to the
date such stock certificate is issued.
22. Securities Law Matters
The Company shall be under no obligation to effect the registration
pursuant to the Securities Act of 1933, as amended, of any interests in the Plan
or any shares of Common Stock to be issued hereunder or to effect similar
compliance under any state laws. Notwithstanding anything herein to the
contrary, the Sponsor shall not be obligated to cause to be issued or delivered
any certificates evidencing shares of Common Stock under the Plan unless and
until the Sponsor is advised by its counsel that the issuance and delivery of
such certificates is in compliance with all applicable laws, regulations of
governmental authority and the requirements of any securities exchange on which
shares of Common Stock are traded. The Committee may require, as a condition of
the issuance and delivery of certificates evidencing shares of Common Stock
under the terms hereof, that the recipient of such shares make such covenants,
agreements and representations, and that such certificates bear such legends, as
the Committee, in its sole discretion, deems necessary or desirable.
B-14
(a) The exercise of any Option granted hereunder shall be
effective only at such time as counsel to the Sponsor shall
have determined that the issuance and delivery of shares of
Common Stock pursuant to such exercise is in compliance with
all applicable laws, regulations of governmental authority and
the requirements of any securities exchange on which shares of
Common Stock are traded. The Committee may, in its sole
discretion, and in accordance with procedures established by
the Committee, defer the effectiveness of any exercise of an
Option granted hereunder in order to allow the issuance of
shares of Common Stock pursuant thereto to be made pursuant to
registration or an exemption from registration or other
methods for compliance available under federal or state
securities laws.
(b) It is intended that the Plan be applied and administered in
compliance with Rule 16b-3 of the Exchange Act, as amended
from time to time. If any provision of the Plan would be in
violation of Rule 16b-3 if applied as written, such provision
shall not have effect as written and shall be given effect so
as to comply with Rule 16b-3, as determined be the Committee
and such provision may be amended or Award modified as
determined in the sole discretion of the Committee.
23. Severability of Provisions
If any provision of this Plan is held to be invalid or unenforceable,
the other provisions of the Plan shall not be affected but shall be applied as
if the invalid or unenforceable provision had not been included in the Plan.
24. Applicable Law
Except to the extent preempted by any applicable federal law, the Plan
will be construed and administered in accordance with the laws of the
Commonwealth of Pennsylvania, without reference to the principles of conflicts
of law.
B-15
PROXY [LOGO OMITTED]
WEST PHARMACEUTICAL SERVICES, INC.
101 Gordon Drive, Lionville, Pennsylvania 19341
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John R. Gailey III and William J. Federici as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all the shares of common
stock of West Pharmaceutical Services, Inc., held of record by the undersigned
on March 25, 2004, at the Annual Meeting of Shareholders to be held on May 4,
2004 or any postponement or adjournment thereof.
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, this Proxy will be voted
FOR Proposals 1, 2 and 3.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF SHAREHOLDERS OF
WEST PHARMACEUTICAL SERVICES, INC.
May 4, 2004
Please date, sign and mail your proxy card in the envelope provided
as soon as possible.
Please detach along perforated line and mail in the envelope provided.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSALS 2 AND 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
1. Election of 4 Class ll Directors:
NOMINEES:
[ ] FOR ALL NOMINEES O George W. Ebright
[ ] WITHHOLD AUTHORITY FOR ALL NOMINEES O L. Robert Johnson
[ ] FOR ALL EXCEPT O John P. Neafsey
(See instructions below) O Geoffrey F. Worden
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here: O
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
[ ]
FOR AGAINST ABSTAIN
2. Approval of the 2004 Stock [ ] [ ] [ ]
Based-Compensation Plan.
3. Ratification of the appointment of [ ] [ ] [ ]
PricewaterhouseCoopers LLP as independent
auditors of the corporation for the fiscal
year ending December 31, 2004.
4. In their discretion, the Proxies are authorized [ ] [ ] [ ]
to vote upon such other matters as may properly
come before the meeting.
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, this Proxy will be voted
FOR Proposals 1, 2 and 3.
Signature of Shareholder Date: Signature of Shareholder Date:
Signature of Shareholder Date: Signature of Shareholder Date:
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.