-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fd3I0gcJ5xqmFx1saynSNMZh7ldRMLuPcbHYwFGMRAOIx8EW0sTNQ12WKblTkKn1 GrK25py4ZdmJ1UmhFybbjg== 0000105770-02-000027.txt : 20020807 0000105770-02-000027.hdr.sgml : 20020807 20020807144733 ACCESSION NUMBER: 0000105770-02-000027 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEST PHARMACEUTICAL SERVICES INC CENTRAL INDEX KEY: 0000105770 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 231210010 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08036 FILM NUMBER: 02721686 BUSINESS ADDRESS: STREET 1: 101 GORDON DR STREET 2: P O BOX 645 CITY: LIONVILLE STATE: PA ZIP: 19341-0645 BUSINESS PHONE: 6105942900 MAIL ADDRESS: STREET 1: 101 GORDON DRIVE STREET 2: PO BOX 645 CITY: LIONVILLE STATE: PA ZIP: 19341-0645 FORMER COMPANY: FORMER CONFORMED NAME: WEST CO INC DATE OF NAME CHANGE: 19990405 10-Q/A 1 file10q21.txt AMENDED 10Q2 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A AMENDMENT No. 1 TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended June 30, 2002 -------------- Commission File Number 1-8036 ------ WEST PHARMACEUTICAL SERVICES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-1210010 - -------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number 101 Gordon Drive, PO Box 645, Lionville, PA 19341-0645 - -------------------------------- ------------------------------- (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code 610-594-2900 ------------ N/A - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- June 30, 2002 -- 14,462,107 - -------------------------------------------------------------------------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. - -------------------------------------------------------------------------------- AMENDMENT NO. 1 This Amendment No. 1 is being filed for the purpose of correcting the signatures on the certifications on page 19; no other changes are being made by means of this filing. Page 2 Index Form 10-Q for the Quarter Ended June 30, 2002 Page ----- Part I - Financial Information Item 1. Financial Statements Consolidated Statements of Income for the Three Months and Six Months ended June 30, 2002 and June 30, 2001 3 Condensed Consolidated Balance Sheets at June 30, 2002 and December 31, 2001 4 Consolidated Statement of Shareholders' Equity at June 30, 2002 and December 31, 2001 5 Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2002 and June 30, 2001 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosure about Market Risk 17 Part II - Other Information Item 1. Legal Proceedings 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19 Index to Exhibits F-1, F-2 Page 3 Part I. Financial Information Item 1. Financial Statements West Pharmaceutical Services, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands, except per share data)
Quarter Ended Six Months Ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 -------------- -------------- -------------- ------------- Net sales ........................................ $107,700 100% $100,500 100% $211,400 100% $199,800 100% Cost of goods and services sold .................. 76,700 71 70,900 71 149,000 70 140,700 70 -------------- -------------- -------------- ------------- Gross profit .................................. 31,000 29 29,600 29 62,400 30 59,100 30 Selling, general and administrative expenses ..... 21,800 20 18,000 18 42,300 20 36,200 18 Restructuring charge.............................. - - 4,500 4 - - 4,500 2 Other (income) expense, net ...................... (600) - 400 - (2,400) 1 500 - -------------- -------------- -------------- -------------- Operating profit .............................. 9,800 9 6,700 7 22,500 11 17,900 9 Interest expense, net............................. 2,400 2 3,000 3 4,800 2 6,300 3 -------------- -------------- -------------- -------------- Income before income taxes and minority interests ....................... 7,400 7 3,700 4 17,700 9 11,600 6 Provision for income taxes ....................... 2,200 2 1,100 1 6,200 3 3,900 2 Minority interests ............................... - - - - - - 100 - -------------- -------------- -------------- -------------- Income from consolidated operations............ 5,200 5% 2,600 3% 11,500 6% 7,600 4% --- --- --- --- Equity in net income of affiliated companies ..... 100 200 300 500 --------- -------- -------- -------- Income from continuing operations.............. 5,300 2,800 11,800 8,100 Earnings (loss) from discontinued operations, net of tax..................................... - 300 (400) 400 --------- -------- -------- -------- Net income .................................... $ 5,300 $ 3,100 $ 11,400 $ 8,500 --------- -------- -------- -------- Net income per share: Basic Continuing operations....................... $ 0.37 $ 0.20 $ 0.82 $ 0.57 Discontinued operations..................... $ - $ 0.02 $ (0.03) $ 0.03 --------- -------- -------- -------- $ 0.37 $ 0.22 $ 0.79 $ 0.60 Assuming Dilution Continuing operations....................... $ 0.37 $ 0.20 $ 0.82 $ 0.57 Discontinued operations..................... $ - $ 0.02 $ (0.03) $ 0.03 --------- -------- -------- -------- $ 0.37 $ 0.22 $ 0.79 $ 0.60 Average common shares outstanding................. 14,430 14,336 14,398 14,328 Average shares assuming dilution.................. 14,507 14,356 14,450 14,342 See accompanying notes to consolidated financial statements.
Page 4 West Pharmaceutical Services, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands)
Unaudited June 30, Dec. 31, 2002 2001 --------- -------- ASSETS Current assets: Cash, including equivalents ................... $ 28,000 $ 42,100 Accounts receivable ........................... 70,700 61,800 Inventories ................................... 40,400 34,300 Income tax refundable.......................... 3,400 5,700 Deferred income tax benefits .................. 2,400 2,400 Other current assets .......................... 8,600 12,200 -------- -------- Total current assets .............................. 153,500 158,500 -------- -------- Property, plant and equipment ..................... 491,800 459,500 Less accumulated depreciation and amortization..... 269,300 249,200 -------- -------- 222,500 210,300 Investments in affiliated companies ............... 19,800 20,800 Goodwill .......................................... 35,600 32,600 Prepaid pension asset.............................. 50,600 48,300 Deferred income tax benefits ...................... 23,000 21,400 Intangible assets.................................. 7,800 7,900 Other assets....................................... 12,300 11,500 -------- -------- Total Assets ...................................... $525,100 $511,300 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt ............. $ 6,600 $ 4,300 Notes payable ................................. 6,700 4,400 Accounts payable .............................. 20,400 22,600 Accrued expenses: Salaries, wages, benefits ................... 16,700 16,000 Income taxes payable ........................ 10,300 5,400 Restructuring costs.......................... 1,200 2,200 Deferred income taxes........................ 1,500 1,600 Other ....................................... 20,100 18,800 -------- -------- Total current liabilities ......................... 83,500 75,300 -------- -------- Long-term debt, excluding current portion.......... 172,000 184,300 Deferred income taxes ............................. 47,700 46,800 Other long-term liabilities ....................... 28,100 28,100 Shareholders' equity............................... 193,800 176,800 -------- -------- Total Liabilities and Shareholders' Equity......... $525,100 $511,300 -------- -------- See accompanying notes to consolidated financial statements.
Page 5 West Pharmaceutical Services, Inc. and Subsidiaries Consolidated Statement of Shareholders' Equity (unaudited) (in thousands)
Capital in Other Common excess of Retained comprehensive Treasury Stock par value Earnings income (loss) stock Total ------------------------------------------------------------------- Balance, December 31, 2001 $ 4,300 $ 31,600 $254,000 $ (27,400) $ (85,700) $ 176,800 Net income 11,400 11,400 Shares issued under stock plans (400) 3,600 3,200 Cash dividends declared (5,500) (5,500) Foreign currency translation adjustment 8,100 8,100 Minimum pension liability adjustment (200) (200) -------------------------------------------------------------------- Balance, June 30, 2002 $ 4,300 $ 31,200 $259,900 $ (19,500) $ (82,100) $ 193,800 --------------------------------------------------------------------
See accompanying notes to consolidated financial statements. Page 6 West Pharmaceutical Services, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30, June 30, 2002 2001 -------- -------- Cash flows provided by operating activities: Income from continuing operations............ $ 11,800 $ 8,100 Depreciation and amortization................ 16,200 16,000 Other non-cash items, net.................... (2,900) (4,300) Changes in assets and liabilities ........... (4,300) (5,700) -------- -------- Net cash provided by operating activities ...... 20,800 14,100 -------- -------- Cash flows used in investing activities: Property, plant and equipment acquired ........ (20,700) (22,600) Customer advances, net of repayments .......... (1,300) (100) -------- -------- Net cash used in investing activities ............. (22,000) (22,700) -------- -------- Cash flows(used in)provided by financing activities: Net borrowings under revolving credit agreements ............................ (3,000) 12,600 Other long-term debt,net........................ (9,300) (200) Other notes payable, net......... .............. 600 - Dividend payments .............................. (5,500) (5,100) Sale of common stock, net ...................... 3,200 500 Purchase of treasury stock...................... - (100) -------- -------- Net cash (used in) provided by financing activities (14,000) 7,700 -------- -------- Net cash provided by discontinued operations....... - 300 -------- -------- Effect of exchange rates on cash .................. 1,100 (2,800) -------- -------- Net(decrease)in cash, including equivalents........ $(14,100) $(3,400) -------- -------- See accompanying notes to consolidated financial statements
Page 7 West Pharmaceutical Services, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (In thousands, except share and per share data) The interim consolidated financial statements for the six-month period ended June 30, 2002 should be read in conjunction with the consolidated financial statements and notes thereto of West Pharmaceutical Services, Inc.(the Company), appearing in the Company's 2001 Annual Report on Form 10-K. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Interim results are based on the Company's accounts without audit. 1. Interim Period Accounting Policy ------------------------------------ In the opinion of management, the unaudited Condensed Consolidated Balance Sheet and Consolidated Statement of Shareholders Equity as of June 30, 2002 and the related unaudited Consolidated Statements of Income and the unaudited Condensed Consolidated Statement of Cash Flows for the three and six-month periods then ended and for the comparative periods in 2001 contain all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position as of June 30, 2002 and the results of operations and cash flows for the respective periods. The results of operations for any interim period are not necessarily indicative of results for the full year. Reclassification ---------------- Certain items have been reclassified to conform to current classifications. In particular, interest expense is recorded net of interest income. Interest income was previously recorded in other (income) expense. The impact of the reclassification decreased previously reported second quarter and six-months 2001 other (income) expense and decreased interest expense by $400 and $800, respectively. Operating Expenses ------------------ To better relate costs to benefits received or activity in an interim period, certain operating expenses have been annualized for interim reporting purposes. Such expenses include certain employee benefit costs and annual quantity discounts. Income Taxes ------------- The tax rate used for interim periods is the estimated annual effective consolidated tax rate, based on the current estimate of full year results, except that taxes applicable to prior year adjustments, if any, are recorded as identified. The effective tax rate for the second quarter of 2002 was 30.7%. Excluding the non-recurring foreign exchange gain in the first quarter of 2002, the estimated annual tax rate for 2002 is 33%, compared with a 36% estimated rate used in the second quarter of 2001. The estimated annual rate for 2002 decreased from that of the first quarter due to expected benefits resulting from the utilization of foreign tax credits. The reduction in the annual rate resulted in a tax benefit of $200 in the second quarter of 2002. The 2002 estimated annual tax rate of 33% is equal to 2001's full year effective tax rate, excluding unusual items. Page 8 West Pharmaceutical Services, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (continued) 2. Inventories at June 30, 2002 and December 31, 2001 are summarized as follows:
6/30/02 12/31/01 ------- -------- Finished goods $19,400 $15,700 Work in process 7,600 6,300 Raw materials 13,400 12,300 ------- ------- $40,400 $34,300 ------- ------- ------- -------
3. Comprehensive income (loss) for the three and six-months ended June 30, 2002 and June 30, 2001 was as follows:
Three Months Ended Six Months Ended 6/30/02 6/30/01 6/30/02 6/30/01 -------- -------- -------- -------- Net income ......................... $ 5,300 $ 3,100 $ 11,400 $ 8,500 Foreign currency translation adjustments............ 13,800 (4,500) 8,100 (14,400) Minimum pension liability adjustments........................ (300) - (200) - Fair value adjustment on derivative financial instruments... (100) 200 - (200) -------- -------- -------- -------- Comprehensive income(loss).......... $ 18,700 $ (1,200) $ 19,300 $ (6,100) -------- -------- -------- -------- -------- -------- -------- --------
Page 9 West Pharmaceutical Services, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) 4. Net sales to external customers and operating profit (loss) by operating segment for the three and six-months ended June 30, 2002 and June 30, 2001 are as follows:
Three Months Ended Six Months Ended June 30 June 30 Net Sales: 2002 2001 2002 2001 ---------- -------- -------- -------- -------- Pharmaceutical Systems.......... $104,300 $ 94,900 $203,400 $190,600 Drug Delivery Systems........... 3,400 5,600 8,000 9,200 -------- -------- -------- -------- Consolidated Total ............. $107,700 $100,500 $211,400 $199,800 -------- -------- -------- -------- -------- -------- -------- -------- Three Months Ended Six Months Ended June 30 June 30 Operating Profit (Loss): 2002 2001 2002 2001 ----------------------- -------- -------- -------- -------- Pharmaceutical Systems.......... $ 21,600 $ 17,300 $ 42,200 $ 35,600 Drug Delivery Systems........... (3,600) (900) (5,800) (3,200) Corporate and unallocated....... (8,200) (9,700) (13,900) (14,500) -------- -------- -------- -------- Consolidated Total ............. $ 9,800 $ 6,700 $ 22,500 $ 17,900 -------- -------- -------- -------- -------- -------- -------- --------
Corporate and unallocated items include a first quarter 2002 non-recurring foreign exchange gain of $1,700 and a second quarter 2001 non-recurring restructuring charge of $4,500. Compared with December 31, 2001, there were no material changes in the amount of assets as of June 30, 2002 for any operating segment. 5. Common stock issued at June 30, 2002 was 17,165,141 shares, of which 2,703,034 shares were held in treasury. Dividends of $.19 per common share were paid in the second quarter of 2002 and a dividend of $.19 per share payable August 7, 2002 to holders of record on July 24, 2002 was declared on June 18, 2002. 6. The Company has accrued the estimated cost of environmental compliance expenses related to soil or ground water contamination at current and former manufacturing facilities. The ultimate cost to be incurred by the Company and the timing of such payments cannot be fully determined. However, based on consultants' estimates of the costs of remediation in accordance with applicable regulatory requirements, the Company believes the accrued liability of $1,400 at June 30, 2002 is sufficient to cover the future costs of these remedial actions, which will be carried out over the next several years. The Company has not anticipated any possible recovery from insurance or other sources. Page 10 West Pharmaceutical Services, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) 7. The following table details the activity related to the Company's restructuring reserve, which consists of accrued severance and benefit costs: Balance, December 31,2001 $ 2,200 Payments (1,000) ----- Balance, June 30, 2002 $ 1,200 ----- ----- The remaining restructuring accrual balance relates principally to restructuring programs announced in 2001 and 2000. Terminations under these programs totaled 215 employees as of June 30, 2002. The final severance actions under these plans commenced in the second quarter of 2002. The Company expects to complete all remaining payments, principally consisting of pre-retirement medical benefits, within the next two years. 8. In November 2001, the Company sold its contract manufacturing and packaging business located in Lakewood, NJ. The results of this business have been reflected as discontinued operations in the accompanying consolidated financial statements. At December 31, 2001 the Company was required to hold $4.3 million of the sales proceeds in trust for the repayment of certain debentures issued by the contract manufacturing and packaging business, which became due and payable upon the sale. These debentures were repaid in the first quarter of 2002 resulting in a $400, net of tax, charge which was included in the loss on disposal of discontinued operations. 9. Effective January 1, 2002, the Company adopted Financial Accounting Standards Statement No. 142, "Goodwill and Other Intangible Assets." SFAS 142 eliminated the previous requirement to amortize goodwill and indefinite-lived intangible assets. Instead, goodwill and intangible assets with indefinite lives are tested for impairment on at least an annual basis or sooner if an event occurs which indicates that there could be impairment. The SFAS 142 impairment test begins with an estimate of the fair value of the reporting unit or intangible asset. The Company has determined its reporting units to be each of the four geographic regions in the Pharmaceutical Systems Segment, the drug delivery business unit, and the clinical services business unit. If the fair value of the reporting unit is less than the carrying value, the goodwill or intangible asset is considered impaired. Once impairment is determined, an impairment loss is recognized for the amount that the carrying amount exceeds the fair value. The Company performed an impairment test of its goodwill as of January 1, 2002 and determined that no impairment of the recorded goodwill existed. As required by the statement, the Company did not record amortization expense for goodwill in 2002 as compared to the $300 and $600, net of tax, recorded in the prior year three and six-month periods. The goodwill balance as of June 30, 2002 was $35,600 as compared to $32,600 as of December 31, 2001. The increase of $3,000 is solely the result of foreign currency translation adjustments. Page 11 West Pharmaceutical Services, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) Goodwill by reportable segment as of June 30, 2002 and December 31, 2001 was as follows: 6/30/02 12/31/01 -------- -------- Pharmaceutical Systems 31,700 28,700 Drug Delivery Systems 3,900 3,900 -------- -------- 35,600 32,600 The cost and respective accumulated amortization for the Company's intangible assets, mainly patents, was $11,500 and $3,700, respectively, as of June 30, 2002, and $11,200 and $3,300, respectively, as of December 31, 2001. The cost basis of intangibles includes the effects of foreign currency translation adjustments. There were no intangibles purchased or acquired during 2002. Intangible amortization expense for the three and six-month periods ended June 30, 2002 was $200 and $400, respectively, and is estimated to be $700 for the full year. Estimated amortization for each of the subsequent five fiscal years will be approximately $700 per year. The following reconciles the reported net income and earnings per share to that which would have resulted had SFAS No. 142 been applied to the three and six-month periods ended June 30, 2001.
Three Months Six Months Ended Ended 6/30/01 6/30/01 As reported Income from continuing operations $ 2,800 $ 8,100 Discontinued operations 300 400 ------- ------- Net income 3,100 8,500 Goodwill amortization, net of tax 300 600 ------- ------- As adjusted $ 3,400 $ 9,100 ------- ------- ------- ------- As reported basic earnings per share Continuing operations $ 0.20 $ 0.57 Discontinued operations 0.02 0.03 ------- ------- $ 0.22 $ 0.60 ------- ------- ------- ------- As adjusted $ 0.24 $ 0.64 ------- ------- ------- ------- As reported diluted earnings per share Continuing operations $ 0.20 $ 0.57 Discontinued operations 0.02 0.03 ------- ------- $ 0.22 $ 0.60 ------- ------- ------- ------- As adjusted $ 0.24 $ 0.64 ------- ------- ------- -------
Page 12 West Pharmaceutical Services, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) 10. During the first quarter of 2002, the Company's Argentina subsidiary recorded a foreign currency translation gain of $1,700 on net assets denominated in non-peso currencies due to the devaluation of the Argentine peso. The foreign currency gain was subject to both Argentine federal income taxes and US dividend withholding taxes. The devaluation of assets denominated in the Argentine peso totaled $3,200 as of June 30, 2002 and is recorded as a cumulative translation adjustment to shareholder's equity. 11. In July 2002, the Company announced that companies in which it has an equity investment, will consolidate two rubber molding operations in Mexico into a single facility. The Company therefore expects to take a third quarter 2002 charge of $0.07 per share, representing its pro rata share of the costs of consolidating the operations. Page 13 Item 2. Management's Discussion and Analysis of Financial Condition and - ---------------------------------------------------------------- Results of Operations for the Three Months and Six Months ended - --------------------------------------------------------------- June 30, 2002 versus June 30, 2001 - ----------------------------------- Net Sales - --------- Net sales for the second quarter of 2002 were $107.7 million compared to $100.5 million in the second quarter of 2001. At constant exchange rates, sales for the second quarter 2002 increased 7% from the prior year quarter. Second quarter 2002 sales for the Pharmaceutical Systems segment were $104.3 million, a $9.4 million increase from prior year reported sales of $94.9 million. At constant exchange rates, sales increased by 10%. International markets continued to grow significantly resulting in 13% sales growth at constant exchange rates. Sales in domestic markets increased 6% from the prior year quarter. The increase in both international and domestic markets is primarily due to volume increases in pharmaceutical packaging products, including serum and lyo stoppers in domestic markets and prefilled syringe systems in international markets. The Drug Delivery Systems segment had second quarter 2002 revenues of $3.4 million, a $2.2 million or 39% decrease from the prior year quarter. The decline in revenues is attributed to the lack of current period licensing revenues in the drug delivery business unit. Net sales for the first half of 2002 were $211.4 million compared to $199.8 million in the first six months of 2001. At constant exchange rates, sales for the first half of 2002 increased 7%. Excluding exchange rate variances, Pharmaceutical Systems segment sales were 8% higher than the prior year led primarily by increased sales in international markets. Drug Delivery Systems revenues decreased $1.2 million due to lower licensing revenues in the drug delivery business unit partially offset by increased revenues in the clinical services business unit. Gross Profit - ------------ The consolidated gross margin for the second quarter was 28.8%, compared with 29.4% in the second quarter of 2001. Pharmaceutical Systems margins increased to 29.4% as compared to 28.8% in the prior year quarter. Margins in the North America region improved due to positive sales mix, favorable material yields and lower lab and engineering costs. The favorable results in North America were offset by decreased margins in Europe, primarily in the U.K., where the Company's plastic device facility is experiencing production delays and lower than anticipated demand for one of its principal products. Production inefficiencies and capacity constraints at other plants also contributed to decreased margins in Europe. Expansions at two European plants are expected to come on-line during the fourth quarter 2002 and in mid 2003 providing additional capacity. Drug Delivery Systems segment margins declined significantly from the second quarter of 2001 mainly due to lower licensing revenues in the drug delivery business unit. The consolidated gross profit margin for the six-month period was 29.5% compared with 29.6% in the same period of 2001. The same factors that influenced the quarter comparisons affected the six-month comparisons. Page 14 Management's Discussion and Analysis of Financial Condition and - ---------------------------------------------------------------- Results of Operations for the Three Months and Six Months ended - --------------------------------------------------------------- June 30, 2002 versus June 30, 2001, continued - --------------------------------------------- Selling, General and Administrative Expenses - -------------------------------------------- Selling, general and administrative expenses increased $3.8 million (21%) as compared with the second quarter of 2001. The major contributors to the increase include a $1.3 million decrease in pension income, a $1.1 million increase in research and development expenses in the drug delivery business unit and a $0.4 million increase in information systems costs associated with the Company's e-West business systems initiative. For the six-month period ending June 30, 2002, selling, general and administrative expenses increased by $6.1 million (17%). Lower pension income, increased research and development costs in the drug delivery business unit, higher information systems costs and higher incentive compensation costs contributed to the increase. Other (income) expense - ---------------------------- Other (income) expense consists principally of foreign exchange transaction items and miscellaneous equipment sales. Second quarter 2002 other income exceeded the prior year quarter, primarily due to current period foreign exchange transaction gains versus prior period losses in the Company's European subsidiaries. The six-month period for 2002 contains the first quarter $1.7 million non-recurring foreign currency translation gain on net assets denominated in non-peso currencies due to the devaluation of the Argentine peso. Operating Profit (Loss) - ----------------------------- Operating profit for the second quarter of 2002 was $9.8 million compared to $6.7 million in the second quarter 2001. Excluding the non-recurring restructuring charge, operating profit for the second quarter 2001 was $11.2 million. Pharmaceutical Systems operating profit was $21.6 million compared to $17.3 million in 2001. The increase in operating profit is due to increased sales in both the domestic and international markets and a slight shift in sales mix to higher value products, partially offset by production inefficiencies in Europe. Drug Delivery Systems had an operating loss of $3.6 million in the second quarter of 2002 as compared to a loss of $0.9 million in 2001. The absence of licensing revenues and increased research and development spending in the drug delivery unit were the main contributors to the additional operating losses. Corporate and unallocated operating losses were $8.2 million in 2002 compared to $9.7 million in 2001. Excluding the restructuring charge in the second quarter of 2001, corporate and unallocated operating losses for 2001 were $5.2 million. Additional losses are a result of decreased pension income and increased information systems costs. For the six-month period, 2002 operating profit was $22.5 million compared to $17.9 million for the same period of 2001. Excluding the 2002 non-recurring foreign exchange gain and the 2001 restructuring charge, operating profit was $20.8 million in 2002 and $22.4 million in 2001. The same factors that influenced the quarter comparisons affected the six-month comparisons. Page 15 Management's Discussion and Analysis of Financial Condition and - ---------------------------------------------------------------- Results of Operations for the Three Months and Six Months ended - --------------------------------------------------------------- June 30, 2002 versus June 30, 2001, continued - --------------------------------------------- Interest expense, net - -------------------------- Net interest costs declined by $0.6 million (18%) as compared to the second quarter of 2001. The decrease is due to lower interest rates as well as lower debt levels in the current year. For the six-month period, net interest expense declined by $1.5 million. This decrease is mainly due to the decrease in 2002 debt levels. Debt decreased as a result of the Company's formation of an international financing structure. This structure was formed to facilitate the use of existing cash balances to pay down outstanding debt. Provision for income taxes - -------------------------- The effective tax rate for the second quarter of 2002 was 30.7%. Excluding the non-recurring foreign exchange gain in the first quarter of 2002, the estimated annual tax rate for 2002 is 33% compared with a 36% estimated rate used in the second quarter of 2001. The estimated annual rate for 2002 decreased from the rate used in the first quarter due to expected benefits resulting from the utilization of foreign tax credits. The reduction in the annual rate resulted in a tax benefit of $0.2 million in the second quarter of 2002. The 2002 estimated annual tax rate of 33% is equal to 2001's full year effective tax rate, excluding unusual items. Equity in net income of affiliated companies - -------------------------------------------- Earnings in net income of affiliates decreased slightly from the prior year quarter. Earnings from Daikyo Seiko, Ltd., a Japanese company in which the Company has a 25% ownership interest, were down for the six-month period due to increased depreciation and other costs connected with a manufacturing plant upgrade completed in 2001. Results from the Company's Mexican affiliates were consistent with those in the second quarter and six-month periods of 2001. The Company expects to take a third quarter charge of $0.07 per share for the Company's pro rata share of the costs to consolidate two rubber molding operations in Mexico. Discontinued Operations - ----------------------------- In November 2001, the Company sold its contract manufacturing and packaging business located in Lakewood, NJ. The results of this business have been reflected as discontinued operations in the accompanying consolidated financial statements. At December 31, 2001 the Company was required to hold $4.3 million of the sales proceeds in trust for the repayment of certain debentures issued by the contract manufacturing and packaging business, which became due and payable upon the sale. These debentures were repaid in the first quarter of 2002 resulting in a $0.4 million, net of tax, charge which was included in loss on disposal of discontinued operations. Page 16 Management's Discussion and Analysis of Financial Condition and - ---------------------------------------------------------------- Results of Operations for the Three Months and Six Months ended - --------------------------------------------------------------- June 30, 2002 versus June 30, 2001, continued - --------------------------------------------- Net Income - -------------- Net income for the second quarter of 2002 was $5.3 million, or $.37 per share, compared to $3.1 million, or $.22 per share, in the second quarter 2001. Second quarter 2001 results included a non-recurring restructuring charge of $.20 per share and earnings from discontinued operations of $0.02, net of tax. Excluding these non-recurring items, second quarter 2001 earnings were $0.40 per share. Average common shares outstanding were 14.4 million in the second quarter compared to 14.3 million in the second quarter of 2001. The increase in shares outstanding is the result of employee stock option exercises. For the six-month period, 2002 net income was $11.4 million, or $0.79 per share. 2002 results include a non-recurring foreign exchange gain of $0.05 and a loss on discontinued operations of $0.03. Net income for the first six months of 2001 was $8.5 million, or $0.60 per share. 2001 results include a restructuring charge of $0.20 and earnings from discontinued operations of $0.03. Excluding non-recurring items, earnings per share were $0.77 for both the 2002 and 2001 six-month periods. Average common shares outstanding for the first six months of 2002 were 14.4 million, compared to 14.3 million in 2001. FINANCIAL CONDITION - ------------------- Working capital at June 30, 2002 was $70.0 million compared to $83.2 million at December 31, 2001. The working capital ratio at June 30, 2002 was 1.8 to 1. Accounts receivable increased significantly, reflecting the increase in June 2002 sales levels versus December 2001. Days sales outstanding increased slightly from 2001 due to increased sales in Europe where payment terms are typically longer. Cash flows from operations for the six-month period increased from the prior year due to improved earnings as well as to the receipt of tax refunds related to 2001. For the six-month period, capital spending was $20.7 million, primarily for facility expansions at two European plants, new equipment purchases and equipment upgrades used in the production of new products and costs associated with an enterprise resource planning initiative. Full year 2002 capital spending is projected to be approximately $43.7 million. The Company paid cash dividends totaling $5.5 million ($0.38 per share) during the first six months of 2002. Debt as a percentage of total invested capital at June 30, 2002 was 48.9% compared to 52.2% at December 31, 2001. Debt levels decreased by $7.7 million due to the formation of an international financing structure in the first quarter of 2002 designed to utilize existing cash balances to pay down debt. Total shareholder's equity was $193.8 million at June 30, 2002 compared to $176.8 million at December 31, 2001. The increase in equity is due to current year net income, positive currency translation adjustments and employee stock option exercises. The Company believes its financial condition and current capitalization provide sufficient flexibility to meet future cash flow requirements. Page 17 Management's Discussion and Analysis of Financial Condition and - ---------------------------------------------------------------- Results of Operations for the Three Months and Six Months ended - --------------------------------------------------------------- June 30, 2002 versus June 30, 2001, continued - --------------------------------------------- Accounting Changes - ------------------ Effective January 1, 2002, the Company adopted Financial Accounting Standards Statement No. 142, "Goodwill and Other Intangible Assets." SFAS 142 eliminated the previous requirement to amortize goodwill and indefinite-lived intangible assets. Instead, goodwill and intangible assets with indefinite lives are tested for impairment on at least an annual basis or sooner if an event occurs which indicates that there could be impairment. The SFAS 142 impairment test begins with an estimate of the fair value of the reporting unit or intangible asset. The Company has determined its reporting units to be each of the four geographic regions in the Pharmaceutical Systems Segment, the drug delivery business unit and the clinical services business unit. If the fair value of the reporting unit is less than the carrying value, the goodwill or intangible asset is considered impaired. Once impairment is determined, an impairment loss is recognized for the amount that the carrying amount exceeds the fair value. The Company performed an impairment test of its goodwill as of January 1, 2002 and determined that no impairment of the recorded goodwill existed. As required by the statement, the Company did not record amortization expense for goodwill in 2002 as compared to the $0.3 million and $0.6 million, net of tax, recorded in the prior year quarter and six-month periods. Market Risk - ----------- The Company is exposed to various market risk factors such as fluctuating interest rates and foreign currency rate fluctuations. These risk factors can impact results of operations, cash flows and financial position. These risks are managed periodically with the use of derivative financial instruments such as interest rate swaps and forward exchange contracts. In accordance with Company policy, derivative financial instruments are not used for speculation or trading purposes. Forward-Looking Information - --------------------------- Certain statements in this report, including management's discussion and analysis, that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words "estimate", "expect", "intend", "believe" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including but not limited to (1)sales demand, (2) the timing and success of customers' projects, (3) competitive pressures, (4) the strength or weakness of the U.S. dollar, (5) inflation, (6) the cost of raw materials, (7) continued cost-improvement programs, (8) statutory tax rates and (9) significant asset dispositions. The Company does not intend to update these forward-looking statements. Item 3. Quantitative and Qualitative Disclosure about Market Risk - --------------------------------------------------------- The information called for by this item is incorporated by reference to the text appearing in Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations-Market Risk". Page 18 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) See Index to Exhibits on pages F-1 of this Report. (b) A current report on Form 8-K was filed on May 1,2002. Page 19 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WEST PHARMACEUTICAL SERVICES,INC. ----------------------------------- (Registrant) August 7, 2002 Linda R. Altemus - ---------------- /s/ ----------------------------------------- Date Vice President and Chief Financial Officer Certification To the extent required by the Sarbanes-Oxley Act of 2002, each of the undersigned hereby certifies, to their knowledge, that (i) this report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and (ii) the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the registrant. /s/ Donald E. Morel, Jr. Ph.D. - --------------------------------------------- Donald E. Morel, Jr., Ph.D. President and Chief Executive Officer /s/ Linda R. Altemus - ---------------------------------------------- Linda R. Altemus Vice President and Chief Financial Officer August 7, 2002 INDEX TO EXHIBITS Exhibit Number (3) (a) Amended and Restated Articles of Incorporation of the Company through January 4, 1999 incorporated by reference to Exhibit (3)(a) of the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 1-8036). (3) (b) Bylaws of the Company, as amended through October 27, 1998, incorporated by reference to Exhibit (3)(b) to the Company's Form 10-Q for the quarter ended September 30, 1998 (File No. 1-8036). (4) Miscellaneous long term debt instruments and credit facility agreements of the Company, under which the underlying authorized debt is equal to less than ten percent of the total assets of the Company and its subsidiaries on a consolidated basis, may not be filed as exhibits to this report pursuant to Section (b) (4) (iii) A of Item 601 of Reg S-K. The Company agrees to furnish to the Commission, upon request, copies of any such unfiled instruments (File No. 1-8036). (4) (a) Form of stock certificate for common stock incorporated by reference to Exhibit (4) (a) of the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 1-8036). (4) (b) Note Purchase Agreement dated as of April 8, 1999 among the Company and the insurance companies identified on a schedule thereto, incorporated by reference to Exhibit (4)(b) of the Company's Form 10-Q for the quarter ended September 30, 2000 (File No. 1-8036). (4) (c) Credit Agreement, dated as of July 26, 2000 among the Company, the banks and other financial institutions identified on a schedule thereto, and PNC Bank, N.A., as agent for the banks (the "Credit Agreement"), incorporated by reference to Exhibit (4) (c) of the Company's Form 10-Q for the quarter ended September 30, 2000 (File No. 1-8036). (4) (c) (1) First Amendment dated as of September 14, 2000, to the Credit Agreement, incorporated by reference to Exhibit(4) (c) (1) of the Company's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 1-8036). (4) (c) (2) Second Amendment dated as of November 17, 2000, to the Credit Agreement, incorporated by reference to Exhibit (4) (c) (2) of the Company's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 1-8036). (4) (c) (3) Joinder and Assumption Agreement dated as of February 28, 2001, with respect to the Credit Agreement, incorporated by reference to Exhibit (4) (c) (3) of the Company's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 1-8036). (4) (c) (4) Third Amendment dated as of February 28, 2001 to the Credit Agreement, incorporated by reference to Exhibit (4) (c) (4) of the Company's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 1-8036). F - 1 INDEX TO EXHIBITS Exhibit Number (4) (c) (5) Fourth Amendment dated as of July 13, 2001 to the Credit Agreement, incorporated by reference to Exhibit (10) (a) of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001. (4) (c) (6) Extension Agreement dated as of January 5, 2001 to the Credit Agreement, incorporated by reference to Exhibit (4) (c) (6) of the Company's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 1-8036). (4) (c) (7) Fifth Amendment dated as of July 17, 2002 to the Credit Agreement. (10) (a) Change-In-Control Agreement dated as of June 3, 2002 between the Company and Richard D. Luzzi. (11) Not Applicable. (15) None. (18) None. (19) None. (22) None. (23) Not Applicable. (99) None. F - 2 EX-99 3 exh4c7.txt FIFTH AMENDMENT Exhibit 4(c)(7) FIFTH AMENDMENT FIFTH AMENDMENT, dated as of July17, 2002, among WEST PHARMACEUTICAL SERVICES, INC., a Pennsylvania corporation (the "Company"), the direct and indirect subsidiaries of the Company listed on the signature pages hereto (together with the Company, collectively, the "Borrowers"), the several banks and other financial institutions parties to the Credit Agreement (as hereinafter defined) (collectively, the "Banks"), and PNC BANK, NATIONAL ASSOCIATION, as Agent for the Banks (in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, the Borrowers, the Banks and the Agent are parties to a Credit Agreement, dated as of July 26, 2000 (as heretofore amended, supplemented or otherwise modified, the "Credit Agreement"); WHEREAS, pursuant to Section 2.14(d) of the Credit Agreement, the Borrowers have requested an extension of the 364 Day Commitments under the Credit Agreement from July 22, 2002 until July 20, 2003; WHEREAS, the Borrowers have requested that they be permitted to increase from time to time the amount of the 364 Day Commitments, up to a maximum of to $65 million, which is the original amount of the 364 Day Commitments; and WHEREAS, each of the 364 Day Banks has agreed to extend its 364 Day Commitment until July 20, 2003 and the Required Banks have agreed to permit the Borrowers to increase the 364 Day Commitments, in each case on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and for other consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. 2. Extension of 364 Day Commitments. Effective on and as of July 23, 2002, the 364 Day Commitments of each of the 364 Day Banks shall be extended until July 20, 2003. In furtherance thereof, clause (a) of the definition of "364 Day Termination Date" is hereby amended by deleting the date "July 22, 2002" and inserting in lieu thereof the date "July 20, 2003". 3. Increase in 364 Day Commitments. (a) Effective on and as of July 23, 2002, Section 2.14 of the Credit Agreement is hereby amended by adding at the end thereto the following new subsection (e): "(e) (i) The Borrowers may at any time and from time to time, subject to the last sentence hereof, request an increase in the 364 Day Commitments of the 364 Day Banks by sending a written notice thereof to all of the 364 Day Banks and the Agent. Such notice shall specify the total amount of the increase requested by the Borrowers (the "Requested Increase"); provided that, the aggregate amount of the 364 Day Commitments shall not at any time exceed $65,000,000 less than the aggregate amount of any permanent reductions of the 364 Day Commitments pursuant to subsection 2.14(b) hereof. The fees, if any, for any increase in the 364 Day Commitments shall be determined at the time of any request for any such increase. Each 364 Day Bank shall respond in writing to the Borrowers (with a copy simultaneously sent to the Agent), within thirty (30) days of receipt of a Requested Increase (or such shorter period as the Agent and the Borrowers shall agree), stating the maximum amount, if any, by which such 364 Day Bank is willing to increase its 364 Day Commitment (the "Offered Amount"). If the total of the Offered Amount for all of the 364 Day Banks is greater than the Requested Increase, the Requested Increase shall be allocated amongst the offering 364 Day Banks as the Borrowers and the Agent shall agree and, absent any such agreement, pro rata based on each 364 Day Bank's then existing 364 Day Commitment Percentage. Any 364 Day Bank that increases its 364 Day Commitment shall execute and deliver to the Agent a duly completed commitment and acceptance in form and substance acceptable to the Agent, and the Borrowers shall pay to the Agent a processing and recordation fee of $3,000. If the total of the Offered Amount for all of the 364 Day Banks is equal to or less than the Requested Increase (x) unless the Borrowers and the Agent shall otherwise agree, each 364 Day Bank's 364 Day Commitment shall increase by its Offered Amount and (y) the Borrowers may, subject to the consent of the Agent, offer the difference, if any, between the Requested Increase and the amount of the increase in the 364 Day Commitments pursuant to clause (x) above to one or more new banks or other financial institutions (each a "Proposed New Bank"). If the Borrowers request that a Proposed New Bank join this Agreement and provide a 364 Day Commitment hereunder, the Borrowers shall at least seven (7) days prior to the date (or such other period as the Agent and the Borrowers shall agree) on which such Proposed New Bank proposes to join this Agreement notify the Agent of the name of the Proposed New Bank and the amount of its proposed 364 Day Commitment and deliver a duly completed joinder agreement with respect to such Proposed New Bank in form and substance acceptable to Agent (the "New 364 Day Bank Joinder"), together with a processing and recordation fee of $3,000. Upon the consent of the Agent to a Proposed New Bank joining this Agreement (which consent shall not be unreasonably withheld or delayed), such Proposed New Bank shall join this Agreement pursuant to the provisions of subsection 9.6(j), including that its minimum 364 Day Commitment be at least $5,000,000 or such lesser amount as the Agent shall agree. The Borrowers may make two (2) Requested Increases. (ii) Following any increase in 364 Day Commitments pursuant to this subsection 2.14(e), the Agent shall send to the Banks and the Borrowers a revised Schedule I setting forth the new 364 Day Commitments of the 364 Day Banks. Such schedule shall replace the existing Schedule I if no Bank objects thereto within ten (10) days of its receipt thereof. (iii) Notwithstanding anything to the contrary in this subsection 2.14(e), (x) the Borrowers may not request an increase in the 364 Day Commitments if at the time of such request a Default or Event of Default shall exist and (y) no increase in the 364 Day Commitments (including by way of the addition of a Proposed New Bank) shall become effective if on the date that such increase would become effective, a Default or Event of Default shall exist. (b) Effective on and as of July 23, 2002, Section 9.6 of the Credit Agreement is hereby amended by adding at the end thereto the following new subsection (j): "(j) As provided in subsection 2.14(e) hereof, any Proposed New Bank shall, at least seven (7) days before the proposed effective date of such Proposed New Bank's joinder hereto, complete, execute and deliver to the Agent a New 364 Day Bank Joinder, together with a processing and recordation fee of $3,000. Such New 364 Day Bank Joinder shall include, among other things, a joinder to this Agreement and otherwise be in form and substance acceptable to the Agent and the Borrowers. Upon the effective date of such joinder and the obtaining of the Agent's consent (which consent shall not be unreasonably withheld or delayed), such Proposed New Bank shall become a party hereto (hereinafter referred to as an "Additional 364 Day Bank") and shall be one of the 364 Day Banks hereunder for all purposes, except as provided below. Such Additional 364 Day Bank's rights and the rights of any existing 364 Day Bank which increases its 364 Day Commitment pursuant to subsection 2.14(e) shall be limited in the following respects: (i) on the effective date of such joinder or increase, the Borrowers shall repay all outstanding 364 Day Loans that are Base Rate Loans, if any, and reborrow a like amount of 364 Day Loans that are Base Rate Loans from the 364 Day Banks, including the Additional 364 Day Bank, according to their new 364 Day Commitment Percentages and (ii) such Additional 364 Day Bank or existing 364 Day Bank which increases its 364 Day Commitment shall not participate in any 364 Day Loans that are LIBOR Loans (except, with respect to an existing 364 Day Bank, with respect to its existing interest) which are outstanding on the effective date of such joinder or increase but shall participate in all new Loans made to the Borrowers after the effective date of such joinder or increase in accordance with its new 364 Day Commitment Percentage, including, without limitation, new LIBOR Loans and renewals and conversions of LIBOR Loans. If the Borrowers should (i) renew after the effective date of such joinder or increase any 364 Day Loans that are LIBOR Loans existing on such effective date or (ii) convert after the date of such joinder or increase any 364 Day Loans that are LIBOR Loans existing on such effective date, the Borrowers shall be deemed to repay the applicable LIBOR Loans on the conversion or renewal date, as the case may be, and then reborrow a similar amount on such date so that the Additional 364 Day Bank and any 364 Day Bank that increases its 364 Day Commitment shall participate in such LIBOR Loans after such renewal or conversion date in accordance with its 364 Day Commitment Percentage. Simultaneously with the execution and delivery of such joinder or the increase in a 364 Day Bank's 364 Day Commitment, the Borrowers shall execute a new 364 Day Note for such Additional 364 Day Bank or existing 364 Day Bank. Notwithstanding the foregoing, upon the occurrence of an Event of Default prior to the date on which such Additional 364 Day Bank or such existing 364 Day Bank that is increasing its 364 Day Commitment is holding 364 Day Loans that are LIBOR Loans equal to its pro rata share (in accordance with its then 364 Day Commitment Percentage without giving effect to any termination of the 364 Day Commitments), such 364 Day Bank shall, upon notice from the Agent, on or after the date on which the Loans are accelerated or become due following such Event of Default, pay to the Agent (for the account of the other 364 Day Banks, to which the Agent shall pay their pro rata share thereof promptly after receipt) a sum equal to such 364 Day Bank's pro rata share of each 364 Day Loan that is a LIBOR Loan then outstanding with respect to which such 364 Day Bank does not then hold its pro rata share in accordance with its 364 Day Commitment Percentage; such payment by such 364 Day Bank shall constitute a Base Rate Loan hereunder. 4. Representations and Warranties. The Borrowers hereby represent and warrant to the Banks and the Agent that: (a) There exists no Default or Event of Default under the Credit Agreement as amended hereby; (b) The representations and warranties made in the Credit Agreement are true and correct in all material respects on and as of the date hereof as if made on and as of the date hereof; and (c) The execution and delivery of this Amendment by and on behalf of the Borrowers has been duly authorized by all requisite action on behalf of the Borrowers and this Amendment constitutes the legal, valid and binding obligation of the Borrowers, enforceable against them in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 5. Effectiveness. This Amendment shall become effective on the date on which the Agent shall have received (a) counterparts hereof duly executed by the Borrowers and each 364 Day Bank, (b) an extension fee for the benefit of each 364 Day Bank in the amount of 10 basis points (0.10%) on the amount of such Bank's 364 Day Commitment and (c) for the account of PNC Capital Markets, Inc., such arrangement fees as shall have been agreed to with the Borrowers. 6. Limited Effect. Except as expressly amended by this Amendment, the Credit Agreement shall continue to be, and shall remain, unaltered and in full force and effect in accordance with its terms and the Borrowers hereby confirm all of the provisions of the Credit Agreement and the other Loan Documents. 7. Release. Recognizing and in consideration of each of the 364 Day Banks extending its 364 Day Commitment and the other amendments provided herein, each of the Borrowers hereby waives and releases all of the Banks and the Agent and their officers, attorneys, agents, and employees from any liability, suit, damage, claim, loss or expense of any kind or nature whatsoever and howsoever arising that such Borrower ever had or now has against any of them arising out of or relating to any Bank's or the Agent's acts or omissions with respect to this Amendment, the Credit Agreement, the other Loan Documents or any other matters described or referred to herein or therein. 8. Miscellaneous. (a) Expenses. Each of the Borrowers agrees to pay all of the Agent's reasonable out-of-pocket expenses incurred in connection with the preparation, negotiation and execution of this Amendment and the other documents executed in connection herewith, including, without limitation, the reasonable fees and expenses of Ballard Spahr Andrews & Ingersoll, LLP. (b) Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. (c) Successor and Assigns. The terms and provisions of this Amendment shall be binding upon and shall inure to the benefit of the Borrowers, the Agent and the Banks and their respective successors and assigns. (d) Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, and all of which shall constitute one and the same instrument. (e) Headings. The headings of any paragraph of this Amendment are for convenience only and shall not be used to interpret any provision hereof. (f) Modifications. No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed on behalf of the party against whom enforcement is sought. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. WEST PHARMACEUTICAL SERVICES, INC. By: /s/ Michael A. Anderson Name: Michael A. Anderson Title: Vice President and Treasurer WEST PHARMACEUTICAL SERVICES OF FLORIDA, INC. By: /s/ Michael A. Anderson Name: Michael A. Anderson Title: Vice President WEST PHARMACEUTICAL SERVICES LAKEWOOD, INC. By: /s/ Michael A. Anderson Name: Michael A. Anderson Title: President WEST PHARMACEUTICAL SERVICES GROUP LIMITED By: /s/ John R. Gailey III Name: John R. Gailey III Title: Director PACO LABORATORIES, INC. By: /s/ Michael A. Anderson Name: Michael A. Anderson Title: President WEST PHARMACEUTICAL SERVICES CANOVANAS, INC. By: /s/ Michael A. Anderson Name: Michael A. Anderson Title: President WEST PHARMACEUTICAL SERVICES OF DELAWARE, INC. By: /s/ Michael A. Anderson Name: Michael A. Anderson Title: President WEST PHARMACEUTICAL SERVICES VEGA ALTA, INC. By: /s/ Michael A. Anderson Name: Michael A. Anderson Title: President WEST PHARMACEUTICAL CLEVELAND, INC. By: /s/ Michael A. Anderson Name: Michael A. Anderson Title: President PNC BANK, NATIONAL ASSOCIATION, as a Bank and as Agent By: /s/ Frank A. Pugliese Name: Frank A. Pugliese Title: Vice President WACHOVIA BANK, NATIONAL ASSOCIATION (formerly known as FIRST UNION NATIONAL BANK) By: /s/ Jeanette A. Griffin Name: Jeanette A. Griffin Title: Vice President DRESDNER BANK, AG, NEW YORK AND GRAND CAYMAN BRANCHES By: _______________________________ Name:_____________________________ Title:______________________________ By:_______________________________ Name:_____________________________ Title:______________________________ NATIONAL CITY BANK By: /s/ Thomas J. McDonnell Name: Thomas J. McDonnell Title: Senior Vice President JP MORGAN CHASE BANK (formerly known as THE CHASE MANHATTAN BANK) By:_______________________________ Name:_____________________________ Title:______________________________ CITIZENS BANK OF PENNSYLVANIA By: /s/ Mark Turie Name: Mark Turie Title: Vice President EX-10 4 exh10.txt CHANGE IN CONTROL AGREEMENT Exhibit (10)(a) Execution Copy CHANGE-IN-CONTROL AGREEMENT - ------------------------------------------------------------------------------- THIS IS A CHANGE-IN-CONTROL AGREEMENT (the "Agreement"), dated as of June 3, 2002 (the "Effective Date"), between West Pharmaceutical, Services, Inc., a Pennsylvania corporation, (the "Company") and Richard D. Luzzi ("Executive"). Background The Board of Directors of the Company and the Compensation Committee of the Board have determined that it is in the best interests of the Company and its shareholders for the Company to make the following arrangements with Executive. These arrangements provide for compensation in the event Executive should leave the employment of the Company under the circumstances described in this Agreement. Agreement In consideration of Executive's assuming the position of Vice President, Human Resources, and the mutual covenants and agreements herein, and intending to be legally bound, the Company and Executive agree as follows: 1. Definitions. As used in this Agreement, the following terms will have the meanings set forth below: (a) An "Affiliate" of any Person means any Person directly or indirectly controlling, controlled by or under common control with such Person. (b) "Change in Control" means a change in control of a nature that would be required to be reported in response to Item 1 of a Current Report on Form 8-K as in effect on the date of this Agreement pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, (the "Act"), provided, that, without limitation, a Change in Control shall be deemed to have occurred if: (i) Any Person, other than: (1) the Company, (2) any Person who on the date hereof is a director or officer of the Company, or (3) a trustee or fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner," (as defined in Rule 13-d3 under the Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company's then outstanding securities; or (ii) During any period of two consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period; or (iii) The shareholders of the Company approve: (A) a plan of complete liquidation of the Company; or (B) an agreement for the sale or disposition of all or substantially all of the Company's assets; or (C) a merger, consolidation, or reorganization of the Company with or involving any other corporation, other than a merger, consolidation, or reorganization (collectively, a "Transaction"), that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), at least 50% of the combined voting power of the voting securities of the Company (or the surviving entity, or an entity which as a result of the Transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) outstanding immediately after the Transaction. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) The "Company's Business" means: (i) the manufacture and sale of stoppers, closures, containers, medical-device components and assemblies made from elastomers, metal and plastic for the health-care and consumer-products industries; (ii) the clinical trial and OTC switch business carried on by the Company's Clinical Services Group; (iii) the development of proprietary drug-delivery technologies that provide optimized therapeutic effects for challenging drug molecules, such as peptides and proteins, carbohydrates, oligonucleotides, as well as systems for vaccines, gene therapy and diagnostic applications; and (iv) any other business conducted by the Company or any of its Subsidiaries or Affiliates during the term of this Agreement and in which Executive has have been actively involved. (e) "Constructive Termination" means the occurrence of any of the following events: (i) The Company requires Executive to assume any duties inconsistent with, or the Company makes a significant diminution or reduction in the nature or scope of Executive's authority or duties from, those assigned to or held by Executive on the Effective Date; (ii) A material reduction in Executive's annual salary or incentive compensation opportunities; (iii) A relocation of Executive's site of employment to a location more than 50 miles from Executive's site of employment on the Effective Date; (iv) The Company fails to provide Executive with substantially the same fringe benefits that were provided to Executive as of the Effective Date, or with a package of fringe benefits that, although one or more of such benefits may vary from those in effect as of the Effective Date, is substantially at least as beneficial to Executive in all material respects as such fringe benefits taken as a whole; or (v) A successor of the Company does not assume the Company's obligations under this Agreement, expressly or as a matter of law. Notwithstanding the foregoing, no Constructive Termination will be deemed to have occurred under any of the following circumstances: (1) Executive will have consented in writing or given a written waiver to the occurrence of any of the events enumerated in clauses (i) through (v) above; (2) Executive will have failed to give the Company written notice stating Executive's intention to claim Constructive Termination and the basis for that claim at least 10 days in advance of the effective date of Executive's resignation; or (3) The event constituting a Constructive Termination has been cured by the Company prior to the effective date of Executive's resignation. (f) "Payment" means (i) any amount due or paid to Executive under this Agreement, (ii) any amount that is due or paid to Executive under any plan, program or arrangement of the Company and any of its Subsidiaries, and (iii) any amount or benefit that is due or payable to Executive under this Agreement or under any plan, program or arrangement of the Company and any of its Subsidiaries not otherwise covered under clause (i) or (ii) hereof which must reasonably be taken into account under section 280G of the Code and the Regulations in determining the amount of the "parachute payments" received by Executive, including, without limitation, any amounts which must be taken into account under the Code and Regulations as a result of (1) the acceleration of the vesting of any option, restricted stock or other equity award granted under any equity plan of the Company or otherwise, (2) the acceleration of the time at which any payment or benefit is receivable by Executive or (3) any contingent severance or other amounts that are payable to Executive. (g) "Person" means an individual, a corporation, a partnership, an association, a trust or other entity or organization. (h) "Regulations" means the proposed, temporary and final regulations under section 280G of Code or any successor provision thereto. (i) "Restrictive Period" means the period of time that commences on the Effective Date hereof and ends on the first anniversary of the Termination Date. (j) "Retirement Plan" means the West Pharmaceutical Services, Inc. Employees' Retirement Plan and any successor plan thereto. (k) "Savings/Deferred Comp Plan" means The Company's Salaried Employees' Savings Plan, The Company's Non-Qualified Deferred Compensation Plan for Designated Executive Officers and any other similar plan established from time to time that may allow executive officers to defer taxation of compensation. (l) "Subsidiary" has the meaning ascribed to the term by section 425(f) of the Code. (m) "Termination Date" is the date on which Executive ceases to be employed by the Company or any of its Subsidiaries or Affiliates for any reason. 2. Termination Following a Change in Control. (a) Executive will be entitled to the benefits specified in Section 3 (Benefits Payable Upon Termination of Employment) if, (i) at any time within two years after a Change in Control has occurred, Executive's employment by the Company is terminated: (1) by the Company, other than by reason of death, disability, continuous willful misconduct to the detriment of the Company, or retirement at Executive's normal retirement date under the Retirement Plan, or (2) as a result of Executive's resignation at any time following Executive's Constructive Termination; or (ii) Executive resigns for any reason within 30 days following the first anniversary of a Change in Control. Except as otherwise set forth in Section 2(b), Executive will not be entitled to the benefits specified in Section 3 hereof if Executive's employment terminates for any other reason or if, at any time thereafter, Executive is in breach of any of Executive's obligations under this Agreement. (b) If the Company executes an agreement, the consummation of which would result in the occurrence of a Change in Control, then, with respect to a termination (i) by the Company, other than by reason of death, disability, continuous willful misconduct to the detriment of the Company, or retirement at Executive's normal retirement date under the Retirement Plan, or (ii) as a result of Executive's resignation at any time following Executive's Constructive Termination occurring after the date of such agreement (and, if such agreement expires or is terminated prior to consummation, prior to the expiration or termination of such agreement), a Change in Control shall be deemed to have occurred as of the date of the execution of such agreement and Executive will be entitled to the severance compensation specified in Section 3 hereof. 3. Benefits Payable Upon Termination of Employment. Upon termination of employment as set forth in Section 2 (Termination Following a Change in Control), Executive will be entitled to the following benefits: (a) Severance Compensation. Executive will be entitled to severance compensation in an amount equal to three times the sum of (i) Executive's highest annual base salary rate in effect during the year of the termination of Executive's employment, plus (ii) the aggregate amount of the annual bonuses paid or payable to Executive for the three fiscal years immediately preceding a Change in Control divided by the number of fiscal years as to which such bonuses were paid or payable; provided, however, that if at any time before the third anniversary of the Termination Date, Executive either (x) elects retirement under the Retirement Plan, or (y) could have been compelled to retire under the Retirement Plan if Executive had remained employed by the Company, Executive's severance compensation under this Section 3(a) will be reduced by an amount equal to the product obtained by multiplying such severance compensation by a fraction the numerator of which is the number of days elapsed from the Termination Date until the date on which either of the events described in clauses (x) or (y) first occurs, and the denominator of which is 1095. The severance compensation paid hereunder will not be reduced to the extent of any other compensation for Executive's services that Executive receives or is entitled to receive from any other employment consistent with the terms of this Agreement. (b) Equivalent of Vested Savings/Deferred Comp Plan Benefit. The Company will pay to Executive the difference, if any, between (i) the benefit Executive would be entitled to receive under the Savings/Deferred Comp Plan if the Company's contributions to the Savings/Deferred Comp Plan were fully vested upon the termination of Executive's employment, and (ii) the benefit Executive is entitled to receive under the terms of the Savings/Deferred Comp Plan upon termination of Executive's employment. Any such benefit will be payable at such time and in such manner as benefits are payable to Executive under the Savings/Deferred Comp Plan. (c) Unvested Equity Awards. All stock options, other equity-based awards and shares of the Company's stock granted or awarded to Executive pursuant to any Company compensation or benefit plan or arrangement, but which are unvested, will vest immediately upon termination of Executive's employment. The provisions of this Section 3(c) will supersede the terms of any such grant or award made to Executive under any such plan or arrangement to the extent there is an inconsistency between the two. (d) Employee and Executive Benefits. Executive will be entitled to a continuation of all hospital, major medical, medical, dental, life and other insurance benefits not otherwise addressed in this Agreement in the same manner and amount to which Executive was entitled on the date of a Change in Control or on the date of Constructive Termination of Executive's employment (whichever benefits are more favorable to Executive) until the earlier of (i) a period of 36 months after termination of Executive's employment, (ii) Executive's retirement under the Retirement Plan, or (iii) Executive's eligibility for similar benefits with a new employer. Assistance in finding new employment will be made available to Executive by the Company if Executive so requests. Upon termination of Executive's employment, Company cars must be returned to the Company. 4. Additional Payments. (a) Gross-Up Payment. Notwithstanding anything herein to the contrary, if it is determined that any Payment would be subject to the excise tax imposed by section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any interest or penalties thereon, is herein referred to as an "Excise Tax"), then Executive shall be entitled to an additional payment (a "Gross-Up Payment") in an amount that will place Executive in the same after-tax economic position that Executive would have enjoyed if the Excise Tax had not applied to the Payment. (b) Determination of Gross-Up Payment. Subject to the provisions of Section 4(c), all determinations required under this Section 4, including whether a Gross-Up Payment is required, the amount of the Payments constituting excess parachute payments, and the amount of the Gross-Up Payment, shall be made by the accounting firm that was the Company's independent auditors immediately prior to the Change in Control (or, in default thereof, an accounting firm mutually agreed upon by the Company and Executive) (the "Accounting Firm"), which shall provide detailed supporting calculations both to Executive and the Company within fifteen days of the Change in Control, the Termination Date or any other date reasonably requested by Executive or the Company on which a determination under this Section 4 is necessary or advisable. The Company shall pay to Executive the initial Gross-Up Payment within 5 days of the receipt by Executive and the Company of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Executive, the Company shall cause the Accounting Firm to provide Executive with an opinion that the Accounting Firm has substantial authority under the Code and Regulations not to report an Excise Tax on Executive's federal income tax return. Any determination by the Accounting Firm shall be binding upon Executive and the Company. If the initial Gross-Up Payment is insufficient to cover the amount of the Excise Tax that is ultimately determined to be owing by Executive with respect to any Payment (hereinafter an "Underpayment"), the Company, after exhausting its remedies under Section 4(c) below, shall promptly pay to Executive an additional Gross-Up Payment in respect of the Underpayment. (c) Procedures. Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notice shall be given as soon as practicable after Executive knows of such claim and shall apprise the Company of the nature of the claim and the date on which the claim is requested to be paid. Executive agrees not to pay the claim until the expiration of the thirty-day period following the date on which Executive notifies the Company, or such shorter period ending on the date the Taxes with respect to such claim are due (the "Notice Period"). If the Company notifies Executive in writing prior to the expiration of the Notice Period that it desires to contest the claim, Executive shall: (i) give the Company any information reasonably requested by the Company relating to the claim; (ii) take such action in connection with the claim as the Company may reasonably request, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and reasonably acceptable to Executive; (iii) cooperate with the Company in good faith in contesting the claim; and (iv) permit the Company to participate in any proceedings relating to the claim. Executive shall permit the Company to control all proceedings related to the claim and, at its option, permit the Company to pursue or forgo any and all administrative appeals, proceedings, hearings, and conferences with the taxing authority in respect of such claim. If requested by the Company, Executive agrees either to pay the tax claimed and sue for a refund or contest the claim in any permissible manner and to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts as the Company shall determine; provided, however, that, if the Company directs Executive to pay such claim and pursue a refund, the Company shall advance the amount of such payment to Executive on an after-tax and interest-free basis (the "Advance"). The Company's control of the contest related to the claim shall be limited to the issues related to the Gross-Up Payment and Executive shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or other taxing authority. If the Company does not notify Executive in writing prior to the end of the Notice Period of its desire to contest the claim, the Company shall pay to Executive an additional Gross-Up Payment in respect of the excess parachute payments that are the subject of the claim, and Executive agrees to pay the amount of the Excise Tax that is the subject of the claim to the applicable taxing authority in accordance with applicable law. (d) Repayments. If, after receipt by Executive of an Advance, Executive becomes entitled to a refund with respect to the claim to which such Advance relates, Executive shall pay the Company the amount of the refund (together with any interest paid or credited thereon after Taxes applicable thereto). If, after receipt by Executive of an Advance, a determination is made that Executive shall not be entitled to any refund with respect to the claim and the Company does not promptly notify Executive of its intent to contest the denial of refund, then the amount of the Advance shall not be required to be repaid by Executive and the amount thereof shall offset the amount of the additional Gross-Up Payment then owing to Executive. (e) Further Assurances. The Company shall indemnify Executive and hold Executive harmless, on an after-tax basis, from any costs, expenses, penalties, fines, interest or other liabilities ("Losses") incurred by Executive with respect to the exercise by the Company of any of its rights under this Section 4, including, without limitation, any Losses related to the Company's decision to contest a claim or any imputed income to Executive resulting from any Advance or action taken on Executive's behalf by the Company hereunder. The Company shall pay, or cause the Trust to pay, all legal fees and expenses incurred under this Section 4 and shall promptly reimburse Executive, or cause the Trust to reimburse Executive, for the reasonable expenses incurred by Executive in connection with any actions taken by the Company or required to be taken by Executive hereunder. The Company shall also pay all of the fees and expenses of the Accounting Firm, including, without limitation, the fees and expenses related to the opinion referred to in Section 4(b). 5. Payment of Severance Compensation. (a) The severance compensation set forth in Section 3 (a) will be payable in 36 equal monthly installments commencing on the first day of the month following the month in which Executive's employment terminates. However, Executive may elect in writing, in accordance with the provisions of this Section, to receive Executive's severance compensation in a lump sum at a later time or in installments in amounts and at times elected by Executive, but Executiv's election will not entitle Executive to receive severance compensation sooner than permitted by the preceding sentence. (b) Executive must elect to receive amounts in installments or to defer payments by filing a written election with the Company, which specifies the time at which payments are to be made and the amounts of such payments. Executive's election to receive installment payments or to defer payments will not be valid unless it is made prior to the time Executive is entitled to receive any payments under this Agreement. The last such election in effect on the day before a termination of employment will be controlling. No election may be made on or after termination of employment. (c) The payment of deferred amounts must commence no earlier than the first business day of the calendar year following the termination of Executive's employment and no later than the third calendar year following the attainment of normal retirement age under the Retirement Plan. 6. Non-Disclosure and Confidentiality. (a) Executive agrees that Executive will keep secret and maintain in confidence all confidential information of the Company and will not use such information other than for the Company's benefit or disclose such information to anyone outside of the Company, either during or after Executive's employment with the Company. (b) Executive will promptly deliver to the Company on the termination of Executive's employment with the Company, or at any time the Company requests, all memoranda, notes, records and other documents (and all copies thereof) relating to the Company's business or confidential matters which Executive then has or controls. (c) All inventions, improvements, new ideas and techniques which relate to the Company's business which Executive makes or conceives during Executive's employment with the Company or within six months thereafter will be the Company's property. Without additional compensation to Executive, Executive will promptly inform the Company of such inventions, improvements, ideas and techniques, and will assist the Company in preserving them and will not disclose them to anyone else without the Company's consent. (d) Executive understands that, as used in this Section, the phrase "confidential information of the Company" includes all information of a technical, commercial or other nature of or about the Company (such as formulae, trade secrets, customer lists and know-how) not made available to the general public. 7. Legal Fees. The Company will pay all legal fees and expenses which Executive may incur as a result of the Company's contesting the validity or enforceability of this Agreement. 8. Payments Final. In the event of a termination of Executive's employment under the circumstances described in this Agreement, the arrangements provided for by this Agreement, and any other agreement between the Company and Executive in effect at that time and by any other applicable plan of the Company in which Executive then participates, will constitute the entire obligation of the Company to Executive, and performance of that obligation will constitute full settlement of any claim that Executive might otherwise assert against the Company on account of such termination. The Company's obligation to pay Executive under this Agreement will be absolute and unconditional and will not be affected by any circumstance, including without limitation, any set-off, counterclaim, defense or other rights the Company may have against Executive or anyone else as long as Executive is not in beach of Executive's obligations under this Agreement. 9. Non-Competition. (a) During the Restrictive Period, Executive will not, and will not permit any of Executive's Affiliates, or any other Person, directly or indirectly, to: (b) engage in competition with, or acquire a direct or indirect interest or an option to acquire such an interest in any Person engaged in competition with, the Company's Business in the United States (other than an interest of not more than 5 percent of the outstanding stock of any publicly traded company); (i) serve as a director, officer, employee or consultant of, or furnish information to, or otherwise facilitate the efforts of, any Person engaged in competition with the Company's Business in the United States; (ii) solicit, employ, interfere with or attempt to entice away from the Company any employee who has been employed by the Company or a Subsidiary in an executive or supervisory capacity in connection with the conduct of the Company's Business within one year prior to such solicitation, employment, interference or enticement; or (iii) approach, solicit or deal with in competition with the Company or any Subsidiary any Person which at any time during the 12 months immediately preceding the Termination Date: (1) was a customer, client, supplier, agent or distributor of the Company or any Subsidiary; (2) was a customer, client, supplier, agent or distributor of the Company or any Subsidiary with whom employees reporting to or under the direct control of Executive had personal contact on behalf of the Company or any Subsidiary; or (3) was a Person with whom Executive had regular, substantial or a series of business dealings on behalf of the Company or any Subsidiary (whether or not a customer, client, supplier, agent or distributor of the Company or any Subsidiary). (c) For the avoidance of doubt, Executive agrees that the phrase "Person engaged in competition with the Company's Business" as used in this Section includes, without limitation, the companies listed on Exhibit "A" to this Agreement, their Affiliates and subsidiaries. 10. Vesting in the Event of a Change in Control. In the event of a Change in Control, all stock options, equity-based awards and shares of the Company's stock granted or awarded to Executive pursuant to any Company compensation or benefit plan or arrangement, but which are unvested at that time, will vest immediately upon such Change in Control. The provisions of this Section 10 will supersede the terms of any such grant or award made to Executive under any such plan or arrangement to the extent there is an inconsistency between the two. 11. Duration of Agreement. This Agreement shall commence on the Effective Date and shall continue until terminated as provided in this Section. This Agreement may be terminated only under the following circumstances: (i) At any time by the mutual written consent of Executive and the Company; and (ii) By the Company at the end of each successive two-year periods commencing on the date of this Agreement by giving Executive written notice at least one year in advance of such termination, except that such termination and written notice will not be effective unless Executive will be employed by the Company on the Termination Date. 12. Miscellaneous. (a) In consideration for the benefit of having the protection afforded by this Agreement, Executive agrees that the provisions of Section 6 (Non-Disclosure and Confidentiality) and Section 9 (Non-Competition) of this Agreement apply to Executive, and Executive will be bound by them, whether or not a Change in Control occurs or Executive actually receives the benefits specified in Section 3 hereof. (b) This Agreement will be binding upon and inure to the benefit of Executive, Executive's personal representatives and heirs and the Company and any successor of the Company, but neither this Agreement nor any rights arising hereunder may be assigned or pledged by Executive. (c) Executive acknowledges that a breach of the covenants contained in Section 6 (Non-Disclosure and Confidentiality) and Section 9 (Non-Competition) will cause the Company immediate and irreparable harm for which the Company's remedies at law (such as money damages) will be inadequate. The Company shall have the right, in addition to any other rights it may have, to obtain an injunction to restrain any breach or threatened breach of such Sections. The Company may contact any Person with or for whom Executive works after Executive's employment by the Company ends and may send that Person a copy of this Agreement. (d) Should any provision of this Agreement be adjudged to any extent invalid by any competent tribunal, that provision will be deemed modified to the extent necessary to make it enforceable. (e) This Agreement will be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania. (f) This Agreement constitutes the entire agreement and understanding between the Company and Executive with respect to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings between the Company and Executive with respect to such matters. (g) This Agreement may be executed in one or more counterparts, which together shall constitute a single agreement. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first written above. WEST PHARMACEUTICAL SERVICES, INC. /s/ Richard D. Luzzi By: /s/ D. E. Morel RICHARD D. LUZZI Donald E. Morel, Jr. Ph.D. President and Chief Executive Officer Exhibit "A" List of Persons Engaged In Competition With the Company's Business ------------------------------------------------------------------ Stelmi Trading International, including its subsidiary American Stelmi, Inc. Pharmaceutical packaging division of Swiss Group Datwyler, including its subsidiary Helvoet Pharma, Inc. Comar, Inc. Alusuisse SA, including its subsidiary Lawson Mardon Wheaton, Inc. Sharp Ivers-Lee Corporation Accupac Anderson Packaging, Inc. Packaging Coordinators, Inc. (PCI) Pharmaceutical Packaging Specialties, Inc. Nastech, Inc. Cardinal Health, Inc. CIMA Labs, Inc. SkyePharma Alkermes, Inc. Flamel Technologies, Inc. Biovail Pharmaceuticals Inc. -----END PRIVACY-ENHANCED MESSAGE-----