-----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, GXCFPyPIRtlV78gTyIxCvPHs9mXCJ+L/WcmM96+w154sJoNF85FNaiPVnBrt61av F19qVTXY42UVrOnTz8ZbGQ== 0000105770-02-000036.txt : 20021114 0000105770-02-000036.hdr.sgml : 20021114 20021114135526 ACCESSION NUMBER: 0000105770-02-000036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08036 FILM NUMBER: 02823931 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 1 file10q3.txt FORM 10Q 3RD QUARTER 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended September 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 . --- --- September 30, 2002 -- 14,463,808 - -------------------------------------------------------------------------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Page 2 Index Form 10-Q for the Quarter Ended September 30, 2002 Page ----- Part I - Financial Information Item 1. Financial Statements Consolidated Statements of Income for the Three Months and Nine Months ended September 30, 2002 and September 30, 2001 3 Condensed Consolidated Balance Sheets at September 30, 2002 and December 31, 2001 4 Consolidated Statement of Shareholders' Equity for the Nine Months ended September 30, 2002 5 Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2002 and September 30, 2001 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosure About Market Risk 21 Item 4. Controls and Procedures 21 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 21 SIGNATURES 22 CERTIFICATIONS 23, 24 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 Nine Months Ended Sept. 30, 2002 Sept. 30, 2001 Sept. 30, 2002 Sept. 30, 2001 -------------- -------------- -------------- ------------- Net sales ........................................ $104,900 100% $ 96,500 100% $316,300 100% $296,300 100% Cost of goods and services sold .................. 78,200 75 69,900 72 227,200 72 210,600 71 -------------- -------------- -------------- ------------- Gross profit .................................. 26,700 25 26,600 28 89,100 28 85,700 29 Selling, general and administrative expenses ..... 19,300 18 18,300 19 61,600 19 54,500 18 Restructuring charge (credit)..................... 9,700 9 (1,600) (2) 9,700 3 2,900 1 Other (income) expense, net ...................... 400 - (300) - (2,000) (1) 200 - -------------- -------------- -------------- -------------- Operating profit (loss)........................ (2,700) (3) 10,200 11 19,800 6 28,100 9 Interest expense, net............................. 2,200 2 3,000 3 7,000 2 9,300 3 -------------- -------------- -------------- -------------- Income (loss) before income taxes and minority interests ....................... (4,900) (5) 7,200 7 12,800 4 18,800 6 Provision for income taxes ....................... (3,000) (3) 1,500 2 3,200 1 5,400 2 Minority interests ............................... - - - - - - 100 - -------------- -------------- -------------- -------------- Income (loss) from consolidated operations..... (1,900) (2)% 5,700 6% 9,600 3% 13,300 4% --- --- --- --- Equity in net income (loss) of affiliated companies (400) - (100) 500 --------- -------- -------- -------- Income (loss) from continuing operations....... (2,300) 5,700 9,500 13,800 Earnings from discontinued operations, net of tax..................................... 5,900 200 5,500 600 --------- -------- -------- -------- Net income .................................... $ 3,600 $ 5,900 $ 15,000 $ 14,400 --------- -------- -------- -------- Net income (loss) per share: Basic Continuing operations....................... $ (0.16) $ 0.40 $ 0.66 $ 0.96 Discontinued operations..................... $ 0.41 $ 0.01 $ 0.38 $ 0.04 --------- -------- -------- -------- $ 0.25 $ 0.41 $ 1.04 $ 1.00 Assuming Dilution Continuing operations....................... $ (0.16) $ 0.40 $ 0.66 $ 0.96 Discontinued operations..................... $ 0.41 $ 0.01 $ 0.38 $ 0.04 --------- -------- -------- -------- $ 0.25 $ 0.41 $ 1.04 $ 1.00 Average common shares outstanding................. 14,463 14,343 14,420 14,333 Average shares assuming dilution.................. 14,463 14,353 14,443 14,346 Dividends declared per common share............... $ 0.20 $ 0.19 $ 0.58 $ 0.55 See accompanying notes to condensed consolidated financial statements.
Page 4 West Pharmaceutical Services, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
Unaudited Sept. 30, Dec. 31, 2002 2001 --------- -------- ASSETS Current assets: Cash, including equivalents ................... $ 35,700 $ 42,100 Accounts receivable ........................... 63,200 61,800 Inventories ................................... 40,400 34,300 Income tax refundable.......................... 3,500 5,700 Deferred income tax benefits .................. 2,700 2,400 Other current assets .......................... 9,200 12,200 -------- -------- Total current assets .............................. 154,700 158,500 -------- -------- Property, plant and equipment ..................... 490,000 459,500 Less accumulated depreciation and amortization..... (272,700) (249,200) -------- -------- 217,300 210,300 Investments in affiliated companies ............... 18,900 20,800 Goodwill .......................................... 35,100 32,600 Prepaid pension asset.............................. 51,800 48,300 Deferred income tax benefits ...................... 19,400 21,400 Intangible assets.................................. 7,700 7,900 Other assets....................................... 11,500 11,500 -------- -------- Total Assets ...................................... $516,400 $511,300 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt ............. $ 500 $ 4,300 Notes payable ................................. 5,600 4,400 Accounts payable .............................. 19,700 22,600 Accrued expenses: Salaries, wages, benefits ................... 17,600 16,000 Income taxes payable ........................ 7,700 5,400 Restructuring costs.......................... 1,500 2,200 Deferred income taxes........................ 1,500 1,600 Other ....................................... 21,000 18,800 -------- -------- Total current liabilities ......................... 75,100 75,300 -------- -------- Long-term debt, excluding current portion.......... 172,000 184,300 Deferred income taxes ............................. 47,900 46,800 Other long-term liabilities ....................... 27,700 28,100 Shareholders' equity............................... 193,700 176,800 -------- -------- Total Liabilities and Shareholders' Equity......... $516,400 $511,300 -------- -------- -------- -------- See accompanying notes to condensed 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 15,000 15,000 Shares issued under stock option plans (400) 3,600 3,200 Cash dividends declared (8,400) (8,400) Foreign currency translation adjustment 7,400 7,400 Minimum pension liability adjustment (200) (200) Fair value of financial instruments adjustment (100) (100) -------------------------------------------------------------------- Balance, September 30, 2002 $ 4,300 $ 31,200 $260,600 $ (20,300) $ (82,100) $ 193,700 --------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements. Page 6 West Pharmaceutical Services, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Nine Months Ended Sept. 30, Sept. 30, 2002 2001 -------- -------- Cash flows provided by operating activities: Income from continuing operations............ $ 9,500 $ 13,800 Depreciation and amortization................ 24,400 23,900 Other non-cash items, net.................... 5,800 (6,600) Changes in assets and liabilities ........... 4,000 (12,100) -------- -------- Net cash provided by operating activities ...... 43,700 19,000 -------- -------- Cash flows used in investing activities: Property, plant and equipment acquired ........ (30,200) (33,700) Loan to affiliate.............................. (1,000) - Proceeds from sale of assets................... 300 3,100 Customer advances, net of repayments .......... (1,300) (2,600) -------- -------- Net cash used in investing activities ............. (32,200) (33,200) -------- -------- Cash flows(used in)provided by financing activities: Net (repayments) borrowings under revolving credit agreements ............................ (7,900) 21,200 Repayment of industrial revenue bond............ (6,100) - Repayment of other long term debt............... (4,700) (300) Repayments of notes payable..................... (1,100) - Dividend payments .............................. (8,200) (7,700) Sale of common stock............................ 3,300 800 Purchase of treasury stock...................... (100) (100) -------- -------- Net cash (used in) provided by financing activities (24,800) 13,900 -------- -------- Net cash provided by discontinued operations....... 6,100 500 -------- -------- Effect of exchange rates on cash .................. 800 (1,300) -------- -------- Net(decrease)in cash, including equivalents........ (6,400) (1,100) Cash and cash equivalents at beginning of period... 42,100 42,700 -------- -------- Cash and cash equivalents at end of period......... $ 35,700 $ 41,600 -------- -------- See accompanying notes to condensed consolidated financial statements
Page 7 West Pharmaceutical Services, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands, except share and per share data) 1. The interim consolidated financial statements for the three and nine-month period ended September 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 unaudited accounts. Interim Period Accounting Policy -------------------------------- In the opinion of management, the unaudited Condensed Consolidated Balance Sheet, the unaudited Consolidated Statement of Shareholders Equity, the unaudited Consolidated Statements of Income and the unaudited Condensed Consolidated Statement of Cash Flows as of and for the periods ended September 30, 2002 and for the comparative periods in 2001 contain all adjustments, consisting only of normal recurring accruals and adjustments, necessary for a fair presentation of the financial position as of September 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, beginning in 2002 interest expense is recorded net of interest income. Interest income was previously recorded in other (income) expense. Prior periods have been restated to reflect the reclassification. The impact of the reclassification decreased previously reported third quarter and nine-months 2001 other (income) expense and decreased interest expense by $300 and $1,100, respectively. 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. Excluding the $2,400 tax benefit associated with the restructuring charge (see footnote #7) and the $2,500 unusual tax benefit (see footnote #12), the effective tax rate for the third quarter of 2002 was 38.2%, compared with the 28.3% used in the third quarter of 2001. The estimated annual tax rate for 2002, excluding non-recurring items, is 34.2%, compared with the 32.8% estimated rate used for the nine-month period of 2001. The estimated annual rate for 2002 increased from the estimate used in the first half of 2002 due to a change in the expected full year geographic mix of earnings. The increase in the estimated annual rate resulted in additional tax expense of $200 in the third quarter of 2002. The full year 2001 effective tax rate, excluding unusual items, was 33%. Page 8 West Pharmaceutical Services, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 2. Inventories at September 30, 2002 and December 31, 2001 were as follows:
9/30/02 12/31/01 ------- -------- Finished goods $18,300 $15,700 Work in process 7,400 6,300 Raw materials 14,700 12,300 ------- ------- $40,400 $34,300 ------- ------- ------- -------
3. Comprehensive income for the three and nine-months ended September 30, 2002 and September 30, 2001 was as follows:
Three Months Ended Nine Months Ended 9/30/02 9/30/01 9/30/02 9/30/01 -------- -------- -------- -------- Net income ......................... $ 3,600 $ 5,900 $ 15,000 $ 14,400 Foreign currency translation adjustments............ (700) 6,900 7,400 (7,500) Minimum pension liability adjustments........................ - - (200) - Fair value of derivative financial instruments adjustments.. (100) (200) (100) (400) -------- -------- -------- -------- Comprehensive income................ $ 2,800 $ 12,600 $ 22,100 $ 6,500 -------- -------- -------- -------- -------- -------- -------- --------
Page 9 West Pharmaceutical Services, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) 4. Net sales to external customers and operating profit (loss) by operating segment for the three and nine-months ended September 30, 2002 and September 30, 2001 were as follows:
Three Months Ended Nine Months Ended September 30 September 30 Net Sales: 2002 2001 2002 2001 ---------- -------- -------- -------- -------- Pharmaceutical Systems.......... $102,900 $ 92,300 $306,300 $282,800 Drug Delivery Systems........... 2,000 4,200 10,000 13,500 -------- -------- -------- -------- Consolidated Total ............. $104,900 $ 96,500 $316,300 $296,300 -------- -------- -------- -------- -------- -------- -------- -------- Three Months Ended Nine Months Ended September 30 September 30 Operating Profit (Loss): 2002 2001 2002 2001 ----------------------- -------- -------- -------- -------- Pharmaceutical Systems.......... $ 13,500 $ 12,600 $ 50,000 $ 42,700 Drug Delivery Systems........... (4,100) (1,500) (10,200) (4,900) Corporate and unallocated....... (12,100) (900) (20,000) (9,700) -------- -------- -------- -------- Consolidated Total ............. $ (2,700) $ 10,200 $ 19,800 $ 28,100 -------- -------- -------- -------- -------- -------- -------- --------
For the nine months ended September 30, 2002 Corporate and unallocated operating profit (loss) includes a $9,700 restructuring charge and a $1,700 foreign currency exchange gain. The restructuring charge was recorded in the third quarter of 2002. For the nine months ended September 30, 2001 Corporate and unallocated operating profit (loss) includes a $2,900 restructuring charge. A $1,600 restructuring credit was recorded in the third quarter of 2001. Certain costs previously reported as Corporate and unallocated have been allocated to the respective segment that they support. These costs consist principally of rent, information services and human resource functions incurred at the North American headquarters facility. All prior period information has been restated to reflect these allocations. Compared with December 31, 2001, there were no material changes in the amount of assets as of September 30, 2002 in the Pharmaceutical Systems and Drug Delivery Systems operating segments. As a result of the third quarter 2002 restructuring charge, Corporate and unallocated assets were reduced by $8,600. 5. Common stock issued at September 30, 2002 was 17,165,141 shares, of which 2,701,333 shares were held in treasury. Dividends of $.19 per common share were paid in the third quarter of 2002 and a dividend of $.20 per share payable November 6, 2002 to holders of record on October 23, 2002 was declared on July 30, 2002. Page 10 West Pharmaceutical Services, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) 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. In the third quarter of 2002, the Company reduced its accrued liability by $400 to reflect the acceptance of finalized remediation plans by relevant state regulatory agencies at two sites. Based on consultants' estimates of the costs of remediation in accordance with applicable regulatory requirements, the Company believes the accrued liability of $1,000 at September 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. 7. The following table details the activity related to the Company's restructuring reserve, which consists of accrued severance, benefits, contract termination costs and non-cash write-offs:
Severance and benefits Other Total ------------ ------------ ------------ Balance, December 31,2001 $ 2,200 $ - $ 2,200 2002 restructuring charge - 9,700 9,700 Non-cash write-off - (9,200) (9,200) Cash payments (1,200) - (1,200) ------------ ------------ ------------ Balance, September 30, 2002 $ 1,000 $ 500 $ 1,500 ------------ ------------ ------------
In the third quarter of 2002 the Company recorded a pre-tax restructuring charge of $9,700. The charge includes a $5,800 write-off of construction-in-progress and a $500 accrual for contract termination fees related to the discontinuance of the Company's information systems implementation project, a $2,800 impairment of its investment in a genetic research technology company and a $600 impairment of the Company's consumer healthcare research business (see footnote #10). These restructuring items generated a $2,400 tax benefit. The remaining restructuring accrual balance relates principally to restructuring programs announced in 2001 and 2000. Terminations under these programs are complete and totaled 215 employees. The Company expects to complete all remaining payments, principally consisting of pre-retirement medical benefits, within the next two years. 8. During the third quarter of 2002 the Company recorded an $800 charge, included in equity in net income (loss) of affiliated companies, for its share of the costs related to the consolidation of two rubber molding operations for one of its equity investments in Mexico. The charge represents severance costs for approximately 123 employees. As of September 30, 2002, 10 employees have been terminated with the remaining terminations expected to occur in the fourth quarter. The Company expects all remaining payments to be made in the fourth quarter of 2002. Page 11 West Pharmaceutical Services, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) 9. 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. In the third quarter of 2002, the Company recorded a tax benefit in income from discontinued operations of $5,900 principally related to a tax refund on the disposal of the facility. See footnote #12. At December 31, 2001, the Company was required to hold $4,300 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. 10. Effective January 1, 2002, the Company adopted Financial Accounting Standards Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). 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 an impairment. 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. The first step of the impairment test compares the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the second step is performed. The second step compares the carrying amount of the goodwill to its implied fair value. The implied fair value is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the fair value of the goodwill is less than the carrying amount, an impairment loss is recorded. 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 $900, net of tax, recorded in the prior year three and nine-month periods. The goodwill balance as of September 30, 2002 was $35,100 compared to $32,600 as of December 31, 2001. The increase is due to positive foreign currency translation adjustments of $3,100 offset by an impairment loss of $600. Based on a third party offer to purchase the business, the Company recorded an impairment loss in the third quarter of 2002 on its consumer healthcare research business, a division of the clinical services business unit. Page 12 West Pharmaceutical Services, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) Goodwill by reportable segment as of September 30, 2002 and December 31, 2001 was as follows: 9/30/02 12/31/01 -------- -------- Pharmaceutical Systems 31,800 28,700 Drug Delivery Systems 3,300 3,900 -------- -------- 35,100 32,600 The cost and respective accumulated amortization for the Company's intangible assets, mainly patents, was $11,600 and $3,900, respectively, as of September 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 nine-month periods ended September 30, 2002 was $200 and $600, respectively, and is estimated to be $800 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 the non-amortization provisions of SFAS No. 142 been applied to the three and nine-month periods ended September 30, 2001.
Three Months Nine Months Ended Ended 9/30/01 9/30/01 As reported Income from continuing operations $ 5,700 $13,800 Discontinued operations 200 600 ------- ------- Net income 5,900 14,400 Goodwill amortization, net of tax 300 900 ------- ------- As adjusted $ 6,200 $15,300 ------- ------- ------- ------- As reported basic earnings per share Continuing operations $ 0.40 $ 0.96 Discontinued operations 0.01 0.04 ------- ------- $ 0.41 $ 1.00 ------- ------- ------- ------- As adjusted $ 0.43 $ 1.07 ------- ------- ------- ------- As reported diluted earnings per share Continuing operations $ 0.40 $ 0.96 Discontinued operations 0.01 0.04 ------- ------- $ 0.41 $ 1.00 ------- ------- ------- ------- As adjusted $ 0.43 $ 1.07 ------- ------- ------- -------
Page 13 West Pharmaceutical Services, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) 11. During the first quarter of 2002, the Company's subsidiary in Argentina recorded a foreign currency exchange 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 September 30, 2002 and is recorded as a cumulative translation adjustment to other comprehensive income in shareholder's equity. 12. In the third quarter of 2002, the Company recorded an $8,400 tax benefit associated with the 2001 disposition of its contract manufacturing and packaging business and the shutdown of a plastic device manufacturing facility. Of the $8,400 benefit, $5,900 was recorded in discontinued operations with the remaining $2,500 benefit reflected in continuing operations. The tax benefit and the related tax refund were a result of a change in U.S. tax law in 2002 related to loss disallowance rules. Page 14 Item 2. Management's Discussion and Analysis of Financial Condition and - ---------------------------------------------------------------- Results of Operations for the Three Months and Nine Months ended - --------------------------------------------------------------- September 30, 2002 versus September 30, 2001 - -------------------------------------------- Net Sales - --------- Net sales for the third quarter of 2002 were $104.9 million compared to $96.5 million in the third quarter of 2001. At constant exchange rates, sales for the third quarter 2002 increased 7% from the prior year quarter. Third quarter 2002 sales for the Pharmaceutical Systems segment were $102.9 million, a $10.6 million increase from prior year reported sales of $92.3 million. At constant exchange rates, sales increased by 10%. International markets continued to grow significantly resulting in 19% sales growth at constant exchange rates. Sales in domestic markets increased 3% from the prior year quarter. The increase in both international and domestic markets is primarily due to volume increases in pharmaceutical components, including ready to sterilize products in domestic markets and prefilled syringe systems in international markets. The Drug Delivery Systems segment had third quarter 2002 revenues of $2.0 million compared to prior year third quarter sales of $4.2 million. The decline in revenues is attributed to an overall industry slowdown in the clinical services business unit and the absence of current period licensing revenues in the drug delivery business unit. Net sales for the nine months of 2002 were $316.3 million compared to $296.3 million in the prior year period. At constant exchange rates, sales increased 7%. Excluding exchange rate variances, Pharmaceutical Systems segment sales were 9% higher than the prior year, led primarily by increased sales in international markets. Prefilled syringe systems and a variety of stopper products are the main contributors to increased international sales. Drug Delivery Systems revenues decreased $3.5 million solely due to lower licensing revenues in the drug delivery business unit. Year-to-date 2002 revenues in the clinical services business unit are consistent with those in 2001. Gross Profit - ------------ The consolidated gross margin for the third quarter was 25.4%, compared with 27.6% in the third quarter of 2001. Pharmaceutical Systems margins decreased to 25.7% compared to 26.8% in the prior year quarter. Margins in Europe decreased primarily because of losses at the Company's plastic device facility, which are due to production delays and lower-than-anticipated demand for its principal product. Margins in the North America region are consistent with the prior year quarter. Drug Delivery Systems segment margins declined significantly from the third quarter of 2001 due to decreased sales in the clinical services business unit and lower licensing revenues in the drug delivery business unit. The consolidated gross profit margin for the nine-month period was 28.2% compared with 28.9% in the same period of 2001. Higher margins in the North America region due to increased sales volumes, favorable material yields, and lower lab and engineering costs, were offset by lower margins in Europe. Lower margins in the U.K. plastic device facility, as well as production inefficiencies caused by capacity constraints at other plants contributed to the decreased margins in Europe. The production efficiencies are expected to improve as additional capacity comes on-line during fourth quarter 2002 and in mid-2003. Page 15 Management's Discussion and Analysis of Financial Condition and - ---------------------------------------------------------------- Results of Operations for the Three Months and Nine Months ended - --------------------------------------------------------------- September 30, 2002 versus September 30, 2001, continued - ------------------------------------------------------- Selling, General and Administrative Expenses - -------------------------------------------- Selling, general and administrative expenses were $19.3 million, a $1.0 million (5%) increase from the $18.3 million incurred in the third quarter of 2001. A $1.3 million decrease in pension income and higher research and development expenses in the drug delivery business unit were partially offset by a decrease in incentive and stock-based compensation costs and lower information systems costs. For the nine-month period ending September 30, 2002, selling, general and administrative expenses increased $7.1 million (13%) to $61.6 million. Lower pension income, increased research and development costs in the drug delivery business unit and higher information systems costs contributed to the increase. Restructuring charge (credit) - ----------------------------- In the third quarter of 2002 the Company recorded a pre-tax restructuring charge of $9.7 million ($7.3 million, or $0.50 per share, net of tax). The charge includes a $5,800 write-off of construction-in-progress and a $500 accrual for contract termination fees related to the discontinuance of the Company's information systems implementation project, a $2.8 million impairment of an investment in a genetic research technology company, and a $0.6 million impairment of the Company's consumer healthcare research business. For the nine-month period of 2001, the Company recorded a net pre-tax restructuring charge of $2.9 million ($1.1 million, or $0.08 per share, net of tax). The charge consisted of a second quarter $4.5 million restructuring charge for the elimination of several mid- and senior level management positions and a third quarter $1.6 million restructuring credit principally related to the sale of a manufacturing facility held for sale from the 2000 restructuring program. Other (income) expense - ---------------------- Other (income) expense consists principally of foreign exchange transaction items and miscellaneous equipment sales. Third quarter 2002 other income decreased from the prior year quarter, primarily due to current period foreign exchange transaction losses versus prior period gains in the Company's European subsidiaries. The nine-month period for 2002 contains the first quarter $1.7 million non-recurring foreign currency exchange gain on net assets denominated in non-peso currencies due to the devaluation of the Argentine peso. Page 16 Management's Discussion and Analysis of Financial Condition and - ---------------------------------------------------------------- Results of Operations for the Three Months and Nine Months ended - --------------------------------------------------------------- September 30, 2002 versus September 30, 2001, continued - ------------------------------------------------------- Operating Profit (Loss) - ----------------------- The Company recorded an operating loss for the third quarter of 2002 of $2.7 million compared to a $10.2 million operating profit in the third quarter 2001. Excluding non-recurring items, operating profit for the third quarter 2002 was $7.0 million compared to $8.6 million in the third quarter of 2001. Pharmaceutical Systems operating profit was $13.5 million compared to $12.6 million in 2001. The increase in operating profit was due to increased sales in domestic and international markets, partially offset by production inefficiencies in one of the Company's U.K. facilities. Drug Delivery Systems operating losses of $4.1 million in the third quarter of 2002 compared to losses of $1.5 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 $12.1 million in 2002 compared to $0.9 million in 2001. Excluding non-recurring items, Corporate and unallocated operating losses for 2002 were $2.4 million compared to $2.5 million in 2001. The decrease in Corporate and unallocated operating losses was a result of decreased information technology and incentive compensation costs partially offset by a decrease in pension income. For the nine-month period, 2002 operating profit was $19.8 million compared to $28.1 million for the same period of 2001. Excluding non-recurring items, operating profit was $27.8 million in 2002 and $31.0 million in 2001. Operating profit for the nine-month period decreased due to lower pension income, increased research and development costs in the drug delivery business unit and an increase in information technology expenses. The following table reconciles reported operating profit (loss) to operating profit (loss) excluding unusual items:
Three Months Ended Nine Months Ended September 30 September 30 ($ in millions) 2002 2001 2002 2001 -------- -------- -------- -------- Operating profit (loss), as reported $ (2.7) $ 10.2 $ 19.8 $ 28.1 Restructuring charge (credit) 9.7 (1.6) 9.7 2.9 Foreign currency exchange gain - - (1.7) - -------- -------- -------- -------- Operating profit, excluding unusual items $ 7.0 $ 8.6 $ 27.8 $ 31.0
Interest expense, net - --------------------- Net interest costs declined by $0.8 million compared to the third quarter of 2001 and $2.3 million for the nine-month period. The decrease in both periods was mainly due to the decrease in 2002 debt levels as well as lower interest rates. Page 17 Management's Discussion and Analysis of Financial Condition and - ---------------------------------------------------------------- Results of Operations for the Three Months and Nine Months ended - --------------------------------------------------------------- September 30, 2002 versus September 30, 2001, continued - ------------------------------------------------------- Provision for income taxes - -------------------------- In the third quarter of 2002, the Company recorded net tax benefits of $8.4 million associated with the 2001 disposition of its contract manufacturing and packaging business and the shutdown of a plastic device manufacturing plant. Of the total benefit, $2.5 million ($0.17 per share) was recorded in continuing operations and the remaining $5.9 million ($0.41 per share) in discontinued operations. The tax benefit and related tax refund resulted from a change in U.S. tax law in 2002 related to loss disallowance rules. Excluding the $2.4 million tax benefit associated with the restructuring charge and the unusual tax benefit noted above, the effective tax rate for the third quarter of 2002 was 38.2%, compared with the 28.3% used in the third quarter of 2001. The estimated annual tax rate for 2002, excluding non-recurring items, is 34.2%, compared with the 32.8% estimated rate used for the nine-month period of 2001. The estimated annual rate for 2002 increased from the estimate used in the first half of 2002 due to a change in the expected full year geographic mix of earnings. The increase in the estimated annual rate resulted in additional tax expense of $0.2 million in the third quarter of 2002. The full year 2001 effective tax rate, excluding non-recurring items, was 33%. Equity in net income (loss) of affiliated companies - --------------------------------------------------- Equity in net income (loss) of affiliated companies was a $0.4 million loss in the third quarter of 2002 compared to breakeven results for the prior year quarter. The decrease is mainly due to the $0.8 million (or $0.06 per share) charge recorded by the Company for restructuring costs of one of its 49% owned Mexican affiliates. The charge represented severance costs for the termination of approximately 123 people. This charge was partially offset by increased earnings from Daikyo Seiko, Ltd., a Japanese company in which the Company has a 25% ownership interest. Earnings from Daikyo for the three and nine-month periods of 2002 were up as a result of increased sales growth in European and U.S. markets. Excluding the impact of the severance charge, results from the Company's Mexican affiliates were consistent with those in the third quarter and nine-month periods of 2001. 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. As noted above, a 2002 change in U.S. tax loss disallowance rules generated a $5.9 million ($0.41 per share) tax benefit connected with the sale of the contract manufacturing and packaging business. This tax benefit was recorded in discontinued operations in the third quarter of 2002. 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 ($0.03 per share) net of tax charge, which was included in loss on disposal of discontinued operations. Page 18 Management's Discussion and Analysis of Financial Condition and - ---------------------------------------------------------------- Results of Operations for the Three Months and Nine Months ended - --------------------------------------------------------------- September 30, 2002 versus September 30, 2001, continued - ------------------------------------------------------- Net Income - ---------- Net income for the third quarter of 2002 was $3.6 million ($.25 per share), compared to $5.9 million ($.41 per share), in the third quarter 2001. Net income for the nine-month period of 2002 was $15.0 million ($1.04 per share), compared to $14.4 million ($1.00 per share)for the 2001 nine-month period. The following table reconciles reported earnings per share to earnings per share excluding unusual items:
Three Months Ended Nine Months Ended September 30 September 30 2002 2001 2002 2001 ------- ------- ------- ------- Earnings per share, as reported $ 0.25 $ 0.41 $ 1.04 $ 1.00 Restructuring charge (credit) $ 0.50 $(0.12) $ 0.50 $ 0.08 Foreign currency exchange gain - - $(0.05) - Non-recurring charge of equity affiliate $ 0.06 - $ 0.06 - Unusual tax benefit $(0.17) - $(0.17) - Discontinued operations $(0.41) $(0.01) $(0.38) $(0.04) ------- ------- ------- ------- Earnings per share, excluding unusual items $ 0.23 $ 0.28 $ 1.00 $ 1.04
Average common shares outstanding were 14.5 million in the third quarter of 2002 compared to 14.3 million in the third quarter of 2001. The increase in shares outstanding is mainly the result of employee stock option exercises. Average common shares outstanding for the nine-month period of 2002 were 14.4 million, compared to 14.3 million in 2001. FINANCIAL CONDITION - ------------------- Working capital at September 30, 2002 was $79.6 million compared to $83.2 million at December 31, 2001. The working capital ratio at September 30, 2002 was 2.1 to 1. Accounts receivable increased slightly, reflecting the increase in September 2002 sales levels versus December 2001. Days sales outstanding were consistent with 2001. Cash flows from operations for the nine-month period increased from the prior year due to improved sales as well as the receipt of significant tax refunds. Low fourth quarter 2000 sales negatively impacted 2001 cash flows. For the nine-month period, capital spending was $30.2 million, primarily for facility expansions at two European plants, expenditures for tooling projects, new equipment purchases and equipment upgrades used in the production of new products, and costs associated with the information technology system implementation. Full year 2002 capital spending is projected to be approximately $40.0 million. The Company paid cash dividends totaling $8.2 million ($0.57 per share) during the nine-month period of 2002. Debt as a percentage of total invested capital (debt plus shareholders' equity) at September 30, 2002 was 47.9% compared to 52.2% at December 31, 2001. Debt levels decreased by $14.9 million due to improved internal utilization of cash as well as the receipt of the previously mentioned tax refund. Page 19 Management's Discussion and Analysis of Financial Condition and - ---------------------------------------------------------------- Results of Operations for the Three Months and Nine Months ended - --------------------------------------------------------------- September 30, 2002 versus September 30, 2001, continued - ------------------------------------------------------- Total shareholders' equity was $193.7 million at September 30, 2002 compared to $176.8 million at December 31, 2001. The increase in equity was due to current year net income, positive currency translation adjustments and employee stock option exercises, partially offset by dividend payments. The Company believes that its financial condition, capitalization structure and expected income from operations will be sufficient to meet the Company's future expected cash requirements, at least through 2005, at which time the Company's revolving credit facility becomes due. The Company fully expects to obtain similar credit facilities at that time. Accounting Changes - ------------------ Effective January 1, 2002, the Company adopted Financial Accounting Standards Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). 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 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. The first step of the impairment test compares the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the second step is performed. The second step compares the carrying amount of the goodwill to its implied fair value. The implied fair value is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the fair value of the goodwill is less than the carrying amount, an impairment loss is recorded. 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 compared to the $0.3 million and $0.9 million, net of tax, recorded in the prior year quarter and nine-month periods. New Accounting Standards - ----------------------- In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145"). SFAS 145, clarifies and simplifies existing accounting pronouncements. Statement No. 145 rescinds SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt", which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion 30 will now be used to classify those gains and losses. SFAS 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements", amended SFAS 4, and is no longer necessary because SFAS 4 has been rescinded. SFAS 145 amends SFAS 13, "Accounting for Leases", to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. Certain provisions of SFAS. 145 are effective for fiscal years beginning after May 15, 2002, while other provisions are effective for transactions occurring after May 15, 2002. The adoption of SFAS 145 is not expected to have a significant impact on the Company's results of operations, financial position or cash flows. Page 20 Management's Discussion and Analysis of Financial Condition and - ---------------------------------------------------------------- Results of Operations for the Three Months and Nine Months ended - --------------------------------------------------------------- September 30, 2002 versus September 30, 2001, continued - ------------------------------------------------------- In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"), which addresses the recognition, measurement, and reporting of costs associated with exit or disposal activities, and supercedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). The principal difference between SFAS 146 and EITF 94-3 relates to the requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity, including those related to employee termination benefits and obligations under operating leases and other contracts, be recognized when the liability is incurred, and not necessarily the date of an entity's commitment to an exit plan, as under EITF 94-3. SFAS 146 also establishes that the initial measurement of a liability recognized under SFAS 146 be based on fair value. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company expects to adopt SFAS 146, effective January 1, 2003. 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. The Company's actual results may differ materially from those expressed in any forward looking statement and are dependent on a number of factors including, but not limited to (1)sales demand, (2)timing of customers' projects, (3) successful development of proprietary drug delivery technologies and systems, (4)regulatory, licensee and/or market acceptance of products based on those technologies, (5)competitive pressures, (6)the strength or weakness of the U.S. dollar, (7)inflation, (8)the cost of raw materials,(9)the availability of credit facilities and (10)statutory tax rates. Page 21 Item 3. Quantitative and Qualitative Disclosure About Market Risk --------------------------------------------------------- The information called for by this item is included in the text appearing in Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations-Market Risk". Item 4. Controls and Procedures ----------------------- (a) In September 2002 the Company formed a Disclosure Committee whose members include the Chief Executive Officer and Chief Financial Officer, among other members of management. The Disclosure Committee's procedures are considered by the Chief Executive Officer and Chief Financial Officer in performing their evaluations of the Company's disclosure controls and procedures and in assessing the accuracy and completeness of the Company's disclosures. (b) The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined under Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended) as of a date within ninety days prior to the filing date of this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are adequate and effective. (c) There were no significant changes in internal controls or in other factors that could significantly affect the Company's internal controls subsequent to the date of the evaluation referenced above. Part II - Other Information Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) See Index to Exhibits on pages F-1 and F-2 of this Report. (b) On August 29, 2002, the Company filed a Current Report on Form 8-K. Under Item 9 of that Report, the Company disclosed pursuant to Regulation FD that the Company's President and Chief Executive Officer and the Company's Vice President and Chief Financial Officer delivered to the Securities and Exchange Commission a certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act. Copies of those certifications were filed as Exhibits to the Report. On August 29, 2002, the Company filed a Current Report on Form 8-K. Under Item 5 of that Report the Company provided five-year summary financial information that reflected disclosures required by paragraph 61 of SFAS 142. Page 22 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) November 14, 2002 /s/ Linda R. Altemus - ----------------- ----------------------------------------- Date Linda R. Altemus Vice President and Chief Financial Officer Page 23 CERTIFICATION I, Donald E. Morel, Jr. Ph.D, certify that: 1. I have reviewed this quarterly report on Form 10-Q of West Pharmaceutical Services, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Donald E. Morel, Jr. Ph.D ----------------- -------------------------------------- Donald E. Morel, Jr. Ph.D. President and Chief Executive Officer Page 24 CERTIFICATION I, Linda R. Altemus, certify that: 1. I have reviewed this quarterly report on Form 10-Q of West Pharmaceutical Services, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Linda R. Altemus ------------------ ------------------------------------------ Linda R. Altemus Vice President and Chief Financial Officer 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)(a)(1) Article 5, 6, 8(c) and 9 of the Amended and Restated Articles of Incorporation of the Company, 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). (4)(a)(2) Article I and V of the Bylaws of the Company, as amended, 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) (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). F - 1 INDEX TO EXHIBITS Exhibit Number (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). (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) Amendment to Amended and Restated Employment Agreement, dated as of April 30, 2002, between the Company and William G. Little. (10) (b) Non-Competition Agreement, dated as of April 30, 2002, between the Company and William G. Little. (10) (c) Employment Agreement, dated as of April 30, 2002, between the Company and Donald E. Morel, Jr. (10) (d) Non-Qualified Stock Option Agreement, dated as of April 30, 2002 between the Company and Donald E. Morel, Jr. (11) Not Applicable. (15) None. (18) None. (19) None. (22) None. (23) Not Applicable. (99) (a) Certification by Donald E. Morel, Jr., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (99) (b) Certification by Linda R. Altemus, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. F - 2 EX-10 3 exh10a.txt EXHIBIT10 A RESTATED EMPLOYMENT AGREEMENT Exhibit (10)(a) EXECUTION COPY AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT - -------------------------------------------------------------------------------- THIS IS AN AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Amendment Agreement"), dated as of April 30, 2002 (the "Effective Date"), between West Pharmaceutical Services, Inc., a Pennsylvania corporation, (the "Company") and William G. Little (the "Employee"). Background The Company and the Employee are parties to an Amended and Restated Employment Agreement, dated as of March 25, 2000 (the "Employment Agreement"), which provides, among other things, for the employment of the Employee as the Company's Chief Executive Officer and compensation and benefits to be paid to him. The Employee has informed the Board of Directors of the Company of his intention to retire from the Company and has agreed to step down as Chief Executive Officer as of the Effective Date. In light of these actions, the Board of Directors and its Compensation Committee and the Employee have agreed to modify certain terms and conditions of the Employment Agreement, all as set forth in this Amendment Agreement. Agreement Intending to be legally bound, the parties agree as follows: 1. Term of Employment. The Employee's employment with the Company, and the Company's obligations under the Employment Agreement, shall terminate on March 31, 2003 (the "Termination Date"), unless sooner terminated as provided in Sections 6 or 7 of the Employment Agreement. For purposes of the Employment Agreement, this Amendment Agreement, the West Pharmaceutical Services, Inc. Employees' Retirement Plan, as amended and restated effective January 1, 2001, and any successor plan thereto (the "Retirement Plan") and the Supplemental Executive Retirement Plan and any successor plan thereto (the "SERP") shall be deemed to have retired under the Retirement Plan on and as of the Termination Date. 2. Position and Site of Employment. (a) From the Effective Date through the Termination Date, the Employee will serve as Chairman of the Board of the Company. The Employee will have the duties and responsibilities outlined in Exhibit "A" to this Amendment Agreement, which is attached hereto and made a part hereof. The Employee consents to the duties and other terms of employment outlined in this Amendment Agreement and agrees that such duties and responsibilities do not constitute a "Constructive Termination" of his employment as such term is defined in the Employment Agreement. (b) During the period from the Effective Date through the Termination Date, the Company shall pay for an offsite office with shared administrative support, that is reasonably acceptable to the Employee, and the Employee shall continue his duties and responsibilities under this Amendment Agreement from that office. 3. Compensation and Benefits. The Employee's shall receive a base salary at the rate of $575,000 per annum through the Termination Date and remain eligible to receive a bonus for 2002 under the Management Annual Incentive Bonus Program, as and to the extent paid under that plan in accordance with the plan terms. His target bonus level shall be at 75% of base salary. 4. Golf Club Membership. The Company will permit the Employee to retain his equity interest in Metedeconk National Golf Club, Inc. and related membership privileges until the Termination Date. The Executive may be permitted to continue to retain such membership following the Termination Date at the discretion of the Company's Chairman, Independent Directors. 5. Other Amendments to the Employment Agreement. (a) The reference to "Section 11" in Section 16.6 of the Employment Agreement is hereby amended to read "Section 13". (b) Section 10 of the Employment Agreement is hereby deleted in its entirety and Sections 11 through 16 (and any references thereto) are re-numbered accordingly. (c) Clause (vi) of Section 6.1 is deleted in its entirety and replaced with the following: "(vi) the Employee's breach of his undertakings under Section 9 hereof or that certain Non-Competition Agreement dated as of April 30, 2002 between him and the Company." (d) Section 11 of the Employment Agreement is amended in the following respects: i. In the first sentence is amended by deleting the "s" from the word Section and by deleting the words "and 10.2" therefrom; ii. The second sentence is amended by deleting the words "and 10" therefrom; and iii. The last sentence thereof is deleted in its entirety 6. General. (a) Governing Law. This Amendment Agreement shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania, without giving effect to conflicts of laws principles thereof which might refer such interpretations to the laws of a different state or jurisdiction. (b) Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Amendment Agreement. (c) Effect of Agreement. Except as otherwise set forth in this Amendment Agreement, the Employment Agreement shall remain in full force and effect in accordance with its terms. (d) Entire Agreement. This Amendment Agreement and Exhibit "A" hereto set forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersede all prior agreements, arrangements and understandings, written or oral, between the parties. (e) No Other Representations. No representation, promise or inducement has been made by either party hereto that is not set forth in this Amendment Agreement, and no party shall be bound by or liable for any alleged representation, promise or inducement not so set forth. (f) Successors and Assigns. This Amendment Agreement shall inure to the benefit of and shall be binding upon the Company and the Employee and, subject to the provisions of Section 13 of the Employment Agreement, their respective heirs, executors, personal representatives, successors and assigns. (g) Amendments; Waivers. i. This Amendment Agreement may not be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants hereof may not be waived, except by a written instrument executed by the parties to this Amendment Agreement or in the case of a waiver, by the party waiving compliance. ii. The failure of any party to require performance of any provision of, or to exercise any right under, this Amendment Agreement shall not affect the right of that party at a later time to enforce that provision or exercise that right. iii. No waiver of any term of this Amendment Agreement, whether by conduct or otherwise, will be deemed to be, or construed as, a further or continuing waiver of that or any other breach. (h Counterparts. This Amendment Agreement may be executed in one or more counterparts, which together shall constitute a single agreement. IN WITNESS WHEREOF, the parties hereto have executed this Amendment Agreement as of the date first set forth above. WEST PHARMACEUTICAL SERVICES, INC. By: /s/ J. R. Gailey ---------------------------------- John R. Gailey III, Vice President /s/ William G. Little ---------------------------------- William G. Little Exhibit A CHAIRMAN'S RESPONSIBILITIES May 2002 to March 2003 A. To be responsible for the management of West's Board of Directors B. To use his best efforts to transition his prior responsibilities to the new CEO, giving particular emphasis to the following: 1. Developing a new investor relations program 2. Developing a new three-year business plan 3. Reviewing major capital spending 4. Reviewing initiatives to improve cash flow and to strengthen the Company's balance sheet 5. Facilitating a transfer of relationships between West and Daikyo (Japanese joint venture partner) 6. Developing major presentations 7. Identifying future merchant banking relationships 8. Assisting as needed with divestitures, acquisitions and customer visits 9. Being available to accept ad hoc assignments from the Board 10. Identifying two new candidates for West's Board of Directors 11. Developing new succession plan It is clearly understood that all items listed under "B" are now the responsibility of management and that the Chairman's role is to provide guidance. EX-10 4 exh10b.txt EXH 10B NON COMPETITION AGREEMENT Exhibit (10)(b) EXECUTION COPY NON-COMPETITION AGREEMENT - -------------------------------------------------------------------------------- THIS IS A NON-COMPETITION AGREEMENT (the "Agreement"), dated as of April 30, 2002 (the "Effective Date"), between West Pharmaceutical Services, Inc., a Pennsylvania corporation, (the "Company") and William G. Little (the "Executive"). Background The Executive is employed by the Company as its Chairman of the Board pursuant to an Amended and Restated Employment Agreement dated as of March 25, 2000, as amended by an Amendment to Amended and Restated Employment Agreement dated as of April 30, 2002, between the Executive and the Company (as so amended, the "Employment Agreement"). The Employment Agreement contains restrictions on the ability of the Executive to engage in certain activities in competition with the Company. The Board and its Compensation Committee have determined that it is in the best interests of the Company to provide certain additional benefits and compensation to the Executive in exchange for the Executive agreeing to an expanded scope and extended term of the non-competition covenants, all as set for in this Agreement. The Executive has agreed to these arrangements. Agreement Intending to be legally bound, the parties agree as follows: 1. Definitions. As used in this Agreement, the terms defined in this Section and elsewhere in this Agreement shall have the meanings here or there provided. 1.1 An "Affiliate" of a Person means any Person directly or indirectly controlling, controlled by or under common control with such Person. 1.2 "Company's Business" means the business of the Company or any Affiliate of the Company: (a) in 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 other business being carried on by the Company's Drug Delivery Systems Division; (b) the development, manufacture and sale of stoppers, closures, containers, medical-device components and assemblies made from elastomers, metal and plastic, and other business being carried on by the Company's Pharmaceutical Services Division; and (c) any other business conducted by the Company or any Affiliate of the Company during the Restrictive Period in which the Executive has been actively involved while an employee of the Company. 1.3 "Termination Date" means the date on which the Executive ceases to be employed by the Company or any of its Affiliates. 1.4 "Person" means an individual, a corporation, a partnership, an association, a trust or other entity or organization. 1.5 "Restrictive Period" means the period commencing on the Effective Date and continuing through October 18, 2007, the date of the Executive's 65th birthday. 1.6 "Retirement Plan" means the West Pharmaceutical Services, Inc. Employees Retirement Plan, as amended and restated effective January 1, 2001, and any successor plan thereto. 1.7 "SERP" means the West Pharmaceutical Services, Inc. Supplemental Executive Retirement Plan and any successor plan thereto. 2. Covenant-Not-to-Compete. During the Restrictive Period, the Executive will not, and will not permit any of his Affiliates, directly or indirectly, to: 2.1 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 anywhere in the world (other than an interest of not more than 5 percent of the outstanding stock of any publicly traded company); 2.2 serve as a director, officer, executive or consultant of, or furnish information to, or otherwise facilitate the efforts of, any Person engaged in competition with the Company's Business anywhere in the world; 2.3 solicit, employ, interfere with or attempt to entice away from the Company or any Affiliate of the Company any individual who has been employed by the Company or any such Affiliate in an executive, scientific or technical capacity in connection with the conduct of the Company's Business within one year prior to such solicitation, employment, interference or enticement; or 2.4. approach, solicit or deal with in competition with the Company any Person which at any time during the 12 months immediately preceding the Termination Date: (a) was a customer, client, supplier, agent or distributor of the Company or any Affiliate of the Company; (b) was a customer, client, supplier, agent or distributor of the Company or any Affiliate of the Company with whom individuals reporting to or under the Executive's direct control had personal contact on behalf of the Company or any such Affiliate; or (c) was a Person with whom the Executive had regular, substantial or a series of business dealings on behalf of the Company or any Affiliate of the Company (whether or not a customer, client, supplier, agent or distributor of the Company or any Affiliate of the Company). 2.5. The Restrictive Period shall be automatically extended for any period of time during which the Executive has breached, or threatened to breach, any provisions hereof. 2.6. For the avoidance of doubt, the 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. 3. Consideration. 3.1 In consideration of the covenants contained in Section 2, the Executive will be entitled to the payments, compensation and benefits specified in Sections 3.2 through 3.7, inclusive. Notwithstanding the foregoing, if the Company terminates the Executive's employment for Cause, as defined in the Employment Agreement, or if the Executive breaches any of the covenants contained in this Agreement, the Company shall not be obligated to make such payments or provide such compensation and benefits. The Executive's obligations under Section 2 hereof shall continue notwithstanding termination of the Executive's employment for Cause. 3.2 Enhanced Retirement Benefits. (a) The Executive shall be entitled to retirement benefits under the Retirement Plan and the SERP, which shall be calculated and paid using the following assumptions: (i) the Termination Date is his Normal Retirement Date (as defined in Section 1.33 of the Retirement Plan); (ii) the Executive shall be deemed to have attained age 65 for all purposes under the Retirement Plan and SERP; provided, however, that Executive's actual age (as of any conversion date) shall be used to convert the benefits payable under the SERP from a single life annuity for the life of the Executive with no period certain to any other form of benefit; and (iii) the Executive shall be credited with 32.25 Years of Service (as defined in Section 1.58 of the Retirement Plan). Benefits under Retirement Plan and SERP will begin to be paid to the Executive as soon as administratively feasible but not later than 30 days after the Termination Date. (b) There shall be no reduction of benefits under the SERP and Retirement Plan for any benefits the Executive is or would have been entitled to receive under pension plans sponsored by The Kendall Company and C. R. Bard, Inc. if he has or had retained the right to retire under the plans sponsored by those employers. 3.3 Continued Medical and Insurance Coverage. The Company will continue the following medical and insurance coverage for the periods indicated below: (a) The standard medical and dental benefits and the Executive Medical coverage currently available to the Executive and his dependents shall be continued from the Termination Date through September 30, 2007. To continue these benefits the Executive must pay the applicable contribution that is charged to similarly situated executives of the Company. The Company will continue to pay the same portion of the cost of the coverage as it did when the Executive was employed; (b) The Company will continue to keep in force its current individual whole-life insurance policy in the amount of $500,000 for the policy years 2003 through 2007, provided that the Executive pays the applicable contribution. The Company will continue to pay the same portion of the cost of the coverage as it did when the Executive was employed; and (c) The Company will continue or procure additional life insurance coverage for the Executive in the amount of $600,000 for the period commencing on the Termination Date and continuing through at least October 18, 2007. The Executive's short-term and long-term disability insurance coverage will cease as of the Termination Date. 3.4 Company Car. Upon notice to the Company on or before the Termination Date, the Executive shall be entitled to purchase his company car from the Company for the sum of $1.00 (one dollar). 3.5 Financial Planning Assistance. During the period commencing on the Termination Date and continuing through October 18, 2007, the Executive will continue to be reimbursed for financial planning assistance in accordance with the current Company policy. 3.6 Office Space and Administrative Support. The Company shall pay for an offsite office and shared administrative support from the period commencing on the Termination Date until October 18, 2007. 3.7 Stock-Based Incentive Awards. (a) For purposes of all grants and awards made to the Executive under the Company's 1998 Key Employee Incentive Compensation Plan (the "Keicp") or otherwise, including without limitation awards of restricted shares, the Executive shall be deemed to have retired from the Company on and as of the Termination Date. (b) Exhibit "B" attached hereto identifies each outstanding option (each an "Option" and collectively the "Options") held by Executive to acquire shares of common stock of the Company under the KEICP. Notwithstanding any provision of the KEICP or any option agreement issued pursuant the KEICP to the contrary, (i) that portion of any Option that is unvested and/or unexercisable as of the Termination Date shall continue to vest and/or become exercisable during the period commencing on the Termination Date and ending on October 18, 2007 as if Executive had continued to be employed by the Company until October 18, 2007; and (ii) all Options (including without limitation those that become vested pursuant to subparagraph (i) hereof or otherwise) will remain exercisable by the Executive (or his heirs or representatives) until the date identified in the column entitled "Last Date to Exercise Vested Shares" on Exhibit "B". 4. Enforcement. The Executive acknowledges that a breach of this Agreement by him 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 this Agreement. 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. The Company may contact any person with or for whom the Executive works after his employment by the Company ends and may send that person a copy of this Agreement. 5. General. 5.1 Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania, without giving effect to conflicts of laws principles thereof which might refer such interpretations to the laws of a different state or jurisdiction. 5.2 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 5.3 Entire Agreement. This Agreement, including Exhibit "A" and Exhibit "B" hereto, both of which are incorporated herein by reference, sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties. 5.4 Effect of Agreement. Except as otherwise set forth in this Agreement, the Employment Agreement shall remain in full force and effect in accordance with its terms. 5.5 No Other Representations. No representation, promise or inducement has been made by either party hereto that is not set forth in this Agreement, and no party shall be bound by or liable for any alleged representation, promise or inducement not so set forth. 5.6 Amendments; Waivers. (a) This Agreement may not be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants hereof may not be waived, except by a written instrument executed by the parties to this Agreement or in the case of a waiver, by the party waiving compliance. (b) The failure of any party to require performance of any provision of, or to exercise any right under, this Agreement shall not affect the right of that party at a later time to enforce that provision or exercise that right. (c) No waiver of any term of this Agreement, whether by conduct or otherwise, will be deemed to be, or construed as, a further or continuing waiver of that or any other breach. 5.7 Binding Effect. The Executive's undertakings hereunder will bind him and his heirs and legal representatives regardless of (a) the duration of his employment by the Company, (b) any change in his duties or the nature of his employment, (c) the reasons or manner of termination of his employment, and (d) the amount of his compensation. 5.8 Counterparts. This Agreement may be executed in one or more counterparts, which together shall constitute a single agreement. IN WITNESS WHEREOF, the parties hereto have executed this Non-Competition Agreement as of the date first set forth above. WEST PHARMACEUTICAL SERVICES, INC. By: /s/ J.R. Gailey ----------------------------------- John R. Gailey III, Vice President /s/ William G. Little ----------------------------------- William G. Little Exhibit "A" Helvoet Stelmi Sealine Baxter Abbott Becton Dickinson and Company Merck Pfizer GlaxoSmithKline Lilly Wyeth Aventis Novo Amgen Genentech Ivax Teva IDDS Solvay Bespak Pfeiffer Valois Elan Nastech Inhale Alkermes Skye Pharma Exhibit "B" William G. Little Stock Options Outstanding as of April 30, 2002 with Vesting Schedule and Expiration Dates
Total Number of No. of Shares Vesting Date(s) of Last Date Grant Date Shares Covered Exercisable as of Currently Exercisable Option Price To Exercise by Option Effective Date Shares Per Share Vested Shares - --------------------------------------------------------------------------------------------------------------------------------- 09/08/1995 120,000 120,000 n/a $30.18750 09/07/2005 - --------------------------------------------------------------------------------------------------------------------------------- 08/05/1997 165,000 132,000 08/06/2002 - 33,000 shares $29.40630 08/04/2007 - --------------------------------------------------------------------------------------------------------------------------------- 03/25/2000 20,000 8,000 Dependent on milestones $26.03130 03/25/2010 - --------------------------------------------------------------------------------------------------------------------------------- 03/25/2000 165,000 66,000 03/25/2003 - 33,000 shares $26.03130 03/25/2010 03/25/2004 - 33,000 shares 03/25/2005 - 33,000 shares - --------------------------------------------------------------------------------------------------------------------------------- 05/02/2001 75,000 75,000 n/a $26.7500 05/01/2005 - ---------------------------------------------------------------------------------------------------------------------------------
EX-10 5 exh10c.txt EXH 10C EMPLOYMENT AGREEMENT Exhibit (10)(c) Execution Copy EMPLOYMENT AGREEMENT - -------------------------------------------------------------------------------- THIS IS AN EMPLOYMENT AGREEMENT (the "Agreement"), dated as of April 30, 2002, between West Pharmaceutical Services, Inc., a Pennsylvania corporation, (the "Company") and Donald E. Morel, Jr. (the "Employee"). Background The Employee is employed by the Company as its Chief Operating Officer and serves as a director of the Company. He and the Company are parties to a Second Amended and Restated Change in Control Agreement dated as of March 25, 2000 and an Amended and Restated Confidentiality and Non-Competition Agreement dated as of October 26, 1999 (the "1999 Confidentiality Agreement") (together, the "Prior Agreements"), which provide for compensation and benefits and restrict certain activities following employment termination. The Board of Directors and the Compensation Committee of the Board have determined to promote the Employee to the position of Chief Executive Officer and to offer an employment agreement containing compensation, benefits and other terms and conditions contained herein. The parties also wish to express all arrangements concerning the Employee's employment in a single agreement and therefore agree to merge and integrate the Prior Agreements into this Agreement. Terms Intending to be legally bound, the parties agree as follows: 1. Definitions. Terms defined in this Section 1 and parenthetically elsewhere in this Agreement will throughout this Agreement have the meanings here or there provided. 1.1 An "Affiliate" of any Person means any Person directly or indirectly controlling, controlled by or under common control with such Person. 1.2. "Cause" means: (i) the Employee's conviction of a felony; or (ii) the Employee's willful failure to perform his duties under this Agreement (other than due to physical or mental illness) and the failure by the Employee to correct that failure within 30 days after written notice from the Company, provided that the Company shall have delivered a written notice to the Employee within 60 days of the Board of Directors having actual knowledge of the occurrence of any such failure; or (iii) the Employee's gross negligence or willful misconduct in the performance of his duties; or (iv) the Employee's willful misconduct that is materially injurious to the Company or any of its Affiliates or any of their business reputations; or (v) the Employee's breach of his undertakings under Sections 9 or 10. No act, or failure to act, by the Employee shall be considered "willful" unless committed without good faith and without a reasonable belief that the act or omission was in the best interest of the Company. 1.3 "Change in Control" means a change in control of a nature that would be required to be reported in response to Item 1 of the 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: (a) Any Person, other than: (i) the Company, (ii) any Person who on the date of this Agreement is a director or officer of the Company, or (iii) 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 (b) 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 (c) 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. 1.4 "Code" means the Internal Revenue Code of 1986, as amended. 1.5 "Commencement Date" means April 30, 2002. 1.6 "Company's Business" means the business of the Company or any Affiliate of the Company: (i) in 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 other business being carried on by the Company's Drug Delivery Systems Division; (ii) 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 and other business carried on by the Company's Pharmaceutical Systems Division; and (iii) any other business conducted by the Company or any Affiliate of the Company during the Restrictive Period in which the Employee has been actively involved while an employee of the Company or any such Affiliate. 1.7 "Constructive Termination" means the termination of the Employee's employment with the Company at his initiative within one year following the occurrence of one or more of the following events: (i) The Company requires the Employee to assume any duties inconsistent with, or the Company makes a significant diminution or reduction in the nature or scope of the Employee's authority or duties from, those assigned to or held by the Employee on the Commencement Date; (ii) A reduction in the overall level of the Employee's compensation or benefits as provided in Section 5 hereof (except for a reduction attributable to changes in written plans or programs that apply generally to employees participating in such plans or programs); (iii) Any reduction or diminution in the Employee's title or position, an adverse change in the Employee's reporting relationship or any material diminution in the Employee's authority, duties or responsibilities with the Company; (iv) A relocation of the Employee's site of employment to a location more than 50 miles from the Employee's site of employment on the Commencement Date; (v) The Company fails to provide the Employee with a reasonable number of paid vacation days at least equal to the number of paid vacation days to which the Employee was entitled in the last full calendar year prior to the execution of this Agreement; (vi) The Company fails to provide the Employee with substantially the same fringe benefits that were provided to the Employee immediately prior to the Commencement Date, or with a package of fringe benefits that, although one or more of such benefits may vary from those in effect immediately prior to the Commencement Date, is substantially at least as beneficial to the Employee in all material respects as such prior fringe benefits taken as a whole; (vii) A successor of the Company does not assume the Company's obligations under this Agreement, expressly or as a matter of law; or (viii) Any other material breach of this Agreement by the Company. Notwithstanding the foregoing, no Constructive Termination will be deemed to have occurred under any of the following circumstances: (1) The Employee will have consented in writing or given a written waiver to the occurrence of any of the events enumerated in clauses (i) through (viii) above; (2) The Employee will have failed to give the Company written notice stating the Employee's intention to claim Constructive Termination and the basis for that claim at least 10 days in advance of the effective date of the Employee's resignation; or (3) The event constituting a Constructive Termination has been cured or reversed by the Company prior to the effective date of the Employee's resignation. 1.8 "Disability" means any physical or mental ailment as determined by a physician, which prevents, or is substantially certain to prevent, the Employee from performing the duties incident to the Employee's employment with the Company and which (i) has continued for a period of 45 consecutive days, or for a period of 90 days whether or not consecutive, during any 360-day period; or (ii) is determined by a physician as highly likely to persist for 90 consecutive days or to be of permanent duration. Any question as to the existence, extent, duration or potentiality of the Employee's Disability shall be made by a qualified, independent physician mutually agreed to by the Employee and the Company, whose determination shall be final and conclusive for all purposes of this Agreement. 1.8 "Payment" means (i) any amount due or paid to the Employee under this Agreement, (ii) any amount that is due or paid to the Employee 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 the Employee 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 the Employee, 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 the Employee or (3) any contingent severance or other amounts that are payable to the Employee. 1.9 "Person" means an individual, a corporation, a partnership, an association, a trust or other entity or organization. 1.10 "Regulations" means the proposed, temporary and final regulations under section 280G of the Code or any successor provision thereto. 1.11 "Restrictive Period" means the period of time that commences on the Commencement Date and ends on the second anniversary of the Termination Date. 1.12 "Retirement Plan" means the West Pharmaceutical Services, Inc. Employees' Retirement Plan and any successor plan thereto. 1.13 "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. 1.14 "Termination Date" means the date on which the Employee ceases to be employed by the Company or any of its subsidiaries or Affiliates for any reason. 2. Position. The Company engages the Employee as its Chief Executive Officer. The Employee shall report solely and directly to the Company's Board of Directors. The Employee will perform such duties and carry out such responsibilities as may be determined from time to time by the Board of Directors, which shall be consistent with the duties and responsibilities customarily performed by persons in a similar executive capacity. The Employee will diligently devote his entire time, effort and attention to the affairs of the Company and to the successful development of its business. During the term of this Agreement, the Board of Directors will nominate the Employee for re-election as a director by the shareholders of the Company. 3. Exclusive Services. Without the Company's prior written consent, the Employee will not render business services to any other Person or engage in any other activity that would materially interfere with the performance of his duties under this Agreement. Nevertheless, as long as the following activities do not interfere with the Employee's obligations to the Company, the Employee may: (a) serve as a director, officer or trustee of any trade association or of any civic, educational or charitable organization; (b) acquire solely as an investment securities of any entity so long as (i) he remains a passive investor in that entity and (ii) he beneficially owns no more than 5% of the outstanding voting securities in that entity; and (c) with the prior consent of the Company's Board of Directors, serve as director of any corporation which does not, directly or indirectly, engage in competition with the Company's Business. 4. Term of Employment. - Unless sooner terminated as provided in Sections 6 or 7, the Employee's employment term as Chief Executive Officer shall begin on the Commencement Date and shall end on the sooner of the Employee's normal retirement date or the second anniversary of the Company's giving notice of termination, which notice may be given at any time on or after (but not before) the first anniversary of the Commencement Date. 5. Compensation and Benefits. 5.1. Compensation. (a) Base Salary. The Employee will be paid a base salary from the Commencement Date through the regular salary review date in 2003 at a rate of $450,000 per annum. Thereafter, the Employee's annual base salary will be determined in accordance with the Company's regular executive compensation review arrangements. The Employee shall not be required to defer any part of his base salary under any Company plan or program. (b) Bonus. In addition to his base salary, the Employee will be entitled to participate in the Company's Annual Executive Incentive Bonus Plan with a target bonus at the 75% of base salary level. (c) Long-Term Incentives. The Employee will be entitled to participate in, and receive awards and grants under, the 1998 Key Employee Incentive Compensation Plan and any other stock option or otherlong-term incentive programs made available to the Company's executive management from time to time. The Employee will be granted, as of the Commencement Date, a stock option to purchase a total of 160,000 shares of the Company's common stock, on the terms and subject to the conditions contained in the Non-Qualified Stock Option Agreement attached as Exhibit "A" hereto. 5.2. Employee Benefits. (a) The Employee will be entitled to participate in the Company's employee benefit plans that are generally available to the Company's executive management. These include any group life, hospitalization, surgical, major medical and accidental death and dismemberment insurance plans, the Non-Qualified Deferred Compensation Plan for Designated Executive Officers, the Company's Supplemental Executives' Retirement Plan and the Retirement Plan. The Company shall purchase and maintain additional term life insurance for the benefit of the Employee of not less than $1.75 million. (b) The Employee will receive four weeks (20 days) of annual vacation. 5.3. Reimbursement of Expenses. The Company will reimburse the Employee in accordance with the Company's expense reimbursement policy as in effect from time to time, for expenses reasonably and properly incurred by him in performing his duties. The Employee shall furnish the Company with evidence of his disbursements in sufficient detail to qualify them as deductions under the Code. 5.4. Automobile. The Company will provide the Employee with the use of an automobile and will pay or reimburse the Employee for maintenance and operation expenses of that automobile in accordance with the Company's executive automobile policy. 6. Termination. 6.1. Termination for Cause. The Company may terminate the Employee's employment and the Company's obligations under this Agreement, at any time for Cause by giving notice to the Employee. In the event the Employee's employment is terminated for Cause, he shall be entitled to: (i) any amounts earned, accrued or owing the Employee under Section 5.1; and (ii) other or additional amounts or benefits in accordance with applicable written plans or programs of the Company. The Employee shall not be entitled to any other compensation or benefits under this Agreement upon termination for Cause and all rights of the Employee not specified in this Section 6.1 shall terminate on the effective date of such termination. 6.2. Termination Due to Disability. If, due to the Employee's Disability, he resigns or is terminated by the Company, the Employee shall be entitled to: (i) any amounts earned, accrued or owing the Employee under Section 5.1; and (ii) other or additional amounts or benefits in accordance with applicable written plans or programs of the Company. The Employee shall not be entitled to any other compensation or benefits under this Agreement upon resignation or termination due to Disability and all rights of the Employee not specified in this Section 6.1 shall terminate on the effective date of such resignation or termination. 6.3. Termination Other Than For Cause. The Company may terminate the Employee's employment at any time other than for Cause, Disability or by giving the two years' notice specified in Section 4, but if it does so, and the Employee is not then in breach of this Agreement, the Employee shall be entitled to: (a) either: (i) an amount equal to the Employee's annual base salary then in effect, plus an amount equal to his annual base salary that would be in effect for the next following year if such amount can be determined from this Agreement or has been set by the Compensation Committee of the Board of Directors; or (ii) if the subsequent year's annual base salary has not been so determined or set, an amount equal to two times the Employee's then-current annual base salary; and (b) other or additional compensation or benefits in accordance with the applicable written plans and programs of the Company. The amount specified in clause (a) above will be payable as a lump sum within 30 days following the Termination Date and the payment of such amount and any compensation or benefits under clause (b) above will be in full satisfaction of all claims the Employee may have against the Company and conditioned upon execution of an agreement and release substantially in the form attached as Exhibit "B" hereto. If the circumstances of the termination are such that the Employee is also entitled to severance compensation and benefits under Section 7, the Employee will be entitled to receive the larger of the two amounts under this Section 6.3 or Section 7, but not both. The provisions of Section 8.2 will apply to all payments made under this Section 6.3. 6.4. Death. In the event that the Employee dies while employed under this Agreement, the Employee's estate shall be entitled to: (i) any amounts earned, accrued or owing the Employee under Section 5.1; and (ii) other or additional amounts or benefits in accordance with applicable written plans or programs of the Company. Neither the Employee nor his estate shall be entitled to any other compensation or benefits under this Agreement upon employment termination due to death and all rights of the Employee not specified in this Section 6.4 shall terminate on the date of his death. 7. Termination Following a Change in Control. 7.1. The Employee will be entitled to the compensation and benefits specified in Section 8 if at any time within two years after a Change in Control has occurred, the Employee's employment by the Company is terminated: (1) by the Company, other than by reason of death, disability, Cause or retirement at the Employee's normal retirement date under the Retirement Plan, or (2) as a result of the Employee's resignation at any time following the Employee's Constructive Termination; or (3) the Employee resigns for any reason within 30 days following the first anniversary of a Change in Control. Except as otherwise set forth in Section 7.2, the Employee will not be entitled to the benefits specified in Section 8 if the Employee's employment terminates for any other reason or if, at any time thereafter, the Employee is in breach of any of the Employee's obligations under this Agreement. 7.2 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, Cause or retirement at the Employee's normal retirement date under the Retirement Plan, or (ii) as a result of the Employee's resignation at any time following the Employee's Constructive Termination occurring after the execution 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 the Employee will be entitled to the severance compensation and benefits specified in Section 8. 8. Severance Compensation and Benefits Following a Change in Control. 8.1 Determination of Severance Compensation. Upon termination of employment as set forth in Section 7, the Employee will be entitled to the following benefits: (a) Severance Compensation. The Employee will be entitled to severance compensation in an amount equal to three times the sum of (i) the Employee's highest annual base salary rate in effect during the year of the termination of the Employee's employment, plus (ii) the aggregate amount of the annual bonuses paid or payable to the Employee 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, the Employee either (x) elects retirement under the Retirement Plan, or (y) could have been compelled to retire under the Retirement Plan if the Employee had remained employed by the Company, the Employee's severance compensation under this Section 8.1 will be reduced by an amount equal to the pension benefit payable to the Employee under the Retirement Plan, determined after any applicable actuarial reduction for early commencement. The amount of pension benefit taken into account for this purpose shall be limited to those benefits payable before the third anniversary of the Termination Date. The severance compensation paid hereunder will not be reduced to the extent of any other compensation for the Employee's services that the Employee 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 the Employee the difference, if any, between (i) the benefit the Employee 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 the Employee's employment, and (ii) the benefit the Employee is entitled to receive under the terms of the Savings/Deferred Comp Plan upon termination of the Employee's employment. Any such benefit will be payable at such time and in such manner as benefits are payable to the Employee 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 the Employee under any Company compensation or benefit plan or arrangement, but which are unvested, will vest immediately upon termination of the Employee's employment. The provisions of this Section 8.1(c) will supersede the terms of any such grant or award made to the Employee under any such plan or arrangement to the extent there is an inconsistency between the two. (d) Employee and Executive Benefits. The Employee 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 the Employee was entitled on the date of a Change in Control or on the date of Constructive Termination of the Employee's employment (whichever benefits are more favorable to the Employee) until the earlier of (i) a period of 36 months after the Termination Date, (ii) the Employee's retirement under the Retirement Plan, or (iii) the Employee's eligibility for similar benefits with a new employer. Assistance in finding new employment will be made available to the Employee by the Company if the Employee so requests. Upon termination of the Employee's employment, Company cars must be returned to the Company. 8.2 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 the Employee shall be entitled to an additional payment (a "Gross-Up Payment") in an amount that will place the Employee in the same after-tax economic position that the Employee 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 8.2(c), all determinations required under this Section 8, 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 the Employee) (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Employee and the Company within fifteen days of the Change in Control, the Termination Date or any other date reasonably requested by the Employee or the Company on which a determination under this Section 8.2 is necessary or advisable. The Company shall pay to the Employee the initial Gross-Up Payment within 5 days of the receipt by the Employee and the Company of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, the Company shall cause the Accounting Firm to provide the Employee with an opinion that the Accounting Firm has substantial authority under the Code and Regulations not to report an Excise Tax on the Employee's federal income tax return. Any determination by the Accounting Firm shall be binding upon the Employee 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 the Employee with respect to any Payment (hereinafter, an "Underpayment"), the Company, after exhausting its remedies under Section 8.3, shall promptly pay to the Employee an additional Gross-Up Payment in respect of the Underpayment. (c) Procedures. The Employee 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 the Employee 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. The Employee agrees not to pay the claim until the expiration of the 30-day period following the date on which the Employee 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 the Employee in writing prior to the expiration of the Notice Period that it desires to contest the claim, the Employee 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 the Employee; (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. The Employee 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, the Employee 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 the Employee to pay such claim and pursue a refund, the Company shall advance the amount of such payment to the Employee 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 the Employee 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 the Employee in writing prior to the end of the Notice Period of its desire to contest the claim, the Company shall pay to the Employee an additional Gross-Up Payment in respect of the excess parachute payments that are the subject of the claim, and the Employee 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 the Employee of an Advance, the Employee becomes entitled to a refund with respect to the claim to which such Advance relates, the Employee 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 the Employee of an Advance, a determination is made that the Employee shall not be entitled to any refund with respect to the claim and the Company does not promptly notify the Employee of its intent to contest the denial of refund, then the amount of the Advance shall not be required to be repaid by the Employee and the amount thereof shall offset the amount of the additional Gross-Up Payment then owing to the Employee. (e) Further Assurances. The Company shall indemnify the Employee and hold the Employee harmless, on an after-tax basis, from any costs, expenses, penalties, fines, interest or other liabilities (collectively, "Losses") incurred by the Employee with respect to the exercise by the Company of any of its rights under this Section 8.2, including, without limitation, any Losses related to the Company's decision to contest a claim or any imputed income to the Employee resulting from any Advance or action taken on the Employee'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 8.2 and shall promptly reimburse the Employee, or cause the Trust to reimburse the Employee, for the reasonable expenses incurred by the Employee in connection with any actions taken by the Company or required to be taken by the Employee 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 8.2(b). 8.3 Payment of Severance Compensation. (a) The severance compensation set forth in Section 8.1(a) will be payable in 36 equal monthly installments commencing on the first day of the month following the month in which Employee's employment terminates. However, Employee may elect in writing, in accordance with the provisions of this Section, to receive Employee's severance compensation in a lump sum at a later time or in installments in amounts and at times elected by Employee, but Employee's election will not entitle Employee to receive severance compensation sooner than permitted by the preceding sentence. (b) Employee 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. Employee's election to receive installment payments or to defer payments will not be valid unless it is made prior to the time Employee is entitled to receive any payments under this Agreement. The last such election in effect on the day before the Termination Date 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 Employee's employment and no later than the third calendar year following the attainment of normal retirement age under the Retirement Plan. 8.4 Payments Final. In the event of a termination of the Employee's employment under the circumstances described in Section 7, the arrangements provided for by this Section 8, and any other agreement between the Company and the Employee in effect at that time and by any other applicable plan or program of the Company in which the Employee then participates, will constitute the entire obligation of the Company to the Employee, and performance of that obligation will constitute full settlement of any claim that the Employee might otherwise assert against the Company on account of such termination. The Company's obligation to pay the Employee under this Section 8 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 the Employee or anyone else as long as the Employee is not in beach of the Employee's obligations under this Agreement. 9. Confidential Information and Intellectual Property Matters. 9.1 Confidential Information. The Employee acknowledges that his employment by the Company will, throughout the duration of this Agreement, bring him into close contact with many confidential affairs of the Company. These include (but are not limited to) information about markets, key personnel, client lists and client information, operational methods, proprietary intellectual property, plans for future developments relating thereto, and other information not readily available to the public. The Employee also further acknowledges that the services to be performed under this Agreement are of a special, unique, unusual, extraordinary and intellectual character. In recognition of these factors, the Employee covenants and agrees that, both during and after the term of this Agreement, he will keep secret all material confidential matters of the Company known to him which are not otherwise in the public domain and will not intentionally disclose them to anyone outside of the Company, wherever located, except with the Company's prior written consent. 9.2 Papers. All correspondence, memoranda, notes, records, reports, drawings, lists, photographs, plans and other papers and items received or made by the Employee in connection with his employment by the Company shall be the property of the Company. The Employee will deliver all copies of such materials to the Company upon request of the Company and, even if it does not request, when his employment by the Company ends. 9.3 Inventions Company Property. (a) As used herein, the term "Inventions" includes inventions, ideas, techniques, methods, developments, improvements and all other forms of intellectual property. All rights in Inventions that the Employee conceives, makes or obtains either alone or with others during his employment by the Company (both before and after the date of this Agreement) and within six months after the Termination Date, are and shall be the property of the Company, except for Inventions which the Company determines in its sole discretion to be unrelated to any matter of actual or potential interest to the Company unless they are conceived, made or obtained in the course of his employment or with the use of the time, material or facilities of the Company. This Section also does not apply to Inventions conceived, made or obtained by the Employee before his employment by the Company, a complete listing of which was appended to the 1999 Confidentiality Agreement and which is attached hereto as Exhibit "C" as a matter of record. (b) The Employee will make full and prompt disclosure to the Company of all Inventions that are defined by this Section 9 to be the Company's property. At the Company's request and expense (but without additional compensation to the Employee), the Employee will at any time take such actions as the Company reasonably considers necessary to obtain or preserve the Company's rights in such Inventions. These actions may include, but are not necessarily limited to, signing and delivering applications, assignments and other papers and testifying in legal proceedings. 10. Non-Competition and Non-Solicitation. During the Restrictive Period, Employee will not, and will not permit any of his Affiliates, directly or indirectly, to: 10.1.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 anywhere in the world (other than an interest of not more than 5 percent of the outstanding stock of any publicly traded company); 10.2.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 anywhere in the world; 10.3.solicit, employ, interfere with or attempt to entice away from the Company or any Affiliate of the Company any employee who has been employed by the Company or any such Affiliate 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; 10.4.as an individual proprietor, partner, stockholder, officer, employee, director, joint venture, investor, lender, or in any other capacity whatsoever (other than as the holder of not more than five percent of the total outstanding stock of a publicly held company), engage in the business of developing, producing, marketing or selling products or services of the kind or type developed or being developed, produced, marketed or sold by the Company while the Employee was employed by the Company within any market or territory in which the Company is then actively engaged; 10.5.recruit any employee of the Company or solicit or induce, or attempt to solicit or induce, any employee of the Company to terminate his or her employment with, or otherwise cease his or her relationship with, the Company; or 10.6.solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Company which were contacted, solicited or served by the Employee while employed by the Company. 11. Legal Fees; Insurance. 11.1.The Company will pay all legal fees and expenses which the Employee may incur as a result of the Company's contesting the validity or enforceability of this Agreement to the extent that the Employee prevails or substantially prevails in any action relating to same. 11.2.The Employee shall be insured under the Company's Directors' and Officers' Liability Insurance Policy as in effect from time to time. 12. 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 the Employee 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 12 will supersede the terms of any such grant or award made to the Employee under any such plan or arrangement to the extent there is an inconsistency between the two. 13. Specific Remedy. The restrictions contained in Sections 9 and 10 are necessary for the protection of the business and goodwill of the Company and are considered by the Employee to be reasonable for that purpose. The Employee agrees that any breach of those Sections will cause the Company substantial and irrevocable harm for which money damages will be inadequate and therefore, in the event of any such breach or threatened breach, in addition to such other remedies as may be available, the Company shall have the right to seek specific performance and injunctive relief. All of the rights and remedies enumerated in Sections 9 and 10 are in addition to and not in lieu of any other rights and remedies available to the Company under law or in equity and shall survive termination of this Agreement. 14. Independence, Severability and Non-Exclusivity. If any of the provisions of this Agreement (including Sections 9 and 10) are determined to be invalid or unenforceable, that will not affect the remainder of this Agreement, which will be given full effect without regard to the invalid portions. If any part of Section 10 is held to be unenforceable by a competent tribunal because of its duration or the area covered thereby, the parties agree that the court making that determination will have the power to reduce the duration or area (and those provisions will be deemed to be amended by the parties) to the extent necessary to make those provisions enforceable 15. Assignment of the Employee Benefits. Absent the prior written consent of the Company, and subject to will and the laws of descent and distribution, the Employee will have no right to exchange, convert, encumber or dispose of the rights of the Employee to receive benefits and payments under this Agreement, which payments and benefits are non-assignable and non-transferable. 16. Miscellaneous. 16.1.Survival. The following rights and/or obligations of the parties shall survive termination or expiration of this Agreement to the degree necessary to permit their complete fulfillment or discharge: (i) the rights and obligations of the parties under Sections 8, 9 and 10, (ii) the Company's obligation to make payments under Section 6 and (iii) subject to the execution of the agreement and release referred to in Section 6.3, any cause of action or claim of either party, accrued or to accrue, because of any breach or default by the other party. 16.2. Notices. All notices under this Agreement shall be given in writing by personal delivery or by certified mail addressed to the Company at its principal place of business and to the Employee at his residence address as then listed in the Company's records. 16.3.Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania, without giving effect to conflicts of laws principles thereof which might refer such interpretations to the laws of a different state or jurisdiction. 16.4.Entire Agreement. This Agreement, together with the attachment and exhibits hereto, constitutes the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, including the Prior Agreements referred to in the Background section of this Agreement, which shall deemed to be terminated upon the Commencement Date, arrangements and understandings, written or oral, between the parties. 16.5.No Other Representations. No representation, promise or inducement has been made by any party hereto that is not embodied in this Agreement, and no party shall be bound by or liable for any alleged representation, promise or inducement not so set forth. 16.6.Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the Company and the Employee and, subject to the provisions of Section 15, their respective heirs, executors, personal representatives, successors and assigns. 16.7.Amendments; Waivers. This Agreement may not be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants hereof may be waived, except by a written instrument executed by the parties to this Agreement or in the case of a waiver, by the party waiving compliance. The failure of any party to require performance of any provision of, or to exercise any right under, this Agreement shall not affect the right of that party at a later time to enforce that provision or exercise that right. No waiver of any term of this Agreement, whether by conduct or otherwise, will be deemed to be, or construed as, a further or continuing waiver of that or any other breach. 16.8.Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but which together shall constitute one and the same instrument. 16.9.Interpretation; Captions. (a) Section and clause headings and captions used in this Agreement are for convenience only and shall not affect its construction or interpretation. (b) References to the singular shall be deemed to include the plural and vice versa. (c) References to sections, clauses, attachments, exhibits and parties are to the sections and clauses of and the exhibits, attachments and the parties to this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Employment Agreement as of the date first set forth above. WEST PHARMACEUTICAL SERVICES, INC. By: /s/ Richard D. Luzzi /s/ Donald E. Morel, Jr. ------------------------------ -------------------------- Richard D. Luzzi, Vice President, Donald E. Morel, Jr. Human Resources EXHIBIT "A" WEST PHARMACEUTICAL SERVICES, INC. NON-QUALIFIED STOCK OPTION AGREEMENT - -------------------------------------------------------------------------------- As of April 30, 2002, West Pharmaceutical Services, Inc. (referred to as the "Company") and Donald E. Morel, Jr. (referred to as "you" and "your"), agree: 1. Definitions. As used herein: (a) "Board" means the Board of Directors of the Company. (b) "Code" means the Internal Revenue Code of 1986, as amended. (c) "Committee" means those members of the Board who have been designated pursuant to the Plan to act in that capacity. (d) "Date of Exercise" means the date on which you deliver the notice required by Paragraph 5 hereof in accordance with the Plan document. (e) "Date of Grant" means April 30, 2002, the date on which the Committee awarded the Option. (f) "Employer" means the Company or the Subsidiary for which you are performing services on the Date of Exercise, or for which you were performing services at the time of your death, disability or other termination of employment. (g) "Expiration Date" means the earliest of the following: (i) If you cease to be employed by the Employer for any reason other than death, disability or retirement (as determined by the Committee), the date three months after the termination of employment; (ii) If you cease to be employed by the Employer because of death or disability (as determined by the Committee), the date twelve months after the date you terminate employment; (iii) The 10th anniversary of the Date of Grant; or (iv) The occurrence of any of the activities specified in Paragraph 6 hereof. (h) "Fair Market Value" means the Fair Market Value of a share of Company common stock as determined pursuant to the Plan. (i) "Option" means the option hereby granted. (j) "Option Price" means $27.985 per Share, as calculated under the Plan. (k) "Person" means an individual, a corporation, a partnership, an association, a trust or other entity or organization. (l) "Plan" means the West Pharmaceutical Services, Inc. 1998 Key Employee Incentive Compensation Plan, the terms of which are incorporated herein by reference. (m) "Share Price" means the closing price of the Company's common stock quoted in the New York Stock Exchange Composite Transactions as published in the New York edition of The Wall Street Journal. (n) "Shares" means the 160,000 shares of the Company's common stock, par value $.25 per share, which are the subject of the Option hereby granted. (o) "Subsidiary" means any corporation that, at the time in question, is a subsidiary corporation of the Company within the meaning of Section 425(f) of the Code. 2. Grant of Option. The Company grants to you, as of the Date of Grant, the Option to purchase any or all of the Shares, on the terms and conditions set forth herein and in the Plan. The Option hereby granted is a non-qualified stock option. 3. Time of Exercise. (a) The Option shall become exercisable in four equal installments of 40,000 Shares on the first through fourth anniversaries of the Date of Grant as follows: Date on Which Shares No. of Shares First Become Exercisable 40,000 April 30, 2003 40,000 April 30, 2004 40,000 April 30, 2005 40,000 April 30, 2006 provided, however, the Option shall become immediately exercisable in full as and to the extent provided in that certain Employment Agreement dated as of April 30, 2002 between the Company and you. (b) After each installment becomes exercisable, it shall remain exercisable until the Expiration Date, when the right to exercise shall terminate absolutely. 4. Payment for Shares. Full payment for Shares purchased upon the exercise of the Option shall be made in cash, common stock of the Company valued at its Fair Market Value on the Date of Exercise, or in a combination thereof, as the Committee may determine. Such determination may include a restriction on the use of any Shares unless they have been held by you for at least six months before delivery, and have not been used for another exercise during such period. 5. Forfeiture of Option and Option Gain Upon Certain Events. Notwithstanding any provision of this Agreement to the contrary, if at any time within (i) the term of this Option or (ii) within three months following termination of employment or (iii) within three months after you exercise any portion of this Option, whichever is the latest, you directly or indirectly engage in any activity in competition with any activity of the Company, or inimical, contrary or harmful to the interests of the Company, including without limitation: (a) conduct related to your employment for which either criminal or civil penalties against you may be sought; (b) acquisition of a direct or indirect interest or an option to acquire such an interest in any Person engaged in competition with, the Company's business (other than an interest of not more than 5 percent of the outstanding stock of any publicly traded company); (c) accepting employment with or serving as a director, officer, employee or consultant of, or furnishing information to, or otherwise facilitating the efforts of, any Person engaged in competition with the Company's business; (d) soliciting, employing, interfering with or attempting to entice away from the Company any employee who has been employed by the Company in an executive or supervisory capacity within one year prior to such solicitation, employment, interference or enticement; (e) violation of Company policies, including the Company's insider-trading policy; or (f) using for yourself or others, or disclosing to others, any confidential or proprietary information of the Company in contravention of any Company policy or agreement, then any and all rights to exercise this Option shall terminate and you shall pay any option gain realized by you from exercising all or any portion of this Option by you to the Company. 6. Right of Set-Off. By accepting this agreement, you consent to a deduction from any amounts the Company owes you, including amounts owed as wages or other compensation, fringe benefits, or vacation paid, to the extent of the amount owed under Paragraph 5 hereof. Whether or not the Company elects to make any set-off in whole or in part, if the Company does not recover by means of set-off the full amount you owe, calculated as set forth above, you agree to pay immediately the unpaid balance to the Company. 7. Committee Discretion. The Committee may release you from your obligations under Paragraph 5 if the Committee (or its duly appointed agent) determines in its sole discretion that such action is in the best interests of the Company. 8. Securities Laws. The Committee may from time to time impose any conditions on the exercise of the Option as it deems necessary or advisable to ensure that all rights granted under the Plan satisfy the requirements of the Securities and Exchange Commission Rule 16b-3 or any successor rule. Such conditions may include, without limitation, the partial or complete suspension of the right to exercise the Option. 9. Issuance of Certificates. Subject to the provisions of Paragraph 9 hereof, a certificate for the Shares issuable on the exercise of the Option shall be delivered to you or to your personal representative, heir or legatee as promptly as possible after the Date of Exercise, provided that no certificates for Shares will be so delivered until (a) appropriate arrangements have been made with Employer for the withholding of any taxes which may be due with respect to such Shares and (b) the Option Price has been paid in full. The Company may condition delivery of certificates for Shares upon the prior receipt from you of any undertakings which it may determine are required to assure that the certificates are being issued in compliance with federal and state securities laws. 10. Rights Prior to Exercise. Neither you nor your personal representative, heir or legatee shall have any of the rights of a shareholder with respect to any Shares until the date of the issuance to you of a certificate for such Shares as provided in Paragraph 9 hereof. 11. Status of Option; Interpretation. The Option is intended to be a non-qualified stock option. The Committee shall have sole power to resolve any dispute or disagreement arising out of this Agreement. The interpretation and construction of any provision of this Option or the Plan made by the Committee shall be final and conclusive and, insofar as possible, shall be consistent with the requirements of a non-qualified stock option. 12. Entire Agreement. The parties intend this Agreement to be the final expression of their agreement and to be a complete and exclusive statement of their agreement and understanding in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. IN WITNESS WHEREOF, the parties have executed this Agreement in two counterparts as of the date stated above. WEST PHARMACEUTICAL SERVICES, INC. By:------------------------------------- Richard D. Luzzi, Vice President, Human Resources ------------------------------------- ---------------------------- DONALD E. MOREL, JR. (Witness Signature) (Employee's Signature) EXHIBIT "B" AGREEMENT AND GENERAL RELEASE - -------------------------------------------------------------------------------- NOTICE: This is a very important legal document, and you should thoroughly review and understand the terms and effect of this document before signing it. By signing this Agreement and General Release, you will be completely releasing West Pharmaceutical Services, Inc. from all liability to you. Therefore, you should consult with an attorney before signing this Agreement and General Release. You have 21 days from the date of distribution of these materials to consider this document. If you have not returned a signed copy of this Agreement and General Release by that time, we will assume that you have elected not to sign the Agreement and General Release. If you choose to sign the Agreement and General Release, you will have an additional seven (7) days following the date of your signature to revoke the Agreement and General Release, and the Agreement and General Release shall not become effective or enforceable until the revocation period has expired. - -------------------------------------------------------------------------------- Intending to be legally bound by the provisions of this Agreement and in consideration of the negotiated payments and benefits specified in the accompanying agreement which shall be incorporated as if fully set forth within, dated ------------------, between West Pharmaceutical Services, Inc. and me, providing valuable consideration to which I would otherwise not be entitled, I, - -------------------- hereby release and discharge West Pharmaceutical Services, Inc. and its affiliates, parents, subsidiaries, successors, and predecessors and all of their employees, agents, attorneys, officers, and directors (individually and collectively referred to as the "Company") from any and all claims and/or causes of action, known or unknown, which I may have or could claim to have against the Company in connection with my employment with the Company up to and including the date of my signing of this General Release. This General Release includes, but is not limited to, all claims arising from or during my employment or as a result of the termination of my employment and all claims arising under federal, state, or local laws prohibiting employment discrimination based upon age, race, sex, religion, handicap, national origin, or any other protected characteristic, including, but not limited to, any and all claims arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964 and 1991, the Americans with Disabilities Act, the Family and Medical Leave Act, the Equal Pay Act, the Pennsylvania Wage Payment and Collection Law, the Pennsylvania Human Relations Act, any other federal, state or local labor or employment law, and claims under the common law and/or growing out of any legal restrictions, express or implied, in contract or on any other grounds, or the Company's right to control or terminate the employment fits employees. By signing below, I acknowledge that I have carefully read and fully understand the provisions of this Agreement and General Release. I further acknowledge that I am signing this Agreement and General Release knowingly and voluntarily and without duress, coercion or undue influence. I further agree that should I file a claim with any agency or any lawsuit in court which is found to be barred in whole or in part by this General Release, I will pay the legal fees and costs incurred by the Company in defending those claims found to be barred and shall also be obligated to tender back upon filing of such complaint in state or federal court or before any administrative agency any consideration that I have received pursuant to the severance arrangements provided within the accompanying Letter Agreement. This Agreement and General Release constitutes the total and complete understanding between me and the Company relating to the subject matter covered by this Agreement and General Release and all other prior or contemporaneous written oral agreements or representations, except the accompanying Letter Agreement setting forth the terms of my severance arrangement, if any, otherwise relating to the subject matter of this Agreement and General Release are null and void. It is also expressly understood and agreed that the terms of this Agreement and General Release may not be altered except in writing signed by both the Company and me. I further understand and agree that the terms and conditions of this Agreement and General Release shall not be communicated to any persons other than those referred to herein and to my spouse or legal counsel, if applicable. INTENDING TO BE LEGALLY BOUND, I hereby set my hand and seal below: Witnessed by: [EMPLOYEE NAME] - --------------------------------- ---------------------------------- Dated: Dated: --------------------------- ------------------------------ EXHIBIT "C" ATTACHMENT INTELLECTUAL PROPERTY DISCLOSURE I currently am listed on two patent applications pertaining to materials for satellite structures. The first is a design for a precision deployable reflector which is used to concentrate solar energy into a heat engine, consisting of thin layers of metal protected by a transparent oxide overcoat. The second is a multi-layer insulation concept for protecting spacecraft in low earth orbit. ADVANCED MATERIALS CONSULTING Prior to joining The West Company, I formed a corporation in the state of Maryland called The AMT (Advanced Materials Technology) Group, Inc. This company was formed to provide technical services to various customers performing aerospace and defense related research focused on composite materials testing, spacecraft design, and materials processing in space. The contracts currently in place cover the Army, NASA, Analex Corporation, and STR, Inc. There are also two outstanding bids to the Navy and Air Force. AMT is also involved with a small Virginia business, Artech Corp., and the Medical College of Virginia, in a cooperative research program to study plasma coated titanium implants for dental and orthopaedic applications. I anticipate a series of patent applications to result from this work and will provide additional information when available. A proposal was also sent to NIH which is currently under review. I intend to complete my obligations to current clients as soon as possible and have stopped accepting new task orders. Because the technical focus of this work is on structural composites and load bearing implant materials, I do not believe it presents a potential conflict of interest with my duties at West. However to preclude any potential for the appearance of COI I will cease my direct involvement with these efforts in early 1993. /s/ D. E. Morel Jr. 11 November 1992 EX-10 6 exh10d.txt EXH 10D NON-QUALIFIED STOCK OPTION AGREEMENT Exhibit (10)(d) WEST PHARMACEUTICAL SERVICES, INC. NON-QUALIFIED STOCK OPTION AGREEMENT - -------------------------------------------------------------------------------- As of April 30, 2002, West Pharmaceutical Services, Inc. (referred to as the "Company") and Donald E. Morel, Jr. (referred to as "you" and "your"), agree: 1. Definitions. As used herein: (a) "Board" means the Board of Directors of the Company. (b) "Code" means the Internal Revenue Code of 1986, as amended. (c) "Committee" means those members of the Board who have been designated pursuant to the Plan to act in that capacity. (d) "Date of Exercise" means the date on which you deliver the notice required by Paragraph 5 hereof in accordance with the Plan document. (e) "Date of Grant" means April 30, 2002, the date on which the Committee awarded the Option. (f) "Employer" means the Company or the Subsidiary for which you are performing services on the Date of Exercise, or for which you were performing services at the time of your death, disability or other termination of employment. (g) "Expiration Date" means the earliest of the following: (i) If you cease to be employed by the Employer for any reason other than death, disability or retirement (as determined by the Committee), the date three months after the termination of employment; (ii) If you cease to be employed by the Employer because of death or disability (as determined by the Committee), the date twelve months after the date you terminate employment; (iii) The 10th anniversary of the Date of Grant; or (iv) The occurrence of any of the activities specified in Paragraph 6 hereof. (h) "Fair Market Value" means the Fair Market Value of a share of Company common stock as determined pursuant to the Plan. (i) "Option" means the option hereby granted. (j) "Option Price" means $27.985 per Share, as calculated under the Plan. (k) "Person" means an individual, a corporation, a partnership, an association, a trust or other entity or organization. (l) "Plan" means the West Pharmaceutical Services, Inc. 1998 Key Employee Incentive Compensation Plan, the terms of which are incorporated herein by reference. (m) "Share Price" means the closing price of the Company's common stock quoted in the New York Stock Exchange Composite Transactions as published in the New York edition of The Wall Street Journal. (n) "Shares" means the 160,000 shares of the Company's common stock, par value $.25 per share, which are the subject of the Option hereby granted. (o) "Subsidiary" means any corporation that, at the time in question, is a subsidiary corporation of the Company within the meaning of Section 425(f) of the Code. 2. Grant of Option. The Company grants to you, as of the Date of Grant, the Option to purchase any or all of the Shares, on the terms and conditions set forth herein and in the Plan. The Option hereby granted is a non-qualified stock option. 3. Time of Exercise. (a) The Option shall become exercisable in four equal installments of 40,000 Shares on the first through fourth anniversaries of the Date of Grant as follows: Date on Which Shares No. of Shares First Become Exercisable 40,000 April 30, 2003 40,000 April 30, 2004 40,000 April 30, 2005 40,000 April 30, 2006 provided, however, the Option shall become immediately exercisable in full as and to the extent provided in that certain Employment Agreement dated as of April 30, 2002 between the Company and you. (b) After each installment becomes exercisable, it shall remain exercisable until the Expiration Date, when the right to exercise shall terminate absolutely. 4. Payment for Shares. Full payment for Shares purchased upon the exercise of the Option shall be made in cash, common stock of the Company valued at its Fair Market Value on the Date of Exercise, or in a combination thereof, as the Committee may determine. Such determination may include a restriction on the use of any Shares unless they have been held by you for at least six months before delivery, and have not been used for another exercise during such period. 5. Forfeiture of Option and Option Gain Upon Certain Events. Notwithstanding any provision of this Agreement to the contrary, if at any time within (i) the term of this Option or (ii) within three months following termination of employment or (iii) within three months after you exercise any portion of this Option, whichever is the latest, you directly or indirectly engage in any activity in competition with any activity of the Company, or inimical, contrary or harmful to the interests of the Company, including without limitation: (a) conduct related to your employment for which either criminal or civil penalties against you may be sought; (b) acquisition of a direct or indirect interest or an option to acquire such an interest in any Person engaged in competition with, the Company's business (other than an interest of not more than 5 percent of the outstanding stock of any publicly traded company); (c) accepting employment with or serving as a director, officer, employee or consultant of, or furnishing information to, or otherwise facilitating the efforts of, any Person engaged in competition with the Company's business; (d) soliciting, employing, interfering with or attempting to entice away from the Company any employee who has been employed by the Company in an executive or supervisory capacity within one year prior to such solicitation, employment, interference or enticement; (e) violation of Company policies, including the Company's insider-trading policy; or (f) using for yourself or others, or disclosing to others, any confidential or proprietary information of the Company in contravention of any Company policy or agreement, then any and all rights to exercise this Option shall terminate and you shall pay any option gain realized by you from exercising all or any portion of this Option by you to the Company. 6. Right of Set-Off. By accepting this agreement, you consent to a deduction from any amounts the Company owes you, including amounts owed as wages or other compensation, fringe benefits, or vacation paid, to the extent of the amount owed under Paragraph 5 hereof. Whether or not the Company elects to make any set-off in whole or in part, if the Company does not recover by means of set-off the full amount you owe, calculated as set forth above, you agree to pay immediately the unpaid balance to the Company. 7. Committee Discretion. The Committee may release you from your obligations under Paragraph 5 if the Committee (or its duly appointed agent) determines in its sole discretion that such action is in the best interests of the Company. 8. Securities Laws. The Committee may from time to time impose any conditions on the exercise of the Option as it deems necessary or advisable to ensure that all rights granted under the Plan satisfy the requirements of the Securities and Exchange Commission Rule 16b-3 or any successor rule. Such conditions may include, without limitation, the partial or complete suspension of the right to exercise the Option. 9. Issuance of Certificates. Subject to the provisions of Paragraph 9 hereof, a certificate for the Shares issuable on the exercise of the Option shall be delivered to you or to your personal representative, heir or legatee as promptly as possible after the Date of Exercise, provided that no certificates for Shares will be so delivered until (a) appropriate arrangements have been made with Employer for the withholding of any taxes which may be due with respect to such Shares and (b) the Option Price has been paid in full. The Company may condition delivery of certificates for Shares upon the prior receipt from you of any undertakings which it may determine are required to assure that the certificates are being issued in compliance with federal and state securities laws. 10. Rights Prior to Exercise. Neither you nor your personal representative, heir or legatee shall have any of the rights of a shareholder with respect to any Shares until the date of the issuance to you of a certificate for such Shares as provided in Paragraph 9 hereof. 11. Status of Option; Interpretation. The Option is intended to be a non-qualified stock option. The Committee shall have sole power to resolve any dispute or disagreement arising out of this Agreement. The interpretation and construction of any provision of this Option or the Plan made by the Committee shall be final and conclusive and, insofar as possible, shall be consistent with the requirements of a non-qualified stock option. 12. Entire Agreement. The parties intend this Agreement to be the final expression of their agreement and to be a complete and exclusive statement of their agreement and understanding in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. IN WITNESS WHEREOF, the parties have executed this Agreement in two counterparts as of the date stated above. WEST PHARMACEUTICAL SERVICES, INC. By: /s/ Richard D. Luzzi -------------------------------- Richard D. Luzzi, Vice President, Human Resources /s/ Donald E. Morel, Jr /s/ Suzanne E. Patrick --------------------------------- --------------------------------- DONALD E. MOREL, JR. (Witness Signature) (Employee's Signature) EX-99 7 exh99a.txt EXH 99A CERTIFICATION PER SARBANES Exhibit 99 (a) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of West Pharmaceutical Services, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2002 filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Donald E. Morel, Jr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company. /S/ Donald E. Morel, Jr. - ------------------------------------- Donald E. Morel, Jr. President and Chief Executive Officer November 14, 2002 EX-99 8 exh99b.txt EXH 99B CERTIFICATION PER SARBANES Exhibit 99 (b) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of West Pharmaceutical Services, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2002 filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Linda R. Altemus, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company. /s/ Linda R. Altemus - ---------------------------------- Linda R. Altemus Vice President and Chief Financial Officer November 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----