NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF
VITAL SIGNS, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Vital
Signs, Inc. (the 'Company' or 'Vital Signs') will be held at the Company's
headquarters, 20 Campus Road, Totowa, New Jersey, on Friday, June 10, 2005 at
10:00 a.m. local time, to consider and act upon the following:
1. The election of two directors as described in the attached proxy
statement.
2. To consider and act upon any other matter which may properly come
before the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 10, 2005 as
the date for determining the shareholders of record entitled to receive notice
of, and to vote at, the Annual Meeting.
By Order of the Board of Directors
Jay Sturm
Secretary
Totowa, New Jersey
May 12, 2005
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. RETURNING THE PROXY
WILL NOT LIMIT YOUR RIGHT TO VOTE AT THE MEETING IF YOU LATER DECIDE TO ATTEND
IN PERSON.
VITAL SIGNS, INC.
20 CAMPUS ROAD
TOTOWA, NEW JERSEY 07512
---------------------
PROXY STATEMENT
---------------------
The following statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Vital Signs, Inc. (the 'Company' or 'Vital
Signs'), a New Jersey corporation. Such proxies are to be used at the Company's
Annual Meeting of Shareholders to be held at the Company's headquarters,
20 Campus Road, Totowa, New Jersey, on Friday, June 10, 2005 commencing at
10:00 a.m., local time. This Proxy Statement and the enclosed form of proxy are
first being sent to shareholders on or about May 12, 2005.
SHAREHOLDERS ENTITLED TO VOTE
Only holders of record of the Company's Common Stock (the 'Common Stock') at
the close of business on May 10, 2005 (the record date fixed by the Board of
Directors) will be entitled to receive notice of, and to vote at, the Annual
Meeting. At the close of business on the record date, there were 12,640,229
shares of Common Stock outstanding and entitled to vote at the Annual Meeting.
Each such share is entitled to one vote and there is no right to cumulate votes
in the election of directors.
VOTING; REVOCATION OF PROXY; QUORUM AND VOTE REQUIRED
A form of proxy is enclosed for use at the Annual Meeting if a shareholder
is unable to attend in person. Each proxy may be revoked at any time before it
is exercised by giving written notice to the Secretary of the Annual Meeting or
by submitting a duly executed, later-dated proxy. All shares represented by
valid proxies pursuant to this solicitation (and not revoked before they are
exercised) will be voted as specified in the form of proxy. If the proxy is
signed but no specification is given, the shares will be voted FOR election of
the Board's nominees to the Board of Directors.
A majority of the shares outstanding on the record date will constitute a
quorum for purposes of the Annual Meeting. Assuming that a quorum is present,
the election of directors will be effected by a plurality vote of the votes cast
at the Annual Meeting. For purposes of determining the votes cast with respect
to any matter presented for consideration at the Annual Meeting, only those
votes cast 'for' or 'against' are included. Abstentions and broker non-votes are
counted only for the purpose of determining whether a quorum is present at the
Annual Meeting.
COSTS OF SOLICITATION
The entire cost of soliciting these proxies will be borne by the Company. In
following up the original solicitation of the proxies by mail, the Company may
make arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy materials to the beneficial owners of the
Common Stock and may reimburse them for their expenses in so doing. If
necessary, the Company may also use its officers and their assistants to solicit
proxies from the shareholders, either personally or by telephone or special
letter.
PRINCIPAL SHAREHOLDERS; BENEFICIAL OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of March 15, 2005 by (i) each person who is
known by the Company to own beneficially more than five percent of the Common
Stock; (ii) trusts maintained for the benefit of the children of Terry D. Wall,
the Company's principal shareholder and chief executive officer; (iii) each
Named Executive Officer (as defined herein), director and nominee of the
Company; and (iv) all directors, nominees and current executive officers of the
Company as a group. Unless otherwise indicated, each of the named shareholders
possesses sole voting and investment power with respect to the shares
beneficially owned.
Shares covered by stock options are included in the table below only to the
extent that such options may be exercised by May 15, 2005.
SHAREHOLDER NUMBER PERCENT
----------- ------ -------
Terry D. Wall (1)(2)........................................ 4,285,926 33.6%
Trusts for the benefit of the minor children of Terry D.
Wall (1)(3)............................................... 2,420,327 19.1%
Barclays Global Investors, N.A. (45 Fremont Street, San
Francisco, CA 94105-2228)................................. 689,735 5.5%
Barry Wicker (4)............................................ 326,265 2.6%
David J. Bershad (5)........................................ 111,351 *
Howard W. Donnelly (6)...................................... 16,125 *
David H. MacCallum (7)...................................... 12,000 *
Richard L. Robbins (8)...................................... 12,000 *
George A. Schapiro (9)...................................... 10,950 *
Alex Chanin................................................. -- *
Joseph J. Thomas............................................ -- *
Richard Gordon.............................................. -- *
All directors, nominees and current executive officers as a
group (ten persons) (10).................................. 4,774,617 37.0%
---------
* Represents less than one percent.
(1) The business address of Mr. Wall and the above-mentioned trusts is c/o
Vital Signs, Inc., 20 Campus Road, Totowa, New Jersey 07512.
(2) Includes 3,440,894 shares owned by Mr. Wall directly, 706,748 shares owned
by Carol Vance Wall, Mr. Wall's wife, 34,332 shares held in the Company's
401(k) plan on Mr. Wall's behalf and 103,952 shares covered by options
exercisable by Mr. Wall. Excludes shares held in trust for the benefit of
the Walls' minor children (which shares may not be voted or disposed of by
Mr. Wall or Carol Vance Wall) and shares held by a charitable foundation
established by Mr. Wall and Carol Vance Wall. Mr. Wall and Carol Vance Wall
have pledged 4,041,272 shares as collateral to a brokerage firm as security
for a loan made to them. Based on the closing sale price of the Common
Stock on December 31, 2004, the value of the shares held as collateral on
this loan represented more than 700% of the outstanding balance on this
loan as of December 31, 2004. Upon any default under this loan, the shares
collateralizing such loan may be sold in the market. The number of shares
so sold in the market may negatively impact the market price of the Common
Stock. Depending upon the number of shares sold and the number of shares
that could similarly be sold in connection with the loans described in the
next footnote, such sales could result in a change in control of the
Company.
(3) The trusts established for the benefit of the Walls' children have pledged
their shares as collateral to a financial institution to secure loans made
to them. The Company has agreed to register such shares for resale, at the
trusts' expense, in the event that such financial institution acquires such
shares upon a default and thereafter desires to sell such shares. Based on
the closing sale price of our common stock on December 31, 2004, the value
of the shares held as collateral on these loans represented more than 400%
of the outstanding balance on these loans as of December 31, 2004. Upon any
default under these loans, the shares collateralizing such loans may be
sold in the market. The number of shares so sold in the market may
negatively impact the market price of the Common Stock. Depending upon the
number of shares sold and the number of shares that could similarly be sold
in connection with the loan described in the immediately preceding
footnote, such sales could result in a change in control of the Company. As
trustee of the trusts maintained for the benefit of the minor children of
Terry D. Wall, Anthony J. Dimun has the power to vote and dispose of each
of the shares held in such trusts and thus is deemed to be the beneficial
owner of such shares under applicable regulations of the Securities and
Exchange Commission. The business address of Mr. Dimun is c/o Strategic
Concepts, LLC, 46 Parsonage Hill Road, Short Hills, New Jersey 07078.
(footnotes continued on next page)
2
(footnotes continued from previous page)
(4) Includes 256,927 shares owned by Mr. Wicker directly, 13,454 shares held in
the Company's 401(k) plan on Mr. Wicker's behalf, and 55,884 shares covered
by options exercisable by Mr. Wicker. Excludes shares held in insurance
trusts maintained for the benefit of Mr. Wicker's children, which shares
may not be voted or disposed of by Mr. Wicker or his wife.
(5) Includes 52,641 shares owned by Mr. Bershad directly, 2,000 shares owned by
Mr. Bershad's wife as to which Mr. Bershad disclaims beneficial ownership,
and 56,710 shares covered by options exercisable by Mr. Bershad.
(6) These 16,125 shares are covered by options exercisable by Mr. Donnelly.
(7) These 12,000 shares are covered by options exercisable by Mr. MacCallum.
(8) These 12,000 shares are covered by options exercisable by Mr. Robbins.
(9) These 10,950 shares are covered by options exercisable by Mr. Schapiro.
(10) Includes 267,621 shares covered by options exercisable by the Company's
current executive officers, directors and nominees, and 47,786 shares held
in the Company's 401(k) plan.
Percent of class is based on 12,642,700 shares of Common Stock outstanding
on March 15, 2005.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and 10% shareholders to file with the Securities
and Exchange Commission certain reports regarding such persons' ownership of the
Company's securities. The Company is required to disclose any failures to file
such reports on a timely basis. The Company is not aware of any such untimely
filings during the fiscal year ended September 30, 2004 that haven not been
disclosed previously in the Company's proxy statements, except that Barry Wicker
(a director and officer of the Company) reported late amendments to correct the
erroneous reporting of a sale on November 17, 2003 and a miscalculation of
direct ownership of shares on February 27, 2004 and David J. Bershad (a director
of the Company) reported late an option exercise that occurred on September 7,
2004. All of these late filings were inadvertent, and the filings were made
promptly after the failures to file were noted.
INDEPENDENT BOARD MEMBERS
The following members of the Board of Directors have been determined to be
'independent directors' pursuant to the definition contained in Rule 4200(a)(15)
of the National Association of Securities Dealers' ('NASD') Marketplace rules:
Mr. Bershad, Mr. Donnelly, Mr. MacCallum, Mr. Robbins and Mr. Schapiro.
PROPOSAL ONE
ELECTION OF DIRECTORS
Unless a shareholder either indicates 'withhold authority' on his proxy or
indicates on his proxy that his shares should not be voted for certain nominees,
it is intended that the persons named in the proxy will vote for the election of
the persons named in Table I below to serve until the expiration of their
respective terms and thereafter until their successors shall have been duly
elected and qualified. If elected, the nominees will serve for three year terms.
Discretionary authority is also solicited to vote for the election of a
substitute for any of said nominees who, for any reason presently unknown,
cannot be a candidate for election. Each of the nominees is currently a member
of the Company's Board of Directors.
Table I sets forth the names and ages (as of January 1, 2005) of the
nominees for election to the Board of Directors, the positions and offices
presently held by each such person within Vital Signs, the period during which
each such person has served on the Company's Board of Directors, the expiration
of their respective terms and the principal occupations and employment of each
such person during the past five years. Table II sets forth comparable
information with respect to those directors whose terms of office will continue
beyond the date of the Annual Meeting. Unless otherwise indicated, positions
have been held for more than five years.
3
TABLE I
NOMINEES FOR ELECTION AS DIRECTORS
EXPIRATION
DIRECTOR OF TERM
NAME AND AGE SINCE IF ELECTED BUSINESS EXPERIENCE(A)
------------ ----- ---------- ----------------------
Terry D. Wall, 63 1972 2008 President and Chief Executive Officer of the
Company.
Barry Wicker, 64 1985 2008 Executive Vice President -- Sales of the
Company.
TABLE II
CONTINUING DIRECTORS
DIRECTOR EXPIRATION
NAME AND AGE SINCE OF TERM BUSINESS EXPERIENCE(A)
------------ ----- ------- ----------------------
David J. Bershad, 63 1991 2006 Member of the law firm of Milberg Weiss Bershad
Hynes & Lerach LLP.
Howard W. Donnelly, 43 2002 2006 President and principal of Concert Medical, LLC
(a medical device manufacturer) (February,
2005 to present); Acting CEO of Thermics,
Inc. (a start-up medical device company with
an operating room based product) (November,
2004 to present); President/Chief Executive
Officer of Alphaport, Inc. (a hemodialysis
device manufacturer) (October, 2002 to
present); President of Level 1, Inc., a
medical device manufacturer and a wholly-
owned subsidiary of Smith Industries (March,
1999 to April, 2002); Vice President of
Business Planning and Development, Pfizer (a
pharmaceutical company) (1997 to 1999). He is
also currently a Board member of
Angiodynamics, Inc. (NASDAQ: ANGO).
David H. MacCallum, 66 2002 2007 Managing Partner of Outer Islands Capital
(private equity partnership) (April 2002 to
present); Managing Director-Global Head of
Health Care, Salomon Smith Barney (investment
banking firm) (1999 to November 2001);
Executive Vice President, Head of Healthcare,
ING Baring Furman Selz, LLC (investment
banking firm) (April 1998 to June 1999);
Managing Director for Life Sciences
Investment Banking, UBS Securities LLC
(investment banking firm) (1994 to March
1998); Co-Head, Investment Banking, Hambrecht
& Quist LLC (investment banking firm) (1983-
1994).
Richard L. Robbins, 64 2003 2007 Senior Vice President, Financial Reporting and
Control of Footstar, Inc.* (nationwide
retailer of footwear) (2003 to present);
Partner, Robbins Consulting LLP (financial,
strategic and management consulting firm)
(July 2002 to October 2003); Partner of
Arthur Andersen LLC (1978 to 2002). Member of
the Board of Directors and Audit Committee of
BioScrip, Inc. (NASDAQ BIOS), a company
engaged in providing pharmaceutical care
solutions.
(table continued on next page)
4
(table continued from previous page)
DIRECTOR EXPIRATION
NAME AND AGE SINCE OF TERM BUSINESS EXPERIENCE(A)
------------ ----- ------- ----------------------
George A. Schapiro, 58 2003 2007 General Management Consultant (1991 to
present); President/Chief Executive Officer
of Andros Incorporated (an original equipment
manufacturer of gas analysis subsystems for
medical and industrial instrumentation) (1976
to 1991).
---------
(A) In each instance in which dates are not provided in connection with a
director's business experience, such director has held the position
indicated for at least the past five years. Messrs. Wall, Dimun, MacCallum
and Bershad are investors in X-Site Medical, LLC, and serve as Board
members of X-Site Medical, LLC. (See 'Certain Relationships and Related
Transactions'). X-Site Medical, LLC is a private company.
* On March 3, 2004, Footstar, Inc. announced that, in order to effect a
financial and operational restructuring, it and substantially all of its
subsidiaries filed voluntary petitions on March 2, 2004 with the U.S.
Bankruptcy Court for the Southern District of New York for reorganization
under Chapter 11 of the U.S. Bankruptcy Code.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth, for the fiscal years ended September 30,
2004, 2003 and 2002, the annual and long-term compensation of the Company's
Chief Executive Officer and the other individuals who served as executive
officers of the Company at the end of fiscal 2004 and received greater than
$100,000 in salary and bonus during fiscal 2004 (the 'Named Executive
Officers'):
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------------------------
-------------------------------------------- COMMON SHARES
OTHER SUBJECT
ANNUAL TO OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION(B) GRANTED (#) COMPENSATION(C)
--------------------------- ---- ------ -------- --------------- ----------- ---------------
Terry D. Wall ..................... 2004 $233,077 $ 11,138 $ 6,450 -- $4,721
President and Chief Executive 2003 225,000 10,735 6,000 -- 4,279
Officer 2002 225,000 46,735 6,000 -- 3,443
Barry Wicker ...................... 2004 151,976 5,241 6,450 -- 3,626
Executive Vice President -- Sales 2003 151,250 7,331 6,000 -- 4,398
2002 151,250 31,530 6,000 -- 2,882
Joseph J. Thomas (D) .............. 2004 168,730 226,830 16,916 -- 4,625
President, Thomas Medical 2003 168,451 484,355 17,592 -- 3,417
Products ('TMP') 2002 162,240 257,690 17,541 -- 2,575
Richard Gordon .................... 2004 150,149 6,967 6,450 -- 1,262
Executive Vice President, Global 2003 144,000 6,996 6,000 25,000 299
Planning 2002 144,000 30,482 6,000 -- 1,512
Alex Chanin ....................... 2004 152,885 -- 9,000 10,000 3,696
Chief Information Officer 2003 130,000 65,000 6,000 -- 1,606
2002 62,500 -- -- -- --
---------
(A) Reflects bonuses in the fiscal year earned, which may not correspond with
the fiscal year paid. Bonuses earned in fiscal 2004 were awarded under the
Company's Well-Pay Policy and in conjunction with the Company's performance
incentive program. The Well-Pay Policy covers all
(footnotes continued on next page)
5
(footnotes continued from previous page)
Company personnel working in the Company's headquarters in Totowa, New
Jersey and in certain of the Company's subsidiaries. Under the Policy, an
additional day's pay is earned by any employee having perfect attendance
for the preceding month. In addition, payments of $200 to $400 are earned
by employees having perfect attendance for one or more consecutive years.
(B) Comprised entirely of monthly car allowances.
(C) 'Compensation' reported under this column for the year ended September 30,
2004 includes: (i) contributions of $3,100, $2,353, $3,727, $0 and $2,432,
respectively, for Messrs. Wall, Wicker, Thomas, Gordon and Chanin,
respectively, to the Company's 401(k) Plan on behalf of the Named Executive
Officers to match pre-tax elective deferral contributions (included under
'Salary') made by each Named Executive Officer to that Plan and
(ii) premiums of $1,621, $1,273, $898, $1,262, and $1,262 respectively,
with respect to life insurance purchased by the Company for the benefit of
Messrs. Wall, Wicker, Thomas, Gordon and Chanin, respectively.
(D) Effective October 1, 2001, Mr. Thomas and TMP entered into a three year
employment agreement, pursuant to which Mr. Thomas was paid a base salary
of $168,451 in fiscal 2004. His salary was increased annually by the same
percentage increase as salaries generally increased for employees of the
Company. For purposes of calculating the increase for fiscal 2004, that
figure was 4%. Mr. Thomas was guaranteed an annual bonus of $212,450 during
the term. He was also entitled to receive an additional bonus based on
TMP's performance. Mr. Thomas' wife was also an employee of TMP and TMP had
entered into a similar agreement with her. Her base salary for fiscal 2004
was $80,663 and her guaranteed annual bonus was $77,757. On November 30,
2001, pursuant to unsecured promissory notes bearing interest at 5.5% per
annum, the Company loaned Mr. Thomas the sum of $637,350 and loaned his
wife $233,370. The notes were paid on or before December 7, 2004.
Mr. Thomas resigned as an officer and director of the Company on October 1,
2004. See 'Certain Relationships and Related Transactions.'
STOCK OPTIONS
The following table contains information regarding the grant of stock
options to the Named Executive Officers during the year ended September 30,
2004. In addition, in accordance with rules adopted by the Securities and
Exchange Commission (the 'SEC'), the following table sets forth the hypothetical
gains or 'options spreads' that would exist for the respective options assuming
rates of annual compound price appreciation in the Company's Common Stock of 5%
and 10% from the date the options were granted to their final expiration date.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS/SARS OF STOCK APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN EXERCISE OR EXPIRATION --------------------------
NAME GRANTED(#) FISCAL YEAR BASE PRICE DATE 5%($) 10%($)
---- ---------- ----------- ---------- ---- ----- ------
Terry D. Wall.......... $-- -- $-- -- $ -- $ --
Barry Wicker........... -- -- -- -- -- --
Joseph J. Thomas....... -- -- -- -- -- --
Richard Gordon......... -- -- -- -- -- --
Alex Chanin............ 10,000 9.81% 28.52 7/13/14 179,361 454,535
The following table provides data regarding the number of shares acquired on
exercise, the value realized, the number and value of shares of the Company's
Common Stock covered by both exercisable and non-exercisable stock options held
by the Named Executive Officers at September 30, 2004. The closing sales price
of the Company's Common Stock on September 30, 2004 was $31.98.
6
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END VALUES
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES YEAR-END(#) YEAR-END($)
ACQUIRED VALUE --------------------------- ---------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
Terry D. Wall................ -- -- 103,952 -- $982,002 $--
Barry Wicker................. -- -- 55,884 -- 536,250 --
Joseph J. Thomas............. -- -- -- -- -- --
Richard Gordon............... 6,250 37,938 -- 18,750 -- 83,812
Alex Chanin.................. -- -- -- 13,324 -- 40,882
ARRANGEMENTS WITH DIRECTORS
Joseph J. Thomas became a director of the Company upon the Company's
acquisition of TMP on September 30, 1992. Mr. Thomas continued to be employed by
the Company as the President of TMP until his resignation on October 1, 2004.
For further information concerning Mr. Thomas' employment agreement and for
information concerning loans made by the Company to Mr. Thomas and his wife, see
footnote (D) to the Summary Compensation Table.
The Company's 2002 Stock Incentive Plan provides that each non-employee
director will automatically receive options covering 4,000 shares of Common
Stock (with an exercise price equal to fair market value on the date of grant)
on an annual basis and is entitled to receive additional options at the
discretion of the committee administering the 2002 Stock Incentive Plan. One
half of the automatic option grants made to non-employee directors under the
2002 Stock Incentive Plan vest immediately at the time of grant. Half of the
balance may be exercised commencing one year after the date of grant and the
remainder may be exercised commencing two years after the date of grant. During
fiscal 2004, Mr. MacCallum was granted options to purchase 11,000 shares at
$32.63 per share, Mr. Robbins was granted options to purchase 8,000 shares at
$32.63 per share, Mr. Schapiro was granted options to purchase 7,500 shares at
$32.63 per share, Mr. Donnelly was granted options to purchase 14,000 shares at
$32.63 per share and Mr. Bershad was granted options to purchase 5,000 shares at
$32.63 per share.
Directors of the Company presently do not receive any cash fees for serving
in such capacity.
SHAREHOLDER COMMUNICATION WITH THE BOARD
The Company's Board of Directors has established a procedure that enables
shareholders to communicate in writing with members of the Board. Any such
communication should be addressed to Vital Signs' Secretary and should be sent
to such individual at the Company's headquarters office, 20 Campus Road, Totowa,
New Jersey 07512. Any such communication must state, in a conspicuous manner,
that it is intended for distribution to the entire Board of Directors. Under the
procedures established by the Board, upon the Secretary's receipt of such a
communication, the Secretary will send a copy of such communication to each
member of the Board, identifying it as a communication received from a
shareholder. Absent unusual circumstances, at the next regularly scheduled
meeting of the Board held more than two days after such communication has been
distributed, the Board will consider the substance of any such communication.
Board members are encouraged, but not required by any specific Board policy,
to attend the Company's annual meeting of shareholders. All of the directors
attended the 2004 Annual Meeting of Shareholders.
THE BOARD OF DIRECTORS; COMMITTEES OF THE BOARD
The Board of Directors of the Company held eight meetings during the fiscal
year ended September 30, 2004. The Board's Audit Committee, which is responsible
for reviewing significant audit and accounting principles, policies and
practices and for meeting with the Company's independent accountants, met six
times during the year ended September 30, 2004. The Audit Committee presently
consists of Messrs. Robbins, Donnelly and Schapiro.
7
The Compensation Committee, comprised of Messrs. Donnelly and MacCallum,
administers the Company's stock option plans and Investment Plan and is also
responsible for determining the compensation of the Company's chief executive
officer and other executive officers. The Compensation Committee met four times
during the year ended September 30, 2004.
Each member of the Company's Board was present for 75% or more of the
aggregate of the total meetings of the Board and each Board committee on which
he serves.
NOMINATING COMMITTEE MATTERS
The Nominating Committee is comprised of Messrs. Bershad, Donnelly,
MacCallum, Robbins and Schapiro.
Nominating Committee Charter. The Board has adopted a Nominating Committee
charter to govern its Nominating Committee. A copy of the Nominating Committee's
charter was attached to the Company's 2004 proxy statement as Appendix 1.
Independence of Nominating Committee Members. All members of the Nominating
Committee of the Board of Directors have been determined to be 'independent
directors' pursuant to the definition contained in Rule 4200(a)(15) of the
National Association of Securities Dealers' Marketplace Rules.
Procedures for Considering Nominations Made by Shareholders. The Nominating
Committee's charter describes procedures for nominations to be submitted by
shareholders and other third-parties, other than candidates who have previously
served on the Board or who are recommended by the Board. The charter states that
a nomination must be delivered to the Secretary of the Company at the principal
executive offices of the Company not later than the close of business on the
90th day nor earlier than the close of business on the 120th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that if the date of the annual meeting is more than 30 days before or more than
60 days after such anniversary date, notice to be timely must be so delivered
not earlier than the close of business on the 120th day prior to such annual
meeting and not later than the close of business on the later of the 90th day
prior to such annual meeting or the close of business on the 10th day following
the day on which public announcement of the date of such meeting is first made
by the Company. The public announcement of an adjournment or postponement of an
annual meeting will not commence a new time period (or extend any time period)
for the giving of a notice as described above. The charter requires a nomination
notice to set forth as to each person whom the proponent proposes to nominate
for election as a director: (a) all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected), and (b) information that will enable
the Nominating Committee to determine whether the candidate or candidates
satisfy the criteria established pursuant to the charter for director
candidates.
Qualifications. The charter describes the minimum qualifications for
nominees and the qualities or skills that are necessary for directors to
possess. Each nominee:
must satisfy any legal requirements applicable to members of the Board;
must have business or professional experience that will enable such
nominee to provide useful input to the Board in its deliberations;
must have a reputation in the Company's industry for honesty and ethical
conduct;
must have a working knowledge of the types of responsibilities expected of
members of a board of directors of a public corporation; and
must have experience, either as a member of the board of directors of
another public or private company or in another capacity, that
demonstrates the nominee's capacity to serve in a fiduciary position.
Identification and Evaluation of Candidates for the Board. Candidates to
serve on the Board will be identified from all available sources, including
recommendations made by shareholders. The Nominating Committee's charter
provides that there will be no differences in the manner in which the
8
Nominating Committee evaluates nominees recommended by shareholders and nominees
recommended by the Committee or management, except that no specific process
shall be mandated with respect to the nomination of any individuals who have
previously served on the Board. The evaluation process for individuals other
than existing Board members will include:
a review of the information provided to the Nominating Committee by the
proponent;
a review of reference letters from at least two sources determined to be
reputable by the Nominating Committee; and
a personal interview of the candidate,
together with a review of such other information as the Nominating Committee
shall determine to be relevant.
Third Party Recommendations. In connection with the 2005 Annual Meeting, the
Nominating Committee did not receive any nominations from any shareholder or
group of shareholders which owned more than 5% of the Company's Common Stock for
at least one year.
AUDIT COMMITTEE MATTERS
The following report of the Audit Committee is not to be deemed 'soliciting
material' or deemed to be filed with the Securities and Exchange Commission or
subject to Regulation 14A of the Securities Exchange Act of 1934, except to the
extent specifically requested by the Company or incorporated by reference in
documents otherwise filed.
Audit Committee Charter. The Audit Committee has adopted a written charter
which was filed as Appendix 2 to the Company's 2004 proxy statement.
Independence of Audit Committee Members. The Common Stock is listed on the
Nasdaq National Market and the Company is governed by the listing standards
applicable thereto. Each of the members of the Audit Committee, Messrs. Robbins,
Donnelly and Schapiro, have been determined to be 'independent directors'
pursuant to the definition contained in Rule 4200(a)(15) of the National
Association of Securities Dealers' ('NASD') Marketplace Rules and under the
SEC's Rule 10A-3. The Company's Board of Directors has determined that Mr.
Robbins, the Chairman of the Audit Committee, is an 'audit committee financial
expert,' as defined by Item 401(h) of the SEC's Regulation S-K.
Audit Committee Report. In connection with the preparation and filing of the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2004:
(1) the Audit Committee reviewed and discussed the audited financial
statements with the Company's management;
(2) the Audit Committee discussed with the Company's independent
auditors the matters required to be discussed by Statement on Auditing
Standards No. 61 (Communications with Audit Committees);
(3) the Audit Committee received and reviewed the written disclosures
and the letter from the Company's independent auditors required by the
Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees) and discussed with the Company's independent auditors any
relationships that may impact their objectivity and independence and
satisfied itself as to the auditors' independence; and
(4) based on the review and discussions referred to above, the Audit
Committee recommended to the Board that the audited financial statements be
included in the 2004 Annual Report on Form 10-K.
By: The Audit Committee of the Board of Directors
Richard L. Robbins , Howard W. Donnelly, George A. Schapiro
9
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the current members of the Compensation Committee, nor anyone who
served on the Compensation Committee during the fiscal year ended September 30,
2004, is an officer, employee or former officer of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Thomas Medical Products, Inc. ('TMP'), a subsidiary of the Company, provides
product development and manufacturing services to X-Site Medical, LLC
('X-Site'), a company engaged in the development of specialized cardiovascular
products. Thomas Medical Products' sales to X-Site were approximately $67,000
during the fiscal year ended September 30, 2004, for these services. Amounts due
from X-Site are included in accounts receivable on the Company's consolidated
balance sheet and amounted to approximately $0 at September 30, 2004. The
Company believes that the rates charged to X-Site for such services are no less
favorable to the Company than those charged to similarly situated unrelated
parties. Mr. Wall (President, Chief Executive Officer and a director of the
Company) and his family limited partnership own 37.6% of X-Site. Mr. Bershad (a
director of the Company), through an investment limited partnership, Mr. Thomas
(a former director and former executive of the Company) and Mr. MacCallum (a
director of the Company) own 4.3%, 2.1% and less than 1% of X-Site,
respectively. In May, 2004, substantially all of the assets of X-Site were sold
to an unrelated third party.
REPORT OF THE COMPENSATION COMMITTEE
The following report is not to be deemed 'soliciting material' or deemed to
be filed with the Securities and Exchange Commission or subject to Regulation
14A of the Securities Exchange Act of 1934, except to the extent specifically
requested by the Company or incorporated by reference in documents otherwise
filed.
Pursuant to rules adopted by the SEC designed to enhance disclosure of
corporate policies regarding executive compensation, the Company has set forth
below a report of its Compensation Committee regarding compensation policies as
they affect Mr. Wall and the other Named Executive Officers.
The Compensation Committee views compensation of executive officers as
having three distinct parts, a current compensation program, a set of standard
benefits and a long-term benefit. The current compensation element focuses upon
the executive officer's salary and is designed to provide appropriate
reimbursement for services rendered. The Company's standard benefit package
consists primarily of the matching portion of the Company's 401(k) Plan and
eligibility for bonuses based upon performance of the Company. The long-term
benefit element has been reflected in the grants of stock options to specific
executive officers.
During the past three completed fiscal years, Mr. Wall and Mr. Wicker did
not receive any salary increase. Traditionally, Mr. Wall's salary has been set
at levels which are perceived by the Board to be below the salaries of chief
executive officers of other comparable companies. Mr. Wall, whose family
continues to own more than half of the outstanding Common Stock of the Company,
has been willing to accept such salary levels primarily because of the message
his salary sends to other executive officers, employees and shareholders.
Furthermore, Mr. Wall's personal net worth ultimately depends more on the
performance of the Company than on any specific salary level. The salaries of
each of the other Named Executive Officers are based upon prior experience,
experience with the Company, contributions to the Company and the relationship
of such individual's responsibilities to the Chief Executive Officer's
responsibilities.
Stock options granted to executive officers of the Company have historically
been granted at a price equal to fair market value. Accordingly, such options
will gain appreciable value if, and only if, the market value of the Common
Stock increases subsequent to the date of grant. The Compensation Committee
believes that the issuance of stock options at fair market value provides
incentives to employees to maximize the Company's performance and to assure
continued affiliation with the Company.
10
On March 8, 2005, the Compensation Committee adopted the 2005 Executive
Bonus Plan (the 'Bonus Plan'). Pursuant to the Bonus Plan, specified officers,
including executive officers, of the Company will be eligible to receive bonuses
based upon increases in the profitability of the Company's anesthesia,
respiratory and critical care businesses and based upon increases in the
Company's overall profitability. Under each of the two components of the Bonus
Plan, participants could be eligible for bonuses of up to 60% of annual salary.
The Compensation Committee believes that an appropriate compensation program
can help in promoting strong earnings performance if it reflects an appropriate
balance between providing rewards to executive officers while at the same time
effectively controlling cash compensation costs. It is the Committee's objective
to continue monitoring the Company's compensation program to assure that this
balance is maintained.
By: The Compensation Committee of the Board of Directors
David H. MacCallum
Howard W. Donnelly
SHAREHOLDER RETURN COMPARISON
Set forth below is a line-graph presentation comparing the cumulative
shareholder return on the Company's Common Stock on an indexed basis against the
cumulative total returns of the Nasdaq Market Index and the Media General
Medical Instruments and Supplies Group Index (consisting of 136 publicly traded
medical instrument and device companies) ('MG Group Index') for the period from
October 1, 1999 (October 1, 1999 = 100) through September 30, 2004.
The following graph is not to be deemed 'soliciting material' or deemed to
be filed with the Securities and Exchange Commission or subject to Regulation
14A of the Securities Exchange Act of 1934, except to the extent specifically
requested by the Company or incorporated by reference in documents otherwise
filed.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
SEPTEMBER 20004
[PERFORMANCE GRAPH]
NASDAQ
NASDAQ Composite-
Vital Medical Total
Signs Equipment Returns
----- --------- -------
1999 100 100 100
2000 131.04 137.13 133.99
2001 151.82 100.52 54.85
2002 147.92 94.1 43.05
2003 145.72 126.59 65.95
2004 161.58 149.18 70.38
11
AUDIT FEES AND RELATED MATTERS
In accordance with the requirements of the Sarbanes-Oxley Act of 2002 (the
'Act') and the Audit Committee's charter, all audit and audit-related work and
all non-audit work performed by the Company's independent accountants,
Goldstein, Golub, Kessler, LLP ('GGK') and American Express Tax and Business
Services ('TBS'), is approved in advance by the Audit Committee, including the
proposed fees for such work. The Audit Committee is informed of each service
actually rendered that was approved through its pre-approval process.
GGK, certified public accountants, has a continuing relationship with TBS,
from which it leases auditing staff who are full time, permanent employees of
TBS and through which its partners provide non-audit services. As a result of
this arrangement, GGK has no full time employees and, therefore, none of the
audit services performed were provided by permanent full-time employees of GGK.
GGK manages and supervises the audit and audit staff, and is exclusively
responsible for the opinion rendered in connection with its examination.
Audit Fees. Audit fees billed or expected to be billed to Vital Signs, Inc.
by GGK for the audit of the financial statements included in Vital Sign's Annual
Report on Form 10-K, and reviews of the financial statements included in Vital
Sign's Quarterly Reports on Form 10-Q, for the years ended September 30, 2004
and 2003 totaled approximately $278,000 and $264,000, respectively.
Audit-Related Fees. The Company was billed $102,000 and $189,000 by GGK for
the fiscal years ended September 30, 2004 and 2003, respectively, for assurance
and related services that are reasonably related to the performance of the audit
or review of the Company's financial statements and are not reported under the
caption Audit Fees above.
Tax Fees. The Company was billed an aggregate of $56,000 and $62,000 by TBS
for the fiscal years ended September 30, 2004 and 2003, respectively, for tax
services, principally advice regarding the preparation of income tax returns,
tax advice and planning services related to income tax returns and, in fiscal
2003, for the routine examination by the Internal Revenue Service of the
Company's 1997, 1998 and 1999 Federal tax returns.
All Other Fees. The Company was billed an aggregate of $0 and $0 by GGK and
TBS for the fiscal years ended September 30, 2004 and 2003, respectively, for
other services.
Other Matters. The Audit Committee of the Board of Directors has considered
whether the provision of the Audit-Related Fees, Tax Fees and All Other Fees are
compatible with maintaining the independence of the Company's principal
accountant.
Applicable law and regulations provide an exemption that permits certain
services to be provided by the Company's outside auditors even if they are not
pre-approved. The Company did not rely on this exemption at any time since the
Sarbanes-Oxley Act was enacted.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
GGK has been selected by the Board of Directors to audit and report on the
Company's financial statements for the fiscal year ending September 30, 2005. A
representative of that firm is expected to be present at the Annual Meeting and
will have an opportunity to make a statement if he or she so desires. The
representative is expected to be available to respond to appropriate questions
from shareholders. GGK has audited the Company's financial statements for more
than the past five years.
OTHER MATTERS
At the time that this proxy statement was mailed to shareholders, management
was not aware that any matter other than the election of directors would be
presented for action at the Annual Meeting. If other matters properly come
before the Annual Meeting, it is intended that shares represented by proxies
will be voted with respect to those matters in accordance with the best judgment
of the persons voting them.
12
If a shareholder of the Company wishes to have a proposal included in the
Company's proxy statement for the 2006 Annual Meeting of Shareholders, the
proposal must be received at the Company's principal executive offices by
January 12, 2006, and must otherwise comply with rules promulgated by the
Securities and Exchange Commission in order to be eligible for inclusion in the
proxy material for the 2006 Annual Meeting.
If a shareholder desires to bring business before the 2006 Annual Meeting
which is not the subject of a proposal complying with the SEC proxy rule
requirements for inclusion in the proxy statement, the shareholder must follow
procedures outlined in the Company's by-laws in order to personally present the
proposal at the 2006 Annual Meeting. A copy of these procedures is available
upon request from the Secretary of the Company.
One of the procedural requirements in the Company's by-laws is timely notice
in writing of the business that the shareholder proposes to bring before the
2006 Annual Meeting. Notice of business proposed to be brought before the 2006
Annual Meeting or notice of a proposed nomination to the Board of Directors must
be received by the Secretary of the Company no earlier than 120 days prior to
the first anniversary of the 2005 Annual Meeting date and no later than the
later of the 90th day prior to the first anniversary of the 2005 Annual Meeting
date or the tenth day after the Company publicly announces the date of the 2006
Annual Meeting.
By Order of the Board of Directors
Jay Sturm, Secretary
Dated: May 12, 2005
A COPY OF AN ANNUAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2004, INCLUDING
FINANCIAL STATEMENTS, ACCOMPANIES THIS PROXY STATEMENT. THE ANNUAL REPORT IS NOT
TO BE REGARDED AS PROXY SOLICITING MATERIAL OR AS A COMMUNICATION BY MEANS OF
WHICH ANY SOLICITATION IS TO BE MADE. COPIES OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-K ARE AVAILABLE WITHOUT CHARGE BY CONTACTING THE COMPANY BY TELEPHONE AT
973-790-1330 OR BY WRITING TO: INVESTOR RELATIONS, VITAL SIGNS, INC., 20 CAMPUS
ROAD, TOTOWA, NEW JERSEY 07512.
13
APPENDIX 1
ANNUAL MEETING OF SHAREHOLDERS OF
VITAL SIGNS, INC.
June 10, 2005
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
--------------------------------------------------------------------------------
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
--------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS (for the terms described in the Proxy Statement):
(to be elected by the holders of Common Stock):
NOMINEES:
[ ] FOR ALL NOMINEES O Terry D. Wall
O Barry Wicker
[ ] WITHHOLD AUTHORITY
FOR ALL NOMINEES
[ ] FOR ALL EXCEPT
(See instructions below)
The Board of Directors Recommends a Vote
"FOR ALL NOMINEES".
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that [ ]
changes to the registered name(s) on the account may not be submitted via
this method.
--------------------------------------------------------------------------------
2. The transaction of such other business as may properly come before the
meeting, and any adjournment thereof. The Board is not currently aware of
any such business.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO EXECUTE AND
RETURN THIS PROXY, WHICH MAYBE REVOKED AT ANY TIME PRIOR TO ITS USE.
Signature of Shareholder Date:
----------------------------- ------------------
Signature of Shareholder Date:
----------------------------- ------------------
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
PROXY
VITAL SIGNS, INC.
THIS PROXY FOR HOLDERS OF COMMON STOCK IS SOLICITED BY
THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 10, 2005
The shareholder of Vital Signs, Inc. (the "Company") whose signature appears
on the reverse side hereof hereby appoints William H. Craig, Jay Sturm and
Richard Feigel, and each of them, attorneys and proxies of the undersigned, with
full power of substitution, to vote, as designated on the reverse side, the
number of votes which the undersigned would be entitled to cast if personally
present at the Annual Meeting of Shareholders of the Company to be held at the
Company's headquarters, 20 Campus Road, Totowa, New Jersey, on Friday, June 10,
2005, at 10:00 a.m. local time, or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED SHAREHOLDER. IF THIS PROXY IS EXECUTED BUT NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED "FOR" EACH OF THE BOARD'S NOMINEES FOR DIRECTOR.
The proposals set forth on the reverse side are more fully described in the
Vital Signs, Inc. Notice of Annual Meeting and Proxy Statement (the Proxy
Statement).
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)