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'SS'. 240.14a-11(c) or'SS'. 240.14a-12
VITAL SIGNS, INC.
(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)(4) 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:
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:
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF
VITAL SIGNS, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Vital
Signs, Inc. (the 'Company' or 'Vital Signs') will be held at the Company's
headquarters, 20 Campus Road, Totowa, New Jersey, on Monday, September 29, 2003
at 10:00 a.m. local time, to consider and act upon the following:
1. The election of five directors as described in the attached proxy
statement.
2. The approval of the Vital Signs 2003 Investment Plan, to replace the
Company's prior Investment Plan, which expires in January 2004.
3. To consider and act upon any other matter which may properly come
before the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on August 29, 2003 as
the date for determining the shareholders of record entitled to receive notice
of, and to vote at, the Annual Meeting.
By Order of the Board of Directors
/s/ Jay Sturm
----------------------------------
Secretary
Totowa, New Jersey
September 2, 2003
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. RETURNING THE PROXY
WILL NOT LIMIT YOUR RIGHT TO VOTE AT THE MEETING IF YOU LATER DECIDE TO ATTEND
IN PERSON.
VITAL SIGNS, INC.
20 CAMPUS ROAD
TOTOWA, NEW JERSEY 07512
---------------------
PROXY STATEMENT
---------------------
The following statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Vital Signs, Inc. (the 'Company' or 'Vital
Signs'), a New Jersey corporation. Such proxies are to be used at the Company's
Annual Meeting of Shareholders to be held at the Company's headquarters, 20
Campus Road, Totowa, New Jersey, on September 29, 2003 commencing at 10:00 a.m.,
local time. This Proxy Statement and the enclosed form of proxy are first being
sent to shareholders on or about September 2, 2003.
SHAREHOLDERS ENTITLED TO VOTE
Only holders of record of the Company's Common Stock (the 'Common Stock') at
the close of business on August 29, 2003 (the record date fixed by the Board of
Directors) will be entitled to receive notice of, and to vote at, the Annual
Meeting. At the close of business on the record date, there were 12,905,100
shares of Common Stock outstanding and entitled to vote at the Annual Meeting.
Each such share is entitled to one vote and there is no right to cumulate votes
in the election of directors.
VOTING; REVOCATION OF PROXY; QUORUM AND VOTE REQUIRED
A form of proxy is enclosed for use at the Annual Meeting if a shareholder
is unable to attend in person. Each proxy may be revoked at any time before it
is exercised by giving written notice to the Secretary of the Annual Meeting or
by submitting a duly executed, later-dated proxy. All shares represented by
valid proxies pursuant to this solicitation (and not revoked before they are
exercised) will be voted as specified in the form of proxy. If the proxy is
signed but no specification is given, the shares will be voted FOR:
election of the Board's nominees to the Board of Directors; and
approval of the Vital Signs 2003 Investment Plan.
A majority of the shares outstanding on the record date will constitute a quorum
for purposes of the Annual Meeting. Assuming that a quorum is present, the
election of directors will be effected by a plurality vote of the votes cast at
the Annual Meeting and approval of the Vital Signs 2003 Investment Plan will
require a majority of the votes cast at the Annual Meeting. For purposes of
determining the votes cast with respect to any matter presented for
consideration at the Annual Meeting, only those votes cast 'for' or 'against'
are included. Abstentions and broker non-votes are counted only for the purpose
of determining whether a quorum is present at the Annual Meeting.
COSTS OF SOLICITATION
The entire cost of soliciting these proxies will be borne by the Company. In
following up the original solicitation of the proxies by mail, the Company may
make arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy materials to the beneficial owners of the
Common Stock and may reimburse them for their expenses in so doing. If
necessary, the Company may also use its officers and their assistants to solicit
proxies from the shareholders, either personally or by telephone or special
letter.
PRINCIPAL SHAREHOLDERS; BENEFICIAL OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of July 1, 2003 by (i) each person who is known
by the Company to own beneficially more than five percent of the Common Stock;
(ii) trusts maintained for the benefit of the children of Terry D. Wall, the
Company's principal shareholder and chief executive officer; (iii) each Named
Executive Officer (as defined herein), director and nominee of the Company; and
(iv) all directors, nominees and current executive officers of the Company as a
group. Unless otherwise indicated, each of the named shareholders possesses sole
voting and investment power with respect to the shares beneficially owned.
Shares covered by stock options are included in the table below only to the
extent that such options may be exercised by August 30, 2003.
SHAREHOLDER NUMBER PERCENT(12)
----------- ------ -----------
Terry D. Wall (1)(2)........................................ 4,285,926 32.9%
Trusts for the benefit of the minor children of Terry D.
Wall (Anthony J. Dimun, trustee) (1)(3)................... 2,420,327 18.7
Anthony J. Dimun, individually and as trustee (1)(3)........ 2,553,529 19.7
Putnam, LLC, One Post Office Square, Boston, MA
02109 (4)................................................. 720,876 5.5
C. Barry Wicker (5)......................................... 338,265 2.6
David J. Bershad (6)........................................ 108,789 *
Joseph F. Bourgart (7)...................................... -- *
Howard W. Donnelly (8)...................................... 3,750 *
David H. MacCallum.......................................... -- *
Richard L. Robbins (9)...................................... 4,000 *
George A. Schapiro (10)..................................... 3,750 *
Frederick S. Schiff......................................... 1,661 *
Joseph J. Thomas............................................ -- *
All directors, nominees and current executive officers as a
group (eleven persons) (11)............................... 7,306,920 55.3
---------
* Represents less than one percent.
(1) The business address of Mr. Wall and the above-mentioned
trusts is c/o Vital Signs, Inc., 20 Campus Road, Totowa, New
Jersey 07512. The business address of Mr. Dimun is c/o
Strategic Concepts, LLC, 46 Parsonage Hill Road, Short
Hills, New Jersey 07078.
(2) Includes 3,440,894 shares owned by Mr. Wall directly,
706,748 shares owned by Carol Vance Wall, Mr. Wall's wife,
34,332 shares held in the Company's 401(k) plan on Mr.
Wall's behalf and 103,952 shares covered by options
exercisable by Mr. Wall. Excludes shares held in trust for
the benefit of the Walls' minor children (which shares may
not be voted or disposed of by Mr. Wall or Carol Vance Wall)
and shares held by a charitable foundation established by
Mr. Wall and Carol Vance Wall. Mr. Wall and Carol Vance Wall
have pledged 4,041,272 shares as collateral to a brokerage
firm as security for a loan made to them. Based on the
closing sale price of the Common Stock on June 30, 2003, the
value of the shares held as collateral on this loan
represented more than 700% of the outstanding balance on
this loan as of June 30, 2003. Upon any default under this
loan, the shares collateralizing such loan may be sold in
the market. The number of shares so sold in the market may
negatively impact the market price of the Common Stock.
Depending upon the number of shares sold and the number of
shares that could similarly be sold in connection with the
loans described in the next footnote, such sales could
result in a change in control of the Company.
(3) As trustee of the trusts maintained for the benefit of the
minor children of Terry D. Wall, Anthony J. Dimun has the
power to vote and dispose of each of the shares held in such
trusts and thus is deemed to be the beneficial owner of such
shares under applicable regulations of the Securities and
Exchange Commission. Mr. Dimun is also deemed to be the
beneficial owner of 700 shares held in certain insurance
trusts established by Mr. Wicker. He is also deemed to be
the beneficial owner of 79,700 shares held by the charitable
foundation described above. Accordingly, the shares
reflected in the table above as shares beneficially owned by
Mr. Dimun include shares held by Mr. Dimun for such trusts
and foundation, 20,644 shares owned by Mr. Dimun
individually and 32,138 shares covered by options
exercisable by Mr. Dimun. The trusts established for the
Walls' children have
(footnotes continued on next page)
2
(footnotes continued from previous page)
pledged their shares as collateral to a financial
institution to secure loans made to them. The Company has
agreed to register such shares for resale, at the trusts'
expense, in the event that such financial institution
acquires such shares upon a default and thereafter desires
to sell such shares. Based on the closing sale price of our
common stock on June 30, 2003, the value of the shares held
as collateral on these loans represented more than 400% of
the outstanding balance on these loans as of June 30, 2003.
Upon any default under these loans, the shares
collateralizing such loans may be sold in the market. The
number of shares so sold in the market may negatively impact
the market price of the Common Stock. Depending upon the
number of shares sold and the number of shares that could
similarly be sold in connection with the loan described in
the immediately preceding footnote, such sales could result
in a change in control of the Company.
(4) In a Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2003, Putnam, LLC stated that it
has shared voting power with respect to 196,276 shares and
shared dispositive power with respect to 720,876 shares. The
Schedule 13G further states that the shares of Common Stock
reported consist of securities beneficially owned by
subsidiaries of Putnam, LLC which are registered investment
advisors, which in turn include securities beneficially
owned by clients of such investment advisors, which clients
may include investment companies registered under the
Investment Company Act and/or employee benefit plans,
pension funds, endowment funds or other institutional
clients.
(5) Includes 268,927 shares owned by Mr. Wicker directly, 13,454
shares held in the Company's 401(k) plan on Mr. Wicker's
behalf, and 55,884 shares covered by options exercisable by
Mr. Wicker. Excludes shares held in insurance trusts
maintained for the benefit of Mr. Wicker's children, which
shares may not be voted or disposed of by Mr. Wicker or his
wife.
(6) Includes 24,267 shares owned by Mr. Bershad directly, 2,000
shares owned by Mr. Bershad's wife as to which Mr. Bershad
disclaims beneficial ownership, and 82,522 shares covered by
options exercisable by Mr. Bershad.
(7) Mr. Bourgart, the Company's Executive Vice President of
Business Development and Chief Financial Officer during the
fiscal year ended September 30, 2002, resigned in January
2003.
(8) These 3,750 shares are covered by options exercisable by
Mr. Donnelly.
(9) These 4,000 shares are covered by options exercisable by
Mr. Robbins.
(10) These 3,750 shares are covered by options exercisable by
Mr. Schapiro.
(11) Includes 292,246 shares covered by options exercisable by
the Company's executive officers, directors and nominees,
and 47,786 shares held in the Company's 401(k) plan; also
includes shares held in trust by Mr. Dimun for Mr. Wall's
children and pursuant to certain insurance trusts
established by Mr. Wicker and shares held by a charitable
foundation established by Terry and Carol Vance Wall.
(12) Percent of class is based on 12,911,538 shares of Common
Stock outstanding on July 1, 2003.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and 10% shareholders to file with the Securities
and Exchange Commission certain reports regarding such persons' ownership of
the Company's securities. The Company is required to disclose any failures
to file such reports on a timely basis. The Company is not aware of any such
untimely filings for the fiscal year ended September 30, 2002.
3
PROPOSAL ONE
ELECTION OF DIRECTORS
Unless a shareholder either indicates 'withhold authority' on his proxy or
indicates on his proxy that his shares should not be voted for certain nominees,
it is intended that the persons named in the proxy will vote for the election of
the persons named in Table I below to serve until the expiration of their
respective terms and thereafter until their successors shall have been duly
elected and qualified. If elected, three of the nominees will serve for three
year terms and two of the nominees will serve for one year terms. Discretionary
authority is also solicited to vote for the election of a substitute for any of
said nominees who, for any reason presently unknown, cannot be a candidate for
election. Each of the nominees is currently a member of the Company's Board of
Directors.
Table I sets forth the names and ages (as of July 1, 2003) of the nominees
for election to the Board of Directors, the positions and offices presently held
by each such person within Vital Signs, the period during which each such person
has served on the Company's Board of Directors, the expiration of their
respective terms and the principal occupations and employment of each such
person during the past five years. Table II sets forth comparable information
with respect to those directors whose terms of office will continue beyond the
date of the Annual Meeting. Unless otherwise indicated, positions have been held
for more than five years.
TABLE I
NOMINEES FOR ELECTION AS DIRECTORS
EXPIRATION
DIRECTOR OF TERM
NAME AND AGE SINCE IF ELECTED BUSINESS EXPERIENCE(A)
------------ ----- ---------- ----------------------
David J. Bershad, 63 1991 2006 Member of the law firm of Milberg Weiss Bershad
Hynes & Lerach LLP.
Anthony J. Dimun, 59 1987 2006 Chairman of Nascent Enterprises, LLC (consulting
firm) (May 1, 2001 to present); Executive Vice
President, Chief Financial Officer and
Treasurer of the Company (1991 to May 1,
2001); Secretary of the Company (December 1991
to December 1998); Principal Owner, Strategic
Concepts, Inc. (financial and acquisition
advisory firm) (1988 to present).
Howard W. Donnelly, 42 2002 2006 Consultant (May 2002 to present); President of
Level 1, Inc. (medical device manufacturer and
a wholly-owned subsidiary of Smith Industries)
(March 1999 to April 2002); Vice President of
Business Planning and Development, Pfizer (a
pharmaceutical company) (1997 to 1999).
Richard L. Robbins, 62 2003 2004 Partner, Robbins Consulting LLP (financial,
strategic and management consulting firm)
(July 2002 to present); Partner of Arthur
Andersen LLC (1978 to 2002).
George A. Schapiro, 57 2003 2004 General Management Consultant (1991 to present);
President/Chief Executive Officer of Andros
Incorporated (an original equipment
manufacturer of gas analysis subsystems for
medical and industrial instrumentation) (1976
to 1991).
4
TABLE II
CONTINUING DIRECTORS
DIRECTOR EXPIRATON
NAME AND AGE SINCE OF TERM BUSINESS EXPERIENCE(A)
------------ ----- ------- ----------------------
David H. MacCallum, 65 2002 2004 Managing Partner of Outer Islands Capital
(private equity partnership) (April 2002 to
present); Managing Director -- Global Head of
Health Care, Salomon Smith Barney (investment
banking firm) (1999 to November 2001);
Executive Vice President, Head of Healthcare,
ING Baring Furman Selz, LLC (investment
banking firm) (April 1998 to June 1999);
Managing Director for Life Sciences Investment
Banking, UBS Securities LLC (investment
banking firm) (1994 to March 1998); Co-Head,
Investment Banking, Hambrecht & Quist LLC
(investment banking firm) (1983-1994).
Joseph J. Thomas, 66 1992 2005 President of Thomas Medical Products, Inc. (a
subsidiary of the Company) ('TMP') (1990 to
present).
Terry D. Wall, 61 1972 2005 President and Chief Executive Officer of the
Company.
C. Barry Wicker, 62 1985 2005 Executive Vice President -- Sales of the
Company.
---------
(A) In each instance in which dates are not provided in
connection with a director's business experience, such
director has held the position indicated for at least the
past five years. Messrs. Wall, Bershad and Dimun invested
together in Bionx Implants, Inc and, until the merger of
Bionx Implants, Inc. with an unrelated party in March 2003,
served together as Board members of that company. Messrs.
Wall and Bershad have invested together in OmniSonics
Medical Technologies, Inc. (formerly Sonokinetics, Inc.) and
Messrs. Wall and Donnelly currently serve as Board members
of OmniSonics Medical Technologies, Inc Messrs. Wall, Dimun,
MacCallum, Bershad and Thomas are investors in X-Site
Medical, LLC. Messrs. Wall, Dimun, Thomas, Bershad and
MacCallum serve as Board members of X-Site Medical, LLC.
(See 'Related Party Transactions'). Omnisonics Medical
Technologies, Inc. and X-Site Medical, LLC are private
companies.
5
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth, for the fiscal years ended September 30,
2000, 2001 and 2002, the annual and long-term compensation of the Company's
Chief Executive Officer and the other individuals who served as executive
officers of the Company at the end of fiscal 2002 and received greater than
$100,000 in salary and bonus during fiscal 2002 (the 'Named Executive
Officers'):
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------------------------
-------------------------------------------- COMMON SHARES
OTHER SUBJECT
ANNUAL TO OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION(B) GRANTED(#) COMPENSATION(C)
--------------------------- ---- ------ -------- --------------- ---------- ---------------
Terry D. Wall .................... 2002 $225,000 $ 46,735 $ 6,000 -- $ 3,443
President and Chief Executive 2001 225,000 31,035 6,000 7,758 4,902
Officer 2000 225,000 18,634 6,000 24,916 4,109
Joseph F. Bourgart (D) ........... 2002 172,192 16,011 6,000 -- 1,965
Chief Financial Officer 2001 -- -- -- -- 23,828(E)
2000 -- -- -- -- --
Joseph J. Thomas (F) ............. 2002 162,240 257,690 17,541 -- 2,575
President, Thomas Medical 2001 156,000 208,104 -- -- 2,433
Products 2000 150,000 -- -- -- 606
C. Barry Wicker .................. 2002 151,250 31,530 6,000 -- 2,882
Executive Vice President--Sales 2001 151,250 20,993 6,000 9,638 3,554
2000 151,250 12,625 6,000 8,304 3,606
---------
(A) Reflects bonuses in the fiscal year earned, which may not
correspond with the fiscal year paid. Payments of $36,000 to
Mr. Wall, $7,212 to Mr. Bourgart and $24,199 to Mr. Wicker
were made under the Company's bonus program for fiscal 2001.
These amounts were paid in fiscal 2002. The balance
represents bonuses earned in fiscal 2002 awarded under the
Company's Well-Pay Policy and in conjunction with the
Company's performance incentive program. The Well-Pay Policy
covers all Company personnel working in the Company's
headquarters in Totowa, New Jersey and in certain of the
Company's subsidiaries. Under the Policy, an additional
day's pay is earned by any employee having perfect
attendance for the preceding month. In addition, payments of
$200 to $400 are earned by employees having perfect
attendance for one or more consecutive years.
(B) Comprised entirely of monthly car allowances.
(C) 'Compensation' reported under this column for the year ended
September 30, 2002 includes: (i) contributions of $2,713,
$1,418, $2,553 and $2,391, respectively, for Messrs. Wall,
Bourgart, Thomas and Wicker, respectively, to the Company's
401(k) Plan on behalf of the Named Executive Officers to
match pre-tax elective deferral contributions (included
under 'Salary') made by each Named Officer to that Plan and
(ii) premiums of $730, $547, $22 and $491, respectively,
with respect to life insurance purchased by the Company for
the benefit of Messrs. Wall, Bourgart, Thomas and Wicker,
respectively.
(D) Joseph F. Bourgart joined the Company on a part-time basis
in June of 2001, and became a full-time employee on
October 1, 2001. Before becoming Executive Vice President
and Chief Financial Officer in January 2002, Mr. Bourgart
served as Executive Vice President of Business Development
for the Company. In November 2002 he became Senior Vice
President of Business Development. Mr. Bourgart resigned in
January, 2003.
(E) Represents payments made to Mr. Bourgart from June 2001 to
September 2001 for consulting services performed prior to
his employment at Vital Signs.
(footnotes continued on next page)
6
(footnotes continued from previous page)
(F) Effective October 1, 2001, Mr. Thomas and TMP entered into a
three year employment agreement, pursuant to which
Mr. Thomas will be paid a base salary of $168,730 in fiscal
2003, increased annually by the same percentage increase as
salaries generally increase for employees of the Company.
For purposes of calculating the increase for fiscal 2003,
that figure was 4%. Mr. Thomas is guaranteed an annual
bonus of $212,450 during the term. He is also entitled to
receive an additional bonus based on TMP's performance.
Mr. Thomas' wife is also an employee of TMP and TMP has
entered into a similar agreement with her. Her base salary
for fiscal 2003 is $77,561 and her guaranteed annual bonus
is $77,757. On November 30, 2001, pursuant to unsecured
promissory notes bearing interest at 5.5% per annum, the
Company loaned Mr. Thomas the sum of $637,350 and loaned his
wife $233,370. The notes are due on November 30, 2004. See
'Certain Relationships and Related Transactions.'
STOCK OPTIONS
The Company did not grant any stock options to the Named Executive Officers
during the fiscal year ended September 30, 2002.
The following table provides data regarding the number and value of shares
of the Company's Common Stock covered by both exercisable and non-exercisable
stock options held by the Named Executive Officers at September 30, 2002. The
closing sales price of the Company's Common Stock on September 30, 2002 was
$29.71. None of the Named Executive Officers exercised stock options during
fiscal 2002.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END VALUES
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
Terry D. Wall.............. -- -- 96,194 7,758 742,523 5,508
Joseph F. Bourgart......... -- -- -- -- -- --
Joseph J. Thomas........... -- -- -- -- -- --
C. Barry Wicker............ -- -- 46,246 9,638 402,549 6,843
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about the Company's Common Stock that
may be issued upon the exercise of options, warrants and rights under all of the
Company's equity compensation plans existing as of September 30, 2002,
consisting of the Company's 2002 Stock Incentive Plan, prior Investment Plan,
1991 Director Stock Option Plan and 1990 Employee Stock Option Plan. No
additional options will be granted under the 1991 Director Stock Option Plan or
1990 Employee Stock Option Plan, as these plans have expired. The prior
Investment Plan expires in January 2004. See Proposal Two. No warrants or rights
are outstanding under the foregoing plans.
7
(c)
NUMBER OF SECURITIES
REMAINING AVAILABLE
(a) FOR FUTURE ISSUANCE
NUMBER OF SECURITIES (b) UNDER EQUITY
TO BE ISSUED UPON WEIGHTED-AVERAGE COMPENSATION PLANS
EXERCISE OF EXERCISE PRICE OF (EXCLUDING SECURITIES
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (a))
------------- ------------------- ------------------- -----------
Equity Compensation Plans Approved by
Shareholders........................ 381,234 $24.57 1,570,964
Equity Compensation Plans Not Approved
by Shareholders..................... 78,100 $34.39 --
------- ---------
Total............................. 459,334 1,570,964
------- ---------
------- ---------
In addition to options granted pursuant to the Company's benefit plans, in
fiscal 2002, the Company granted stock options covering 78,100 shares to
employees independent of such plans. As such, these options represent
contractual commitments by the Company to the individuals involved.
ARRANGEMENTS WITH DIRECTORS
Joseph Thomas became a director of the Company upon the Company's
acquisition of TMP on September 30, 1992. Mr. Thomas continues to be employed by
the Company as the President of TMP. For further information concerning Mr.
Thomas' employment agreement, see footnote (E) to the Summary Compensation
Table. For information concerning loans made by the Company to Mr. Thomas and
his wife, see 'Certain Relationships and Related Transactions.'
During fiscal 2002, no automatic option grants were made to directors who
were not employed by the Company or its subsidiaries. The Company's 2002 Stock
Incentive Plan provides that each non-employee director will automatically
receive options covering 4,000 shares of Common Stock (with an exercise price
equal to fair market value on the date of grant) on an annual basis and is
entitled to receive additional options at the discretion of the committee
administering the 2002 Stock Incentive Plan. One half of the automatic option
grants made to non-employee directors under the 2002 Stock Incentive Plan vest
immediately at the time of grant. Half of the balance may be exercised
commencing one year after the date of grant and the remainder may be exercised
commencing two years after the date of grant.
During fiscal 2002, the Company paid Anthony J. Dimun, a director of the
Company, $21,281 in consulting fees.
Directors of the Company presently do not receive any cash fees for serving
in such capacity.
THE BOARD OF DIRECTORS; COMMITTEES OF THE BOARD
The Board of Directors of the Company held four meetings during the fiscal
year ended September 30, 2002. The Board's Audit Committee, which is responsible
for reviewing significant audit and accounting principles, policies and
practices and for meeting with the Company's independent accountants, met six
times during the year ended September 30, 2002. The Audit Committee presently
consists of Messrs. Donnelly, Schapiro and Robbins.
The Board has a Nominating Committee, consisting of Messrs. Wall and Dimun.
This Committee did not meet during the year ended September 30, 2002, as all
nominating matters were considered by the full Board. The Nominating Committee
is charged with the responsibility of interviewing potential candidates for
election to the Board and for nominating individuals each year for election to
the Board. The Nominating Committee has not established any procedures for
considering nominees recommended by shareholders.
The Board did not have a general Compensation Committee in fiscal 2002. It
maintained a Stock Option Committee, however, to administer the Company's stock
option plans and the Vital Signs Investment Plan. The Stock Option Committee
consisted of Messrs. Wall and Wicker and acted by unanimous consent during the
Company's most recent fiscal year. On August 4, 2003, the Board
8
established a Compensation Committee, comprised of Messrs. Bershad, Donnelly and
MacCallum. The Compensation Committee will assume the functions of the Stock
Option Committee, and will also be responsible for determining the compensation
of the Company's chief executive officer and other executive officers.
Each member of the Company's Board was present for 75% or more of the
aggregate of the total meetings of the Board and each Board committee on which
he serves.
AUDIT COMMITTEE MATTERS
The following report of the Audit Committee is not to be deemed 'soliciting
material' or deemed to be filed with the Securities and Exchange Commission or
subject to Regulation 14A of the Securities Exchange Act of 1934, except to the
extent specifically requested by the Company or incorporated by reference in
documents otherwise filed.
Audit Committee Charter. The Audit Committee has adopted a written charter
which was filed with the Company's 2001 Notice of Annual Meeting of Shareholders
and Proxy Statement. The Audit Committee is in the process of amending its
charter to implement new rules and standards of the SEC and Nasdaq.
Independence of Audit Committee Members. The Common Stock is listed on the
Nasdaq National Market and the Company is governed by the listing standards
applicable thereto. Each of the members of the Audit Committee, Messrs.
Donnelly, Schapiro and Robbins, have been determined to be 'independent
directors' pursuant to the definition contained in Rule 4200(a)(14) of the
National Association of Securities Dealers' ('NASD') Marketplace rules.
Audit Committee Report. In connection with the preparation and filing of the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2002:
(1) the Audit Committee reviewed and discussed the audited financial
statements with the Company's management;
(2) the Audit Committee discussed with the Company's independent auditors
the matters required to be discussed by Statement on Auditing Standards No. 61
(Communications with Audit Committees);
(3) the Audit Committee received and reviewed the written disclosures and
the letter from the Company's independent auditors required by the Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees)
and discussed with the Company's independent auditors any relationships that may
impact their objectivity and independence and satisfied itself as to the
auditors' independence;
(4) the Audit Committee commenced an independent investigation of
accusations of accounting fraud and illegal activities raised by the Company's
former chief financial officer, which investigation is on-going;
(5) the Audit Committee began the implementation of policies and procedures
for the anonymous reporting of allegations of financial misconduct;
(6) the Audit Committee has retained an independent accounting firm to
provide internal audit services for the Company; and
(7) based on the review and discussions referred to above, the Audit
Committee recommended to the Board that the audited financial statements be
included in the 2002 Annual Report on Form 10-K.
By: The Audit Committee of the Board of Directors
Howard W. Donnelly, George A. Schapiro, Richard L. Robbins
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended September 30, 2002, the Board of Directors did
not maintain a Compensation Committee. Accordingly, compensation decisions were
made by the entire Board of Directors. During the fiscal year ended
September 30, 2002, the following individuals served on the Board of Directors:
Terry D. Wall, David J. Bershad, Anthony J. Dimun, Stuart M. Essig, E. David
9
Hetz, David MacCallum, Howard W. Donnelly, Joseph J. Thomas and C. Barry Wicker.
During that year, of the persons named, Messrs. Wall, Thomas and Wicker were
officers and employees of the Company or its subsidiaries. On August 4, 2003,
the Board established a Compensation Committee, comprised of Messrs. Bershad,
Donnelly and MacCallum.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TMP, a subsidiary of the Company, loaned Mr. Thomas, a director of the
Company, the sum of $637,350 and loaned his wife $233,370 on November 30, 2001,
pursuant to unsecured promissory notes bearing interest at 5.5% per annum.
Principal and interest under the notes are due and payable on November 30, 2004.
The principal amount of these notes, together with interest accrued thereon, as
of June 30, 2003 was $657,806 (with respect to Mr. Thomas' note) and $240,860
(with respect to his wife's note). All of such indebtedness (plus additional
accrued interest) remained outstanding as of the date of this proxy statement.
The largest aggregate amount of such indebtedness outstanding at any time during
the period from October 1, 2001 through June 30, 2003 was $672,404 (with respect
to Mr. Thomas' note) and $246,199 (with respect to his wife's note).
TMP provides product development and manufacturing services to X-Site
Medical, LLC ('X-Site'), a company engaged in the development of specialized
cardiovascular products. X-Site paid TMP $287,000 during fiscal 2002 for such
services. As of June 30, 2003, a balance of $190,100 was outstanding for such
services. The Company believes that the rates charged to X-Site for such
services are no less favorable to the Company than those charged to similarly
situated unrelated parties. Mr. Wall and his family limited partnership own
37.6% of X-Site. Mr. Dimun, Mr. Bershad, through an investment limited
partnership, Mr. Thomas and Mr. MacCallum own 3.9%, 4.3%, 2.1% and less than 1%
of X-Site, respectively.
BOARD REPORT ON EXECUTIVE COMPENSATION
The following report is not to be deemed 'soliciting material' or deemed to
be filed with the Securities and Exchange Commission or subject to
Regulation 14A of the Securities Exchange Act of 1934, except to the extent
specifically requested by the Company or incorporated by reference in documents
otherwise filed.
Pursuant to rules adopted by the SEC designed to enhance disclosure of
corporate policies regarding executive compensation, the Company has set forth
below a report of its Board regarding compensation policies as they affect
Mr. Wall and the other Named Executive Officers.
The Board of Directors views compensation of executive officers as having
three distinct parts, a current compensation program, a set of standard benefits
and a long-term benefit. The current compensation element focuses upon the
executive officer's salary and is designed to provide appropriate reimbursement
for services rendered. The Company's standard benefit package consists primarily
of the matching portion of the Company's 401(k) Plan and eligibility for bonuses
based upon performance of the Company. The long-term benefit element has been
reflected in the grants of stock options to specific executive officers.
During the past two completed fiscal years, Mr. Wall and Mr. Wicker did not
receive any salary increase. Traditionally, Mr. Wall's salary has been set at
levels which are perceived by the Board to be below the salaries of chief
executive officers of other comparable companies. Mr. Wall, whose family
continues to own more than half of the outstanding Common Stock of the Company,
has been willing to accept such salary levels primarily because of the message
his salary sends to other executive officers, employees and shareholders.
Furthermore, Mr. Wall's personal net worth ultimately depends more on the
performance of the Company than on any specific salary level. The salaries of
each of the other Named Executive Officers are based upon prior experience,
experience with the Company, contributions to the Company and the relationship
of such individual's responsibilities to the Chief Executive Officer's
responsibilities.
Stock options granted to executive officers of the Company have historically
been granted at a price equal to fair market value. Accordingly, such options
will gain appreciable value if, and only if, the market value of the Common
Stock increases subsequent to the date of grant. The Board believes that
10
the issuance of stock options at fair market value provides incentives to
employees to maximize the Company's performance and to assure continued
affiliation with the Company.
The Board believes that an appropriate compensation program can help in
promoting strong earnings performance if it reflects an appropriate balance
between providing rewards to executive officers while at the same time
effectively controlling cash compensation costs. It is the Board's objective to
continue monitoring the Company's compensation program to assure that this
balance is maintained.
By: The Board of Directors
Terry D. Wall Howard W. Donnelly George A. Schapiro
David J. Bershad David H. MacCallum Joseph J. Thomas
Anthony J. Dimun Richard L. Robbins C. Barry Wicker
PROPOSAL TWO
APPROVAL OF VITAL SIGNS 2003 INVESTMENT PLAN
GENERAL
On August 4, 2003, the Board of Directors approved, subject to shareholder
approval, the Vital Signs 2003 Investment Plan (the '2003 Investment Plan'). The
2003 Investment Plan is a stock purchase/stock option plan which allows
employees and directors to purchase the Company's Common Stock (up to specified
permitted amounts). For each share purchased by an employee or director, the
2003 Investment Plan provides that the Company will grant the participant from
one to three stock options, as determined by the Committee which administers the
Plan, in its discretion. Eligible participants may purchase shares of Common
Stock pursuant to the 2003 Investment Plan during specified window periods. An
aggregate of 1,000,000 of the Company's Common Stock have been authorized for
share purchases and stock option grants under the 2003 Investment Plan. These
shares may be either authorized but unissued or reacquired shares (including
treasury shares).
In many respects, the 2003 Investment Plan is a renewal of the Company's
prior Investment Plan, which expires in January 2004. Assuming approval by the
Company's shareholders at the Annual Meeting, the 2003 Investment Plan will
become effective on January 22, 2004, when the prior Investment Plan expires.
The following is a summary of the material terms of the 2003 Investment Plan. A
copy of the 2003 Investment Plan is available from the Secretary of the Company
upon request.
PURPOSE
The purpose of the 2003 Investment Plan is to promote the success, and
enhance the value, of the Company by linking the personal interests of
participating employees and directors to those of Company shareholders, and by
providing participants with added incentives for outstanding performance. The
2003 Investment Plan is further intended to provide flexibility to the Company
in its ability to motivate, attract, and retain the services of participants
upon whose judgment, interest, and special effort the successful conduct of its
business is largely dependent.
ADMINISTRATION
The newly formed Compensation Committee of the Board of Directors (the
'Committee'), which currently consists of Messrs. Bershad, Donnelly and
MacCallum, has the power to determine the option-to-stock match, to determine
the terms and conditions applicable to the purchase of 2003 Investment Plan
shares and the grant of options, to interpret the 2003 Investment Plan, to
establish, amend, or waive rules and regulations for the 2003 Investment Plan's
administration and to make all other determinations which may be necessary or
advisable for the administration of the 2003 Investment Plan.
The Committee has appointed Hayat Khan, the Company's Vice President of
Human Resources, to serve as the Plan Administrator. The Plan Administrator
serves at the discretion of the Committee and could change from time to time.
11
ELIGIBILITY
The 2003 Investment Plan permits eligible employees (including any employee
who also serves as a director of the Company) and directors of the Company to
purchase Vital Signs Common Stock from the Company during an approximately two
week period (known as a 'window period') one or more times each year while the
2003 Investment Plan is in effect. All persons who are domestic employees or
directors of the Company during a window period (approximately 1,200 as of
July 1, 2003) will be eligible to participate with respect to that window
period. Foreign employees also may be eligible to participate, at the discretion
of the Committee.
Since participation in the 2003 Investment Plan is at the discretion of each
employee and director, the Company is unable, at the present time, to determine
the identity or number of executive officers, other key employees and directors
who may elect to participate, and accordingly, who may be granted stock options
under the 2003 Investment Plan in the future.
STOCK PURCHASES
Window Periods
A 'window period' is the time period designated by the Company's Board of
Directors during which eligible employees and directors may purchase shares of
Common Stock under the 2003 Investment Plan. Window periods last approximately
15 days each, and occur at times designated by the Board. It is currently
intended that the Board will declare window periods at six month intervals.
Amount to be Invested
An employee or director must make an initial purchase of the Company's
Common Stock through the 2003 Investment Plan in order to receive stock options
under the 2003 Investment Plan. The 2003 Investment Plan provides that for each
window period, the maximum aggregate fair market value of shares which may be
purchased by an eligible employee or director is the greater of $50,000 or twice
an employee's annual salary in effect on the first day of the applicable window
period, unless the Committee approves a higher limit on a case-by-case basis.
For any window period, no employee may purchase shares having an aggregate fair
market value equal to less than one half of one percent of his or her base
salary for that window period. For any window period, there is no minimum number
of shares which must be purchased by a non-employee director, provided that the
number of shares purchased by any director must be a whole number.
Purchase Price
The purchase price for the shares purchased under the 2003 Investment Plan
will equal the closing sale price of a share of the Company's Common Stock on
the final trading day of the applicable window period. There are no discounts
for initial purchases under the 2003 Investment Plan.
Delivery of Shares
All shares which a participant purchases under the 2003 Investment Plan will
be delivered two years from the date of purchase (the 'two-year holding
period'), provided that the full payment for such shares has been made, whether
by cash, through the Company's payroll deduction program or other Company loan,
or a combination of the foregoing.
Holding Period
The holding period is the two-year period during which a participant must
wait and retain the shares he or she purchased through the 2003 Investment Plan
to qualify for the optimum benefit of exercising the stock options granted under
the 2003 Investment Plan.
If a participant has fully paid for the shares purchased under the 2003
Investment Plan prior to the end of the two-year holding period, the participant
is entitled to sell or transfer such stock as he or she wishes.
12
If a participant sells any of the shares purchased under the 2003 Investment
Plan before the end of the two-year holding period, he or she will (in most
instances) have to wait five years from the date the options were granted and
still be employed by the Company or serve as a director of the Company before
the participant can exercise the related options. If the participant holds such
shares for two years and remains employed by the Company or continues to serve
as a director of the Company, he or she will then be able to exercise the
related options. If shares are assigned to a bank as collateral or if they are
held in street name, they will be treated as though they had been sold, and,
accordingly, in most cases, the five year holding period described above will be
applicable to the options.
Upon the termination of the holding period for shares purchased under the
2003 Investment Plan, and provided such shares are fully paid, the Committee
may, in its discretion, offer a participant an opportunity to receive additional
options if the participant agrees to continue to hold such shares for a
specified period of time. The number of additional options to be granted, the
period of time during which the participant will be required to continue to hold
such shares and the participants, if any, who will be given the opportunity to
receive additional options, shall be determined by the Committee in its
discretion.
Voting and Dividends
In general, a participant will be able to vote and receive any dividends and
other distributions paid with respect to the shares purchased by him or her
under the 2003 Investment Plan.
Payment for Shares
When an eligible participant enrolls in the 2003 Investment Plan, he or she
may indicate that the shares will be purchased by paying cash or, if the
participant is an employee and the Plan Administrator so permits, by payroll
deductions or by a combination of cash and payroll deductions. For employees who
pay for their stock through payroll deductions, the amount the employee will pay
will equal the purchase price plus a fee that will equal JP Morgan Chase Bank's
'prime' interest rate on the last day of the applicable window period. Based on
what the prime interest rate is at the time, the employee will be notified of
what amount his or her fixed payments will be. Those payments will be handled as
payroll deductions. The employee may determine the length of the payroll
deduction period, as long as it does not extend beyond two years.
In addition, the 2003 Investment Plan provides that if permitted by
applicable law and the Plan Administrator, the Company may lend an employee or
director sufficient funds to satisfy all or a portion of the purchase price for
Plan Shares. The terms of any such loan will be determined by the Committee. The
Committee has determined that the initial terms of any such loan will be as
follows: The principal amount of the loan will be due and payable two years
after the date of purchase of the shares. During such two year period, employees
will be obligated to pay interest only on the loan amount. The interest rate
will be determined once each year (on the last day of the applicable window
period and a date which is twelve months after such date) and be equal to the
prime interest rate. Interest payments for employees will be handled as payroll
deductions. In order to be eligible for this loan program, an employee must have
worked for Vital Signs for a minimum of six months. If the employee's annual
base salary is between $30,000 and $49,999, the employee may borrow up to 25% of
annual base salary, if the employee's annual base salary is between $50,000 and
$74,999, the employee may borrow up to 33 1/3% of annual base salary, and if the
employee's annual base salary is $75,000 or more, the employee may borrow up to
50% of annual base salary. The Plan Administrator has the discretion to grant
loans in excess of these levels, on a case by case basis. If applicable law and
the Plan Administrator permit loans to be made to non-employee directors, the
Committee will determine the limitations on the amount such persons may borrow.
All loans will be secured by the shares of Common Stock purchased by the
participant and the options granted.
If an employee starts paying for shares through payroll deductions but then
directs the Plan Administrator to cease making deductions, the employee will
forfeit any shares which are not fully paid for and any options related to
shares which are not fully paid for. In addition, the employee will have to wait
five years from the date the options were granted and still be employed by the
Company before he or she can exercise any options relating to fully paid shares.
13
The Sarbanes-Oxley Act of 2002 prohibits the Company from extending credit,
in the form of a personal loan, to the Company's executive officers and
directors.
STOCK OPTIONS
The Match
Whether a participant receives one, two or three options per share of stock
purchased will be determined by the Committee in its discretion. The Committee
may or may not consider the performance of the Company in determining the
option-to-stock match. The match will apply to all shares purchased under the
2003 Investment Plan during a window period.
The 2003 Investment Plan provides that notwithstanding any other provision
of the 2003 Investment Plan, no eligible participant may be granted stock
options under any of the Company's benefit plans (including the 2003 Investment
Plan) in any one fiscal year covering more than an aggregate of 250,000 shares
of the Company's Common Stock (subject to adjustment in the event of a stock
dividend, stock split, recapitalization or similar adjustment in the Company's
capital structure).
Option Price
The option price will be the closing sale price of the Company's Common
Stock on Nasdaq on the last trading day of the window period. On August 21,
2003, the closing sale price of the Company's Common Stock on Nasdaq was $30.86
per share.
Exercise Period
Options must be exercised by the tenth anniversary of the date they were
granted, or they will lapse.
A participant must continue to be employed or serve as a director of the
Company for at least two years to exercise stock options granted under the 2003
Investment Plan. If the participant retains the shares purchased during the
window period, the options can be exercised at any time after the initial shares
have been held for two years.
If the participant sells any of the shares purchased under the 2003
Investment Plan before the end of the two-year holding period or if the
participant directs the Plan Administrator to stop making payroll deductions
before all shares which the employee indicated he or she wanted to purchase are
fully paid for, the participant will be required to wait five years from the
date the options related to fully paid shares were granted before the
participant can exercise them and he or she will still have to be employed by
the Company or serve as a director of the Company (subject to exceptions for
death and disability).
Non-Transferability
Options are not transferable other than by will or by the laws of descent
and distribution.
Payment
Full payment for the shares purchased upon exercise of options must be made
when options are exercised. Full payment can be made to the Company either in
cash or by turning over previously acquired shares of the Company's Common Stock
that have an aggregate fair market value at the time of the exercise equal to
the total cost of exercising the options, or by a combination of both
approaches.
LAPSED AWARDS
If any share purchase or option grant under the 2003 Investment Plan is
canceled, terminates, expires or lapses for any reason, the shares purchased
and/or any shares subject to such option shall again be available for purchase
and/or grant under the 2003 Investment Plan.
14
NO RIGHT OF EMPLOYMENT OR SERVICE AS A DIRECTOR
No provision in the 2003 Investment Plan confers upon any participant the
right to continue in the employment or as a director of the Company or any of
its subsidiaries or affects any right which the Company may have to terminate
the employment or service as a director of the participant.
CHANGE IN CONTROL
The 2003 Investment Plan provides that all outstanding stock options granted
under the 2003 Investment Plan which correspond to fully paid shares will become
immediately exercisable upon the occurrence of a 'change in control event' and
all other options granted under the 2003 Investment Plan will be forfeited. In
addition, the Company will deliver all fully paid shares and all remaining
shares under the 2003 Investment Plan will be forfeited. The 2003 Investment
Plan provides in general that a 'change in control event' shall be deemed to
have occurred if any of the following events occur: (a) the consummation of any
merger of the Company in which the Company is not the surviving corporation
(expressly excluding from the definition of a change in control a so-called
'merger of equals' in which the Board of Directors of the surviving corporation
consists of an equal number of former Vital Signs directors and former directors
of the other party to the transaction); (b) the consummation of any sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Company; (c) approval by the shareholders of the Company of a plan of
liquidation or dissolution of the Company and (d) any action pursuant to which
any person (as defined in Section 13(d) of the Securities Exchange Act of 1934)
shall become the beneficial owner of more than 50% of the Company's outstanding
voting securities.
TERMINATION
Regardless of the circumstances of a participant's termination of employment
or service as a director, any shares of the Company's Common Stock purchased
under the 2003 Investment Plan that are fully paid for are and remain the
participant's shares. Any shares which have not yet been paid for at the time of
termination of employment or service as a director will be forfeited. The
treatment of the related stock option depends on the circumstances of the
termination.
In the event of death, total and permanent disability (as determined by the
Committee) or retirement, all outstanding 2003 Investment Plan stock options
corresponding to the number of shares that were fully paid for prior to a
participant's death, disability or retirement, as the case may be, and which are
then exercisable, will remain exercisable. Options will not be exercisable
unless the participant has held them at least two years from the grant date. All
other options granted to the participant under the 2003 Investment Plan will be
forfeited.
In the event of death, with respect to any otherwise exercisable options,
the five-year holding period is waived, if applicable, and the then exercisable
options will be exercisable any time prior to the 10-year expiration date or one
year after the date of death, whichever is sooner. In the event of disability,
with respect to any otherwise exercisable options, the five-year holding period
is waived, if applicable, and the participant may exercise the then exercisable
options any time prior to the 10-year expiration date or one year after the date
of disability, whichever is sooner. In the event of retirement, the five-year
holding period is not waived, if applicable. The participant may exercise the
then exercisable options any time prior to the 10-year expiration date or one
year after the date of the participant's retirement, whichever is sooner.
If an employee's employment or service as a director is terminated for
cause, all options which have not been exercised before such termination will be
forfeited.
If employment or service as a director terminates for any other reason, the
participant will forfeit options that correspond to any forfeited shares.
Further, the participant will forfeit all other options if the two-year holding
period or five-year requirement has not been met. If the participant's
employment or service as a director terminates after satisfying either the two
or five year requirement, whichever is applicable, he or she will then have
three months from the effective termination date to exercise any of the then
exercisable 2003 Investment Plan options which correspond to 2003 Investment
Plan shares which have been fully paid for prior to termination (as determined
by the Plan Administrator).
15
The 2003 Investment Plan provides that notwithstanding any provision to the
contrary, in the event that an employee continues to serve as a director or
consultant to the Company or any of its subsidiaries after the employee ceases
to be employed by the Company or any of its subsidiaries, the Board shall have
the discretion to provide that the employee shall, for purposes of the 2003
Investment Plan, be deemed to continue in the employment of the Company until
such time as the person ceases to serve as a director of, consultant to or
employee of the Company or any of its subsidiaries.
ADJUSTMENTS
In the event of any reorganization, recapitalization, stock dividend, stock
split or similar change in the Company's capital stock, an equitable adjustment
will be made in the number and class of shares which may be purchased under the
2003 Investment Plan, the maximum number of options that may be granted to any
one person in any fiscal year and the number and class of and/or price of
outstanding shares under the 2003 Investment Plan and shares subject to
outstanding options granted under the 2003 Investment Plan.
TERMINATION, AMENDMENT AND MODIFICATION OF THE PLAN
The Committee (with any Board of Directors and shareholder approval required
by applicable law or regulation) may at any time terminate, amend or modify the
2003 Investment Plan except that no such termination, amendment or modification
will adversely affect in any material way any shares previously purchased under
the 2003 Investment Plan or any option previously granted under the 2003
Investment Plan.
FEDERAL INCOME TAX CONSEQUENCES
BECAUSE OF THE COMPLEXITY OF THE FEDERAL INCOME TAX LAWS AND THE APPLICATION
OF VARIOUS STATE INCOME TAX LAWS, THE FOLLOWING DISCUSSION OF TAX CONSEQUENCES
IS GENERAL IN NATURE AND PARTICIPANTS ARE ADVISED TO CONSULT THEIR PERSONAL TAX
ADVISORS.
A participant does not pay taxes on the stock initially purchased through
the 2003 Investment Plan nor on the stock options at the time that the
participant receives them, nor is the Company entitled to a tax deduction at
that time.
Once options are exercised, the participant is required to pay federal and
state taxes at the same rate as the participant's ordinary income, but only on
the increased value of the stock. The Company will be entitled to a tax
deduction equal to the amount of ordinary income recognized by the optionee.
For example, if a participant exercises an option to buy 100 shares at $20
and the fair market value of the stock on the day of purchase is $30, the
participant's taxable income is $1,000 ($3,000-$2,000). The participant's new
tax basis for future gains or losses is $30 rather than $20.
When the participant sells any shares of stock, he or she is subject to tax
on any previously untaxed gain at capital gains rates.
Continuing the above example, if the participant sells 100 shares of stock
at $45, the previously untaxed gain for calculating capital gains is $1,500
($4,500 [sales proceeds] -- $3,000 [the new tax basis as indicated above]).
The Company has the right to deduct or withhold, or require a participant to
remit to the Company an amount sufficient to satisfy federal, state and local
taxes required by law to be withheld with respect to any taxable event arising
as a result of the 2003 Investment Plan.
The 2003 Investment Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 ('ERISA'), and is not qualified
under Section 401 of the Internal Revenue Code of 1986, as amended.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' PROPOSAL TWO.
16
SHAREHOLDER RETURN COMPARISON
Set forth below is a line-graph presentation comparing the cumulative
shareholder return on the Company's Common Stock, on an indexed basis, against
the cumulative total returns of the NASDAQ Market Index and the Media General
Medical Instruments and Supplies Group Index (consisting of 136 publicly traded
medical instrument and device companies) ('MG Group Index') for the period from
October 1, 1997 (October 1, 1997 = 100) through September 30, 2002.
The following graph is not to be deemed 'soliciting material' or deemed to
be filed with the Securities and Exchange Commission or subject to
Regulation 14A of the Securities Exchange Act of 1934, except to the extent
specifically requested by the Company or incorporated by reference in documents
otherwise filed.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
SEPTEMBER 2002
[PERFORMANCE GRAPH]
VITAL NASDAQ MG GROUP
SIGNS, INC. MARKET INDEX INDEX
1997......................... 100 100 100
1998......................... 92.78 101.58 104.02
1999......................... 115.13 165.72 119.08
2000......................... 150.86 220.09 142.12
2001......................... 175.05 89.95 150.62
2002......................... 170.81 70.85 123
AUDIT FEES AND RELATED MATTERS
Goldstein Golub Kessler LLP ('GGK'), certified public accountants, has a
continuing relationship with American Express Tax and Business Services Inc.
('TBS') from which it leases auditing staff who are full time, permanent
employees of TBS and through which its partners provide non-audit services. As a
result of this arrangement, GGK has no full time employees and therefore, none
of the audit services performed were provided by permanent full-time employees
of GGK. GGK manages and supervises the audit and audit staff, and is exclusively
responsible for the opinion rendered in connection with its examination. Other
services, which consist principally of tax advice and which do not include
Financial Information System Design and Implementation Fees, have been provided
by TBS.
Audit Fees. The Company was billed $341,000 by GGK for the audit of the
Company's annual financial statements for the fiscal year ended September 30,
2002 and for the review of the financial statements included in the Company's
Quarterly Reports on Form 10-Q filed during fiscal 2002.
Financial Information Systems Design and Implementation Fees. The Company
was billed $0 for the professional services described in Paragraph (c)(4)(ii) of
Rule 2-01 of the SEC's Regulation S-X (in general, information technology
services) rendered by GGK, the Company's principal accountant, during the fiscal
year ended September 30, 2002.
All Other Fees. The Company was billed an aggregate of $189,000 by GGK for
non-audit services (other than services described above under 'Audit Fees'),
principally advice regarding various accounting topics rendered during the
fiscal year ended September 30, 2002.
17
Other Matters. The Audit Committee of the Board of Directors has considered
whether the provision of the non-audit services is compatible with maintaining
the independence of the Company's principal accountant.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
GGK has been selected by the Board of Directors to audit and report on the
Company's financial statements for the fiscal year ending September 30, 2003. A
representative of that firm is expected to be present at the Annual Meeting and
will have an opportunity to make a statement if he or she so desires. The
representative is expected to be available to respond to appropriate questions
from shareholders. GGK audited the Company's financial statements for more than
the past five years.
OTHER MATTERS
At the time that this proxy statement was mailed to shareholders, management
was not aware that any matter other than the election of directors and approval
of the 2003 Investment Plan would be presented for action at the Annual Meeting.
If other matters properly come before the Annual Meeting, it is intended that
shares represented by proxies will be voted with respect to those matters in
accordance with the best judgment of the persons voting them.
If a shareholder of the Company wishes to have a proposal included in the
Company's proxy statement for the 2004 Annual Meeting of Shareholders, the
proposal must be received at the Company's principal executive offices by
May 5, 2004 and must otherwise comply with rules promulgated by the Securities
and Exchange Commission in order to be eligible for inclusion in the proxy
material for the 2004 Annual Meeting.
If a shareholder desires to bring business before the 2004 Annual Meeting
which is not the subject of a proposal complying with the SEC proxy rule
requirements for inclusion in the proxy statement, the shareholder must follow
procedures outlined in the Company's by-laws in order to personally present the
proposal at the 2004 Annual Meeting. A copy of these procedures is available
upon request from the Secretary of the Company.
One of the procedural requirements in the Company's by-laws is timely notice
in writing of the business that the shareholder proposes to bring before the
2004 Annual Meeting. Notice of business proposed to be brought before the 2004
Annual Meeting or notice of a proposed nomination to the Board of Directors must
be received by the Secretary of the Company no earlier than 120 days prior to
the date of the 2004 Annual Meeting and no later than the later of the 90th day
before the date of the 2004 Annual Meeting or the tenth day after the Company
publicly announces the date of the 2004 Annual Meeting.
By Order of the Board of Directors
/s/ Jay Sturm
----------------------------------
Jay Sturm, Secretary
Dated: September 2, 2003
A COPY OF AN ANNUAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2002, INCLUDING
FINANCIAL STATEMENTS, ACCOMPANIES THIS PROXY STATEMENT. THE ANNUAL REPORT IS NOT
TO BE REGARDED AS PROXY SOLICITING MATERIAL OR AS A COMMUNICATION BY MEANS OF
WHICH ANY SOLICITATION IS TO BE MADE. COPIES OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-K ARE AVAILABLE WITHOUT CHARGE BY CONTACTING THE COMPANY BY TELEPHONE AT
973-790-1330 OR BY WRITING TO: INVESTOR RELATIONS, VITAL SIGNS, INC., 20 CAMPUS
ROAD, TOTOWA, NEW JERSEY 07512.
18
VITAL SIGNS 2003 INVESTMENT PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
1.1 Establishment of the Plan. Vital Signs, Inc., a New Jersey
corporation (hereinafter referred to as the "Company"), pursuant to
authorization by its Board of Directors, hereby establishes a stock purchase and
stock option plan to be known as the "Vital Signs 2003 Investment Plan"
(hereinafter referred to as the "Plan"), as set forth in this document. The Plan
permits the grant of options to eligible Employees and Directors upon the
purchase of Plan Shares.
Subject to approval by the Company's shareholders (and by appropriate
regulatory authorities, if required), the Plan shall become effective as of
January 22, 2004 (the "Effective Date"), and shall remain in effect as provided
in Section 1.3 hereof.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the
success, and enhance the value, of the Company by linking the personal interests
of Participants to those of Company shareholders, and by providing Participants
with an incentive for outstanding performance.
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract, and retain the services of Participants upon
whose judgment, interest, and special effort the successful conduct of its
business largely is dependent.
1.3 Duration of the Plan. The Plan shall commence on the Effective
Date, as described in Section 1.1 hereof, and shall remain in effect, subject to
the right of the Board of Directors to terminate the Plan at any time pursuant
to Article 12 hereof, until all Shares subject to it shall have been purchased
or acquired according to the Plan's provisions. In the absence of an amendment
adopted by the Board to extend the Plan, the Plan shall end ten years and one
day after the Effective Date.
ARTICLE 2. DEFINITIONS
Wherever used in the Plan, the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter of the
word is capitalized:
(a) "Award Agreement" means an agreement to be entered into by and
between the Company and each Participant, setting forth the terms and
conditions applicable to each purchase of Plan Shares under the Plan,
and of the corresponding grant of Options.
(b) "Board" or "Board of Directors" means the Board of Directors of
the Company.
(c) "Base Salary" with respect to a particular Window Period means (i)
in the case of an Employee who has been employed by the Company or its
subsidiaries for at least one year prior to the first day of such
Window Period, the aggregate amount of income set forth on the Form
W-2 provided to a Participant by the Company or its subsidiaries for
the calendar year prior to the calendar year in which the Window
Period occurs, and (ii) in the case of an Employee who has not been
employed by the Company or its subsidiaries for at least one year
prior to the first day of such Window Period, the annual salary of
such Employee at the commencement of such Window Period.
Determinations of Base Salary shall be made by the Committee in its
sole discretion or, upon delegation by the Committee, by the Plan
Administrator.
(d) "Change in Control Event" shall be deemed to have occurred if any
of the following events occur:
(i) the consummation of any consolidation or merger of the
Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the
Common Stock would be converted into cash, securities or
other property, other than (i) a merger of the Company in
which the holders of the shares of Common Stock immediately
prior to the merger have the same proportionate ownership of
common stock of the surviving corporation immediately after
the merger or (ii) a merger in which the board of directors
of the surviving corporation immediately after the effective
date of such merger consists of an equal number of former
directors of the Company and former directors of the other
party to such merger; or
(ii) the consummation of any sale, lease, exchange or other
transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of
the Company, other than to a subsidiary or affiliate; or
(iii) an approval by the shareholders of the Company of any plan
or proposal for the liquidation or dissolution of the
Company; or
(iv) any action pursuant to which any person (as such term is
defined in Section 13(d) of the Exchange Act), corporation
or other entity (other than any person who owns more than
ten percent (10%) of the outstanding Common Stock on the
date of adoption of this Plan by the Board of Directors, the
Company or any benefit plan sponsored by the Company or any
of its subsidiaries) shall become the "beneficial owner" (as
such term is defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of shares of capital stock entitled
to vote generally for the election of directors of the
Company ("Voting Securities") representing more than fifty
(50%) percent of the combined voting power of the Company's
then
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outstanding Voting Securities (calculated as provided in
Rule 13d-3(d) in the case of rights to acquire any such
securities), unless, prior to such person so becoming such
beneficial owner, the Board shall determine that such person
so becoming such beneficial owner shall not constitute a
Change in Control Event.
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(f) "Committee" means the Compensation Committee of the Board of
Directors, or such other committee as the Board shall designate from
time to time, provided that to the extent required in order to satisfy
the requirements of Section 162(m) of the Code, such committee shall
consist solely of "outside directors" (as defined in Section 162(m) of
the Code and the regulations promulgated thereunder).
(g) "Common Stock" means the Common Stock of the Company.
(h) "Company" means Vital Signs, Inc., a New Jersey corporation, or
any successor thereto as provided in Article 15 hereof.
(i) "Director" means any individual who is a member of the Board of
Directors of the Company.
(j) "Disability" shall mean total and permanent disability as
determined by the Committee.
(k) "Disqualifying Termination" for the purposes of this Plan shall be
determined by the Committee, and shall mean a termination of
employment of an Employee or termination of service as a Director for:
(i) an act or acts of dishonesty committed by a Participant; or (ii)
violations by a Participant of the policies and procedures of the
Company applicable to the Participant's employment or job category or
status as a Director which are: (A) grossly negligent or (B) willful
and deliberate.
(l) "Employee" means any employee of the Company or any of its
subsidiaries. The term "Employee" shall include any employee who is
also a Director.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
(n) "Fair Market Value" means the closing sales price for Shares as
quoted on the National Market System of the National Association of
Securities Dealers Automated Quotation System on the relevant date, or
if there were no sales on such date, the closing sales price for
Shares as quoted on the National Market System of the National
Association of Securities Dealers Automated Quotation System on the
first immediately preceding date on which such price is quoted.
-3-
(o) "Fully Paid" means that a Participant has satisfied the full
purchase price for Plan Shares by either (i) paying cash in one lump
sum to the Plan Administrator or (ii) paying in full, as determined by
the Plan Administrator, in accordance with any payroll deduction or
other loan program as shall be implemented by the Plan Administrator
with the approval of the Committee. All such determinations shall be
subject to the provisions of Section 6.4 hereof.
(p) "Option" means an option to purchase Shares granted under Article
7 hereof. It is intended that Options under this Plan shall not be
incentive stock options for federal income tax purposes.
(q) "Option Price" means the price at which a Share may be purchased
by a Participant pursuant to an Option, as determined by the
Committee.
(r) "Participant" means an Employee or Director of the Company who has
purchased Plan Shares and who has outstanding an Option granted under
the Plan.
(s) "Plan Administrator" means the individual or committee designated
by the Committee to administer this Plan; or the Committee if no such
designation has been made.
(t) "Plan Shares" means Shares purchased by Participants pursuant to
the terms of Article 6 hereof.
(u) "Retirement" shall have the same meaning herein as under the
Company's 401(k) plan.
(v) "Shares" means the shares of Common Stock of the Company.
(w) "Window Period" means the time period designated by the Board
during which eligible Employees and Directors may purchase Plan
Shares, pursuant to the terms of Article 6 hereof. Window Periods
shall last approximately fifteen days each, and shall occur at times
designated by the Board; it is currently intended that Window Periods
will occur at six month intervals.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Committee, or
by a Plan Administrator appointed by the Committee. The Plan Administrator shall
be appointed from time to time by, and shall serve at the discretion of, the
Committee. The Committee and the Plan Administrator shall, in turn, retain
independent agents to purchase Shares in the market for purposes of the Plan
unless the Committee determines from time to time that such Shares shall be
issued directly by the Company.
3.2 Authority of the Committee. The Committee shall have the power to
determine the number of Options (from a minimum of one (1) to a maximum of three
(3)) that will be granted in connection with purchases of Plan Shares, determine
the terms and conditions applicable to purchases of Plan Shares and grants of
Options in a manner consistent with the
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Plan, construe and interpret the Plan and any agreement or instrument entered
into under the Plan, establish, amend, or waive rules and regulations for the
Plan's administration, and (subject to the provisions of Article 12 hereof)
amend the terms and conditions of any outstanding Plan Share or Option to the
extent such terms and conditions are within the discretion of the Committee as
provided in the Plan. Further, the Committee shall make all other determinations
which may be necessary or advisable for the administration of the Plan. The
Committee may delegate its authority as identified hereunder to a Plan
Administrator or such other persons as it may deem appropriate.
3.3 Decisions Binding. All interpretations of the Plan, determinations
and decisions made by the Committee pursuant to the provisions of the Plan and
all related orders or resolutions of the Board of Directors shall be final,
conclusive, and binding on all Participants.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3
hereof, the total number of Shares available for purchase as Plan Shares and for
grant under Options pursuant to the Plan may not exceed 1,000,000. These
1,000,000 Shares may be either authorized but unissued, or reacquired Shares
(including treasury shares). The following rules will apply for purposes of the
determination of the number of Shares available for grant under the Plan:
(a) the sale of Plan Shares shall reduce the Shares available for
purchase and/or grant under the Plan by the number of Shares sold; and
(b) unless and until an Option is canceled, lapses, expires, or
terminates, it shall be counted against the authorized pool of Shares.
No one person participating in the Plan may receive options under the
Plan or under any other benefit plan of the Company for more than an aggregate
of 250,000 shares of Common Stock in any fiscal year, subject to adjustment as
provided in Section 4.3 hereof.
4.2 Lapsed Awards. If any Plan Share purchase or Option grant under
this Plan is canceled, terminates, expires, or lapses for any reason, any Plan
Shares and/or any Shares subject to such Option shall again be available for
purchase and/or grant under the Plan.
4.3 Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, re-capitalization, separation, liquidation, stock
dividend, split-up, share combination, or other change in the corporate
structure of the Company affecting the Shares, such adjustment shall be made in
the number and class of Shares which may be purchased or delivered under the
Plan and in the number and class of and/or price of outstanding Plan Shares and
Shares subject to outstanding Options granted under the Plan, as may be
determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights; and provided that the
number of Plan Shares and the Shares subject to any Option shall always be a
whole number. In such event, an appropriate adjustment shall also be made in the
maximum number of Shares subject to Options which may be granted
-5-
under the Plan and under any other benefit plan of the Company to any one person
in any fiscal year.
ARTICLE 5. PARTICIPATION
All persons who are, during a Window Period, Employees residing in the
United States or Directors shall be given the opportunity to purchase Plan
Shares during such Window Period. In addition, if and to the extent permitted by
the Plan Administrator, all persons who are, during a Window Period, Employees
residing outside the United States shall be given the opportunity to purchase
Plan Shares during such Window Period. All purchases shall be within the limits
set forth in Section 6.2 hereof. In the event that the Board terminates the
Plan, no Employee or Director shall have the right to purchase Plan Shares
pursuant to Article 6 hereof in any Window Period commencing subsequent to such
termination. Each Participant's eligibility for grants of Options pursuant to
Article 7 hereof shall be contingent upon the Participant's purchasing Plan
Shares, as set forth in Article 6 hereof.
ARTICLE 6. PURCHASES OF PLAN SHARES
6.1 Plan Share Purchases. An Employee or Director shall only be
entitled to purchase Plan Shares during a Window Period if such Employee or
Director is an Employee or Director, as the case may be, during such Window
Period. Each Plan Share purchased by a Participant under this Plan shall entitle
the Participant to be granted an Option to purchase a specified number of
Shares, as set forth in Article 7 herein. Purchases of Shares by Participants
other than pursuant to this Plan shall not entitle Participants to receive
Option grants under Article 7 herein.
6.2 Maximum and Minimum Plan Share Purchases. All Plan Share purchases
shall occur during a Window Period. The purchase price of the Plan Shares
purchased shall be determined pursuant to the provisions of Section 6.3 hereof.
For each Window Period, the maximum aggregate Fair Market Value of Plan Shares
which may be purchased by an Employee or Director is the greater of $50,000 or
twice an Employee's annual salary in effect on the first day of the applicable
Window Period, and, in addition, for each two year period, the Maximum Aggregate
Fair Market Value of Plan Shares which may be purchased by an Employee is twice
an Employee's annual salary in effect at any time during such two year period,
unless the Committee approves a higher limit on a case-by case basis with
respect to specific Employees or Directors. For any Window Period, no Employee
shall be permitted to purchase Plan Shares having an aggregate Fair Market Value
equal to less than one half of one percent of Base Salary for that Window
Period. For any Window Period, there shall be no minimum number of Plan Shares
which must be purchased by Directors, provided that the number of Shares
purchased by any Director must be a whole number.
6.3 Purchase Price. The price of each Plan Share purchased under this
Plan shall equal the Fair Market Value of a Share on the last trading day of the
applicable Window Period.
-6-
6.4 Procedure for Purchasing Plan Shares. A Participant who desires to
purchase Plan Shares shall notify the Plan Administrator, in writing, of the
number of Plan Shares to be purchased, and of the desired manner of paying for
the Plan Shares. Subject to Section 6.2 hereof, all applicable rules and
regulations of the United States Securities and Exchange Commission, and the
Plan Administrator's ability to reduce the number of Plan Shares to be purchased
to a whole number, the Plan Administrator shall cause to be issued from the
Company or shall purchase, on behalf of the Participant, the number of Plan
Shares indicated by the Participant, within thirty (30) days after the end of
the applicable Window Period. The Plan Administrator shall establish an account
in the name of each Participant, for the purpose of administering the Plan
Shares purchased by each Participant. The Plan Administrator shall have the
discretion to establish rules and procedures for purchasing Plan Shares on
behalf of Participants, and for administering the Plan Share accounts of
Participants.
In addition, the Plan Administrator shall provide each Participant who
purchases Plan Shares with an Award Agreement, setting forth the terms and
provisions applicable to the Plan Shares purchased, and the Options granted to
the Participant in connection with the purchase of Plan Shares. Purchases
requested by Employees or Directors who fail to execute the Award Agreement
tendered by the Plan Administrator may be voided by the Plan Administrator.
Subject to the terms of the Plan and any terms approved by the Committee, and to
the conditions placed on each Plan Share purchase opportunity, each Participant
shall satisfy the purchase price for Plan Shares by paying cash in one lump sum
to the Plan Administrator. If permitted by the Plan Administrator, an Employee
may satisfy the purchase price for Plan Shares by payroll deductions or a
combination of cash and payroll deductions. In addition, if permitted by
applicable law and the Plan Administrator, the Company may loan an Employee or
Director sufficient funds to satisfy all or a portion of the purchase price for
Plan Shares. The terms of any such loan shall be determined by the Committee.
In the event that any Participant whom the Plan Administrator permits
to pay for Plan Shares through payroll deductions subsequently directs the Plan
Administrator to cease making payroll deductions before all Plan Shares which
the Participant previously indicated he desired to purchase are Fully Paid, then
(i) the Participant will forfeit all Plan Shares which are not then Fully Paid,
(ii) the Participant will forfeit all Options related to any Plan Shares which
are not then Fully Paid and (iii) all Options related to any Fully Paid Plan
Shares will be subject to the Option forfeiture provisions contained in Article
8 hereof. The Participant's Award Agreement will be revised to indicate the
forfeited Plan Shares and Options and the Option forfeiture requirements
described in Article 8 applicable to any other Options.
6.5 Holding Period for Plan Shares. Subject to the terms of this Plan,
all Plan Shares which have been purchased shall be delivered (a) two (2) years
from the date of purchase, if the Participant received one or two Options for
each Plan Share purchased (which Options vest in full two years after the grant
date) or (b) three (3) years from the date of purchase if the Participant
received three Options for each Plan Share purchased (which Options vest in full
three years after the grant date), provided that such Shares are Fully Paid. To
the extent that a Plan Share is Fully Paid prior to the end of the two (2) or
three (3) year holding period, whichever is applicable (the "Holding Period"),
and subject to the option forfeiture provisions set forth in Article 8 hereof, a
Participant who is an Employee or Director at the time of the requested
transfer, shall be entitled to sell or otherwise transfer or convey the Plan
Shares (it
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being understood that the Plan Administrator shall have sole discretion to
determine the extent to which a Plan Share is Fully Paid during the Holding
Period, subject to Section 6.4 hereof).
Participants desiring to sell, transfer, or otherwise convey a Fully
Paid Plan Share prior to the end of the appropriate Holding Period shall submit
a request in writing to the Plan Administrator for delivery of a Share
certificate representing such Plan Share. Such request shall be accompanied by
the Participant's Award Agreement, representing the grant of Options in
connection with the purchase of the Plan Share. If the Plan Administrator
determines that the Plan Share is Fully Paid, then the Plan Administrator shall
deliver to the Participant a fully executed Share certificate, representing such
Plan Share, and shall document in the Award Agreement of the Participant the
corresponding change in Option forfeiture requirements of the Plan (as set forth
in Article 8 hereof).
In the event that prior to the end of the applicable Holding Period, a
Participant's employment with the Company or service as a Director of the
Company terminates, as the case may be, the terms of Article 9 hereof shall
govern the treatment of outstanding Plan Shares.
6.6 Voting Rights. During the applicable Holding Period described in
Section 6.5 hereof and until such Shares are transferred and/or sold,
Participants who have purchased Plan Shares shall be entitled to exercise full
voting rights with respect to such Plan Shares.
6.7 Dividends and Other Distributions. During the applicable Holding
Period described in Section 6.5 hereof, Participants who have purchased Plan
Shares shall be entitled to receive all dividends and other distributions (if
any) paid with respect to such Plan Shares while they are so held, provided that
any such distributions or dividends may be subject to the terms of any
outstanding purchase loan programs. If any such dividends or distributions are
paid in Shares, the Shares shall be converted into additional Plan Shares, and
shall be subject to the same restrictions on transferability and forfeitability
as the Plan Shares with respect to which they were paid.
6.8 Award Agreement. Each purchase of Plan Shares shall be evidenced
by an Award Agreement, setting forth relevant terms and provisions applicable to
the Plan Shares and to the corresponding grant of Options.
ARTICLE 7. STOCK OPTIONS
7.1 Option Grants. Subject to the terms and provisions of the Plan,
Options shall be granted to Participants upon the purchase of Plan Shares as of
the last day of the Window Period during which such Plan Shares have been
purchased. The number of Options to be granted in connection with each purchase
of Plan Shares shall be determined by the Committee in its sole and absolute
discretion, provided that the minimum number of Shares subject to an Option
granted in connection with the purchase of each Plan Share shall be one (1) and
the maximum number shall be three (3). The Committee may or may not consider the
performance of the Company in determining the number of Options to be granted in
connection with each purchase of Plan Shares.
-8-
The Committee may determine to permit a Participant to select to
receive either (a) two Options for each Plan Share purchased, which Options will
vest in full two years after the date of grant or (b) three Options for each
Plan Share purchased, which Options will vest in full three years after the
grant date.
The multiple or choice of multiples selected by the Committee shall
apply to all Plan Share purchases during the applicable Window Period. Prior to
or at the beginning of the relevant Window Period, the multiple or choice of
multiples shall be communicated to all eligible Employees and Directors.
Upon the termination of the applicable Holding Period for Plan Shares
set forth in Section 6.5, and providing such Plan Shares are Fully Paid, the
Committee may, in its discretion, offer a Participant an opportunity to receive
additional Options ("Additional Options") if the Participant agrees to continue
to hold such Plan Shares for a specified period of time. The number of
Additional Options to be granted, the period of time during which the
Participant will be required to continue to hold such Plan Shares and the
Participants, if any, who will be given the opportunity to receive Additional
Options, shall be determined by the Committee in its discretion. The Committee
shall determine the terms of any such Additional Options, consistent with the
provisions of this Plan, provided that the Option Price for each such Additional
Option shall equal the Fair Market Value of a Share on the date the Additional
Option is granted. Each agreement to continue to hold Plan Shares shall be
evidenced by an agreement (a "Rollover Agreement"), setting forth relevant terms
and provisions applicable to the agreement to continue to hold such Plan Shares
and to the corresponding grant of Additional Options.
7.2 Option Price. The Option Price for each Option granted under this
Plan in connection with the purchase of Plan Shares shall equal the Fair Market
Value of a Share on the last trading day of the Window Period during which the
Option shall have been granted.
7.3 Duration of Options. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
option shall be exercisable later than ten years and one day from the date on
which the Option was granted.
7.4 Exercise of Options. Options granted under the Plan shall be
exercisable at such times and shall be subject to such restrictions and
conditions as the Committee shall in each instance approve, which need not be
the same for each grant or for each Participant; provided, however, that no
Option shall be exercisable within two years after the date of its grant other
than in connection with a Change in Control; and provided further that the
exercise provisions of each Option shall be consistent with Article 8 hereof.
7.5 Payment. Options shall be exercised by the delivery of a written
notice of exercise to the Plan Administrator, setting forth the number of Shares
with respect to which the Option is to be exercised, accompanied by full payment
for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price, or (c) by a combination of both such
approaches.
-9-
The Committee also may allow cashless exercises as permitted under the
Federal Reserve Board's Regulation T or by any other means which the Committee
determines to be consistent with the Plan's purposes, subject to compliance with
all applicable laws, rules and regulations and the receipt of all applicable
approvals,.
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount, based upon the
number of Shares purchased under the Option(s).
7.6 Restrictions on Share Transferability. The Committee shall impose
such restrictions on any Shares acquired pursuant to the exercise of an Option
under the Plan as it may deem advisable, including, without limitation,
restrictions under applicable Federal securities laws, under the requirements of
Nasdaq or any stock exchange or market upon which such Shares are then listed
and/or traded, and under any blue sky or state securities laws applicable to
such Shares.
7.7 Nontransferability of Options. No Option granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
During a Participant's lifetime, all Options granted to a Participant under the
Plan shall be exercisable only by such Participant, except as set forth in
Section 7.9 hereof.
7.8 No Rights as a Shareholder. Prior to the purchase of Shares
pursuant to an Option, a Participant shall not have the rights of a shareholder
with respect to such Shares.
7.9 Exercise of Options With Respect to Incapacitated Participants. If
a Participant, who has met the applicable Holding Period described in Section
6.5 hereof or has completed five (5) years of continuous employment or service
as a Director subsequent to the purchase of Plan Shares, is under a legal
disability or in the Committee's opinion incapacitated in any way so as to be
unable to manage his or her financial affairs, the Committee may allow such
Participant's legal representative to exercise the Participant's Options on
behalf of the Participant. Actions taken pursuant to this Section by the
Committee shall discharge all liabilities under the Plan.
ARTICLE 8. PREMATURE DISPOSITION OF PLAN SHARES
Except as otherwise provided in Section 6.2 and Section 9.1, in the
event a Plan Participant (i) sells, transfers or otherwise conveys a Fully Paid
Plan Share prior to the end of the applicable Holding Period described in
Section 6.5 hereof or prior to the end of any Holding Period specified by the
Committee in connection with the grant of Additional Options, or (ii) directs
the Plan Administrator to cease making payroll deductions before all Plan Shares
which the Participant previously indicated he desired to purchase are Fully
Paid, then in each such case, the Options (or Additional Options, as applicable)
shall automatically be forfeited, unless the Committee shall determine, in its
sole and absolute discretion, that the Participant has suffered hardship and
such hardship has caused such Participant to effect any of the actions discussed
in (i) or (ii) of the first sentence of this Article 8. In the event of such
determination by the
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Committee, and if no loan from the Company was used to purchase such Plan
Shares, such Plan Options (or Additional Options) shall not be forfeited,
provided, however, that the right to exercise such Options granted in connection
with the purchase of a Fully Paid Plan Share (or Additional Options, as
applicable) shall be contingent upon the Participant's completion of five (5)
years continuous employment with the Company or any of its subsidiaries or
service as a Director of the Company, subsequent to (a) the last day of the
Window Period in which the Participant agreed to purchase such Plan Share or (b)
with respect to Additional Options, the date of the Rollover Agreement.
ARTICLE 9. TERMINATION OF EMPLOYMENT
OR SERVICE AS A DIRECTOR
9.1 Termination by Reason of Death, Disability or Retirement. In the
event the employment or service as a Director of a Participant is terminated by
reason of death, Disability, or Retirement, the following provisions shall
apply:
(a) Treatment of Plan Shares. The Participant will be credited with
all Plan Shares which are Fully Paid as of the date of employment
termination or termination of service as a Director (in the case of
Disability, the Plan Administrator shall determine the date that
employment or service as a Director is deemed to have terminated). If,
at the time of employment termination or termination of service as a
Director, the Participant has not Fully Paid all outstanding Plan
Shares purchased, the number of Plan Shares which shall be deemed
Fully Paid shall be determined at the sole discretion of the Plan
Administrator, subject to Section 6.4 hereof.
All outstanding Plan Shares which are not Fully Paid as of the
date of employment termination or termination of service as a Director
(as determined by the Plan Administrator, subject to Section 6.4)
shall be forfeited to the Company, and shall once again become
available for purchase under the Plan.
If a Participant's death, Disability, or Retirement occurs after
the delivery of Plan Shares to him or her, such Plan Shares shall not
be affected by the employment termination or termination of service as
a Director.
(b) Treatment of Stock Options. All outstanding Options granted to the
Participant corresponding to Plan Shares Fully Paid for prior to the
Participant's termination of employment or termination of service as a
Director which are then exercisable (and, accordingly, which have been
held at least two years from the grant date) (collectively, the
"Covered Options"), shall not be forfeitable pursuant to Article 8 (if
applicable) in the event of death or Disability, but shall be
forfeitable pursuant to Article 8 (if applicable) in the event of
Retirement and, if not so forfeitable, shall remain exercisable at any
time prior to their expiration date, or for one (1) year after the
date of death, Disability, or Retirement, whichever period is shorter,
by the Participant or by such person or persons that have acquired the
Participant's rights under the Option by will or by the laws of
descent and distribution. The Plan Administrator shall, in all cases,
determine the
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date of employment termination or termination of service as a
Director. All Options granted to the Participant pursuant to the Plan
other than the Covered Options shall be forfeited and shall once again
be available for grant under the Plan.
(c) Amounts Subject to Dispute. If at the time of a Participant's
death, the Plan Administrator is unable to determine what person,
persons or entity is entitled to exercise Options on behalf of the
Participant, the Plan Administrator shall not be required to implement
any directions to exercise such Options or deliver Plan Shares to any
such person, persons or entity during the pendency of such dispute.
Neither the Plan Administrator, the Committee or the Company shall be
responsible for a failure to implement such exercise instructions or
to deliver such Plan Shares during the pendency of such dispute,
notwithstanding the fact that such Plan Shares or Options may diminish
in value or expire during the pendency of such dispute.
9.2 Disqualifying Termination. In the event that the Company or its
subsidiaries terminates the employment or service as a Director of a Participant
as a result of a Disqualifying Termination, the following provisions shall
apply:
(a) Treatment of Plan Shares. The Participant will be credited with
all Plan Shares which are Fully Paid as of the date of termination.
The number of Plan Shares which are Fully Paid as of such date shall
be determined according to the guidelines set forth in Section 9.1 (a)
hereof. All outstanding Plan Shares which are not Fully Paid as of the
date of termination shall be forfeited to the Company and shall once
again become available for purchase under the Plan.
Plan Shares which have been delivered to a Participant prior to
termination shall not be affected by this provision.
(b) Treatment of Stock Options. Upon such a termination, a Participant
shall forfeit all Options, which Options shall thereafter once again
become available for grant under the Plan.
9.3 Other Termination. In the event a Participant's employment or
service as a Director is terminated for reasons other than death, Disability,
Retirement or a Disqualifying Termination, the following provisions shall apply:
(a) Treatment of Plan Shares. The Participant will be credited with
all Plan Shares which are Fully Paid as of the date of employment
termination or termination of service as a Director. The number of
Plan Shares which are Fully Paid as of such date shall be determined
according to the guidelines set forth in Section 9.1 (a) hereof. All
outstanding Plan Shares which are not Fully Paid as of the date of
employment termination or termination of service as a Director shall
be forfeited to the Company and shall once again become available for
purchase under the Plan.
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Plan Shares which have been delivered to a Participant prior to
employment termination or termination of service as a Director shall
not be affected by this provision.
(b) Treatment of Stock Options. Upon such a termination, a Participant
shall forfeit (i) all Options for which the requirements of Article 8
(if applicable) have not been met, and (ii) all other Options granted
to the Participant under the Plan which do not constitute Covered
Options.
Covered Options for which the requirements of Article 8 (if
applicable) have been met may be exercised by the Participant within
the period beginning on the effective date of employment termination
or termination of service as a Director, and ending three (3) months
after such date.
Notwithstanding any provision in this Plan to the contrary, in the event
that an Employee continues to serve as a Director or consultant to the Company
or any of its subsidiaries after such Employee ceases to be employed by the
Company or any of its subsidiaries, the Board shall have the discretion to
provide that the Employee shall, for purposes of this Plan, be deemed to
continue in the employment of the Company until such time that such person
ceases to serve as a Director of, consultant to or Employee of the Company or
any of its subsidiaries.
ARTICLE 10. RIGHTS OF PARTICIPANTS
Nothing in the Plan shall interfere with or limit in any way the right
of the Company to terminate any participating Employee's employment at any time
or to dismiss any participating Director at any time, nor confer upon any
Participant any right to continue in the employ of the Company or as a Director
of the Company.
ARTICLE 11. CHANGE IN CONTROL
11.1 Options. All Options granted hereunder corresponding to Fully
Paid Shares (as determined by the Plan Administrator) shall become fully
exercisable upon the occurrence of a Change in Control Event, and all other
Options granted hereunder shall be forfeited upon the occurrence of a Change in
Control Event. For purposes of this Plan, a merger or consolidation which would
constitute a Change in Control Event and a sale of assets which would constitute
a Change in Control Event are hereinafter referred to as "Article 11 Events". In
the event of an Article 11 Event, each outstanding Option shall be assumed or an
equivalent benefit shall be substituted by the entity determined by the Board of
Directors of the Company to be the successor corporation. However, in the event
that any such successor corporation does not agree in writing, at least 15 days
prior to the anticipated date of consummation of such Article 11 Event, to so
assume or substitute each such Option, then each Option not so assumed or
substituted shall be deemed to be fully vested and exercisable 15 days prior to
the anticipated date of consummation of such Article 11 Event. If an Option is
not so assumed or subject to such substitution, the Plan Administrator shall
notify the holder thereof in writing or electronically that (a) such holder's
Option shall be fully exercisable until immediately prior to
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the consummation of such Article 11 Event and (b) such holder's Option shall
terminate upon the consummation of such Article 11 Event. For purposes of this
Article 11, an Option shall be considered assumed if, following consummation of
the applicable Article 11 Event, the Option confers the right to purchase or
receive, for each share of Common Stock subject to the Option immediately prior
to the consummation of such Article 11 Event, the consideration (whether stock,
cash or other securities or property) received in such Article 11 Event by
holders of Common Stock for each share of Common Stock held on the effective
date of such Article 11 Event (and, if holders of Common Stock are offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares of Common Stock); provided, however, that if
such consideration received in such Article 11 Event is not solely common stock
of such successor, the Plan Administrator may, with the consent of such
successor corporation, provide for the consideration to be received in
connection with such Option to be solely common stock of such successor equal in
fair market value to the per share consideration received by holders of Common
Stock in the Article 11 Event.
11.2 Shares. The Company shall deliver all Plan Shares which are Fully
Paid (as determined by the Plan Administrator) as of the effective date of a
Change in Control Event and all remaining Plan Shares shall be forfeited to the
Company.
ARTICLE 12. AMENDMENT, MODIFICATION AND TERMINATION
12.1 Amendment, Modification and Termination. With the approval of the
Board, and any shareholder approval required by applicable law or regulation, at
any time and from time to time, the Committee may terminate, amend or modify the
Plan. Any such termination shall be effective with respect to all subsequent
Window Periods.
12.2 Awards Previously Granted. No termination, amendment or
modification of the Plan shall adversely affect in any material way any Plan
Share previously purchased or Option previously granted under the Plan, without
the written consent of the Participant holding such Plan Share or Option.
ARTICLE 13. WITHHOLDING
13.1 Tax Withholding. The Company shall have the power and the right
to deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy Federal, state, and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any taxable event arising as a result of this Plan.
13.2 Share Withholding. With respect to withholding required upon the
exercise of Options, upon the purchase of Plan Shares, or upon any other taxable
event hereunder, Participants may elect, subject to the approval of the
Committee, to satisfy the withholding requirement, in whole or in part, by
having the Company withhold Shares having a Fair Market Value on the date the
tax is to be determined equal to the minimum statutory total tax which could be
imposed on the transaction. All elections shall be irrevocable, made in writing,
signed by the Participant, and comply with all procedures established by the
Committee for Share withholding.
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In addition, subject to the approval of the Committee, Participants
may satisfy the tax withholding obligation arising as a result of any taxable
event occurring hereunder, by remitting to the Plan Administrator previously
held Shares having an aggregate Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax which could be imposed on
the transaction; provided, however, that any Shares which are so tendered must
have been beneficially owned by the Participant for at least six (6) months
prior to the date of their tender.
ARTICLE 14. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, the
Board, or the Plan Administrator, and each agent retained by the Plan
Administrator, shall be indemnified and held harmless by the Company against and
from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken in good faith or any
good faith failure to act under the Plan and against and from any and all
amounts paid by him or her in settlement thereof, with the Company's approval,
or paid by him or her in satisfaction of any judgment in any such action, suit,
or proceeding against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf. The foregoing right
of indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company's Certificate of
Incorporation or By-Laws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.
ARTICLE 15. SUCCESSORS
All obligations of the Company under the Plan, with respect to Plan
Shares purchased and Options granted hereunder, shall be binding on any
successor to the Company, whether the existence of such successor is the result
of a direct or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company.
ARTICLE 16. LEGAL CONSTRUCTION
16.1 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine, the
plural shall include the singular and the singular shall include the plural.
16.2 Severability. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
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16.3 Requirements of Law. The purchase of Plan Shares, the granting of
Options, and the issuance of Shares under the Plan, shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
16.4 Governing Law. To the extent not pre-empted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of New Jersey.
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Appendix 1
PROXY
VITAL SIGNS, INC.
THIS PROXY FOR HOLDERS OF COMMON STOCK IS SOLICITED BY
THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON SEPTEMBER 29, 2003
The shareholder of Vital Signs, Inc. (the "Company") whose signature appears on
the reverse side hereof hereby appoints Fred Schiff, Jay Sturm and Richard
Feigel, and each of them, attorneys and proxies of the undersigned, with full
power of substitution, to vote, as designated below, the number of votes which
the undersigned would be entitled to cast if personally present at the Annual
Meeting of Shareholders of the Company to be held at the Company's headquarters,
20 Campus Road, Totowa, New Jersey, on Monday, September 29, 2003, at 10:00 a.m.
local time, or any adjournment thereof.
The proposals set forth below are more fully described in the Vital Signs, Inc.
Proxy Statement dated September 2, 2003 (the Proxy Statement).
1. ELECTION OF DIRECTORS (for the terms described in the Proxy Statement):
[ ] FOR all of the nominees listed below [ ] WITHHOLD AUTHORITY
(except as indicated to the contrary below) to vote for election of directors
NOMINEES (to be elected by the holders of Common Stock): David J. Bershad,
Anthony J. Dimun, Howard W. Donnelly, Richard L. Robbins and
George A. Schapiro.
(Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
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2. APPROVAL OF VITAL SIGNS 2003 INVESTMENT PLAN:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the above named proxies are authorized to vote upon such
other business as may properly come before the meeting or any adjournment
thereof and upon matters incident to the conduct of the meeting.
This proxy will be voted as directed. If not otherwise specified, this proxy
will be voted FOR the election of the director nominees named in Item 1 or if
any one or more of the nominees becomes unavailable, FOR another nominee or
nominees to be selected by the Board of Directors and FOR the approval of the
Vital Signs 2003 Investment Plan.
Dated:____________________________________________, 2003
________________________________________________________
________________________________________________________
(Signature of Shareholder(s))
Please sign name exactly as it appears hereon. Joint owners
should each sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give full title
as it appears.
PLEASE MARK, SIGN, DATE AND RETURN IMMEDIATELY
STATEMENT OF DIFFERENCES
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The section symbol shall be expressed as................................ 'SS'