SCHEDULE 14A

(RULE 14A-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

 

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

Filed by the Registrant    x

 

Filed by a Party other than the Registrant    ¨

 

Check the appropriate box:

 

¨     Preliminary Proxy Statement		¨     Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x    Definitive  Proxy Statement
¨     Definitive Additional Materials
¨     Soliciting Material Under Rule 14a-12

 

THE COOPER COMPANIES, INC.

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(Name of Registrant as Specified in Its Charter)

 

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(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

x    No fee required.

 

¨    Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

                                                                                                                                                                                                                              

(2)

Aggregate number of securities to which transaction applies:

                                                                                                                                                                                                                              

 

(3)

Per unit price or other underlying value of transaction computed

pursuant to Exchange Act Rule 0-11 (set forth the amount on which the  

filing fee is calculated and state how it was determined):

                                                                                                                                                                                                                              

 

(4)

Proposed maximum aggregate value of transaction:

                                                                                                                                                                                                                              

 

(5)

Total fee paid:

                                                                                                                                                                                                                              

 

¨     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.:

                                                                                                                                                                                                                              

 

(3)

Filing Party:

                                                                                                                                                                                                                              

 

(4)

Date Filed:

                                                                                                                                                                                                                              

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THE COOPER COMPANIES, INC.

6140 Stoneridge Mall Road, Suite 590

Pleasanton, CA 94588

 

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PROXY STATEMENT

FOR

ANNUAL MEETING OF STOCKHOLDERS

MARCH 25, 2003

 

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Information Regarding Proxies

 

The accompanying proxy card is solicited by and on behalf of the Board of Directors of The Cooper Companies, Inc. (the “Company”) for use at its Annual Meeting of Stockholders to be held on March 25, 2003 at the New York Marriott East Side, 525 Lexington Avenue, New York, NY, at 10:00 a.m., and at any adjournments or postponements thereof. This Proxy Statement and the accompanying proxy card are first being mailed to stockholders on or about February 11, 2003.

 

When you return a properly executed proxy card in the form enclosed with this Proxy Statement, the shares represented will be voted at the Annual Meeting in accordance with the indicated directions. If a proxy card is properly executed but no directions are indicated, the shares will be voted FOR each of the nominees for director as shown on the form of proxy card, FOR ratification of the appointment of KPMG LLP as independent certified public accountants of the Company, FOR adoption of the Amended and Restated Long-Term Incentive Plan, and FOR amendment of the Restated Certificate of Incorporation to increase the number of shares outstanding. The Board of Directors is not aware of any other business to come before the Annual Meeting. If any other matters should properly come before the Annual Meeting or any adjournments or postponements thereof for which specific authority has not been solicited from the stockholders, then, to the extent permissible by law, the persons voting the proxies will use their discretionary authority to vote in accordance with their best judgment. A stockholder who executes and returns the enclosed proxy card may revoke it at any time prior to its exercise by giving written notice of such revocation to the Secretary of the Company, by executing a subsequently dated proxy card or by voting in person at the Annual Meeting. Attendance at the Annual Meeting by a stockholder who has executed and returned a proxy card does not alone revoke such proxy.

 

The Company will pay all costs associated with soliciting proxies. In addition to the solicitation of proxies by mail, officers, directors and other employees of the Company, acting on its behalf, may solicit proxies by telephone, facsimile or personal interview. Also, the Company has retained D.F. King & Co., Inc. to aid in the solicitation of proxies, for which the Company will pay a fee of $11,000 plus reasonable expenses. The Company will, at its expense, request brokers and other custodians, nominees and fiduciaries to forward proxy soliciting material to stockholders of record.

 

In some cases, only one copy of this Proxy Statement is being delivered to multiple stockholders sharing an address unless the Company has received contrary instructions from one or more of the stockholders. The Company will deliver promptly, upon written or oral request, a separate copy of this Proxy Statement to a stockholder at a shared address to which a single copy of the document was delivered. To request a separate delivery of these materials now or in the future, a stockholder may submit a written request to B. Norris Battin, Vice President, Investor Relations and Communications at 21062 Bake Parkway, Suite 200, Lake Forest, CA 92630 or an oral request by calling 949-597-4700. Additionally, any stockholders who are presently sharing an address and receiving multiple copies of either the Proxy Statement or the Annual Report and who would rather receive a single copy of such materials may instruct us accordingly by directing their request to us in the manner provided above, or by contacting their broker.

 

Outstanding Stock and Voting Rights

 

As of the close of business on February 4, 2003, the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting, there were outstanding 31,564,201 shares of the Company’s common stock, $.10 par value per share, each of which is entitled to one vote at the Annual Meeting. Under the Company’s By-laws and Delaware law, shares represented by proxies that reflect abstentions or broker non-votes (that is, shares held by a broker or nominee which are represented at the meeting, but with respect to which such broker or nominee is not empowered to vote on a particular proposal) will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum. Directors will be elected by the favorable vote of a plurality of the shares of common

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stock present and entitled to vote, in person or by proxy, at the Annual Meeting. Abstentions as to the election of directors will not affect the election of the candidates receiving a plurality of votes. The proposals to ratify the appointment of the Company’s independent certified public accountants and to amend the Company’s Long-Term Incentive Plan require the approval of the majority of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on such proposal. Abstentions to these proposals will have the same effect as votes against them, while shares represented by proxies that reflect broker non-votes will be treated as not entitled to vote for purposes of determining approval of these proposals and will not have any effect on the outcome of the vote. The proposal to amend the Restated Certificate of Incorporation requires the approval of a majority of the company’s outstanding shares of common stock. Abstentions to this proposal and any broker non-votes will have the same effect as votes against the proposal.

 

PROPOSAL 1 — ELECTION OF DIRECTORS

 

The Company’s By-laws provide for no fewer than six and no more than eleven directors, as determined by the Board of Directors, which has fixed the number of directors to be elected at the 2003 Annual Meeting at eight, each of whom will serve until the next Annual Meeting of Stockholders and until his successor is duly elected and qualified. The Board of Directors recommends that each nominee for director described below be elected to serve as a director of the Company. All nominees have consented to be named and have indicated their intention to serve if elected. The Board of Directors expects that all nominees will be available for election and able to serve. If any nominee is not available for election or able to serve as a director, the accompanying proxy will be voted for the election of such other person, if any, as the Board of Directors may designate.

 

The Nominees

 

Each of the nominees currently serves on the Board of Directors.

 

The names of the nominees for election as directors are listed below, together with certain personal information, including their present principal occupation and recent business experience.

 

Name, Principal Occupation and Other Directorships		Age		Year Commenced Serving as a Director of the Company
A. Thomas Bender		64		1994
Mr. Bender was elected Chairman of the Board in July 2002, and has been serving as President and Chief Executive Officer of the Company since May 1995. He had been serving as the Chief Operating Officer of the Company since August 1994. He served as Acting Chief Operating Officer of the Company from March 1994 to August 1994, and as Senior Vice President, Operations from October 1992 to February 1994. He is also President of CooperVision, Inc., the Company’s contact lens subsidiary, a position he has held since June 1991. Between 1966 and June 1991, Mr. Bender held a variety of positions at Allergan, Inc. (a manufacturer of eye and skin care products), including Corporate Senior Vice President, and President and Chief Operating Officer of Herbert Laboratories, Allergan’s dermatology division.
Michael H. Kalkstein		60		1992
Mr. Kalkstein has been a partner at Oppenheimer, Wolff & Donnelly, LLP, a law firm, since September 1999 and is a member of that firm’s Policy and Technologies Committees. He was a partner in the law firm of Graham & James LLP from September 1994 through August 1999 and a member of its Firmwide Management Committee and its Technology Committee; he was a partner in the law firm of Berliner•Cohen from 1983 through August 1994 and a member of its Management and Technology Committees. He has been a member of the Board of Trustees of Opera San Jose since 1984, serving as its President from 1992 to 1994. He has been a member of Alliance of CEOs since 2001 and a member of the Board of Directors of the Law Foundation of Silicon Valley since 2002.

 

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Name, Principal Occupation and Other Directorships		Age		Year Commenced Serving as a Director of the Company
Moses Marx		67		1995
Mr. Marx has been the general partner in United Equities Company, a securities brokerage firm, since 1954 and a general partner in United Equities Commodities Company, a commodities brokerage firm, since 1972. He is also President of Momar Corp., an investment company, and a director of Berkshire Bancorp Inc., a bank holding company. He previously served as a member of the Company’s Board of Directors from September 1989 to September 1991.
Donald Press		69		1993
Mr. Press has been Executive Vice President of Broadway Management Co., Inc., an owner and manager of commercial office buildings, since 1981. Mr. Press is also a principal in Donald Press, P.C., a law firm, located in New York City and a director of Components Specialties, Inc., an electronics company, and Superior Savings of New England, formerly Branford Savings Bank.
Steven Rosenberg		54		1993
Mr. Rosenberg has been President and Chief Executive Officer of Berkshire Bancorp Inc., a publicly traded bank holding company, since March 1999 and its Vice-President, Finance and Chief Financial Officer since 1990. From September 1987 through March 1990, Mr. Rosenberg was President and Chief Executive Officer of Scomel Industries Inc., an international marketing and consulting group. Prior to that, he was Vice President of Noel Industries, Inc., an apparel manufacturer and importer. He is currently a Director of Berkshire Bancorp, Inc.
Allan E. Rubenstein, M.D.		58		1992
Dr. Rubenstein has served as Vice Chairman and Lead Director since July 2002 and served as Chairman of the Board from July 1994 through July 2002. He served as Acting Chairman of the Board from April 1993 through June 1994. He is Chairman of the Board of University Heart Scan, LLC, a cardiac scanning company and is a director of Bioimaging Technologies Corp., a clinical trial company. Dr. Rubenstein is certified by the American Board of Psychiatry and Neurology and by the American Society for Neuroimaging. He has been on the faculty of the Department of Neurology at Mt. Sinai School of Medicine in New York City since 1976, and currently is Associate Professor and Director of the Mt. Sinai Neurofibromatosis Research and Treatment Center. Dr. Rubenstein has authored two books on neuro-fibromatosis and is Medical Director for the National Neurofibromatosis Foundation. He is also a consultant to the National Institutes of Health, the Federal Drug Administration and the U.S. Army.
Robert S. Weiss		56		1996
Mr. Weiss has been Executive Vice President of the Company since October 1995, and Chief Financial Officer since 1989. He also served as Treasurer from 1989 to March 2002. From October 1992 until October 1995 he served as Senior Vice President; from March 1984 to October 1992 he served as a Vice President, and from 1984 through July 1990 he served as Corporate Controller. He also held a number of financial positions with the Company and at Cooper Laboratories, Inc. (the Company’s former parent) since joining the Company in 1977.

 

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Name, Principal Occupation and Other Directorships		Age		Year Commenced Serving as a Director of the Company
Stanley Zinberg, M.D.		68		1997
Dr. Zinberg, an obstetrician-gynecologist, is Vice President for Practice Activities of the American College of Obstetricians and Gynecologists in Washington, D.C. From 1981 until 1993 he served as Chief, Obstetrics and Gynecology and Director, OB-GYN Residency Program at NYU Downtown Hospital, where from 1990 through 1992 he also served as President of the Medical Staff and a member of the Board of Trustees. He is certified by the American Board of Obstetrics and Gynecology and is a member of faculty of the Departments of Obstetrics and Gynecology at New York University School of Medicine, the Cornell University College of Medicine and the Georgetown University School of Medicine.

 

There are no family relationships among any of the Company’s current directors or executive officers or the Board’s proposed nominees.

 

Board Committees, Meetings and Compensation

 

There are four active Board Committees:

 

(i)  The Audit and Finance Committee advises and makes recommendations to the Board of Directors concerning (a) the appointment and oversight of the Company’s independent certified public accountants, (b) the activities of the independent certified public accountants and conduct of the company’s internal audits, (c) procedures for receiving and handling reports of fiscal misconduct, and (d) the financial, investment and accounting procedures and practices followed by the Company. The Audit and Finance Committee operates under a written charter adopted by the Board of Directors. The members are Messrs. Rosenberg (Chair) and Kalkstein and Dr. Zinberg.

 

(ii)  The Organization and Compensation Committee (formerly the Compensation/Long Term Incentive Plan Committee) advises and makes recommendations to the Board of Directors regarding the compensation of directors, officers and senior management and the granting of awards under the Company’s Long Term Incentive and Incentive Payment Plans. The members are Messrs. Kalkstein (Chair) and Press and Dr. Rubenstein.

 

(iii)  The Corporate Governance Committee (formerly the Management Committee) was originally established to consult with and oversee the activities of management. The Committee was renamed and its purpose expanded in 2002 to develop and oversee corporate governance principles on behalf of the Board of Directors. The Committee meets with the Chief Executive Officer and senior corporate staff as it deems appropriate. The members are Messrs. Press (Chair) and Rosenberg, and Dr. Rubenstein.

 

(iv)  The Nominating Committee selects individuals to be nominated for election to the Company’s Board of Directors. The members are Drs. Rubenstein (Chair) and Zinberg and Mr. Marx. The Nominating Committee will consider suggestions from stockholders for nominees for election as directors at the 2003 Annual Meeting, provided that the recommendations are made in accordance with the procedure described below under Stockholder Nominations and Proposals.

 

During the fiscal year ended October 31, 2002, the Board met ten times and acted two times by unanimous written consent, the Audit and Finance Committee met five times, the Organization and Compensation Committee met six times and acted two times by unanimous consent, the Corporate Governance Committee (formerly the Management Committee) met once.

 

For a description of compensation paid to directors, see “Executive Compensation—Compensation of Directors”

 

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*

Less than 1%.

(1)

Includes 467,667 shares which Mr. Bender could acquire upon the exercise of currently exercisable stock options.

(2)

Includes 1,000 restricted shares which each of Messrs. Kalkstein and Marx were granted in November 2002 pursuant to the 1996 Long Term Incentive Plan for Non–Employee Directors (the “Directors’ Plan”). Each director has sole voting power with respect to those 1,000 shares; however, disposition is restricted pursuant to the terms of the Directors’ Plan. Also includes 76,666 shares which each of them could acquire upon the exercise of currently exercisable stock options.

(3)

Includes 148,000 shares which Ms. Kaufman could acquire upon the exercise of currently exercisable stock options.

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(4)

Includes 1,000 restricted shares which Mr. Press was granted in November 2002 pursuant to the Directors’ Plan. Mr. Press has sole voting power with respect to those 1,000 shares; however, disposition is restricted pursuant to the terms of the Directors’ Plan. Also includes 55,000 shares which Mr. Press could acquire upon the exercise of currently exercisable stock options.

(5)

Includes 1,000 restricted shares which Mr. Rosenberg was granted in November 2002 pursuant to the Directors’ Plan. Mr. Rosenberg has sole voting power with respect to those 1,000 shares; however, disposition is restricted pursuant to the terms of the Directors’ Plan. Also includes 60,000 shares which Mr. Rosenberg could acquire upon the exercise of currently exercisable stock options.

(6)

Includes 1,000 restricted shares granted to Dr. Rubenstein in November 2002 pursuant to the terms of the Directors’ Plan. Dr. Rubenstein has sole voting power with respect to those 1,000 shares; however, disposition is restricted pursuant to the terms of the Directors’ Plan.

(7)

Includes 5,108 shares held on account for Mr. Weiss under the Company’s 401(k) Savings Plan and 458,667 shares which Mr. Weiss could acquire upon the exercise of currently exercisable stock options.

(8)

Includes 1,000 restricted shares granted to Dr. Zinberg pursuant to the terms of the Directors’ Plan. Dr. Zinberg has sole voting power with respect to those 1,000 shares; however, disposition is restricted pursuant to the terms of the Directors’ Plan. Also includes 64,444 shares which Dr. Zinberg could acquire upon the exercise of currently exercisable stock options.

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(1)

All information regarding FMR Corp. and its affiliates is based on information disclosed in a Schedule 13G filed by FMR Corp., Edward C. Johnson 3d and Abigail Johnson on February 14, 2002 (the “FMR Schedule 13G”). According to the FMR Schedule 13G, (i) Fidelity Management & Research Company (“Fidelity”), a wholly owned subsidiary of FMR Corp., is the beneficial owner of all 3,935,880 shares of the Company as a result of acting as investment advisor to various investment companies, (ii) the ownership of one investment company, Fidelity Contrafund, amounted to 2,186,800 shares, or 7.223% of the outstanding shares, (iii) Edward C. Johnson 3d, FMR Corp. (through its control of Fidelity) and the funds each has sole power to dispose of the 3,935,880 shares owned by the funds, (iv) neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR Corp., has the sole power to vote or direct the voting of the shares owned directly by the Fidelity funds, which power resides with the funds’ Boards of Trustees, and (v) members of the Edward C. Johnson 3d family, including Abigail Johnson, through their ownership of voting common stock of FMR Corp. and entry into a voting agreement with other holders of such stock, may be deemed under the Investment Company Act of 1940 to form a controlling group with respect to FMR Corp. Reported shares have been split adjusted.

(2)

According to the Schedule 13G filed by Palisade Capital Management, L.L.C. (“Palisade”) on January 23, 2002, Palisade has sole power to vote or direct the vote and to dispose or direct the disposition of all of these shares, which are held on behalf of Palisade’s clients in accounts over which Palisade has complete investment discretion. None of such accounts contains more than 5% of the outstanding shares of the Company. Reported shares have been split adjusted.

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(1)

Consists of income associated with life insurance coverage in excess of $50,000.

(2)

Consists of contributions by the Company to a 401(k) account of $1,000, $1,000 and $800 respectively in 2002, 2001, and 2000, and income associated with life insurance coverage in excess of $50,000.

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(1)

The option will become exercisable upon the earlier to occur of 1) December 31, 2004, provided the average of the Closing Prices during the 30 calendar days immediately preceding December 31, 2004 attains $30.00, or 2) March 26, 2007.

(2)

The option will become exercisable when the average of the closing prices of a share of the Company’s common stock on the New York Stock Exchange during 30 consecutive calendar days following the date of grant equals $29.43 or until seven years have passed.

(3)

The dollar amounts under these columns are the results of calculations at the 5% and 10% annual appreciation rates set by the SEC for illustrative purposes and are not intended to forecast future financial performance or possible future appreciation in the price of the Company’s common stock. Stockholders are cautioned against drawing any conclusions from the appreciation data shown, aside from the fact that optionees will only realize value from option grants if the price of the Company’s common stock appreciates, which would benefit all stockholders commensurately.

(4)

Assumes a base market capitalization of $774,046,981 computed on the basis of the number of shares outstanding and the average of the high and the low trading price of the Company’s common stock on December 31, 2002.

(5)

Adjusted to reflect the two-for-one stock split effected in the form of a stock dividend on November 22, 2002.

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Prior to November 2002, restricted stock grants were made annually having a value of $7,500 ($9,375 in the case of a Non-Employee Chairman of the Board). Restrictions were generally removed from restricted stock and options vested when the fair market value appreciated 20% from the date of grant or five years had passed.

 

REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE

 

Scope of the Committee; Members

 

The Company’s Organization and Compensation Committee (the “Committee”) is comprised of three Non-Employee Directors: Mr. Kalkstein (Chairman), Mr. Press and Dr. Rubenstein.

 

The charter of the Committee provides that the Committee will review and approve all aspects of the compensation paid to the Company’s Chief Executive Officer, the four other most highly paid executive officers and any other employees identified as 16(a) reporting persons, all salaries and salary increases for executives whose annual base salary is $225,000 or greater and all agreements providing for the payment of benefits following a change of control of the Company or severance following a termination of employment. The charter also calls for the Committee to review and approve the terms of each incentive compensation and bonus program in effect and the aggregate amounts which can be awarded thereunder each year. The members of the Committee also administer the Company’s Long Term Incentive Plans.

 

Executive Compensation for Fiscal 2002

 

The Committee’s philosophy regarding compensation of executive officers emphasizes performance-based compensation and the belief that executives should be compensated at competitive levels that are sufficient to attract and retain highly talented employees.

 

In keeping with the goal of enhancing the Company’s profitability and continuing to build stockholder value, the Company’s long-term compensation programs are designed to reward growth in stockholder value, as well as to reward long-term service to the Company. The value of awards under such plans is primarily dependent upon increases in the price of the Company’s common stock over a period of up to ten years. Generally, the plans require employees to remain employed by the Company in order to receive their awards.

 

The level of annual compensation for individual executive officers is based upon a number of factors. The Committee considers a combination of the individual executive officer’s performance and the performance of the Company and the individual business that the executive was responsible for, the scope of the executive’s responsibility, and the current compensation package in place for that executive. The Committee also considers other published compensation data covering the medical device industry, and industry in general, to assess whether the salary ranges in place for its executive officers are competitive. Increases in an executive’s annual base salary are dependent on his or her performance, company-wide or a particular subsidiary’s financial results and on general levels of wage and price inflation.

 

In making awards under the 2002 Incentive Payment Plan (the “IPP”), primary consideration was given to the performance of the Company or the subsidiary for which the executive officer worked. Participation levels under the Company’s 2002 IPP were set at percentages of base salaries previously assigned to designated positions within the corporate structure, modified to reflect the recommendations of the Company’s Chief Executive Officer. IPP awards are paid with respect to each fiscal year when the operating businesses or the parent company as a consolidated entity (depending upon the executive’s employer) meet specified performance targets. In fiscal 2002, performance targets for executives employed by an operating subsidiary were tied to the attainment by that business of specified levels of net revenue, operating income and cash flow. For executives employed by the

 

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parent company, performance targets were tied to the attainment of certain levels of consolidated net revenue, net income and cash flow. In addition, a portion of each individual’s award was granted on a discretionary basis by his or her division head or the Chief Executive Officer, or in the case of the five most highly paid executive officers, by the Committee, following an assessment of each individual’s performance.

 

Long term incentive awards are made under the Company’s LTIP, based on recommendations submitted to the Committee by the Company’s Chief Executive Officer or, with respect to awards to the Chief Executive Officer, based on his contribution to the success of the Company, taking into consideration competitive grant levels and total options granted as a percentage of shares outstanding. Each grant is designed to align the interests of the executives with those of the stockholders. In fiscal 2002, awards consisted of grants of stock options having exercise prices equal to 100% of the fair market value of the Company’s common stock on the date of grant. The exercisability and future value of these options is directly linked to increases in the price of the Company’s common stock, thereby linking long-term compensation to increased stockholder value and continuing service to the Company.

 

With respect to all of the Committee’s compensation decisions described in this report, the Committee also reviewed, considered and evaluated the information, advice, and opinions of an outside compensation consultant retained by the Committee for that purpose.

 

CEO Compensation for Fiscal 2002

 

Mr. Bender’s base salary of $443,600 represents his salary for serving as the Company’s President and Chief Executive Officer.

 

Mr. Bender’s 2002 bonus consisted of $325,175 paid under the IPP. Mr. Bender was eligible to participate in the IPP at a level equal to 50% of the $436,475 salary paid to him in fiscal 2002, with such level subject to increase or decrease depending on achievement of certain specified financial targets. The determination of Mr. Bender’s actual IPP payment depended upon both the Company’s ability to meet targeted net revenue, net income and cash flow levels and on the Committee’s discretion. Based solely on the Company’s financial performance, Mr. Bender was entitled to receive a bonus of $127,669. An additional $197,506 was awarded to Mr. Bender by the Committee under the discretionary component of the IPP based on its belief that Mr. Bender’s performance in fiscal 2002 contributed to the overall growth and improvement in each of the Company’s operations.

 

Tax Considerations

 

Section 162(m) of the Internal Revenue Code of 1986, as amended, generally provides that publicly held companies may not deduct compensation paid to certain of its top executive officers to the extent such compensation exceeds $1 million per officer in any year. However, pursuant to regulations issued by the Treasury Department, certain limited exemptions to Section 162(m) apply with respect to “qualified performance-based compensation.” The Company’s 2001 Long-Term Incentive Plan (“2001 LTIP”) was designed to assure that any compensation deemed paid in connection with the exercise of stock options granted under that plan will qualify as performance-based compensation. The Committee intends that awards made under the 2001 LTIP, will be eligible for the performance-based exception, and eligible as a federal income tax deduction for the Company.

 

THE ORGANIZATION AND COMPENSATION COMMITTEE

MICHAEL H. KALKSTEIN (Chairman)

DONALD PRESS

ALLAN E. RUBENSTEIN, M.D.

 

 

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REPORT OF THE AUDIT AND FINANCE COMMITTEE

 

The Audit and Finance Committee (the “Audit Committee”) is comprised of three independent directors and operates under a written charter adopted by the Board of Directors. The members of the Audit Committee are Messrs. Rosenberg (Chairman) and Kalkstein, and Dr. Zinberg.

 

The primary function of the Audit Committee is to provide advice with respect to the Company’s financial matters and to assist the Board of Directors in fulfilling its oversight responsibilities regarding finance, accounting, tax and legal compliance. The Audit Committee’s primary duties and responsibilities are to:

 

a.

Periodically assess the integrity of the Company’s financial reporting process and systems of internal control regarding accounting;

 

b.

Periodically assess the independence and performance of the Company’s outside auditors, and;

 

c.

Provide an avenue of communication among the outside auditors, management and the Board of Directors.

 

Management is responsible for the Company’s internal controls and the financial reporting process. The outside auditors are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with generally accepted auditing standards and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes.

 

The Audit Committee held five meetings during fiscal 2002. During each of these meetings, the Audit Committee reviewed and discussed the Company’s financial statements with management and KPMG LLP (“KPMG”), its outside auditors.

 

The Audit Committee reviewed and discussed the audited financial statements of the Company for the fiscal year ended October 31, 2002 with the Company’s management and management represented to the Audit Committee that the Company’s financial statements were prepared in accordance with Generally Accepted Accounting Principles. The Audit Committee discussed with KPMG matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees).

 

The Audit Committee received the written disclosures and the letter from KPMG required by Independence Standards Board Standard No. 1 (Independence Discussion with Audit Committees), and the Audit Committee discussed with KPMG their independence from the Company. It considered the non-audit services provided by KPMG and determined that the services provided are compatible with maintaining KPMG’s independence. The total fees paid to KPMG for the last two fiscal years are as follows:

 

		Fiscal Year Ended October 31, 2002				Fiscal Year Ended October 31, 2001
Audit Fees		$	666,000			$	553,100
Audit Related Fees:  Professional services rendered for employee benefit plan audits, accounting assistance in connection with acquisitions and consultations related to financial accounting and reporting standards		$	163,500	(1)		$	33,000
Tax Fees		$	822,800	(1)		$	462,900
All Other Fees:  Professional services rendered for corporate secretarial support		$	29,000			$	27,000

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(1)

Includes Audit Related Fees of $148,100 and Tax Fees of $457,300 related to the acquisition of Biocompatibles, Ltd.

 

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Administration.  The Amended Plan is administered by the Board of Directors or, if the Board delegates its power and authority to administer the plan to a committee of the Board, such committee. Any such committee shall consist solely of two or more directors appointed by and holding office at the pleasure of the Board, each of whom is a ‘Non-Employee Director’ of the Company, as defined in Rule 16b-3 under the Exchange Act. As used herein, the term ‘the Committee’ will refer to the above described committee or to the Board of Directors, as the case may be.

 

The Committee has full power to select, from among the officers, consultants and other key employees eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to any participants and to determine the specific terms of each grant, subject to the provisions of the Amended Plan.

 

Eligibility.  Officers, consultants and other key employees of the Company and its subsidiaries and affiliates (but excluding members of the Committee and any person who serves only as a director) who are responsible for or contribute to the management, growth and/or profitability of the business of the Company and/or its subsidiaries and affiliates are eligible to be granted stock options and/or stock appreciation rights under the Amended Plan. At present, approximately 100 people are eligible to participate in the Plan.

 

Shares subject to the Plan.  If approved, the Amended and Restated 2001 LTIP would authorize the Committee to grant to eligible participants of the Company and its subsidiaries and affiliates, through December 31, 2006, stock options, and/or stock appreciation rights, for up to 4,700,000 shares of Common Stock, subject to adjustment for future stock splits, stock dividends and similar events. The maximum number of shares with respect to which an employee may be granted options under this Plan during any fiscal year is 500,000 shares. Options, and stock appreciation rights under the Amended and Restated 2001 LTIP which expire unexercised or are forfeited are not counted in applying the aggregate share authorization described above.

 

Stock Options.  The Amended Plan permits the granting of stock options that either qualify as incentive stock options under Section 422(b) of the Internal Revenue Code (‘Incentive Stock Options’ or ‘ISOs’) or do not so qualify (‘Non-Qualified Stock Options’ or ‘NQSOs’). The option exercise price for each share covered by an option shall be determined by the Committee, but shall be at least 100% of the Fair Market Value of a share of Common Stock as of the date of grant in the case of ISOs or at least 85% of the Fair Market Value as of the date of grant in the case of NQSOs. The term of each option will be fixed by the Committee but may not exceed ten years from the date of grant. The Committee will determine at what time or times each option may be exercised. Options may be made exercisable in installments, and the exercisability of options may be accelerated by the Committee.

 

The option exercise price of options granted under the Amended Plan must be paid in full by check or other instrument acceptable to the Committee or, if the Committee so determines, by delivery of Common Stock, valued at Fair Market Value on the exercise date.

 

As used herein, the term ‘Fair Market Value’ means, as of any given date, unless otherwise determined by the Committee in good faith, the closing price, regular way, of the Common Stock on the New York Stock Exchange (“NYSE”) as reported in the Wall Street Journal or, if no such sale of Common Stock occurs on the NYSE on that date, the Fair Market Value of the Common Stock as determined by the Committee in good faith. Such closing price on January 31, 2003 was $25.61.

 

Under the Amended Plan, in the event of termination of employment or an optionee’s consultancy by reason of normal retirement at or after age 65, approved early retirement, long-term disability, or death, an option may thereafter be exercised (to the extent it was then exercisable) for a period of three years (or such shorter period as the Committee shall determine at grant), subject to the stated term of the option. If an optionee’s employment or consultancy is terminated by reason of normal retirement at or after age 65, approved early retirement or long-term disability and thereafter dies while the option is still exercisable, the option will in general be exercisable for twelve months (or such shorter period as

 

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holder’s consent. The Committee may accelerate any award or option or waive any conditions or restrictions pertaining to such award or option at any time. No award may be repriced or regranted through cancellation, or modified without stockholder approval (except in connection with a change in the Company’s capitalization), if the effect would be to reduce the exercise price for shares underlying such award.

 

Federal Income Tax Aspects:

 

THE TAX CONSEQUENCES OF THE AMENDED PLAN UNDER CURRENT FEDERAL LAW ARE SUMMARIZED IN THE FOLLOWING DISCUSSION WHICH DEALS WITH THE GENERAL TAX PRINCIPLES APPLICABLE TO THE AMENDED PLAN, AND IS INTENDED FOR GENERAL INFORMATION ONLY. ALTERNATIVE MINIMUM TAX AND STATE, LOCAL AND FOREIGN INCOME TAXES ARE NOT DISCUSSED, AND MAY VARY DEPENDING ON INDIVIDUAL CIRCUMSTANCES AND FROM LOCALITY TO LOCALITY.

 

Incentive Stock Options.  No taxable income is realized by the optionee upon the grant or exercise of an ISO. If Common Stock is issued to an optionee pursuant to the exercise of an ISO, and if no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to such optionee, then (a) upon sale of such shares, any amount realized in excess of the option price will be taxed to such optionee as a long-term capital gain and any loss sustained will be a long-term capital loss, and (b) no deduction will be allowed to the Company or the subsidiary employing the optionee for federal income tax purposes. The exercise of an ISO will give rise to an item of adjustment that may result in alternative minimum tax liability for the optionee.

 

If Common Stock acquired upon the exercise of an ISO is disposed of prior to the expiration of either holding period described above, generally (a) the optionee will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the Fair Market Value of the shares at exercise (or, if less, the amount realized on the disposition of the shares) over the option price paid for such shares and (b) the Company or the subsidiary employing the optionee will be entitled to deduct such amount. Any further gain (or loss) realized by the participant will be taxed as short-term or long-term capital gain (or loss), as the case may be, and will not result in any deduction by the Company.

 

Subject to certain exceptions for disability or death, if an ISO is exercised more than three months following the termination of the optionee’s employment, the option will generally be taxed as a Non-Qualified Stock Option.

 

Non-Qualified Stock Options.  With respect to Non-Qualified Stock Options, (a) no income is realized by the optionee at the time the option is granted; (b) generally, at exercise, ordinary income is realized by the optionee in an amount equal to the difference between the option price paid for the shares and the Fair Market Value of the shares on the date of exercise, and the Company or the subsidiary employing the optionee is entitled to a tax deduction in the same amount; and (c) at disposition, appreciation (or depreciation) after the date of exercise is treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held.

 

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(1)

100% of Fair Market Value on the date of grant.

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(1)

Includes information with respect to the 1996 Long Term Incentive Plan for Non-Employee Directors (the “Directors’ Plan”), which was originally approved by stockholders on March 27, 1996 and originally provided for the issuance of up to 430,000 shares of common stock (split adjusted). The Directors Plan has subsequently been amended from time to time without stockholder approval to increase the number of shares available for issuance thereunder. Currently, up to 439,830 shares of common stock may be issued pursuant to the Directors’ Plan.

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Board Recommendation and Vote Required for Approval:

 

The Board of Directors unanimously recommends a vote FOR the adoption of the Amended and Restated 2001 Long Term Incentive Plan.

 

Approval of the Amended and Restated 2001 Long Term Incentive Plan requires the affirmative vote of the majority of the outstanding shares of common stock.

 

PROPOSAL 4 — AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION

 

General:

 

The Board recommends that the stockholders approve an amendment to Article IV(a) of the Restated Certificate of Incorporation, which authorizes an increase from 40,000,000 to 70,000,000 in the number of shares of common stock that the Company may issue.

 

Purpose:

 

The Board of Directors believes that it is in the best interests of the Company and its stockholders to have additional common stock authorized which would be available for issuance for general corporate purposes, including raising capital to support business expansion, stock splits, stock dividends, acquisitions or other developments which might make its issuance desirable. For example, the Company believes that stock splits or stock dividends broaden the market for, and the liquidity of, the Company’s common stock. In that connection, the Company effected a two-for-one stock split as a stock dividend on November 22, 2002, issuing 15,444,124 shares of common stock. As a result, the Company has 31,564,201 shares of common stock outstanding as of the record date for the Annual Meeting, in addition to 440,830 reserved for issuance pursuant to the Company’s stock option plans, leaving 4,381,193 authorized shares (including 651,953 treasury shares) available for issuance. If the proposal to amend the LTIP is approved by stockholders, an additional 3,300,000 shares will be reserved for issuance under that plan, and the number of authorized shares remaining available for issuance, including treasury shares, will be 1,081,193. If authorization of an increase in the common stock is postponed until a specific need arises, the delay and expense incident to obtaining approval of the stockholders at that time could impair the Company’s ability to meet its objectives. The Company does not now have any agreement, understanding, arrangement or commitment which would result in the issuance of any of the additional shares to be authorized and no assurance can be given at this time that additional shares will, or as to the circumstances under which such shares might, in fact be issued. No further action or authorization by the stockholders would be necessary prior to the issuance of the additional shares unless applicable laws or regulations or the rules of any stock exchange on which the Company’s securities may then be listed requires such approval.

 

The holders of any of the additional shares of common stock issued in the future would have the same rights and privileges as the holders of the shares of common stock currently authorized and outstanding. Those rights do not include preemptive rights with respect to the future issuance of any additional shares.

 

As stated above, the Company has no immediate plans, arrangements, commitments, or understanding with respect to the issuance of any additional shares of common stock authorized by the proposed amendment. However, the increased authorized shares could be used to make a takeover attempt more difficult by using the shares to make a counter-offer for the shares of a bidder or by selling shares to dilute the voting power of the bidder. As of this date, the Board is unaware of any effort to accumulate the Company’s shares or to obtain control of the Company by means of a merger, tender offer, solicitation in opposition to management, or otherwise.

 

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excess, if any, of the Fair Market Value of a number of shares of Stock specified in the award at the date of exercise of the Stock Appreciation Right over the Fair Market Value of such number of shares of Stock at the date of grant of the Stock Appreciation Right. When payment is to be made in shares, the number of shares to be paid shall be calculated on the basis of the Fair Market Value of the shares on the date of exercise. When payment is to be made in cash to a recipient subject to Section 16(b) of the Exchange Act, such amount shall be calculated on the basis of the closing price of the stock on the New York Stock Exchange during the applicable period referred to in Rule 16b-3(e) under the Exchange Act to the extent applicable.

 

(iii)  Stock Appreciation Rights shall not be transferable by the recipient thereof otherwise than by will or by the laws of descent and distribution, and all Stock Appreciation Rights shall be exercisable, during the recipient’s lifetime, only by the recipient.

 

(iv)  Upon the exercise of a Stock Appreciation Right, any Stock Option or part thereof to which such Stock Appreciation Right is associated shall be deemed to have been exercised for the purpose of the limitation set forth in Section 3 of the Plan on the number of shares of Stock to be issued under the Plan.

 

SECTION 7. AMENDMENTS AND TERMINATION.

 

The Board may amend, alter, or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made which would impair the rights of an optionee or participant under a Stock Option, or Stock Appreciation Right, theretofore granted, without the optionee’s or participant’s consent, or which, without the approval of the Company’s stockholders, would:

 

(a)  except as expressly provided in this Plan, increase the total number of shares reserved for the purpose of the Plan;

 

(b)  change the employees or class of employees eligible to participate in the Plan;

 

(c)  extend the maximum option period under Section 5(b) of the Plan; or

 

(d)  otherwise materially alter the terms of the Plan.

 

The Committee may amend the terms of any Stock Option or other award theretofore granted, prospectively or retroactively, but, subject to Section 3 above, no such amendment shall impair the rights of any holder without the holder’s consent. The Committee may also substitute new Stock Options for previously granted Stock Options (on a one for one or other basis), including previously granted Stock Options having higher option exercise prices. Except for adjustments permitted under Section 3 of the Plan, no award may be repriced or regranted through cancellation, or modified without stockholder approval, if the effect would be to reduce the exercise price for shares underlying such award.

 

Subject to the above provisions, the Board shall have broad authority to amend the Plan to take into account changes in applicable securities and tax laws and accounting rules, as well as other developments.

 

SECTION 8. GENERAL PROVISIONS.

 

(a)  The Committee may require each person purchasing shares pursuant to a Stock Option to represent to and agree with the Company in writing that the optionee is acquiring the shares for investment and without a view to distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer.

 

The Committee may condition the exercise of an Option or the issuance and delivery of Stock upon the listing, registration or qualification of the Stock upon a securities exchange or under applicable securities laws.

 

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x

Please mark your

NOTE:

Please date this proxy and sign your name exactly as it appears herein. In the case of joint ownership, each joint owner must sign. If signing as an executor, trustee, guardian, attorney or in any other representative capacity or as an officer of a corporation, please indicate your full title as such.

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