UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
-------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(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:
----------------------------------------------------------------------
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
311 ENTERPRISE DRIVE
PLAINSBORO, NEW JERSEY 08536
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 17, 2005
To the Stockholders of Integra LifeSciences Holdings Corporation:
NOTICE IS HEREBY GIVEN that the 2005 Annual Meeting of Stockholders
(the "Meeting") of Integra LifeSciences Holdings Corporation (the "Company")
will be held as, and for the purposes, set forth below:
TIME 9:00 a.m. on Tuesday, May 17, 2005
PLACE Radisson Hotel Princeton
4355 Route 1 at Ridge Road
Princeton, New Jersey 08540
ITEMS OF BUSINESS 1. To elect seven directors of the Company to
hold office as specified in the accompanying
Proxy Statement.
2. To consider and vote upon a proposal to
increase the number of shares authorized for
issuance under the Company's 2003 Equity
Incentive Plan.
3. To ratify the appointment of
PricewaterhouseCoopers LLP as the Company's
independent registered public accounting firm
for the current fiscal year.
4. To act upon any other matters properly coming
before the meeting or any adjournment or
postponement thereof.
RECORD DATE Holders of record of the Company's common stock at
the close of business on April 5, 2005 are entitled
to notice of, and to vote at, the Meeting and any
adjournment or postponement thereof. A complete
list of stockholders entitled to vote at the
Meeting will be available for inspection by any
stockholder for any purpose germane to the Meeting
for ten days prior to the Meeting during ordinary
business hours at the Company's headquarters
located at 311 Enterprise Drive, Plainsboro,
New Jersey.
ANNUAL REPORT The 2004 Annual Report of Integra LifeSciences
Holdings Corporation is being mailed
simultaneously herewith. The Annual Report is not
to be considered part of the proxy solicitation
materials.
IMPORTANT In order to avoid additional soliciting expense to
the Company, please MARK, SIGN, DATE and MAIL your
proxy PROMPTLY in the return envelope provided,
even if you plan to attend the Meeting. If you
attend the Meeting and wish to vote your shares in
person, arrangements will be made for you to do so.
By order of the Board of Directors,
Plainsboro, New Jersey /s/ John B. Henneman, III
April 12, 2005 -------------------------
John B. Henneman, III
Secretary
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
311 ENTERPRISE DRIVE
PLAINSBORO, NEW JERSEY 08536
------------------
PROXY STATEMENT
------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 2005
PURPOSE OF MEETING
We are providing this Proxy Statement to holders of our common stock in
connection with the solicitation by the Board of Directors of Integra
LifeSciences Holdings Corporation (the "Company") of proxies to be voted at the
Company's 2005 annual meeting of stockholders (the "Meeting") and at any
adjournments or postponements thereof. The Meeting will begin at 9:00 a.m. local
time on Tuesday, May 17, 2005 at the Radisson Hotel Princeton, 4355 Route 1 at
Ridge Road, Princeton, New Jersey. We are first mailing this Proxy Statement,
the Notice of Annual Meeting of Stockholders, and the form of proxy to
stockholders of the Company on or about April 12, 2005.
At the Meeting, we will ask the stockholders of the Company to consider
and vote upon:
(i) the election of seven directors to serve until the next annual
meeting of stockholders and until their successors are duly
elected and qualified (see "Proposal 1. Election of Directors");
(ii) a proposal to increase by 1,500,000 the number of shares
authorized for issuance under the Company's 2003 Equity Incentive
Plan (see "Proposal 2. Amendment to 2003 Equity Incentive Plan");
and
(iii) the ratification of the appointment of PricewaterhouseCoopers LLP
as the Company's independent registered public accounting firm for
the current fiscal year (see "Proposal 3. Ratification of
Independent Registered Public Accounting Firm").
We know of no other matters that will be presented for consideration at the
Meeting. If any other matters are properly presented at the Meeting or any
postponement or adjournment thereof, the persons named in the enclosed proxy
will have authority to vote on such matters in accordance with their best
judgment.
RECORD DATE
As of April 5, 2005, the record date for the Meeting, 28,605,095 shares of
our common stock, net of treasury shares, were outstanding. Only persons who
hold of record our common stock as of the close of business on the record date
are entitled to notice of, and to vote at, the Meeting or at any adjournment or
postponement thereof.
VOTING AND REVOCABILITY OF PROXIES
Each share of our common stock entitles the holder of record thereof to one
vote. Each stockholder may vote in person or by properly executed proxy on all
matters that properly come before the Meeting and any adjournment or
postponement thereof. The presence, in person or by proxy, of stockholders
entitled to vote a majority of the shares of common stock outstanding on the
record date will constitute a quorum for purposes of voting at the Meeting.
Shares abstaining from voting, shares for which voting authority is withheld and
shares present but not voting, including broker non-votes, are counted as
"present" for purposes of determining the existence of a quorum. Broker
non-votes are shares held by a broker or nominee for which an executed proxy is
received by the Company, but which are not voted as to one or more proposals
because instructions have not been received from the beneficial owners or
persons entitled to vote and the broker or nominee does not have discretionary
voting power to vote such shares.
If we fail to obtain a quorum for the Meeting or a sufficient number of
votes to approve a proposal, we may adjourn the Meeting for the purpose of
obtaining additional proxies or votes or for any other purpose. At any
subsequent reconvening of the Meeting, all proxies will be voted in the same
manner as they would have been voted at the original Meeting (except for any
proxies that have theretofore effectively been revoked or withdrawn). Proxies
voting against a proposal set forth herein will not be used to adjourn the
Meeting to obtain additional proxies or votes with respect to such proposal.
The Board of Directors is soliciting the enclosed proxy for use in
connection with the Meeting and any postponement or adjournment thereof. All
properly executed proxies received prior to or at the Meeting or any
postponement or adjournment thereof and not revoked in the manner described
below will be voted in accordance with the instructions indicated on such
proxies. In the election of directors, you may vote "FOR" all of the nominees or
you may vote "WITHHOLD AUTHORITY" with respect to one or more of the nominees.
For the other proposals, you may vote "FOR," "AGAINST" or "ABSTAIN". If you sign
your proxy card or broker voting instruction card with no further instructions,
your shares will be voted in accordance with the recommendations of the Board of
Directors.
You may revoke your proxy by (a) delivering to the Secretary of the Company
at or before the Meeting a written notice of revocation bearing a later date
than the proxy, (b) duly executing a subsequent proxy relating to the same
shares of common stock and delivering it to the Secretary of the Company at or
before the Meeting or (c) attending the Meeting and voting in person (although
attendance at the Meeting will not in and of itself constitute revocation of a
proxy). Any written notice revoking a proxy should be delivered at or prior to
the Meeting to: Integra LifeSciences Holdings Corporation, 311 Enterprise Drive,
Plainsboro, New Jersey 08536, Attention: Executive Vice President, Chief
Administrative Officer and Secretary. Beneficial owners of our common stock who
are not holders of record and wish to revoke their proxy should contact their
bank, brokerage firm of other custodian, nominee or fiduciary to inquire about
how to revoke their proxy.
We will bear all expenses of this solicitation, including the cost of
preparing and mailing this Proxy Statement. In addition to solicitation by use
of the mail, proxies may be solicited by telephone, telegraph or personally by
our directors, officers and employees, who will receive no extra compensation
for their services. We will reimburse banks, brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by them in
sending proxy soliciting materials to beneficial owners of shares of common
stock. In addition, we intend to engage Georgeson Shareholder to render proxy
solicitation services at an estimated cost of $12,000.
2
PROPOSAL 1. ELECTION OF DIRECTORS
The Board of Directors has nominated seven persons for election as
directors whose terms will expire at the 2006 Annual Meeting of Stockholders and
when their successors are elected and qualified: David C. Auth, Ph.D., Keith
Bradley, Ph.D., Richard E. Caruso, Ph.D., Stuart M. Essig, Neal Moszkowski,
James M. Sullivan and Anne M. VanLent, each of whom are currently directors of
the Company.
If any nominee should be unable to serve as director, an event not now
anticipated, the shares of common stock represented by proxies would be voted
for the election of such substitute as the Board of Directors may nominate. Set
forth below is certain information with respect to the persons nominated as
directors of the Company. See "Principal Stockholders" for information regarding
the security holdings of our director nominees.
DAVID C. AUTH, PH.D. has been a director of the Company since 2002. Dr.
Auth is an independent investor. From 1989 to 1995, Dr. Auth served as Chief
Executive Officer of Heart Technology, Inc., a company that Dr. Auth founded and
that was later acquired by Boston Scientific Corporation. Dr. Auth served as
Director, Biophysics International, a division of E.R. Squibb and Sons, Inc.
from 1985 to 1989 and as Director, New Product Ventures, of Squibb Medical
Products from 1982 to 1985. Dr. Auth was a Professor of Electrical Engineering
at the University of Washington from 1969 to 1982. He holds a Ph.D. degree in
Physics from Georgetown University and is a registered professional electrical
engineer in the State of Washington. Dr. Auth is 64 years old.
KEITH BRADLEY, PH.D. has been a director of the Company since 1992. Between
1996 and 2003, he was a director of Highway Insurance plc, a London Stock
Exchange corporation, and has been a consultant to a number of business,
government and international organizations. Dr. Bradley has held visiting
professorships at the Harvard Business School, Wharton, UCLA, and has been a
visiting fellow at Harvard's Center for Business and Government. Recently he was
professor of international management and management strategy at the Open
University and Cass London Business Schools. Dr. Bradley has taught at the
London School of Economics and was the director of the School's Business
Performance Group for more than six years. He received B.A., M.A. and Ph.D.
degrees from British universities. Dr. Bradley is 60 years old.
RICHARD E. CARUSO, PH.D. founded the Company in 1989 and has served as the
Company's Chairman since March 1992. Dr. Caruso is currently a member of The
Provco Group, a venture and real estate investment company, and an advisor to
Quaker BioVentures, a medical venture capital financial investor. Dr. Caruso
served as the Company's Chief Executive Officer from March 1992 to December 1997
and also as the Company's President from September 1995 to December 1997. From
1969 to 1992, Dr. Caruso was a principal of LFC Financial Corporation, a project
finance company, where he was also a director and Executive Vice President. Dr.
Caruso is on the Board of Susquehanna University, The Baum School of Art and The
Uncommon Individual Foundation (Founder). He received a B.S. degree from
Susquehanna University, an M.S.B.A. degree from Bucknell University and a Ph.D.
degree from the London School of Economics, University of London (United
Kingdom). Dr. Caruso is 61 years old.
STUART M. ESSIG has served as President and Chief Executive Officer and as
a director of the Company since December 1997. Prior to joining the Company, Mr.
Essig supervised the medical technology practice at Goldman, Sachs & Co. as a
managing director. Mr. Essig had ten years of experience at Goldman Sachs
serving as a senior merger and acquisitions advisor to a broad range of domestic
and international medical technology, pharmaceutical and biotechnology clients.
Mr. Essig received an A.B. degree from the Woodrow Wilson School of Public and
International Affairs at Princeton University and an M.B.A. and a Ph.D. degree
in Financial Economics from the University of Chicago, Graduate School of
Business. Mr. Essig also serves as a director of St. Jude Medical Corporation,
3
Zimmer Holdings, Inc. and ADVAMED, the Advanced Medical Technology Association.
Mr. Essig is 43 years old.
NEAL MOSZKOWSKI has been a director of the Company since March 1999. Mr.
Moszkowski currently serves as co-head of Soros Private Equity, the private
equity investment business of Soros Fund Management LLC. He has been with Soros
since 1998. Prior thereto, Mr. Moszkowski was an Executive Director of Goldman
Sachs International and a Vice President of Goldman, Sachs & Co. in its
Principal Investment Area, which he joined in August 1993. He received a B.A.
degree from Amherst College and an M.B.A. degree from Stanford University. Mr.
Moszkowski also serves as a director of JetBlue Airways, Bluefly, Inc., Day
International Group, Inc. and is the chairman of the Board of Directors of
WellCare Health Plans, Inc. Mr. Moszkowski is 39 years old.
JAMES M. SULLIVAN has been a director of the Company since 1992. Since
1986, he has held several positions with Marriott International, Inc. (and its
predecessor, Marriott Corp.), including Vice President of Mergers and
Acquisitions, and his current position as Executive Vice President of Lodging
Development. From 1983 to 1986, Mr. Sullivan was Chairman, President and Chief
Executive Officer of Tenly Enterprises, Inc., a privately held company operating
105 restaurants. Prior to 1983, he held senior management positions with
Marriott Corp., Harrah's Entertainment, Inc., Holiday Inns, Inc., Kentucky Fried
Chicken Corp. and Heublein, Inc. He also was employed as a senior auditor with
Arthur Andersen & Co. and served as a director of Classic Vacation Group, Inc.
until its acquisition by Expedia, Inc. in March 2002. Mr. Sullivan received a
B.S. degree in Accounting from Boston College and an M.B.A. degree from the
University of Connecticut. Mr. Sullivan is 61 years old.
ANNE M. VANLENT has been a director of the Company since 2004. She has been
Executive Vice President and Chief Financial Officer of Barrier Therapeutics,
Inc., a publicly-traded pharmaceutical company that develops dermatology
products, since May 2002. Prior to joining Barrier Therapeutics, Ms. VanLent
served as a principal of the Technology Compass Group, LLC, a
healthcare/technology consulting firm, since she founded it in October 2001.
From July 1997 to October 2001, she was the Executive Vice President--Portfolio
Management for Sarnoff Corporation, a multidisciplinary research and development
firm. Ms. VanLent also currently serves as a director of Penwest Pharmaceuticals
Co., a Nasdaq-listed company. Ms. VanLent received a BA degree in Physics from
Mount Holyoke College. Ms. VanLent is 57 years old.
Required Vote for Approval and Recommendation of the Board of Directors
Directors are to be elected by the affirmative vote of the holders of a
plurality of the votes cast. Cumulative voting in the election of directors is
not permitted. If a proxy is marked as "WITHHOLD AUTHORITY," the shares
represented by such proxy will not be voted with respect to the director or
directors indicated and will have no effect on the outcome of this proposal.
Broker non-votes will have no effect on the outcome of this proposal.
THE BOARD OF DIRECTORS HEREBY RECOMMENDS THAT THE STOCKHOLDERS OF THE
COMPANY VOTE "FOR" THE ELECTION OF EACH NOMINEE FOR DIRECTOR.
INFORMATION CONCERNING MEETINGS AND CERTAIN COMMITTEES
The Board of Directors held six regularly scheduled and two special
meetings during 2004. The Company's independent directors meet at least twice a
year in executive session without management present. The Board of Directors has
determined that, except for Mr. Essig, all of the Company's directors are
independent, as defined by the applicable NASDAQ listing standards.
4
The Company has standing Audit, Nominating and Compensation Committees of
its Board of Directors. Each committee operates pursuant to a written charter. A
copy of these charters are available on our website at www.integra-LS.com
through the "Investors Relations" link under the heading "Corporate Governance."
During 2004, each incumbent director attended in person or by conference
telephone at least 75% of the total number of meetings of the Board of Directors
and of each committee of the Board of Directors on which he or she served held
during the period for which he or she served as director.
Audit Committee. The Audit Committee is comprised of Mr. Moszkowski
(chair), Dr. Bradley, Mr. Sullivan and Ms. VanLent, and it met nine times in
2004. The purpose of the Audit Committee is to oversee the accounting and
financial reporting processes of the Company and the audits of the financial
statements of the Company. The Audit Committee is comprised entirely of
nonemployee members of the Board of Directors, each of whom has been determined
by the Board of Directors to be financially literate and independent, as defined
by the applicable NASDAQ listing standards. The Board of Directors has
determined that Mr. Sullivan, Mr. Moszkowski and Ms. VanLent are "audit
committee financial experts," as defined under Item 401(h) of Regulation S-K.
Nominating Committee. The Nominating Committee is comprised of Dr. Caruso
(chair), Dr. Bradley and Mr. Sullivan, and it met six times in 2004. The purpose
of the Nominating Committee is to assist the Board of Directors in the
identification of qualified candidates to become directors, the selection of
nominees for election as directors at the stockholders meeting, the selection of
candidates to fill any vacancies on the Board, and the oversight of the
evaluation of the Board of Directors. The Board of Directors has determined that
all of the members of the Nominating Committee are independent, as defined by
the applicable NASDAQ listing standards.
When considering a candidate for nomination as a director, the Nominating
Committee may consider, among other things it deems appropriate, the candidate's
personal and professional integrity, ethics and values, experience in corporate
management, experience in the Company's industry and with relevant social policy
concerns, experience as a board member of another publicly held company,
academic expertise in an area of the Company's operations, and practical and
mature business judgment. The Nominating Committee applies the same criteria to
nominees recommended by stockholders that it does to other new nominees.
Ms. VanLent was appointed to the Board of Directors on December 17, 2004.
Her nomination was recommended by Mr. Essig and Mr. Moszkowski.
The Nominating Committee will consider stockholder nominated candidates for
director provided that the nominating stockholder identifies the candidate's
principal occupation or employment, the number of shares of the Company
beneficially owned by such candidate, a description of all arrangements or
understandings between the nominating stockholder and such candidate and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, detailed biographical data and
qualifications and information regarding any relationships between the candidate
and the Company within the past three years, and any other information relating
to such nominee that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended.
A stockholder's recommendation must also set forth the name and address, as
they appear on the Company's books, of the stockholder making such
recommendation, the class and number of shares of the Company beneficially owned
by the stockholder and the date the stockholder acquired such shares, any
material interest of the stockholder in such nomination, any other information
that is required to be provided by the stockholder pursuant to Regulation 14A
under the Exchange Act, in its capacity as a proponent of a stockholder
proposal, and a statement from the recommending stockholder in support of the
candidate, references for the candidate, and an indication of the candidate's
willingness to serve, if elected. Recommendations for candidates to the Board of
5
Directors must be submitted in writing to Integra LifeSciences Holdings
Corporation, 311 Enterprise Drive, Plainsboro, New Jersey 08536, Attention:
Executive Vice President, Chief Administrative Officer and Secretary.
Compensation Committee. The Compensation Committee is currently comprised
of Dr. Auth (chair), Dr. Bradley and Mr. Moszkowski, and it met seven times in
2004. The Compensation Committee makes decisions concerning salaries and
incentive compensation, including the issuance of stock options and other equity
awards, for employees and consultants of the Company. The Compensation Committee
also administers the Company's 2000, 2001 and 2003 Equity Incentive Plans, the
Company's 1998 and 1999 Stock Option Plans, the Company's 1993 and 1996
Incentive Stock Option and Non-Qualified Stock Option Plans and the Company's
Employee Stock Purchase Plan (collectively, the "Approved Plans"). The Board of
Directors has determined that each of the members of the Compensation Committee
is independent, as defined by the applicable NASDAQ listing standards.
Until March 2004, the Board of Directors maintained a separate Equity Award
Committee that made decisions regarding the issuance of stock options and other
equity awards and administered the Approved Plans. In March 2004, the Board of
Directors eliminated the Equity Award Committee and expanded the authority of
the Compensation Committee to include decisions concerning issuance of stock
options and other equity awards to employees and consultants of the Company and
administration of the Approved Plans.
DIRECTOR ATTENDANCE AT ANNUAL MEETINGS; COMMUNICATIONS WITH DIRECTORS
It is our policy to encourage our directors to attend the annual meeting of
stockholders if it is convenient for them to do so. Two of our directors
attended the 2004 annual meeting of stockholders.
Stockholders may communicate with our Board of Directors, any of its
constituent committees or any member thereof by means of a letter addressed to
the Board of Directors, its constituent committees or individual directors and
sent care of Integra LifeSciences Holdings Corporation, 311 Enterprise Drive,
Plainsboro, NJ 08536, Attention: Vice President and General Counsel.
COMPENSATION OF NON-EMPLOYEE DIRECTORS
In 2004, we granted Dr. Caruso options to purchase 15,000 shares of common
stock as compensation for his service as Chairman of the Board of Directors.
Additionally, in 2004 we granted each of Dr. Auth, Dr. Bradley, Mr. Moszkowski
and Mr. Sullivan options to purchase 12,500 shares of common stock as
compensation for their service on the Board of Directors and granted Ms. VanLent
options to purchase 12,500 shares of common stock as an initial grant for
serving on our Board of Directors. We did not pay any cash compensation to our
directors for their service as directors.
In 2005, non-employee directors will receive an annual grant of options to
purchase 7,500 shares of common stock, with the Chairman of the Board of
Directors receiving options to purchase 10,000 shares. Directors will also
receive an annual retainer of $40,000, payable in one of four ways, at their
election: (1) in cash, (2) one half in cash and one half in restricted stock,
(3) in restricted stock, or (4) in the form of options to purchase common stock
(the number of options determined by valuing the options at 25% of the fair
market value of our common stock underlying the option), with a maximum of 5,000
options.
We pay reasonable travel and out-of-pocket expenses incurred by
non-employee directors in connection with attendance at meetings to transact
business of the Company or attendance at meetings of the Board of Directors or
any committee thereof.
6
PROPOSAL 2. AMENDMENT TO 2003 EQUITY INCENTIVE PLAN
The Board of Directors is submitting for stockholder approval the First
Amendment to our 2003 Equity Incentive Plan (the "equity plan" or "Plan") which
increases the number of shares of common stock which may be issued under the
Plan by 1,500,000 shares to a total of 4,000,000, and makes certain
administrative amendments. The Board of Directors has recommended that the
stockholders approve the amendment to the Plan in order for the Company to be
able to continue providing stock options and other awards to key employees and
associates.
The Plan was originally adopted by our Board of Directors and approved by
our stockholders in 2003.
A maximum of 2,500,000 shares of common stock may be issued upon exercise
or grant of awards under the Plan; however, no individual may receive options
and/or stock appreciation rights for more than 1,000,000 shares during any
calendar year. As of April 5, 2005 only 919,470 shares remained available for
grant of awards under the Plan.
On April 7, 2005, the closing price of a share of our common stock on the
NASDAQ National Market was $37.00.
The principal features of the Plan are summarized below, but the summary is
qualified in its entirety by reference to the actual plan document, including
the proposed amendment which is included as Appendix A.
1. Shares Subject To Awards. If the proposed amendment is approved, an
additional 1,500,000 shares would be available for grant under the Plan. If any
award that requires the participant to exercise it in order for shares of common
stock to be delivered terminates without having been exercised in full, or if
any award payable in cash or shares of common stock is paid in cash rather than
shares, the number of shares of common stock as to which such award was not
exercised or for which cash was paid will continue to be available for future
awards. In addition, the aggregate fair market value (determined at the time the
option is granted) of shares of common stock with respect to which Incentive
Stock Options ("ISOs") are exercisable for the first time by any participant
during a calendar year (under the Plan and under any other ISO plan of the
Company or a Related Corporation (as defined in the Plan)) may not exceed
$100,000. The shares of common stock issued under the Plan may be authorized but
unissued shares or reacquired shares, and the Company may purchase shares
required for this purpose, from time to time, if it deems such purchase to be
advisable.
2. Administration. The Plan is administered by the Company's Compensation
Committee, which under the Plan is required to consist of not fewer than two
directors of the Company's Board of Directors who are designated by the entire
Board of Directors. Under the Plan, the Compensation Committee has the authority
(i) to select the eligible individuals to be granted awards under the Plan, (ii)
to grant awards on behalf of the Company, and (iii) to set the terms of such
awards. Currently, the members of the Compensation Committee are Dr. Auth
(chair), Dr. Bradley and Mr. Moszkowski.
3. Eligibility. Officers, executives, managerial and non-managerial
employees of the Company, a Related Corporation or an affiliate as well as
non-employee directors, consultants and other service providers to the Company
are eligible to participate in the Plan. Only eligible employees of the Company
or a Related Corporation may receive ISOs under the Plan. Other types of awards
may be granted to all eligible individuals. As of the date of this Proxy
Statement, approximately 1,200 employees and directors are eligible to receive
equity awards under the Plan.
4. Term Of Plan. The Plan by its terms has no expiration date. However, no
ISO may be granted under the Plan after February 23, 2013, although ISOs
outstanding on February 23, 2013 may extend beyond that date.
7
5. Awards.
Stock Options. The Plan permits the Compensation Committee to grant options
that qualify as ISOs under the Internal Revenue Code of 1986, as amended (the
"Code"), and stock options that do not so qualify ("nonqualified stock options"
or "NQSOs"). An option gives the holder the right to purchase common stock in
the future at a set price on the date of grant. The exercise price of options
granted under the Plan may not be less than the fair market value of the common
stock on the date of grant.
Stock Appreciation Rights. The Compensation Committee may grant stock
appreciation rights, either alone or in tandem with options, entitling the
participant upon exercise to receive an amount in cash and/or shares of common
stock (as determined by the Compensation Committee), measured by the increase
since the date of grant in the value of the shares covered by such right.
Restricted Stock. The Compensation Committee may grant shares of common
stock to participants either with or without any required payment by the
participant, subject to such restrictions as the Compensation Committee may
determine.
Performance Stock. The Compensation Committee may grant awards entitling a
participant to receive shares of common stock without payment provided certain
performance criteria are met. The business criteria selected by the Compensation
Committee may be expressed in absolute terms or relative to the performance of
other companies or an index. In determining the performance criteria applicable
to a grant of performance stock, the Compensation Committee may use one or more
of the following criteria (the "Performance Criteria"): return on assets; return
on net assets; asset turnover; return on equity; return on capital; market price
appreciation of the Company's common stock; economic value added; total
stockholder return; net income; pre-tax income; earnings per share; operating
profit margin; net income margin; sales margin; cash flow; market share;
inventory turnover; sales growth; capacity utilization; increase in customer
base; environmental health and safety; diversity; and/or quality.
Contract Stock. The Compensation Committee may grant shares of common stock
to participants, conditioned upon the participant's continued provision of
services to the Company through the date specified in the award.
Dividend Equivalent Rights. The Compensation Committee may grant awards
that entitle the participant to receive a benefit in lieu of cash dividends that
would have been payable on any or all shares of common stock subject to another
award granted to the participant had such shares been outstanding.
6. Federal Income Tax Aspects Of Awards Under The Plan.
ISOs and NQSOs. Based on the advice of counsel, the Company believes that,
under current Federal income tax laws and regulations, the principal Federal
income tax consequences to the Company and to the eligible individuals receiving
ISOs and NQSOs ("Optionees") pursuant to the Plan will be as follows. The
consequences described below do not take into account any changes to the Code or
the regulations thereunder that may occur after April 12, 2005. The following
does not describe alternative minimum tax, other Federal taxes, or foreign,
state or local income taxes which may vary depending on individual circumstances
and from locality to locality.
If an option qualifies for ISO treatment, the Optionee will recognize no
income upon grant or exercise of the option except that the excess at the time
of exercise of the then fair market value of the common stock over the exercise
price will be an item of tax preference for purposes of the alternative minimum
tax. If the Optionee holds the shares for more than two years after grant of the
option and more than one year after exercise of the option, upon an Optionee's
sale of his or her shares of common stock, any gain will be taxed to the
Optionee as long-term capital gain. If the Optionee disposes of his or her
shares of common stock prior to the expiration of the above holding period, the
Optionee generally will recognize ordinary income in an amount measured as the
difference between the exercise price and the lower of the fair market value of
8
the common stock at the exercise date or the sale price of the common stock. Any
gain recognized on such a disposition of the common stock in excess of the
amount treated as ordinary income will be characterized as capital gain. The
Company will be allowed a business expense deduction to the extent the Optionee
recognizes ordinary income, subject to Sections 162(m) and 280G of the Code.
An Optionee will not recognize any taxable income at the time the Optionee
is granted an NQSO. However, upon exercise of the option, the Optionee will
recognize ordinary income for Federal income tax purposes in an amount generally
measured as the excess of the then fair market value of the common stock over
the exercise price, and the Company will be entitled to a corresponding
deduction at the time of exercise, subject to Sections 162(m) and 280G of the
Code. Upon an Optionee's sale of such shares, any difference between the sale
price and fair market value of such shares on the date of exercise will be
treated as capital gain or loss and will qualify for long-term capital gain or
loss treatment if the common stock has been held for more than 12 months.
Stock Appreciation Rights. Generally, stock appreciation rights that may be
settled only in stock and which are based only on the appreciation of the value
of our common stock over the fair market value on the date of grant will not be
taxable to the participant at grant and the appreciation will be taxable to the
participant as ordinary income at exercise. Stock appreciation rights settled in
cash and/or that are granted at a price which is less than the fair market value
of our shares of common stock on the date of grant will be taxable to the
participant as ordinary income when the participant receives the value of the
appreciation, whether at exercise or at a later specified date. To the extent
that a stock appreciation right is settled in cash or is granted at a price
which is less than the fair market value of our shares of common stock on the
date of grant, such stock appreciation right will be considered deferred
compensation and subject to new Section 409A of the Code, which provides rules
regarding the timing of payment of deferred compensation. Independent from the
taxation of the appreciation at ordinary income rates at the time the
participant receives such payment, a stock appreciation right which fails to
comply with the rules of Section 409A can be subject to an additional 20% tax
obligation, plus penalties and interest. Until further guidance on Section 409A
is promulgated, it is unclear how the additional tax and penalties and interest
will be applied.
Restricted Stock. Generally, a participant will not be taxed upon the grant
or purchase of restricted stock that is subject to a "substantial risk of
forfeiture," within the meaning of Section 83 of the Code, until such time as
the restricted stock is no longer subject to the substantial risk of forfeiture.
At that time, the participant will be taxed on the difference between the fair
market value of the common stock and the amount the participant paid, if any,
for such restricted stock. However, the recipient of restricted stock under the
Plan may make an election under Section 83(b) of the Code to be taxed with
respect to the restricted stock as of the date of transfer of the restricted
stock rather than the date or dates upon which the restricted stock is no longer
subject to a substantial risk or forfeiture and the participant would otherwise
be taxable under Section 83 of the Code.
Performance Stock. A participant will be taxed as ordinary income on the
fair market value of the shares when the performance stock are delivered.
Performance stock can also be considered non-qualified deferred compensation
under new Section 409A of the Code and if the terms of such grant do not meet
the requirements of Section 409A of the Code will result in additional 20% tax
obligation, plus penalties and interest to such participant. Until further
guidance on Section 409A is promulgated, it is unclear how the additional tax
and penalties and interest will be applied.
Contract Stock. A participant will generally not have ordinary income
upon grant of contract stock. When the shares of our common stock are delivered
under the terms of the contract stock, the participant will recognize ordinary
income equal to the fair market value of the shares delivered, less any amount
paid by the participant for such shares. Contract stock can also be considered
non-qualified deferred compensation under the new Section 409A of the Code and
if the terms of such grant do not meet the requirements of Section 409A of the
Code will result in additional 20% tax obligation, plus penalties and interest
9
to such participant. Until further guidance on Section 409A is promulgated, it
is unclear how the additional tax and penalties and interest will be applied.
Dividend Equivalents. A participant will be taxed as ordinary income on
dividend equivalents as they are paid.
Section 162(m). Under Section 162(m) of the Code, in general, income tax
deductions of publicly-traded companies may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises and
nonqualified benefits) for certain executive officers exceeds $1,000,000 in any
one taxable year. However, under Section 162(m) of the Code, the deduction limit
does not apply to certain "performance-based" compensation established by an
independent compensation committee that conforms to certain restrictive
conditions stated under the Code and related regulations.
Stockholder approval of the Plan is necessary for the awards thereunder to
qualify as "performance-based" for purposes of Section 162(m) of the Code and
therefore allow any compensation paid to the executive officers subject to
Section 162(m) of the Code as a result of such awards to be deductible by the
Company. The Plan has been structured with the intent that awards granted under
the Plan may meet the requirements for "performance-based" compensation under
Section 162(m) of the Code. To the extent granted at a fair market value
exercise price, options granted under the Plan are intended to qualify as
"performance-based" under Section 162(m) of the Code. Stock appreciation rights
will also qualify as "performance-based" under Section 162(m) of the Code, to
the extent they relate to the increase in the market value of the Shares from
the date of grant. Other awards granted under the Plan may also qualify as
"performance-based" under Section 162(m) of the Code if they vest or are
otherwise payable based solely upon the Performance Criteria.
7. Reasons For Amendment Of The Plan. As of April 5, 2005 a total of
1,580,530 shares were subject to outstanding options and other awards held by
approximately 700 officers and employees under the Plan, of which 10,416 were
vested and exercisable. As of April 5, 2005 only 919,470 shares remained
available for the grant of new awards under the Plan. The proposed amendment to
the Plan would increase the maximum number of shares available for grant under
the Plan by 1,500,000 to a total of 4,000,000. Our Board of Directors has
determined that it is advisable to amend the Plan to be able to continue
providing stock-based incentive compensation to our key employees and associates
thereby continuing to align the interests of such individuals with those of our
stockholders, and that grants of options and other awards under the terms of the
Plan are an effective means of providing such compensation.
8. New Plan Benefits. The number of awards that our named executive
officers and other employees may receive under the Plan is in the discretion of
the Compensation Committee and therefore cannot be determined in advance. Our
non-executive directors will receive a grant of 7,500 options under the Plan
each year and the chairman of the Board of Directors will receive a grant of
10,000 options. The dollar value of such options cannot be determined at this
time. In addition, our non-executive directors will receive an annual retainer
of $40,000 payable in one of four forms: (1) in cash, (2) one half in cash and
one half in restricted stock, (3) in restricted stock, or (4) in options (the
number of options determined by valuing the options at 25% of the fair market
value of the Company's common stock underlying the option on the date of grant)
with a maximum of 5,000 options. Options and restricted stock will be issued
under the Plan. The director makes the election to receive the retainer in cash,
restricted stock or options on the date of our annual meeting. At this time we
cannot determine whether any director will elect to receive his or her retainer
in restricted stock or options under the Plan. Otherwise, the Compensation
Committee has not made any determination to grant any shares to any persons
under the Plan as of the date of this Proxy Statement.
10
Based on the above information, the table below sets forth the assumed
awards to be made under the Plan during 2005:
Name and Position Dollar Value ($) Number of Units
----------------------------------------------------------- --------------------- --------------------
Stuart M. Essig
President and Chief Executive Officer (l) (l)
John B. Henneman, III
Executive Vice President and Chief Administrative
Officer (1) (1)
Gerard S. Carlozzi
Executive Vice President and Chief Operating Officer (1) (1)
Robert D. Paltridge
Senior Vice President, Global Sales (1) (1)
David B. Holtz
Senior Vice President, Finance and Treasurer (1) (1)
All Current Executive Officers as a Group (1) (1)
All Current Directors Who are Not Executive Officers as a
Group (2) 47,500 (3)
All Employees, Including All Current Officers Who are Not
Executive Officers, as a Group (1) (1)
(1) Not determinable at this time
(2) The value of the aggregate 47,500 options to be granted to the
non-employee directors during 2005 will depend on the grant date value
of such options. The value of the awards to non-employee directors that
elect to receive their additional $40,000 retainer in options will
depend on the grant date value of the options issued. Each non-employee
director that elects to receive their additional retainer in restricted
stock will receive restricted stock with a value of $40,000.
(3) In addition to the aggregate 47,500 options to be granted to the
non-employee directors during 2005, each non-employee director may
elect to receive their additional $40,000 retainer in restricted stock
or options. The calculation of the number of shares of restricted stock
and options to be granted if this option is elected is set forth in the
text preceding this table
Required Vote for Approval and Recommendation of the Board of Directors
Stockholder approval of the proposed amendment to the Plan is required (i)
by the terms of the Plan and the NASDAQ National Market, (ii) in order to
preserve full deductibility of performance-based awards under the Plan as
"performance-based" compensation under Section 162(m) of the Code, and (iii) in
order to be able to continue granting ISOs under the Plan.
The affirmative vote of the holders of a majority of the shares present, in
person or by represented by proxy, at the Meeting and entitled to vote is
required to approve and adopt the proposed amendment to the Plan. Abstentions
will not be voted and will have the effect of a vote against this proposal.
Broker non-votes will not be counted in determining the number of shares
necessary for approval and will have no effect on the outcome of this proposal.
THE BOARD OF DIRECTORS HAS ADOPTED A RESOLUTION APPROVING THE
AMENDENT TO THE 2003 EQUITY INCENTIVE PLAN AND HEREBY RECOMMENDS THAT THE
STOCKHOLDERS OF THE COMPANY VOTE "FOR" THE APPROVAL OF THE AMENDMENT
TO THE 2003 EQUITY INCENTIVE PLAN.
11
PROPOSAL 3. RATIFICATION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The firm of PricewaterhouseCoopers LLP served as our independent registered
public accounting firm for 2004 and has been selected by the Audit Committee to
serve in the same capacity for 2005. The stockholders will be asked to ratify
this appointment at the Meeting. The ratification of our independent registered
public accounting firm by the stockholders is not required by law or our
By-laws. We have traditionally submitted this matter to the stockholders and
believe that it is good practice to continue to do so.
If stockholders fail to ratify the selection, the Audit Committee will
reconsider whether or not to retain PricewaterhouseCoopers LLP. Even if the
selection is ratified, the Audit Committee in its discretion may direct the
appointment of a different independent registered public accounting firm at any
time during the year if the Audit Committee determines that such a change would
be in the best interests of the Company and its stockholders.
During fiscal year 2004, PricewaterhouseCoopers LLP not only provided audit
services, but also rendered other services, including tax and
acquisition-related due diligence services.
The following table sets forth the aggregate fees billed or expected to be
billed by PricewaterhouseCoopers LLP and affiliated entities (collectively,
"PricewaterhouseCoopers") for audit and non-audit services (as well as all
"out-of-pocket" costs incurred in connection with these services) and are
categorized as Audit Fees, Audit-Related Fees and Tax Fees. The nature of the
services provided in each such category is described following the table.
Actual Fees (in thousands)
--------------------------
2004 2003
---- ----
Audit Fees ......................................$1,060 $ 520
Audit-Related Fees .............................. 599 188
----- -----
Total Audit and Audit-Related Fees ......$1,659 $ 708
Tax Fees ........................................ 554 228
----- -----
Total Fees ......................................$2,213 $ 936
The nature of the services provided in each of the categories listed above
is described below:
Audit Fees -- Consists of professional services rendered for the integrated
audit of the consolidated financial statements of the Company, management's
assessment of internal control over financial reporting, quarterly reviews,
statutory audits, consents, and assistance with and review of documents filed
with the Securities and Exchange Commission.
Audit-Related Fees -- Consists of services related to an employee benefits
plan audit, financial due diligence and accounting consultations in connection
with proposed acquisitions, a pre-implementation review with respect to a new
enterprise business system and consultations concerning financial accounting and
reporting standards.
Tax Fees -- In 2004, approximately 29% of Tax Fees were related to tax
compliance (review and preparation of corporate tax returns, assistance with tax
audits, review of the tax treatment for certain expenses, extra-territorial
income analysis, transfer pricing documentation for compliance purposes and tax
due diligence relating to acquisitions). Other tax services included state and
local tax planning and consultations with respect to various domestic and
international tax planning matters.
12
All fees described above were approved by the Audit Committee.
Pre-Approval of Audit and Non-Audit Services
Under the Audit Committee Charter, the Audit Committee must pre-approve all
audit and non-audit services provided by the independent registered public
accounting firm. The policy, as described below, sets forth the procedures and
conditions for such pre-approval of services to be performed by the independent
registered public accounting firm.
Management submits requests for approval in writing to the Audit Committee,
which meets to discuss such requests and to approve or decline to approve the
requests. Audit Committee pre-approval of audit and non-audit services is not
required if the engagement for the services is entered into pursuant to
pre-approval policies and procedures established by the Audit Committee
regarding the Company's engagement of the independent registered public
accounting firm, provided the policies and procedures are detailed as to the
particular service, the Audit Committee is informed of each service provided and
such policies and procedures do not include delegation of the Audit Committee's
responsibilities under the Exchange Act to the Company's management.
The Audit Committee may delegate to one or more designated members of the
Audit Committee the authority to grant pre-approvals, provided such approvals
are presented to the Audit Committee at a subsequent meeting. If the Audit
Committee elects to establish pre-approval policies and procedures regarding
non-audit services, the Audit Committee must be informed of each non-audit
service provided by the independent registered public accounting firm. Audit
Committee pre-approval of non-audit services (other than review and attest
services) also will not be required if such services fall within available
exceptions established by the Commission.
The Audit Committee has determined that the rendering of the services other
than audit services by PricewaterhouseCoopers LLP is compatible with maintaining
PricewaterhouseCoopers LLP's independence.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Meeting and will be allowed to make a statement if they wish. Additionally,
they will be available to respond to appropriate questions from stockholders
during the Meeting.
Required Vote for Approval and Recommendation of the Board of Directors
The affirmative vote of the holders of a majority of the shares present, in
person or by represented by proxy, at the Meeting and entitled to vote is
required to ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent registered public accounting firm for the current fiscal
year. Abstentions will not be voted and will have the effect of a vote against
this proposal. Broker non-votes will not be counted in determining the number of
shares necessary for approval and will have no effect on the outcome of this
proposal.
THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS HAS ADOPTED A RESOLUTION
APPROVING THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP. THE BOARD OF DIRECTORS
HEREBY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR 2005.
13
EXECUTIVE COMPENSATION
The following table sets forth certain information for the Company's
last three fiscal years concerning the annual, long-term and other compensation
of the chief executive officer of the Company and each of the Company's four
highest paid executive officers during 2004 whose total annual salary and bonus
during 2004 exceeded $100,000 (collectively, the "Named Officers"):
Summary Compensation Table
Annual Compensation Long-Term Compensation Awards
-------------------------------------- ----------------------------------
Name and Principal Position Year Salary Other Annual Restricted Securities Other
Compensation($) Stock Awards Underlying Compensation
($) (1) ($) Options (#) (2) ($) (3)
------------------------------------------ --------- ----------- ---------------- ---------------- ----------------- --------------
Stuart M. Essig 2004 400,000 -- 23,535,000 (4) 475,000 5,350
President and Chief Executive 2003 402,821 -- -- 45,000 5,150
Officer 2002 362,500 -- -- 36,208 4,950
John B. Henneman, III 2004 356,881 -- -- 70,000 2,600
Executive Vice President, Chief 2003 297,132 -- -- 45,000 2,400
Administrative Officer and Secretary 2002 257,500 -- -- 35,062 2,200
Gerard S. Carlozzi 2004 306,371 -- -- 70,000 17,586
Executive Vice President and Chief 2003 80,769 -- -- 105,000 --
Operating Officer (5)
Robert D. Paltridge 2004 184,712 55,298 -- 32,500 2,600
Senior Vice President, Global Sales 2003 181,270 76,123 -- 20,000 2,400
2002 172,500 69,675 -- 15,125 2,200
David B. Holtz 2004 199,712 -- -- 48,500 2,397
Senior Vice President, Finance and 2003 188,998 40,000 -- 7,000 2,268
Treasurer 2002 180,000 30,000 -- 20,583 2,170
(1) The amounts reported in this column for Mr. Paltridge represent contingent
compensation that is based upon the achievement of sales targets for
certain products. The amounts reported correspond to the years in which the
compensation was earned, although the fourth quarter compensation is not
paid until the beginning of the following year. The amounts reported in
this column in 2003 and 2002 for Mr. Holtz represent compensation
associated with his assumption of responsibility for the Company's European
operations.
(2) The securities underlying annual option grants approved by the Board of
Directors in December 2003 and made in January 2004 are included in this
column for 2004 and not 2003. Such grants had historically been made in the
year in which they are approved. The number of securities underlying such
grants for each of the named officers was 25,000 for Mr. Essig, 25,000 for
Mr. Henneman, 25,000 for Mr. Carlozzi, 15,000 for Mr. Paltridge and 20,000
for Mr. Holtz.
(3) The amounts reported in this column consist of the Company's matching
contributions to its 401(k) Plan for all officers other than Mr. Carlozzi.
The amounts reported in this column for Mr. Essig during 2002, 2003 and
2004 also include $2,750 in life insurance premiums paid by the Company.
The amount reported in this column for Mr. Carlozzi consists of
reimbursement of moving expenses.
(4) The amount represents the 750,000 Restricted Units granted to Mr. Essig on
July 27, 2004. On such date, the closing price of the Company's common
stock was $31.38 per share. The terms of these Restricted Units are
14
described herein under the heading "Employment Agreements." As of December
31, 2004, Mr. Essig held Restricted Units that entitled him to receive an
aggregate of 2,000,000 shares of common stock, which holdings include
1,250,000 Restricted Units granted in 2000. Based on the closing price of
the Company's common stock of $36.93 per share on December 31, 2004, Mr.
Essig's Restricted Units had an aggregate value of $73,860,000 as of
December 31, 2004. 750,000 of shares of common stock underlying the
Restricted Units granted in 2000 are deliverable on January 3, 2006; the
remaining 500,000 shares are deliverable on March 4, 2008. Dividends will
be paid on Mr. Essig's Restricted Units to the extent they are paid on the
common stock.
(5) Mr. Carlozzi began his employment with the Company in 2003.
Option Grants In Last Fiscal Year
The following tables set forth certain information concerning stock
options granted to Named Officers during 2004.
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
----------------------------------------------------------------------- -----------------------------
Number of Percent of Total
Securities Options Granted to Exercise
Underlying Options Employees in Price Per
Name Granted (#) (1) Fiscal Year (%) (2) Share ($) Expiration Date 5% ($) 10% ($)
---------------------------- -------------------- -------------------- ------------ ---------------- -------------- --------------
Stuart M. Essig 25,000 1.7 28.78 01/02/10 244,699 555,138
250,000 17.0 31.38 07/27/14 4,933,678 12,502,910
200,000 13.6 34.49 12/17/14 4,338,115 10,993,635
John B. Henneman, III 25,000 1.7 28.78 01/02/10 244,699 555,138
20,000 1.4 32.32 06/01/10 219,838 498,737
25,000 1.7 35.52 11/15/10 302,005 685,146
Gerard S. Carlozzi 25,000 1.7 28.78 01/02/10 244,699 555,138
20,000 1.4 32.32 06/01/10 219,838 498,737
25,000 1.7 35.52 11/15/10 302,005 685,146
Robert D. Paltridge 15,000 1.0 28.78 01/02/10 146,819 333,083
2,500 0.2 32.32 06/01/10 27,480 62,342
15,000 1.0 35.52 11/15/10 181,203 411,088
David B. Holtz 21,000 1.4 28.78 01/02/10 205,547 466,316
7,500 0.5 32.32 06/01/10 82,439 187,026
20,000 1.4 35.52 11/15/10 241,604 548,117
(1) Such options were granted with an exercise price equal to the fair market
value of the Company's common stock on the grant date, are nontransferable
and vest over a period of four years commencing with the date of grant.
(2) The Company granted options to employees to purchase an aggregate of
1,472,995 shares of common stock during 2004.
15
Aggregated Option Exercises In Last Fiscal Year And
Fiscal Year-End Option Values
The following tables set forth certain information for each Named
Office with regard to stock options exercised during 2004 and stock options held
by them at December 31, 2004.
Shares Number of Securities Underlying Value of Unexercised In-the-Money
Acquired Value Unexercised Options At Fiscal Year Options At
On Realized ($) End (#) Fiscal Year End ($) (2)
------------------------------------ --------------------------------
Name Exercise (#) (1) Exercisable Nonexercisable Exercisable Nonexercisable
---------------------------- ---------------- --------------- ---------------- ------------------- --------------- --------------
Stuart M. Essig 0 0 209,042 625,996 4,934,190 5,753,121
John B. Henneman, III 62,649 1,669,515 216,942 149,910 3,704,652 1,422,685
Gerard S. Carlozzi 0 0 32,604 142,396 306,460 1,008,440
Robert D. Paltridge 5,000 147,625 63,214 53,231 1,549,365 524,595
David B. Holtz 9,289 194,365 81,227 78,856 1,132,879 650,346
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date minus the exercise price.
(2) In-the-money options are those in which the fair market value of the
underlying securities exceeds the exercise price of the option. Value is
calculated on the basis of the fair market value of the underlying
securities on December 31, 2004 minus the exercise price. The closing price
of the Company's common stock on December 31, 2004 was $36.93 per share.
Employment Agreements
Stuart M. Essig, the Company's President and Chief Executive Officer,
entered into a Second Amended and Restated Employment Agreement with the Company
in July 2004 that extended the term of his employment with the Company as its
President and Chief Executive Officer through December 31, 2009. The Second
Amended Employment Agreement supersedes Mr. Essig's prior employment agreement
with the Company dated December 2000.
Mr. Essig's initial annual base salary under the Second Amended Employment
Agreement was $400,000. The employment agreement provides that Mr. Essig's base
salary will increase in each year thereafter by at least $50,000 plus such
increases, if any, as may be established by the Company's Board of Directors.
His base salary for 2005 is $450,000. Mr. Essig is eligible to have a target
performance bonus of not less than one hundred percent (100%) of his base
salary, based upon the satisfaction of certain performance goals established by
the Company's Board of Directors or the Compensation Committee. Mr. Essig is
also entitled to participate in the Company's medical, disability, pension and
other employee benefit plans and programs maintained from time to time by the
Company for the benefit of its senior executives and, under certain
circumstances, is entitled to continued participation in these plans in the
event his employment is terminated. The employment agreement is for an initial
term through December 31, 2009 and shall automatically extend on December 31,
2009 and on each subsequent one-year anniversary thereof for one year unless the
Company or Mr. Essig provides written notice of termination at least six months
prior to the expiration of the then-current term.
The employment agreement further provides that the Company generally will
reimburse, or "gross-up," Mr. Essig on an after-tax basis for any excise tax
liability imposed by Section 4999 of the Internal Revenue Code, or any
corresponding provisions of state or local tax laws, or any interest or
penalties are incurred by Mr. Essig with respect to such excise tax such that
after payment by Mr. Essig of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and excise
tax imposed upon the gross-up payment, Mr. Essig retains an amount of the
gross-up payment equal to the excise tax imposed upon the payments that result
16
in such excise taxes. Section 280G of the Internal Revenue Code provides that if
payments of compensation that are contingent on a change in control exceed three
times an employee's "base amount" (his average annual compensation during
certain prior years), they will constitute "parachute payments," and the excess
of such parachute payments over such base amount generally will constitute
"excess parachute payments." Such excess parachute payments are nondeductible by
the employer and are subject to a 20% excise tax under Section 4999 of the
Internal Revenue Code payable by the employee.
At the time of the extension of the term of Mr. Essig's employment pursuant
to the employment agreement, the Company granted Mr. Essig (i) a non-qualified
stock option to purchase 250,000 shares of the Company's common stock under the
Company's 2003 Equity Incentive Plan and (ii) 750,000 "Restricted Units" under
the Company's 2003 Equity Incentive Plan in the form of contract stock. Under
the employment agreement, the Company is also required to make an annual stock
option grant to Mr. Essig to purchase between 100,000 and 200,000 shares of
common stock under the Company's then current stock option plan. The number of
shares underlying the options will be determined by the Compensation Committee
based upon performance for the preceding 12 month period. A grant to purchase
200,000 shares of common stock was made to Mr. Essig pursuant to this provision
in December 2004.
Each stock option granted to Mr. Essig (each, an "Option") shall have a
ten-year term and shall have an exercise price equal to the closing price of the
Company's common stock on the NASDAQ National Market on the date of the grant.
Each Option will vest and become exercisable with respect to one fourth of the
shares granted on the one year anniversary of the grant date and, assuming the
continuation of Mr. Essig's employment with the Company, each Option will vest
and become exercisable with respect to 1/36th of the remaining shares on the
first business day of each following month. In the event of a (i) "change in
control" of the Company (as defined in the employment agreement) or (ii) the
termination of Mr. Essig's employment with the Company (a) by the Company
without "cause" (as defined in the employment agreement) or (b) by Mr. Essig for
"good reasons" (as defined in the employment agreement), the Options shall vest
and become exercisable immediately. Options may not be transferred by Mr. Essig
other than by will or by the laws of descent and distribution.
Under the Contract Stock/Restricted Units Agreement governing the
Restricted Units, the Company issued to Mr. Essig a fully vested equity-based
signing award bonus in the form of 750,000 restricted units (the "Restricted
Units") in July 2004. Each Restricted Unit represents the right to receive one
share of the Company's common stock. The shares of the Company's common stock
underlying the Restricted Units ("Unit Shares") generally shall be delivered to
Mr. Essig on the first business day following his termination of employment or
retirement, or earlier if a change in control of the Company occurs or Mr. Essig
becomes subject to taxation on any Restricted Units before the scheduled
delivery date (or deferral date, if applicable). However, unless previously
delivered, if Mr. Essig's employment with the Company is terminated for cause or
Mr. Essig voluntarily leaves his employment with the Company prior to December
31, 2009 (other than for good reasons or due to disability), then the Unit
Shares will not be distributed to Mr. Essig until the first business day of the
calendar year 2017. Additionally, Mr. Essig has a one-time right to defer the
delivery of the Unit Shares so long as such election is (a) made at least 12
months prior to the otherwise applicable delivery date and (b) the deferral
delivery date is at least five years beyond the scheduled delivery date, but not
beyond June 30, 2029.
The Company has also granted Mr. Essig registration rights requiring the
Company to file a "shelf" registration statement at Mr. Essig's request that
will provide for the registration and sale on a continuous or delayed basis of
the shares of common stock underlying the Options and the Restricted Units.
17
John B. Henneman, III, the Company's Executive Vice President and Chief
Administrative Officer, entered into an Employment Agreement with the Company in
October 2003 that replaced his September 2002 employment agreement. The
employment agreement provided for an initial annual base salary of $350,000,
which is subject to adjustment at an annual review. Mr. Henneman's base salary
for 2005 is $400,000. Mr. Henneman is entitled to participate and receive
benefits under any employee benefit plan or stock-based plan of the Company and
shall be eligible for any medical, disability and other plans and benefits
covering executives of the Company. The employment agreement had an initial term
through December 31, 2003 and automatically extends on each December 31st for
one year unless the Company or Mr. Henneman provides written notice at least 30
days prior to the expiration of the then-current term. Mr. Henneman shall be
entitled to a severance payment equal to 2.99 times his then-current annual base
salary, if within twelve months of a change of control of the Company, (a) Mr.
Henneman terminates his employment agreement for good reason or for the failure
of the ultimate parent of the surviving entity or the surviving entity, as
applicable, to grant Mr. Henneman the title and responsibility he now has with
the Company, (b) the Company terminates the employment agreement of Mr. Henneman
for reasons other than cause, retirement or death or (c) the Company fails to
extend the employment agreement of Mr. Henneman pursuant to its terms. In
addition, the Company will reimburse, or "gross-up," Mr. Henneman on an
after-tax basis for any excise tax liability he may incur by reason of any
"excess parachute payments" he receives from the Company following a change of
control. Mr. Henneman shall be entitled to a severance payment equal to his
then-current base salary if, in the absence of a change of control, (a) he
terminates his employment agreement for good reason,(b) the Company terminates
his employment agreement for reasons other than cause, retirement or death or
(c) the Company fails to extend his employment agreement pursuant to its terms.
Mr. Henneman also is entitled to insurance coverage and certain employee
benefits in the event that his employment is terminated in the manner described
in this paragraph.
Gerard S. Carlozzi, the Company's Executive Vice President and Chief
Operating Officer, entered into an Employment Agreement with the Company in
October 2003. The employment agreement provided for an initial annual base
salary of $300,000, which is subject to adjustment at an annual review. Mr.
Carlozzi's base salary for 2005 is $350,000. The employment agreement also
provided for a grant of 100,000 nonqualified stock options to Mr. Carlozzi. Mr.
Carlozzi is entitled to participate and receive benefits under any employee
benefit plan or stock-based plan of the Company and shall be eligible for any
medical, disability and other plans and benefits covering executives of the
Company. The employment agreement had an initial term through December 31, 2004
and automatically extends on each December 31st for one year unless the Company
or Mr. Carlozzi provides written notice at least 30 days prior to the expiration
of the then-current term. Mr. Carlozzi shall be entitled to a severance payment
equal to 2.99 times his then-current annual base salary, if within twelve months
of a change of control of the Company, (a) Mr. Carlozzi terminates his
employment agreement for good reason or for the failure of the ultimate parent
of the surviving entity or the surviving entity, as applicable, to grant Mr.
Carlozzi the title and responsibility he now has with the Company, (b) the
Company terminates the employment agreement of Mr. Carlozzi for reasons other
than cause, retirement or death or (c) the Company fails to extend the
employment agreement of Mr. Carlozzi pursuant to its terms. In addition, the
Company will reimburse, or "gross-up," Mr. Carlozzi on an after-tax basis for
any excise tax liability he may incur by reason of any "excess parachute
payments" he receives from the Company following a change of control. Mr.
Carlozzi shall be entitled to a severance payment equal to his then-current base
salary if, in the absence of a change of control, (a) he terminates his
employment agreement for good reason, (b) the Company terminates his employment
agreement for reasons other than cause, retirement or death or (c) the Company
fails to extend his employment agreement pursuant to its terms. Mr. Carlozzi
also is entitled to insurance coverage and certain employee benefits in the
event that his employment is terminated in the manner described in this
paragraph.
18
Robert Paltridge, the Company's Senior Vice President, Global Sales,
entered in a Retention Agreement with the Company in February 2003. Under that
agreement, Mr. Paltridge shall be entitled to receive a severance amount equal
to his then-current base salary (including commissions) if, within twelve months
of a change of control of the Company, (a) he terminates his employment
agreement for good reason or (b) the Company terminates his employment for
reasons other than cause, retirement, disability or death. Mr. Paltridge is
entitled to insurance coverage and certain employee benefits in the event that
his employment is terminated following a change of control of the Company. Mr.
Paltridge's base salary for 2005 is $215,000. Mr. Paltridge also is entitled to
receive contingent compensation that is based upon the achievement of sales
targets for certain products.
David B. Holtz, the Company's Senior Vice President, Finance, and
Treasurer, entered into an Employment Agreement with the Company in September
2002 that replaced his December 1998 employment agreement. The employment
agreement provided for an initial annual base salary of $185,000, which is
subject to adjustment at an annual review. Mr. Holtz's base salary for 2005 is
$230,000. Mr. Holtz is entitled to participate and receive benefits under any
employee benefit plan or stock-based plan of the Company and shall be eligible
for any medical, disability and other plans and benefits covering executives of
the Company. The employment agreement had an initial term through December 31,
2003 and automatically extends on each December 31st for one year unless the
Company or Mr. Holtz provides written notice at least 30 days prior to the
expiration of the then-current term. Mr. Holtz shall be entitled to receive a
severance amount equal to 2.99 times his then-current annual base salary, if
within twelve months of a change of control of the Company, (a) Mr. Holtz
terminates his employment agreement for good reason or for the failure of the
ultimate parent of the surviving entity or the surviving entity, as applicable,
to grant Mr. Holtz the title and responsibility he now has with the Company, (b)
the Company terminates the employment agreement of Mr. Holtz for reasons other
than cause, retirement or death or (c) the Company fails to extend the
employment agreement of Mr. Holtz pursuant to its terms. Mr. Holtz shall be
entitled to receive a severance amount equal to his then-current base salary if,
in the absence of a change of control, (a) Mr. Holtz terminates his employment
agreement for good reason, (b) the Company terminates his employment agreement
for reasons other than cause, retirement or death or (c) the Company fails to
extend his employment agreement pursuant to its terms. Mr. Holtz also is
entitled to insurance coverage and certain employee benefits in the event that
his employment is terminated in the manner described in this paragraph.
19
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2004
regarding existing compensation plans (including individual compensation
arrangements) under which equity securities of the Company are authorized for
issuance:
Number of securities to Weighted-average Number of securities remaining
be issued upon exercise exercise price of available for
of outstanding options, outstanding options, future issuance under
Plan Category warrants and rights warrants and rights equity compensation plans (1)
----------------------------------------- ------------------------- ------------------------- -----------------------------
Equity compensation plans approved by
the Company's stockholders 5,683,800 (2) $15.18 (3) 2,478,778 (4)
Equity compensation plans not
approved by the Company's -- -- --
stockholders _________ ________ ______
Total 5,683,800 $15.18 2,478,778
(1) Excludes securities to be issued upon the exercise of outstanding options,
warrants and rights.
(2) Includes 1,250,000 Restricted Units issued in December 2000 under the 2000
Equity Incentive Plan and 750,000 Restricted Units issued in July 2004
under the 2003 Equity Incentive Plan. Each Restricted Unit represents the
right to receive one share of our common stock without payment of any
exercise price. The remaining awards are comprised entirely of stock
options under the 1993 Incentive Stock Option and Non-Qualified Stock
Option Plan, the 1996 Incentive Stock Option and Non-Qualified Stock Option
Plan, the 1998 Stock Option Plan, the 1999 Stock Option Plan, the 2000
Equity Incentive Plan, the 2001 Equity Incentive Plan and the 2003 Equity
Incentive Plan.
(3) Excluding the 2,000,000 Restricted Units, the weighted average exercise
price was $23.42.
4) Includes 1,148,706 shares of common stock which remain available for
issuance under the Employee Stock Purchase Plan and 1,330,072 shares which
remain subject to awards under the 1996 Incentive Stock Option and
Non-Qualified Stock Option Plan, the 1998 Stock Option Plan, the 1999 Stock
Option Plan, the 2000 Equity Incentive Plan, the 2001 Equity Incentive Plan
and the 2003 Equity Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Dr. Auth, Dr. Bradley
and Mr. Moszkowski. Dr. Caruso, a member of the Compensation Committee until
March 2004, was the Company's Chief Executive Officer from March 1992 to
December 1997 and is the uncle of David Holtz, the Company's Senior Vice
President, Finance and Treasurer. Certain indirect relationships between Dr.
Caruso and the Company are set forth below under "Certain Relationships And
Related Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its manufacturing facility in Plainsboro, New Jersey
from Plainsboro Associates, a New Jersey general partnership. Ocirne, Inc., a
subsidiary of Cono Industries ("Cono"), owns a 50% interest in Plainsboro
Associates. Cono's stockholders are trusts whose beneficiaries include the
children of Dr. Caruso, the Chairman and a principal stockholder of the Company.
Dr. Caruso is the President of Cono. The Company paid $231,000 in rent for this
facility during 2004.
The Company leases certain production equipment from Medicus Corporation.
The sole stockholder of Medicus is TRU ST PARTNERSHIP, L.P., a Pennsylvania
general partnership, of which Dr. Caruso is a partner and the President. Under
the terms of the lease, the Company paid $90,000 to Medicus Corporation during
2004.
20
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee is required by the rules
of the Commission to be included in this Proxy Statement and addresses the
Company's executive compensation policies for the year ended December 31, 2004.
This report shall not be deemed incorporated by reference into any filing under
the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange
Act of 1934, as amended (the "Exchange Act"), by virtue of any general statement
in such filing incorporating this Proxy Statement by reference, except to the
extent that the Company specifically incorporates the information contained in
this section by reference, and shall not otherwise be deemed filed under either
the Securities Act or the Exchange Act.
GENERAL. The Compensation Committee is responsible for reviewing and
approving the compensation of the Chief Executive Officer, the Company's
executive officers and all other employees of the Company with a base salary of
$250,000 or more. The Compensation Committee manages the Company's equity
incentive plans, including the granting of awards under the Company' equity
incentive plans.
The Company's compensation policies for executives are intended to further
the interests of the Company and its stockholders by encouraging growth of its
business through securing, retaining and motivating management employees of high
caliber who possess the skills necessary to the development and growth of the
Company. The Compensation Committee is mindful of the need to align the
interests of management with the interests of the Company's stockholders. The
establishment of the Company's equity-based plans was designed to permit the
Company to attract and retain talented managers and motivate such managers to
enhance profitability and stockholder returns. The Compensation Committee
believes that the utilization of equity-based plans serves the interests of the
stockholders by creating an appropriate incentive for employees to identify with
the stockholders' interests.
The Company's compensation package consists of base compensation,
performance bonuses, and stock options (and, where appropriate, restricted
equity grants). Together these elements comprise total compensation value. The
total compensation paid to the Company's executive officers is influenced
significantly by the need to attract management employees with a high level of
expertise and to motivate and retain key executives for the long-term success of
the Company and its stockholders.
BASE COMPENSATION. The Compensation Committee establishes annual base
salary levels for executives based on competitive data, level of experience,
position, responsibility, and individual and Company performance. The Company
has sought to align base compensation levels with those of its competitors.
PERFORMANCE BONUSES. The Company supplements base compensation with awards
of performance bonuses in the form of cash or equity awards. The Compensation
Committee determined that it was in the Company's best interests to pay
performance bonuses for the year ended December 31, 2004 with equity awards and
not to establish a cash bonus program for its senior executives.
STOCK OPTIONS. The Company has granted stock options to its executive
management under its stock option plans. Option grants are intended to bring the
total compensation to a level that the Company believes is competitive with
amounts paid by the Company's competitors and which will offer significant
returns if the Company is successful and, therefore, provides significant
incentives to devote the effort called for by the Company's strategy. The
Compensation Committee believes that the granting of stock options results in
executives' interests being directly tied to enhanced stockholder value. Thus,
stock options have been used to provide the executive management team with a
strong incentive to perform in a manner that will benefit the long-term success
of the Company and its stockholders.
21
OTHER BENEFITS. The Company makes available health care benefits, a 401(k)
plan and an employee stock purchase plan for executive officers on terms
generally available to all Company employees. The Compensation Committee
believes that such benefits are comparable to those offered by other companies
of similar size.
CHIEF EXECUTIVE OFFICER COMPENSATION. Mr. Essig served as the Company's
President and Chief Executive Officer during 2004 pursuant to an employment
agreement, which provided for a base salary of $400,000. Mr. Essig waived his
right to receive a cash performance bonus for 2004. In July 2004, the Company
entered into an amended employment agreement with Mr. Essig that extended the
term of Mr. Essig's employment with the Company to December 31, 2009. In
connection with entering into the amended employment agreement, Mr. Essig was
granted (i) a non-qualified stock option to purchase 250,000 shares of the
Company's common stock and (ii) 750,000 "Restricted Units." In December 2004, as
required under Mr. Essig's employment agreement, Mr. Essig received his annual
stock option grant. This option was to purchase 200,000 shares of common stock.
In addition, Mr. Essig's annual compensation was increased to $450,000 in
December 2004. For a numerical description of Mr. Essig's compensation in 2004,
see "Executive Compensation." The terms of Mr. Essig's employment agreement are
described in the section entitled "Executive Compensation-Employment
Agreements."
COMPLIANCE WITH SECTION 162(m). Under Section 162(m) of the Internal
Revenue Code, in general, income tax deductions of publicly-traded companies may
be limited to the extent total compensation (including base salary, annual
bonus, stock option exercises and nonqualified benefits paid in 1994 and
thereafter) for certain executive officers exceeds $1 million in any one taxable
year. However, compensation that qualifies as "performance-based" is excluded
from the $1 million limit if, among other requirements, the compensation is
payable only upon attainment of pre-established objective performance goals
under a plan approved by stockholders.
The Compensation Committee does not presently expect total cash
compensation payable as salaries and bonuses to exceed the $1 million limit for
any individual executive. Having considered the requirements of Section 162(m),
the Compensation Committee believes that stock option grants to date meet the
requirements that such grants be "performance-based" and are, therefore, exempt
from the limitations on deductibility. The Compensation Committee will continue
to monitor the compensation levels potentially payable under its cash
compensation programs, but intends to maintain the flexibility necessary to
provide total cash compensation in line with competitive practices, the
Company's compensation philosophy and the Company's best interests.
The Compensation Committee of the Board of Directors
DAVID C. AUTH, PH.D.
KEITH BRADLEY, PH.D.
NEAL MOSZKOWSKI
22
AUDIT COMMITTEE REPORT
The following report of the Audit Committee is required by the rules of the
Commission to be included in this Proxy Statement. This report shall not be
deemed incorporated by reference into any filing under the Securities Act or the
Exchange Act, by virtue of any general statement in such filing incorporating
this Proxy Statement by reference, except to the extent that the Company
specifically incorporates the information contained in this section by
reference, and shall not otherwise be deemed filed under either the Securities
Act or the Exchange Act.
The purpose of the Audit Committee is to oversee the Company's accounting
and financial reporting process and the audits of the Company's financial
statements. The Audit Committee operates pursuant to a Charter that the Board
amended and restated on March 2, 2004, a copy of which is available on the
Company's website.
As set forth in the Audit Committee Charter, management of the Company is
responsible for the preparation, presentation and integrity of the Company's
financial statements, the Company's financial reporting process, accounting
policies, internal audit function, internal controls and disclosure controls and
procedures. The independent registered public accounting firm is responsible for
auditing the Company's financial statements and expressing an opinion as to
their conformity with generally accepted accounting principles and on
management's assessment of the effectiveness of the Company's internal control
over financial reporting. The Audit Committee's responsibility is to monitor and
oversee this process.
In the performance of its oversight function, the Audit Committee has
reviewed and discussed with management and the independent registered public
accounting firm the audited financial statements and management's assessment of
the effectiveness of the Company's internal control over financial reporting and
the independent registered public accounting firm's evaluation of the Company's
internal control over financial reporting. The Audit Committee has also
discussed with the independent registered public accounting firm the matters
required to be discussed by Statement on Auditing Standards No. 61,
"Communication with Audit Committees," as currently in effect. Finally, the
Audit Committee has received the written disclosures and the letter from the
independent registered public accounting firm required by Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees," as
currently in effect, has discussed with the independent registered public
accounting firm its independence in relation to the Company and has considered
the compatibility of non-audit services with such independence. Management has
represented to the Audit Committee that the Company's consolidated financial
statements were prepared in accordance with generally accepted accounting
principles.
Based upon the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements of the Company for the fiscal year ended December 31, 2004 be
included in the Company's Annual Report on Form 10-K for such fiscal year, for
filing with the Commission.
SUBMITTED BY THE AUDIT COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS
JAMES M. SULLIVAN
KEITH BRADLEY, PH.D.
NEAL MOSZKOWSKI
ANNE M. VANLENT
23
STOCK PERFORMANCE GRAPH
The following line graph and table compare, for the period from December
31, 1999 through December 31, 2004, the yearly percentage change in the
cumulative total stockholder return on the Company's common stock with the
cumulative total return of companies on the NASDAQ Stock Market - U.S. Index and
the NASDAQ Medical Devices, Instruments and Supplies, Manufacturers and
Distributors Index. The graph assumes that the value of the investment in the
Company's common stock and the relevant index was $100 at December 31, 1999 and
that all dividends were reinvested. The closing market price of the Company's
common stock on the NASDAQ National Market on December 31, 2004 was $36.93 per
share.
[GRAPHIC OMITTED]
Comparison of Cumulative Total Return among Integra LifeSciences Holdings Corporation,
the NASDAQ Medical Devices, Instruments and Supplies, Manufacturers and
Distributors Index, and the NASDAQ Stock Market -- U.S. Index
12/99 12/00 12/01 12/02 12/03 12/04
-------- -------- -------- ------- -------- --------
Integra LifeSciences Holdings Corporation $100 $231 $446 $299 $485 $625
NASDAQ Medical Devices, Instruments and Supplies,
Manufacturers and Distributors Index $100 $103 $113 $92 $132 $159
NASDAQ Stock Market - U.S. Index $100 $60 $48 $33 $51 $54
The graph and table above depict the past performance of the Company's
stock price. The Company neither makes nor endorses any predictions as to future
stock performance. The graph and table set forth above shall not be deemed (i)
incorporated by reference into any filing under the Securities Act or the
Exchange Act by virtue of any general statement in such filing incorporating
this Proxy Statement by reference, except to the extent that the Company
24
specifically incorporates the information contained in this section by
reference, or (ii) filed under either the Securities Act or the Exchange Act.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of common stock as of January 31, 2005 by: (a) each person or entity
known to the Company to be the beneficial owner of more than five percent of the
outstanding shares of common stock, based upon Company records or statements
filed with the Commission; (b) each of the Company's directors; (c) each of the
Named Officers; and (d) all executive officers and directors of the Company as a
group. Except as otherwise indicated, each person has sole voting power and sole
investment power with respect to all shares beneficially owned by such person.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES (1) OF CLASS
-------------------------------------------------------------- ---------------- ------------
David Auth, Ph.D. 82,500(2) *
Keith Bradley, Ph.D. 32,500(3) *
Richard E. Caruso, Ph.D. 7,189,543(4) 25.1%
Stuart M. Essig 807,424(5) 2.8%
Neal Moszkowski 62,500(6) *
James M. Sullivan 64,141(7) *
Anne M. VanLent 12,500(8) *
John B. Henneman, III 268,992(9) *
Gerard S. Carlozzi 46,623(10) *
Robert D. Paltridge 74,917(11) *
David Holtz 109,560(12) *
All directors and executive officers as a group (14 persons) 8,917,632(13) 30.1%
FMR Corp.
82 Devonshire Street, Boston, MA 02109 1,752,855(14) 6.1%
George Soros
888 Seventh Avenue, 33rd Floor, New York, NY 10106 2,925,300(15) 10.3%
TRU ST PARTNERSHIP, L.P.
c/o Richard E. Caruso, Ph.D., 919 Conestoga
Road,Building 2, Suite 106, Rosemont, PA 19010 7,091,205(16) 24.9%
T. Rowe Price Associates, Inc.
100 E. Pratt Street, Baltimore, MD 21202 1,960,900 (17) 6.9%
William Blair & Company, L.L.C
222 W. Adams Street, Chicago, IL 60606 2,486,662 (18) 8.7%
* Represents beneficial ownership of less than 1%.
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of an individual to acquire them within 60 days of January 31, 2005
upon the exercise of an option or other convertible security are treated as
outstanding for purposes of determining beneficial ownership and the
percentage beneficially owned by such individual.
25
(2) Includes 32,500 shares that Dr. Auth has the right to acquire within 60
days of January 31, 2005 upon the exercise of options held by him.
(3) Consists of 32,500 shares that Dr. Bradley has the right to acquire
within 60 days of January 31, 2005 upon the exercise of options held by
him.
(4) Includes 7,091,205 shares held by TRU ST PARTNERSHIP, L.P., a
Pennsylvania general partnership of which Dr. Caruso is a partner and the
President ("TRU ST") (also see Note 16 below). Also includes 23,338 shares
held by Provco Leasing Corporation ("Provco") of which Dr. Caruso is
President. Provco is a wholly owned subsidiary of Cono Industries,
Incorporated, a corporation whose stockholders are trusts whose
beneficiaries include Dr. Caruso's children. Also includes 75,000 shares
that Dr. Caruso has the right to acquire within 60 days of January 31, 2005
upon the exercise of options held by him. Dr. Caruso disclaims beneficial
ownership of the shares held by TRU ST, except to the extent of his
pecuniary interest therein.
(5) Includes 250,728 shares that Mr. Essig has the right to acquire within
60 days of January 31, 2005 upon the exercise of options held by him.
Excludes Restricted Units awarded to Mr. Essig in 2000 and 2004, which
entitle him to receive an aggregate of 2,000,000 shares of common stock.
The Restricted Units held by Mr. Essig do not give him the right to acquire
any shares within 60 days of January 31, 2005. Pursuant to the terms of a
forward sale contract entered into with Credit Suisse First Boston Capital
LLC on December 14, 2004, Mr. Essig is obligated to deliver to Credit
Suisse First Boston LLC on March 28, 2013 between 264,550 and 500,000
shares of common stock (or, at the election of Mr. Essig, the cash
equivalent of such shares). Mr. Essig retains voting power over these
shares pending the settlement of the forward sale contract.
(6) Consists of 62,500 shares that Mr. Moszkowski has the right to acquire
within 60 days of January 31, 2005 upon the exercise of options held by
him. Excludes all shares beneficially owned by Mr. Soros and the other
entities set forth in note 15 below. Mr. Moszkowski disclaims beneficial
ownership, except to the extent of his pecuniary interest therein, of any
such shares.
(7) Includes 62,500 shares that Mr. Sullivan has the right to acquire
within 60 days of January 31, 2005 upon the exercise of options held by
him.
(8) Consists of 12,500 shares that Ms. VanLent has the right to acquire
within 60 days of January 31, 2005 upon the exercise of options held by
her.
(9) Includes 237,692 shares that Mr. Henneman has the right to acquire
within 60 days of January 31, 2005 upon the exercise of options held by
him.
(10) Includes 45,416 shares that Mr. Calozzi has the right to acquire
within 60 days of January 31, 2005 upon the exercise of options held by
him.
(11) Includes 69,784 shares that Mr. Paltridge has the right to acquire
within 60 days of January 31, 2005 upon the exercise of options held by
him.
(12) Includes 93,449 shares that Mr. Holtz has the right to acquire within
60 days of January 31, 2005 upon the exercise of options held by him.
(13) See Notes 2 through 12 above. Also includes 50,413 shares held by
three executive officers of the Company and/or its subsidiaries who are not
listed in the above table, as well as 116,019 shares that those officers
have the right to acquire within 60 days of January 31, 2005 upon the
exercise of options held by them.
(14) Includes 1,111,200 shares beneficially owned by Fidelity Management &
Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp. and a
registered investment adviser, as a result of acting as investment advisor
to various investment companies. Edward C. Johnson 3d, FMR Corp., through
its control of Fidelity, and the funds holding such shares each has sole
power to dispose of these shares, but neither Mr. Johnson or FMR Corp. has
voting power over these shares. Also includes 641,655 shares beneficially
owned by Fidelity Management Trust Company, a wholly owned subsidiary of
FMR Corp. and a bank, as a result of serving as investment manager of
institutional accounts. Edward C. Johnson 3d and FMR Corp., through its
control of Fidelity Management Trust Company, each has sole dispositive and
investment power over these shares. Edward C. Johnson 3d, Chairman of FMR
Corp. and Abigail Johnson, a director of FMR Corp., and members of the
26
Johnson family may be deemed to form a controlling group with respect to
FMR Corp. The foregoing information has been included solely in reliance
upon, and without independent investigation of, the disclosures contained
in the Schedule 13G/A filed by FMR Corp., Edward C. Johnson 3d and Abilgail
Johnson with the Commission on February 14, 2005.
(15) Of the 2,925,300 shares reported herein, (i) 2,314,187 shares are held
for the account of Quantum Industrial Partners LDC, an exempted limited
duration company formed under the laws of the Cayman Islands ("QIP"), and
(ii) 611,113 shares are held for the account of SFM Domestic Investments
LLC, a limited liability company formed under the laws of the State of
Delaware ("SFM Domestic Investments"). QIH Management Investor, L.P.
("QIHMI"), an advisory firm organized as a Delaware limited partnership, is
a minority shareholder of, and is vested with investment discretion with
respect to, portfolio assets held for the account of QIP. The sole general
partner of QIHMI is QIH Management LLC ("QIH Management"), a limited
liability company formed under the laws of the State of Delaware. Soros
Fund Management LLC ("SFM LLC"), a limited liability company formed under
the laws of the State of Delaware, is the sole managing member of QIH
Management. Mr. Soros is the Chairman of SFM LLC and, in such capacity, may
be deemed to have voting and dispositive power over the shares held for the
account of QIP. Mr. Soros is the sole managing member of SFM Domestic
Investment and, in such capacity, may be deemed to have voting and
dispositive power over the shares held for the account of SFM Domestic
Investments. The foregoing information has been included solely in reliance
upon, and without independent investigation of, the disclosures contained
in the Form 4 filed by Mr. Soros with the Commission on December 8, 2004.
(16) The partners of TRU ST are Athena Venture Partners, L.P., Dr. Caruso
and Provco, each of which may be deemed to beneficially own the shares held
by TRU ST. Such partners of TRU ST disclaim beneficial ownership of all
such shares except to the extent represented by their respective equity and
profit participation interests in TRU ST. Pursuant to the terms of a
forward sale contract entered into with Credit Suisse First Boston Capital
LLC on November 23, 2004, TRU ST is obligated to deliver to Credit Suisse
First Boston LLC on January 15, 2013 between 322,581 and 600,000 shares of
common stock (or, at the election of TRU ST, the cash equivalent of such
shares). TRU ST retains voting power over these shares pending the
settlement of the forward sale contract.
(17) T. Rowe Price Associates, Inc. ("T. Rowe Price") has sole dispositive
power over all of these shares and has sole voting power over 337,600 of
these shares. The foregoing information has been included solely in
reliance upon, and without independent investigation of, the disclosures
contained in the Schedule 13G filed by T. Rowe Price with the Commission on
February 14, 2005.
(18) William Blair & Company, L.L.C. ("William Blair") has sole dispositive
and voting power over all of these shares. The foregoing information has
been included solely in reliance upon, and without independent
investigation of, the disclosures contained in the Schedule 13G filed by
William Blair with the Commission on January 10, 2005.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, as well as persons beneficially owning more than 10% of the
Company's outstanding shares of common stock and certain other holders of such
shares (collectively, "Covered Persons"), to file with the Commission, within
specified time periods, initial reports of ownership and subsequent reports of
changes in ownership of common stock and other equity securities of the Company.
Based solely upon the Company's review of copies of such reports furnished
to it and upon representations of Covered Persons that no other reports were
required, to the Company's knowledge all of the Section 16(a) filing
requirements applicable to Covered Persons were complied with during 2004,
except for the following:
27
a) a statement of changes in beneficial ownership of securities on Form 4
for the grant of options on May 19, 2004 was filed late by David Auth, Keith
Bradley, Richard Caruso, Neal Moszkowski and James Sullivan, directors of the
Company;
b) a statement of changes in beneficial ownership of securities on Form 4
for the grant of options on November 1, 2004 was filed late by Deborah Leonetti
and Judith O'Grady, executive officers of the Company; and
c) a statement of changes in beneficial ownership of securities on Form 4
for the grant of options on November 15, 2004 was filed late by Gerard Carlozzi,
John Henneman, David Holtz, Deborah Leonetti, Judith O'Grady, Donald Nociolo and
Robert Paltridge, executive officers of the Company.
STOCKHOLDER PROPOSALS
The deadline for stockholders to submit proposals pursuant to Rule 14a-8 of
the Exchange Act for inclusion in the Company's proxy statement and form of
proxy for the 2006 annual meeting of stockholders is December 13, 2005. The date
after which notice of a stockholder proposal submitted outside of the processes
of Rule 14a-8 of the Exchange Act is considered untimely is February 26, 2006.
If notice of a stockholder proposal submitted outside of the processes of Rule
14a-8 of the Exchange Act is received by the Company after February 26, 2006,
then the Company's proxy for the 2006 annual meeting of stockholders may confer
discretionary authority to vote on such matter without any discussion of such
matter in the proxy statement for the 2006 annual meeting of stockholders.
OTHER MATTERS
A copy of the Company's 2004 Annual Report to Stockholders is being mailed
simultaneously herewith to stockholders but is not to be regarded as proxy
solicitation material. In addition, our Code of Conduct, which applies to all of
the Company's directors and officers, and the charters for each of our Audit,
Compensation, and Nominating Committees are accessible via our website at
www.integra-LS.com through the "Investor Relations" link under the heading
"Corporate Governance."
The Company, upon request, will furnish to record and beneficial holders of
its common stock, free of charge, a copy of its Annual Report on Form 10-K
(including financial statements and schedules, but without exhibits) for the
fiscal year ended December 31, 2004. Copies of exhibits to the Form 10-K also
will be furnished upon request and the payment of a reasonable fee. All requests
should be directed to the investor relations department, at the offices of the
Company set forth on page one of this Proxy Statement.
By order of the Board of Directors,
/s/ John B. Henneman, III
-------------------------
Plainsboro, New Jersey John B. Henneman, III
April 12, 2005 Secretary
28
APPENDIX A
FIRST AMENDMENT TO THE
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
2003 Equity Incentive Plan
This First Amendment (the "Amendment") to the Integra LifeSciences Holdings
Corporation 2003 Equity Incentive Plan (the "Plan"), which was approved by the
Board of Directors of Integra LifeSciences Holdings Corporation (the "Company")
on February 22, 2005 and made effective as of ________ __, 2005, amends the Plan
as follows:
1. The first sentence of Section 5 is hereby amended to read in its
entirety as follows:
"The aggregate number of Shares that may be delivered under the Plan is
4,000,000."
2. Section 2(g) is hereby amended to read in its entirety as follows:
"Committee" shall mean the Company's Compensation Committee of the Board,
which shall consist solely of not fewer than two directors of the Company
who shall be appointed by, and serve at the pleasure of, the Board (taking
into consideration the rules under section 16(b) of the Exchange Act and
the requirements of section 162(m) of the Code)."
IN WITNESS WHEREOF, the undersigned, a duly authorized officer of the
Company, has caused this First Amendment to be executed on this ____ day of
________, 2005.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
By: ___________________________________
Name:
Title:
A-1
ANNUAL MEETING OF STOCKHOLDERS OF
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
MAY 17, 2005
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 Directors
FOR AGAINST ABSTAIN
[ ] FOR ALL NOMINEES [ ] David C. Auth 2. Proposal to amend the [ ] [ ] [ ]
[ ] Keith Bradley Company's 2003 Equity
[ ] WITHHOLD AUTHORITY [ ] Richard E. Caruso Incentive Plan
FOR ALL NOMINEES [ ] Stuart M. Essig
[ ] Neal Moskowski 3. Proposal to ratify the [ ] [ ] [ ]
[ ] FOR ALL EXCEPT [ ] James M. Sullivan appointment of
(See instructions below)[ ] Anne M. VanLent PricewaterhouseCoopers
LLP as the Company's
auditors for the current
fiscal year.
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: [x]
---------------------------------------------------
To change the address on your account, In their discretion, the Proxies are authorized,
please check the box at right and indicate your to the extent permitted by the rules of the
new address in the address space above. Please [ ] Securities an Exchange Commission, to vote upon
note that changes to the registered name(s) on such other business as may properly come before
the account may not be submitted via this method. tbe meeting or any adjournment or postponement
thereof.
Signature of Stockholder____________ 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 an executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign the 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.
PROXY CARD
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
311 ENTERPRISE DRIVE
PLAINSBORO, NEW JERSEY 08536 PROXY -
Annual Meeting of Stockholders - Tuesday, May 17, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Stuart M. Essig and John B. Henneman,
III as proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated on the reverse side
hereof, all of the shares of Common Stock of Integra LifeSciences Holdings
Corporation (the "Company") held of record by the undersigned on April 5, 2005
at the Annual Meeting of Stockholders to be held on Tuesday, May 17, 2005 or at
any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED IN FAVOR OF PROPOSALS 2 AND 3; FOR ALL NOMINEES LISTED FOR ELECTION OF
DIRECTORS UNDER PROPOSAL 1; AND IN ACCORDANCE WITH THE PROXIES' JUDGMENT UPON
OTHER MATERS PROPERLY COMMING BEFORE THE MEETING AND ANY ADJOURNMENT OR
POSTPONEMENT THEREOF.
(Continued and to be signed on the reverse side)