Prospectus Supplement No. 1 Dated November 10, 2003,
(To the prospectus dated October 1, 2003)
PROSPECTUS
THE COOPER COMPANIES, INC.
$115,000,000
2.625% Convertible Senior Debentures due 2023 and Shares of Common
Stock Issuable upon Conversion of the Debentures
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We sold $115,000,000 aggregate principal amount of our 2.625%
Convertible Senior Debentures due 2023 in private transactions which closed on
June 25, 2003 and July 2, 2003. Selling securityholders may use this Prospectus
to resell from time to time their debentures and the common stock issuable upon
conversion of the debentures. We will not receive any of the proceeds from the
sale of these securities.
We will pay 2.625% interest per annum on the principal amount, payable
semi-annually in arrears on January 1 and July 1 of each year beginning on
January 1, 2004. The debentures will mature on July 1, 2023.
Conversion
The debentures are convertible at the holder's option into shares of
our common stock initially at an initial conversion rate of $44.40 per share,
which is equal to a conversion rate of approximately 22.5201 shares per $1,000
principal amount of debentures (which represents an initial conversion price of
approximately $44.40 per share), subject to adjustment, under the following
circumstances only:
o during any fiscal quarter (beginning with the quarter ending October
31, 2003) if the sale price of our common stock for at least 20
consecutive trading days in the 30 consecutive trading-day period
ending on the last trading day of the immediately preceding fiscal
quarter exceeds 120% of the conversion price on that 30th trading day,
o during any five consecutive trading-day period immediately following
any five consecutive trading-day period (the "Debenture Measurement
Period") in which the average trading price for the debentures during
that Debenture Measurement Period was less than 95% of the average
conversion value for the debentures during such period; provided,
however, you may not convert your debentures after July 1, 2018 if, on
any trading day during such Debenture Measurement Period, the closing
sale price of shares of our common stock was between the then-current
conversion price of the debentures and 120% of the then-current
conversion price of the debentures,
o upon the occurrence of certain specified corporate transactions, or
o if we have called the debentures for redemption.
Redemption and Repurchase
o On or after July 1, 2008, we may redeem the debentures for cash at any
time as a whole, or from time to time in part, at a price equal to
100% of the principal amount of the debentures to be redeemed plus any
accrued and unpaid interest, including additional interest, if any,
to, but not including, the redemption date.
o On July 1 of 2008, 2013 and 2018, you may require us to repurchase all
or a portion of your debentures at a repurchase price equal to 100% of
the principal amount of those debentures plus accrued and unpaid
interest, including additional interest, if any, to, but not
including, the date of repurchase. We will pay the repurchase price
for any debentures repurchased on July 1, 2008 in cash. We may choose
to pay the
repurchase price of any debentures repurchased on July 1, 2013 and
July 1, 2018 in cash, in shares of our common stock or a combination
of cash and shares of our common stock.
o You may require us to repurchase all or a portion of your debentures
if a fundamental change, as defined in the indenture for the
debentures, occurs prior to July 1, 2013 at 100% of their principal
amount, plus any accrued and unpaid interest, including additional
interest, if any, to, but not including, the repurchase date. We may
choose to pay the purchase price in cash, shares of our common stock,
or if we are not the surviving corporation, shares of common stock,
ordinary shares or American Depositary Shares (or similar securities)
of the surviving corporation, or a combination of the applicable
securities and cash.
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The debentures originally sold in private placement transactions are eligible
for trading in the PORTAL (SM) Market of the National Association of Securities
Dealers, Inc. The debentures sold using this prospectus, however, will no longer
be eligible for trading in the PORTAL (SM) Market. We do not intend to list the
debentures on any other national securities exchange or automated quotation
system.
Our common stock is listed on the New York Stock Exchange under the ticker
symbol "COO." On September 30, 2003, the closing price for one share of our
common stock was $40.75.
Investing in the debentures involves risks. See "Risk Factors" beginning on page
6 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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Prospectus Supplement No. 1 Dated November 10, 2003,
(To prospectus dated October 1, 2003)
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this prospectus
contain "forward-looking statements" as defined by the Private Securities
Litigation Reform Act of 1995. The forward-looking statements include certain
statements pertaining to our capital resources, performance and results of
operations. In addition, all statements regarding anticipated growth in our
revenue, anticipated market conditions and results of operations are
forward-looking statements. To identify forward-looking statements look for
words like "believes," "expects," "may," "will," "should," "seeks," "intends,"
"plans," "estimates" or "anticipates" and similar words or phrases. Discussions
of strategy, plans or intentions often contain forward-looking statements.
These, and all forward-looking statements, necessarily depend on assumptions,
data or methods that may be incorrect or imprecise.
Such statements reflect the current views of the Company and its management with
respect to future events and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, our actual results, performance
or achievements could differ materially from the results expressed in, or
implied by, these forward-looking statements.
Our actual results may differ materially from the results predicted or from any
other forward-looking statements made by, or on behalf of, us and reported
results should not be considered as an indication of future performance. The
potential risks and uncertainties include, among other things, those described
under "Risk factors" elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels of
activity, performance, or achievements. We do not assume responsibility for the
accuracy and completeness of the forward-looking statements. We do not intend to
update any of the forward-looking statements after the date of this prospectus
to conform them to actual results.
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TABLE OF CONTENTS
Page
Forward-Looking Statements................................. i
Prospectus Summary......................................... 1
Risk Factors............................................... 6
Ratio of Earnings to Fixed Charges......................... 21
Use of Proceeds............................................ 21
Price Range of Common Stock and Dividend Policy............ 21
Description of the Debentures.............................. 23
Book-Entry Delivery and Settlement......................... 40
Description of Capital Stock............................... 42
Certain United States Federal Income Tax Considerations.... 46
Selling Securityholders.................................... 54
Plan of Distribution....................................... 58
Validity of Securities..................................... 60
Experts.................................................... 60
Where You Can Find More Information........................ 60
Incorporation of Certain Documents by Reference............ 60
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You should rely only on the information contained or incorporated by reference
in this prospectus and in any prospectus supplement. No one is authorized to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. The securities are not
being offered in any jurisdiction where the offer or sale is not permitted. You
should not assume that the information in this prospectus and in any prospectus
supplement or information incorporated in such documents is accurate as of any
date other than the date of such documents. Our business, financial condition,
results of operations and prospects may have changed since that date.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus and
the documents incorporated into it by reference. Because it is a summary, it
does not contain all of the information that you should consider before
investing in our securities. You should read the entire prospectus and the
documents incorporated by reference carefully, including the section entitled
"Risk factors" and the financial statements and related notes included in the
documents incorporated by reference.
As used in this prospectus, "Cooper," "company," "we," "our," and similar
pronouns refer to The Cooper Companies, Inc. and its subsidiaries, except where
the context otherwise requires or as otherwise indicated.
OVERVIEW
Cooper is a medical products company with two separate businesses:
o CooperVision is a leading contact lens manufacturer that develops,
manufactures and markets a broad range of contact lenses, emphasizing
higher margin specialty contact lenses;
o CooperSurgical is a manufacturer and supplier of medical devices,
diagnostic products, surgical instruments and related accessories used
primarily by obstetricians and gynecologists.
COOPERVISION
According to industry sources, the contact lens market had estimated worldwide
revenue of over $3 billion in 2002 and is expected to grow approximately seven
to eight percent annually for the next three years. We believe the following
factors will contribute to the expected growth in our industry:
o Favorable demographics;
o Increasing incidence of myopia, or near-sightedness;
o Continuing market shift to higher value specialty lenses from commodity
products; and
o Continuing market penetration outside the United States.
There are two major categories of contact lenses. The larger commodity category
consists of lenses that only correct near and farsightedness, and the smaller,
faster growing specialty category includes lenses that address the special needs
of contact lens patients. The commodity category includes spherical lenses, the
most basic type of lenses with few value added or specialty features. The
specialty category includes toric lenses to correct astigmatism, cosmetic lenses
that change the appearance of the color of the eye, multifocal lenses to treat
presbyopia, or the blurring of near vision that occurs with age, lenses for
patients with dry eyes and other premium lenses.
Our subsidiary, CooperVision, is a leading manufacturer and supplier of contact
lenses focusing primarily on higher value specialty lenses. We are a leading
provider of toric lenses in the United States with a market share of
approximately 30% in 2001. Our toric lenses are our most extensive product line
and include products for all toric replacement regimens -- disposable, planned
replacement and conventional. We also offer a line of cosmetic contact lenses,
as well as lenses for patients with dry eyes and presbyopia. In addition, we
market commodity lenses, particularly outside the United States.
In February 2002, we completed the acquisition of Biocompatibles Eye Care, Inc.,
the contact lens business of Biocompatibles plc. This acquisition gave us access
to the Proclear line of lenses, which are often indicated for patients with mild
discomfort relating to dryness during lens wear.
CooperVision is headquartered in Rochester, New York.
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COOPERSURGICAL
According to industry sources, over 90 million women between the ages of 15 and
64 years old visited an obstetrician and/or gynecologist in the United States at
least once in 1999. Industry sources estimate that approximately two-thirds of
these patient visits are for annual check-ups, cancer screening, menstrual
disorders, vaginitis, or inflammation of vaginal tissue, and the management of
menopause. Consistent with an aging population, the incidence of menstrual
disorders, menopause, osteoporosis and incontinence are growing. The early
identification and treatment of these conditions can both improve the health of
these women and increase demand for our women's healthcare products.
Our subsidiary, CooperSurgical, manufactures and supplies medical devices,
diagnostic products, surgical instruments and related accessories used primarily
by obstetricians and gynecologists. We focus primarily on the following areas of
women's healthcare: cervical disease, bone assessment, cancer screening,
infertility treatment, incontinence, osteoporosis, menstrual disorders and
menopause, as well as providing general examination and surgical equipment.
Since 1990, we have built CooperSurgical through a series of small acquisitions
and are now one of the largest medical device companies supplying women's
healthcare products for the practitioner's office. The women's healthcare market
is quite fragmented, characterized by numerous small companies that generally
offer limited product lines. CooperSurgical is headquartered in Trumbull,
Connecticut.
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Cooper was incorporated in Delaware in 1980. Our principal executive offices are
located at 6140 Stoneridge Mall Road, Pleasanton, California 94588, and our
telephone number is 925-460-3600. Our web site is www.coopercos.com. The
information on Cooper's web site is not part of this document.
The Offering
Issuer................................... The Cooper Companies, Inc., a Delaware corporation.
Debentures............................... $115,000,000 aggregate principal amount of 2.625% convertible senior
debentures due 2023.
Maturity................................. July 1, 2023, unless earlier redeemed, repurchased or converted.
Ranking.................................. The debentures are our senior unsecured obligations and rank equally
in right of payment with all of our existing and future unsecured and
unsubordinated indebtedness. The debentures are effectively
subordinated to all our existing and future secured indebtedness. As
of July 31, 2003, we had total secured indebtedness of
approximately $79 million, and we had $144 million of availability
under our secured revolving credit facility. The debentures are
not guaranteed by any of our subsidiaries and, accordingly, the
debentures are effectively subordinated to the indebtedness and
other liabilities of our subsidiaries, including trade creditors.
As of July 31, 2003, our subsidiaries had total indebtedness of
approximately $46 million, including trade payables but
excluding intercompany debt.
Interest................................. 2.625% per year on the principal amount, payable semi-annually in
arrears on January 1 and July 1 of each year, beginning January 1,
2004.
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Conversion rights........................ Holders may convert their debentures into shares of our common stock
prior to stated maturity under the following circumstances:
o during any fiscal quarter (beginning with the quarter ending
October 31, 2003) if the sale price of our common stock for at
least 20 consecutive trading days in the 30 consecutive trading
day period ending on the last trading day of the immediately
preceding fiscal quarter exceeds 120% of the conversion price on
that 30th trading day;
o during any five consecutive trading-day period immediately
following any five consecutive trading-day period (the "Debenture
Measurement Period") in which the average trading price for the
debentures during that Debenture Measurement Period was less than
95% of the average conversion value for the debentures during such
period; provided, however, you may not convert your debentures (in
reliance on this subsection) after July 1, 2018 if, on any trading
day during such Debenture Measurement Period, the closing sale
price of shares of our common stock was between the then-current
conversion price of the debentures and 120% of the then-current
conversion price of the debentures;
o upon the occurrence of certain specified corporate transactions; or
o if we have called the debentures for redemption.
The debentures are convertible at an initial conversion rate of 22.5201
shares per $1,000 principal amount of debentures (which represents an
initial conversion price of approximately $44.40 per share) under the
conditions and subject to such adjustments as are described under
"Description of the debentures -- Conversion Rights" and "-- Conversion
Rate Adjustments."
Upon conversion, we will have the right to deliver, in lieu of shares
of our common stock, cash or a combination of cash and common stock. If
we elect to pay holders cash for their debentures, the payment will be
based on the average of the closing sale prices of our common stock
over the five trading-day period starting on the third trading day
following the conversion date (as defined below) of the debentures. See
"Description of the debentures -- Conversion Procedures."
If we have not given notice of redemption specifying that we intend to
deliver cash upon conversion thereafter, we must give notice of our
election to deliver cash not more than two business days after the
conversion date.
Optional redemption...................... On or after July 1, 2008, we may redeem the debentures for cash at
any time as a whole, or from time to time in part, at a price equal
to 100% of the principal amount of the debentures to be redeemed plus
any accrued and unpaid interest, including additional interest, if
any, to, but not including, the redemption date. Our notice of
redemption will inform you whether we have decided to deliver shares
of our common stock or to pay cash or a combination of cash and
common stock in the event that you elect to convert debentures in
connection with the redemption. For more information about
redemption of the debentures
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at our option, see "Description of the debentures-- Optional Redemption
by Us."
Repurchase of debentures at the
option of holders........................ Each holder of the debentures may require us to repurchase all or a
portion of that holder's debentures on July 1 of 2008, 2013 and 2018,
at a repurchase price equal to 100% of the principal amount of those
debentures plus accrued and unpaid interest, including additional
interest, if any, to, but not including, the date of repurchase. We
will pay the repurchase price for any debentures repurchased on July
1, 2008 in cash. We may choose to pay the repurchase price of any
debentures repurchased on July 1, 2013 and July 1, 2018 in cash, in
shares of our common stock or a combination of cash and shares of our
common stock. For more information about the purchase of the
debentures by us at the option of the holder, see "Description of the
debentures-- Repurchase of debentures at Option of Holders-- Optional
put."
Fundamental change....................... Upon a "fundamental change" (as defined under "Description of the
debentures-- Repurchase of debentures at the Option of Holders--
Fundamental change put") prior to July 1, 2013, a holder may require
us to repurchase all or a portion of that holder's debentures. We
are required to notify all holders about fundamental changes within
30 days of their occurrence, and the repurchase date will be within
30 days following the date of such notice. We will pay a repurchase
price equal to 100% of the principal amount of such debentures, plus
accrued and unpaid interest, including additional interest, if any,
to, but not including, the repurchase date. We may choose to pay the
repurchase price in cash, in shares of our common stock, or if we are
not the surviving corporation, common stock, ordinary shares or
American Depositary Shares (or similar securities) of the surviving
corporation, or a combination of the applicable securities and cash.
For more information about the repurchase of the debentures at the
option of the holder following a fundamental change, see "Description
of the debentures-- Repurchase of debentures at the Option of Holders
-- Fundamental change put."
Use of proceeds.......................... The net proceeds from the sale of the securities covered by this
prospectus will be received by the selling securityholders. We will
not receive any of the proceeds from any sale by any selling
securityholder of the securities covered by this prospectus.
DTC eligibility.......................... The debentures were issued in book-entry form and are represented by
one or more permanent global certificates deposited with a custodian
for, and registered in the name of, a nominee of the Depository Trust
Company, or DTC, in New York, New York. Beneficial interests in any
such securities are shown on, and transfers will be effected only
through, records maintained by DTC and its direct and indirect
participants. Except in limited circumstances, no such interest may
be exchanged for certificated securities. See "Description of the
debentures-- Book-Entry Delivery and Settlement."
Listing and trading...................... The debentures originally sold in private placement transactions are
eligible for trading in the PORTAL (SM) Market of the National
Association of Securities Dealers, Inc. The debentures sold using
this prospectus, however, will no longer be eligible for trading in
the
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PORTAL (SM) Market. We do not intend to list the debentures on any
other national securities exchange or automated quotation system.
Our common stock is listed on the New York Stock Exchange under the
symbol "COO."
Risk factors............................. In analyzing an investment in the debentures and the common stock
offered by this prospectus, prospective investors should carefully
consider, along with other matters referred to and incorporated by
reference in this prospectus, the information set forth under "Risk
factors."
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RISK FACTORS
You should carefully consider and evaluate all the information included or
incorporated by reference in this prospectus, including the risks described
below, before making an investment decision. Our business, financial condition
and results of operations could be materially adversely affected by any of these
risks. The trading price of the debentures and our common stock could decline,
and you may lose all or part of your investment. The risks described below are
not the only ones facing our company. Additional risks not presently known to us
or that we currently deem immaterial may also impair our business operations.
This prospectus and the incorporated documents also contain forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including the risks faced by us described below and
elsewhere in this prospectus.
Risks Related To Us And Our Business
We operate in the highly competitive healthcare industry and there can be no
assurance that we will be able to compete successfully.
Each of our businesses operates within a highly competitive environment.
Numerous companies develop, manufacture and market contact lenses. Many
competitors in the contact lens business have substantially greater financial
resources and larger research and development and sales forces than
CooperVision. Furthermore, many of these competitors offer a greater range of
contact lenses, plus a variety of other eyecare products, including lens care
products and ophthalmic pharmaceuticals, which may give them a competitive
advantage in marketing their lenses to high volume contract accounts. To a
lesser extent, CooperVision also competes with manufacturers of eyeglasses and
other forms of vision correction. There can be no assurance that we will not
encounter increased competition in the future, or that a successful entry into
CooperVision's higher-margin specialty lens segments by a larger competitor
would not have a material adverse effect on our business, financial condition or
results of operations.
In the women's healthcare segment, competitive factors include technological and
scientific advances, product quality, price and effective communication of
product information to physicians and hospitals. CooperSurgical competes with a
number of manufacturers in each of its niche markets, some of which have
substantially greater financial and personnel resources and sell a much broader
range of products.
Our substantial and expanding international operations are subject to
uncertainties which could affect our operating results.
Our growth strategy involves expanding our operations to numerous foreign
jurisdictions and a significant portion of our current operations is conducted
and located outside the United States. We have manufacturing and distribution
sites in two major regions: North America and Europe. Approximately 37% of our
net sales for the fiscal year ended October 31, 2002 and approximately 40% of
our net sales for the nine months ended July 31, 2003 were derived from the sale
of products outside the United States. Further, we believe that sales outside
the U.S. will continue to account for a material portion of our total net sales
for the foreseeable future. International operations and business expansion
plans are subject to numerous additional risks, including:
o foreign customers may have longer payment cycles than customers in the U.S.;
o compliance with U.S. Department of Commerce export controls;
o tax rates in some foreign countries may exceed those of the U.S. and foreign
earnings may be subject to withholding requirements or the imposition of
tariffs, exchange controls or other restrictions;
o compliance with a variety of foreign regulatory regimes;
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o general economic and political conditions in the countries where we operate
may have an adverse effect on our operations in those countries or not be
favorable to our growth strategy;
o the difficulties associated with managing a large organization spread
throughout various countries;
o the risk that foreign governments may adopt regulations or take other
actions that would have a direct or indirect adverse impact on our business
and market opportunities;
o the difficulty of enforcing agreements and collecting receivables through
some foreign legal systems; fluctuations in currency exchange rates;
o the potential difficulty in enforcing intellectual property rights in some
foreign countries; and
o the difficulties associated with gaining market share in Japan.
As we continue to expand our business globally, our success will depend, in
large part, on our ability to anticipate and effectively manage these and other
risks associated with our international operations. However, any of these
factors could adversely affect our international operations and, consequently,
our operating results.
Acquisitions we may make may involve numerous risks.
We have a history of making acquisitions which have significantly contributed to
our growth in recent years. As part of our growth strategy, particularly at
CooperSurgical, we intend to continue to consider acquiring complementary
technologies, products and businesses. Although we regularly engage in
discussions with respect to possible acquisitions and joint ventures, we do not
currently have any understandings, commitments or agreements relating to any
material acquisitions. Future acquisitions could result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent
liabilities and an increase in amortization and/or write-offs of goodwill and
other intangible assets, which could have a material adverse effect upon our
business, financial condition and results of operations. Risks we could face
with respect to acquisitions include:
o difficulties in the integration of the operations, technologies, products
and personnel of the acquired company;
o risks of entering markets in which we have no or limited prior experience;
o potential loss of employees;
o an inability to identify and consummate future acquisitions on favorable
terms or at all;
o diversion of management's attention away from other business concerns;
o expenses of any undisclosed or potential liabilities of the acquired
company; and
o expense, including restructuring expenses, to shut-down our own locations
and/or terminate our employees.
The risks associated with acquisitions could have a material adverse effect upon
our business, financial condition and results of operations. We cannot assure
you that we will be successful in consummating future acquisitions on favorable
terms or at all.
If our products are not accepted by the market, we will not be able to sustain
or expand our business.
Certain of our proposed products have not yet been clinically tested or
commercially introduced and we cannot assure you that any of them will achieve
market acceptance or generate operating profits. We have not commercially
marketed many of our planned new products, such as Proclear aspheric and
multifocal, and, therefore,
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the market acceptance and customer demand for these products are uncertain. The
development of a market for our products may be impacted by many factors, some
of which are out of our control, including:
o acceptance of our products by eyecare practitioners;
o the cost competitiveness of our products;
o consumer reluctance to try a new product;
o regulatory requirements;
o consumer perception of our new products; and
o the emergence of newer and more competitive products.
Product innovations are important in the industry in which we operate, and we
face the risk of product obsolescence.
Product innovations are important in the niche areas of the healthcare industry
in which CooperVision and CooperSurgical compete. Although our focus is on
products that will be marketable immediately or in the short term rather than on
funding longer-term, higher risk research and development projects, time
commitments, the cost of obtaining necessary regulatory approval and other costs
related to product innovations can be meaningful. There can be no assurance that
our new products will be successful in the marketplace and, as a result, justify
the expense involved in their development and approval. In addition, there can
be no assurance that new products or technologies will not be developed that
could lead to the obsolescence of one or more of our products, which could have
a material adverse effect on our business, financial condition, or results of
operations.
We manufacture a significant portion of the products we sell and we face risks
associated with manufacturing operations.
CooperVision and CooperSurgical manufacture a significant portion of the
products we sell. As a result, any prolonged disruption in the operations of our
manufacturing facilities, whether due to technical or labor difficulties,
destruction of or damage to any facility or other reasons, could have a material
adverse effect on our business, financial condition and results of operations.
We are vulnerable to interest rate risk with respect to our debt.
We are subject to interest rate risk in connection with the issuance of variable
and fixed-rate debt. In order to maintain our desired mix of fixed-rate and
variable-rate debt, we may use interest rate swap agreements and exchange fixed
and variable-rate interest payment obligations over the life of the
arrangements, without exchange of the underlying principal amounts. We cannot
assure you that we will be successful in structuring such swap agreements to
effectively manage our risks. If we are unable to do so, we may be adversely
affected in our business, earnings and financial condition.
Exchange rate fluctuations could adversely affect our financial results.
As a result of our international operations, we expect to generate an increasing
portion of our revenue and incur a significant portion of our expenses in
currencies other than U.S. dollars. Although we may enter into foreign exchange
agreements with financial institutions to reduce our exposure to fluctuations in
foreign currency values relative to our debt or receivables obligations, these
hedging transactions, if entered into, will not eliminate that risk entirely. In
addition, to the extent we are unable to match revenue received in foreign
currencies with costs paid in the same currency, exchange rate fluctuations
could have a negative impact on our financial condition and results of
operations. Additionally, because our consolidated financial results are
reported in dollars, if we generate sales or earnings in other currencies the
translation of those results into dollars can result in a significant increase
or decrease
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in the amount of those sales or earnings. As a result of our worldwide
operations, currency exchange rate fluctuations tend to affect our results of
operations and financial position.
If we do not retain our key personnel and attract and retain other highly
skilled employees our business could suffer.
If we fail to recruit and retain the necessary personnel, our business and our
ability to obtain new customers, develop new products and provide acceptable
levels of customer service could suffer. The success of our business is heavily
dependent on the leadership of our key management personnel. Our success also
depends on our ability to recruit, retain and motivate highly skilled sales,
marketing and engineering personnel. Competition for these persons in our
industry is intense and we may not be able to successfully recruit, train or
retain qualified personnel.
Our intellectual property may be misappropriated or subject to claims of
infringement.
We consider our intellectual property rights, including patents, trademarks and
licensing agreements, to be an integral component of our business. We attempt to
protect our intellectual property rights through a combination of patent,
trademark, copyright and trade secret laws, as well as licensing agreements and
third-party nondisclosure and assignment agreements. Our failure to obtain or
maintain adequate protection of our intellectual property rights for any reason
could have a material adverse effect on our business, results of operations and
financial condition.
We have applied for patent protection in the U.S. relating to certain existing
and proposed processes and products. We cannot assure you that any of our patent
applications will be approved. The patents we own could be challenged,
invalidated or circumvented by others and may not be of sufficient scope or
strength to provide us with any meaningful protection or commercial advantage.
Patent applications in the U.S. are maintained in secrecy for a period of time,
which may last until patents are issued, and since publication of discoveries in
the scientific or patent literature tends to lag behind actual discoveries by
several months, we cannot be certain that we will be the first creator of
inventions covered by any patent application we make or the first to file patent
applications on such inventions. Further, we cannot assure you that we will have
adequate resources to enforce our patents.
Our competitors in both the U.S. and foreign countries, many of which have
substantially greater resources and have made substantial investments in
competing technologies, may have applied for or obtained, or may in the future
apply for and obtain, patents that will prevent, limit or otherwise interfere
with our ability to make and sell our products. We have not conducted an
independent review of patents issued to third parties. Claims that our products
infringe the proprietary rights of others are more likely to be asserted after
commencement of commercial sales incorporating our technology. We cannot assure
you that we will not infringe on any of our competitors' patents.
Significant litigation regarding intellectual property rights exists in our
industry. It is possible that third parties will make claims of infringement
against us or manufacturers in connection with their use of our technology. Any
claims, even those without merit, could:
o be expensive and time consuming to defend;
o cause us to cease making, licensing or using products that incorporate the
challenged intellectual property;
o require us to redesign or reengineer our products, if feasible;
o divert management's attention and resources; or
o require us to enter into royalty or licensing agreements in order to obtain
the right to use a necessary product, component or process.
Any royalty or licensing agreements, if required, may not be available to us on
acceptable terms or at all. A successful claim of infringement against us or our
contract manufacturers in connection with the use of our technology could
adversely affect our business.
9
We also rely on unpatented proprietary technology. It is possible that others
will not independently develop the same or similar technology or otherwise
obtain access to our unpatented technology. To protect our trade secrets and
other proprietary information, we require employees, consultants, advisors and
collaborators to enter into confidentiality agreements. We cannot assure you
that these agreements will provide meaningful protection for our trade secrets,
know-how or other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how or other
proprietary information. If we are unable to maintain the proprietary nature of
our technologies, we could be materially adversely affected.
Moreover, with respect to both existing and proposed foreign and domestic
operations, we cannot assure you that changes in current or future laws or
regulations or future judicial intervention would not have a material adverse
effect on us. We are unable to predict the effect that any future foreign or
domestic legislation or regulation may have on our existing or future business.
We rely on independent suppliers for raw materials and we could experience
inventory shortages if we were required to use an alternative supplier on short
notice.
We rely on independent suppliers for key raw materials, which primarily consist
of various chemicals and packaging materials. Raw materials used by us are
generally available from more than one source. However, because some products
require specialized manufacturing procedures, we could experience inventory
shortages if we were required to use an alternative manufacturer on short
notice.
We face an inherent risk of exposure to product liability claims.
We face an inherent risk of exposure to product liability claims in the event
that the use of our products results in personal injury. We also face the risk
that defects in the design or manufacture of our products might necessitate a
product recall. We handle some risk with a combination of self-insurance and
third-party carrier policies, which policies are subject to deductibles and
limitations. One of our products is the subject of product liability claims
which arose prior to our acquisition of the manufacturer. Although we are
entitled to indemnification from the seller and the product is covered by third
party carrier insurance, there can be no assurance that such indemnification and
insurance will be adequate. There can be no assurance that we will not
experience material losses due to product liability claims or recalls in the
future.
We face risks related to environmental matters.
Our facilities are subject to a broad range of federal, state, local and foreign
environmental laws and requirements, including those governing discharges to the
air and water, the handling or disposal of solid and hazardous substances and
wastes and remediation of contamination associated with the release of hazardous
substances at our facilities and offsite disposal locations. We have made, and
will continue to make, expenditures to comply with such laws and requirements.
Future events, such as changes in existing laws and regulations or the discovery
of contamination at our facilities, may give rise to additional compliance or
remediation costs that could have a material adverse effect on our business,
results of operations or financial condition. Moreover, as a manufacturer of
various products, we are exposed to some risk of claims with respect to
environmental matters, and there can be no assurance that material costs or
liabilities will not be incurred in connection with any such claims.
We are involved in a voluntary clean-up at one of our sites in the state of New
York, and although the workplan submitted to the state was accepted and the
clean-up is proceeding in accordance with the workplan and our expectations,
there can be no assurance that the clean-up will be completed within the
timeframe and cost projected, that the expected results will be achieved, or
that we will not identify alternate sources of contamination in connection with
their remediation. As such, there can be no assurance that material costs or
liabilities will not be incurred in connection with any such remediation.
We may be required to recognize impairment charges.
Pursuant to generally accepted accounting principles, we are required to perform
impairment tests on our goodwill balance annually or at any time when events
occur, which could impact the value of our business segments. Our
10
determination of whether an impairment has occurred is based on a comparison of
each of our reporting units' fair market value with its carrying value.
Significant and unanticipated changes could require a provision for impairment
in a future period that could substantially affect our reported earnings in a
period of such change. In addition, such charges would reduce our consolidated
net worth and our shareholders' equity, increasing our debt to total
capitalization ratio, which may result in a default under our credit facilities.
We are in the process of upgrading certain of our management information systems
and there can be no assurance that there will not be excessive costs associated
with such upgrade.
We are in the process of upgrading certain of our management information
systems. There can be no assurance that such upgrades will not result in a
disruption of our business, extensive commitment of time and other costs related
to upgrading such management information systems.
Our earnings will be adversely affected if we are required to change our
accounting policies with respect to the expensing of stock options.
We do not currently deduct the expense of stock option grants from our income
based on the fair value method. Regulatory authorities, including the Financial
Accounting Standards Board and the International Accounting Standards Board, are
considering requiring companies to change their accounting policies to record
the fair value of stock options issued to employees and directors as an expense.
Many companies have or are in the process of voluntarily changing their
accounting policies to expense the fair value of stock options. Stock options
are an important component of our employee compensation package. If we change
our accounting policy with respect to the treatment of stock option grants, our
earnings would be adversely affected which in turn could have negative impact on
the price of our common stock and the debentures.
New medical and technological changes may reduce the need for our optical
products.
Technological developments in the eyecare industry, such as new surgical
procedures or medical devices, may adversely affect the demands for our
products. Corneal refractive surgical procedures such as Lasik surgery and the
development of new pharmaceutical products may decrease the demand for our
optical products. If these new advances were to provide a practical alternative
to traditional vision correction, the demand for contact lenses and eyeglasses
may materially decrease. We cannot assure that medical advances and
technological developments will not have a material adverse effect on our
optical business.
Risks relating to government regulation.
FDA regulations
Our products and operations are subject to extensive and rigorous regulation by
the U.S. Food and Drug Administration (the "FDA") under the Federal Food, Drug,
and Cosmetic Act, and its implementing regulations, guidances, and standards.
The FDA regulates the research, testing, manufacturing, safety, labeling,
storage, recordkeeping, promotion, distribution, and production of medical
devices in the United States to ensure that medical products distributed
domestically are safe and effective for their intended uses. The FDA also
regulates the export of medical devices manufactured in the United States to
international markets. Any violations of these laws and regulations could result
in a material adverse effect on our business, financial condition and results of
operations. In addition, if there is a change in law, regulation or judicial
interpretation, we may have to change our business practices, which could have a
material adverse effect on our business, financial condition and results of
operations.
Under the Federal Food, Drug, and Cosmetic Act, medical devices are classified
into one of three classes -- Class I, Class II or Class III--depending on the
degree of risk associated with each medical device and the extent of control
needed to ensure safety and effectiveness. We have products in each class.
Class I devices are those for which safety and effectiveness can be assured by
adherence to FDA's general regulatory controls for medical devices, which
include compliance with the applicable portions of the FDA's
11
Quality System Regulation, facility registration and product listing, reporting
of adverse medical events, and appropriate, truthful and non-misleading
labeling, advertising, and promotional materials (the "General Controls"). Some
Class I devices also require premarket clearance by the FDA through the 510(k)
premarket notification process described below.
Class II devices are subject to the FDA's general controls, and any other
special controls as deemed necessary by FDA to ensure the safety and
effectiveness of the device. Premarket review and clearance by the FDA for Class
II devices is accomplished through the 510(k) premarket notification procedure.
Pursuant to the recently enacted Medical Device User Fee and Modernization Act
of 2002, as of October, 2002 unless a specific exemption applies, 510(k)
premarket notification submissions are subject to user fees. Certain Class II
devices are exempt from this premarket review process. When a 510(k) is
required, the manufacturer must submit to the FDA a premarket notification
submission demonstrating that the device is "substantially equivalent" to
either: a device that was legally marketed prior to May 28, 1976, the date upon
which the Medical Device Amendments of 1976 were enacted, or to another
commercially available, similar device which was subsequently cleared through
the 510(k) process.
If the FDA agrees that the device is substantially equivalent, it will grant
clearance to commercially market the device. By regulation, the FDA is required
to clear a 510(k) within 90-days of submission of the application. As a
practical matter, clearance often takes longer. The FDA may require further
information, including clinical data, to make a determination regarding
substantial equivalence. If the FDA determines that the device, or its intended
use, is not "substantially equivalent" to a preamendment or other commercially
available device, the FDA will place the device, or the particular use of the
device, into Class III, and the device sponsor must then fulfill much more
rigorous premarketing requirements.
A Class III product is a product which has a new intended use, or uses advanced
technology that is not substantially equivalent to that of a legally marketed
device. The safety and effectiveness of Class III devices cannot be assured
solely by the General Controls and the other requirements described above. These
devices almost always require formal clinical studies to demonstrate safety and
effectiveness.
Submission and FDA approval of a premarket approval application is required
before marketing of a Class III product can proceed. As with 510(k) submissions,
unless subject to an exemption, premarket approval application submissions are
subject to user fees. The premarket approval application process is much more
demanding than the 510(k) premarket notification process. A premarket approval
application, which is intended to demonstrate that the device is safe and
effective, must be supported by extensive data, including data from preclinical
studies and human clinical trials. The premarket approval application must also
contain a full description of the device and its components, a full description
of the methods, facilities, and controls used for manufacturing, and proposed
labeling. Following receipt of a premarket approval application, once the FDA
determines that the application is sufficiently complete to permit a substantive
review, the FDA will accept the application for review. The FDA, by statute and
by regulation, has 180-days to review an "accepted" premarket approval
application, although the review of an application more often occurs over a
significantly longer period of time, and can take up to several years. In
approving a premarket approval application or clearing a 510(k) application, the
FDA may also require some form of post-market surveillance when necessary to
protect the public health or to provide additional safety and effectiveness data
for the device. In such cases, the manufacturer might be required to follow
certain patient groups for a number of years and makes periodic reports to the
FDA on the clinical status of those patients.
The soft contact lenses that we currently market have received FDA clearance
through the 510(k) process or approval through the premarket approval
application process. In addition, we have made modifications to our products
that we do not believe require the submission of new 510(k) modifications or
premarket approval application supplements. We cannot confirm, however, that the
FDA will agree with any of our determinations not to submit new 510(k)
notifications or premarket approval application supplements for these changes,
that the FDA will not require us to cease sales and distribution while seeking
clearances of 510(k) notifications and approvals of premarket approval
application supplements for the changes, or that we will obtain such clearances
and approvals, if required, in a timely manner or at all.
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When FDA approval of a Class I, Class II or Class III device requires human
clinical trials, and if the device presents a "significant risk" (as defined by
the FDA) to human health, the device sponsor is required to file an
investigational device exemption application with the FDA and obtain
investigational device exemption approval prior to commencing human clinical
trials. If the device is considered a "non-significant" risk, investigational
device exemption submission to FDA is not required. Instead, only approval from
the Institutional Review Board overseeing the clinical trial is required. Human
clinical trials are generally required in connection with approval of Class III
devices and may be required for Class I and II devices. The FDA, and the
Institutional Review Board at each institution at which a clinical trial is
being performed, may suspend a clinical trial at any time for various reasons,
including a belief that the subjects are being exposed to an unacceptable health
risk. There can be no assurances that we will be able to secure 510(k) and
premarket approval application clearances and approvals for our new medical
devices, or that FDA will not suspend, modify, or revoke existing clearances and
approvals for products currently being marketed by the Company. If this were to
occur, it could have a material adverse effect on our business, financial
condition, and results of operations.
After FDA permits a device to enter commercial distribution, numerous regulatory
requirements apply. These include: the Quality System Regulation, which requires
manufacturers to follow elaborate design, testing, control, documentation and
other quality assurance procedures during the manufacturing process; labeling
regulations; the FDA's general prohibition against promoting products for
unapproved or "off-label" uses; and the Medical Device Reporting regulation,
which requires that manufacturers report to the FDA if their device may have
caused or contributed to a death or serious injury or malfunctioned in a way
that would likely cause or contribute to a death or serious injury if it were to
reoccur. The FDA has broad post-market, regulatory and enforcement powers.
Failure to comply with the applicable U.S. medical device regulatory
requirements could result in, among other things, warning letters, fines,
injunctions, consent decrees, civil penalties, repairs, replacements, refunds,
recalls or seizures of products (which would result in the cessation or
reduction of our production volume), total or partial suspension of production,
the FDA's refusal to grant future premarket clearances or approvals, withdrawals
or suspensions of current product applications, and criminal prosecution. If any
of these events were to occur, they could have a material adverse effect on our
business, financial condition and results of operations.
From time to time we voluntarily recall a product. For example, we are currently
involved in two recalls. On August 1, 2002 we initiated a voluntary recall of a
uterine manipulator-injector device. There can be no assurance that the product
will not cause serious injury in the future as a result of products remaining in
use despite the recall. We are currently working to replace these products and
do not expect the cost of this recall to be material. We also intend to issue a
recall of specific batches of one of our contact lens products due to
mislabeling resulting from a software error in the labeling process. We do not
believe these mislabeled products pose a serious health or safety risk and
believe that the cost of the recall will be approximately $400,000.
In addition, we acquired Ackrad Laboratories, Inc. on May 21, 2002. Prior to the
acquisition on December 6, 1995, Ackrad had entered into a FDA Consent Decree of
Permanent Injunction due to violations of FDA Good Manufacturing Practice
regulations, including failure to have adequate validation of device
manufacturing and sterilization processes. Both Ackrad and we have instituted
corrective actions to address the Good Manufacturing Practice deficiencies and
we believe we are in substantial compliance with FDA's Good Manufacturing
Practice regulations.
Healthcare reform
In recent years, an increasing number of legislative initiatives have been
introduced or proposed in Congress and in state legislatures that could effect
major changes in the healthcare system, either nationally or at the state level.
Among the proposals under consideration are price controls on hospitals,
insurance market reforms to increase the availability of group health insurance
to small businesses, requirements that all businesses offer health insurance
coverage to their employees and the creation of a government health insurance
plan or plans that would cover all citizens. There continue to be efforts at the
federal level to introduce various insurance market reforms, expanded fraud and
abuse and anti referral legislation and further reductions in Medicare and
Medicaid coverage and reimbursement. A broad range of both similar and more
comprehensive healthcare reform initiatives is likely to be considered at the
state level. It is uncertain which, if any, of these or other proposals will be
adopted. We cannot predict the effect such reforms or the prospect of their
enactment may have on our business.
13
Retail optics industry
Our success depends to a significant extent upon the success of our customers in
the retail optical industry. These customers are subject to a variety of
federal, state and local laws, regulations and ordinances. The state and local
legal requirements vary widely among jurisdictions and are subject to frequent
change. Furthermore, numerous healthcare-related legislative proposals have been
made in recent years in the Congress and in various state legislatures. The
potential impact of these proposals with respect to the business of our
customers is uncertain, and we cannot assure you that that the proposals, if
adopted, would not have a material adverse impact on our revenues, business,
financial condition and results of operations.
There is substantial United States federal and state governmental regulation
related to the prescribing of contact lenses. These regulations relate to who is
permitted to prescribe and fit contact lenses, the prescriber's obligation to
provide prescriptions to its patients, the length of time a prescription is
valid, the ability or obligation of prescribers to prescribe lenses by brand
rather than by generic equivalent or specification, and other matters. In
addition, adverse regulatory or other decisions affecting eyecare practitioners,
or material changes in the selling and prescribing practices for contact lenses,
could have a material adverse affect on our business, operating results and
financial condition. Finally, although cost controls or other requirements
imposed by third party healthcare payors such as insurers and health maintenance
organizations have not historically had a significant effect on contact lens
prices or distribution practices, this could change in the future, and could
adversely affect our business, financial condition and results of operations.
International product regulations
In many of the foreign countries in which we market our products, we are subject
to regulations affecting, among other things, product standards, packaging
requirements, labeling requirements, import restrictions, tariff regulations,
duties and tax requirements. Many of the regulations applicable to our devices
and products in such countries are similar to those of the FDA. In many
countries, the national health or social security organizations require our
products to be qualified before they can be marketed with the benefit of
reimbursement eligibility. To date, we have not experienced difficulty in
complying with these regulations. Due to the movement towards harmonization of
standards in the European Union, we expect a changing regulatory environment in
Europe characterized by a shift from a country by-country regulatory system to a
European Union-wide single regulatory system. We cannot currently predict the
timing of this harmonization. Our failure to receive, or delays in the receipt
of, relevant foreign qualifications could have a material adverse effect on our
business, financial condition and results of operations.
We have also implemented policies and procedures allowing us to position
ourselves for the changing international regulatory environment. The ISO 9000
series of standards has been developed as an internationally recognized set of
guidelines that are aimed at ensuring the design and manufacture of quality
products. A company that passes an ISO audit and obtains ISO registration
becomes internationally recognized as well run and functioning under a competent
quality system. In certain foreign markets, it may be necessary or advantageous
to obtain ISO 9000 series certification, which is in some ways analogous to
compliance with the FDA's Quality System Regulation requirements. The European
Community promulgated rules requiring medical products to receive a CE mark by
mid-1998. A CE mark is an international symbol of adherence to certain standards
and compliance with applicable European medical device requirements.
Federal privacy and transaction law and regulations
Other federal legislation will affect the manner in which we use and disclose
health information. The Health Insurance Portability and Accountability Act of
1996 ("HIPAA") mandates, among other things, the adoption of standards for the
electronic exchange of health information that may require significant and
costly changes to current practices. The U.S. Department of Health and Human
Services ("HHS") has released three rules to date mandating the use of new
standards with respect to certain healthcare transactions and health
information. The first rule requires the use of uniform standards for common
healthcare transactions, including healthcare claims information, plan
eligibility, referral certification and authorization, claims status, plan
enrollment and disenrollment, payment and remittance advice, plan premium
payments, and coordination of benefits. The second
14
rule released by HHS imposes new standards relating to the privacy of
individually identifiable health information. These standards not only require
compliance with rules governing the use and disclosure of protected health
information, but they also require an entity subject to HIPAA to obtain
satisfactory assurances that any of its business associates to whom such
information is disclosed will safeguard the information. The third rule released
by HHS establishes minimum standards for the security of electronic health
information. While we do not believe we are directly regulated as a covered
entity under HIPAA, many of our customers are covered entities subject to HIPAA.
Such customers may require us to enter into business associates agreements,
which obligate us to safeguard certain health information we obtain in the
course of servicing the customers, restrict the manner in which we use and
disclose such information and impose liability on us for failure to meet our
contractual obligations. The costs of complying with these contractual
obligations and potential liability associated with failure to do so could have
a material adverse effect on our business and financial condition and results of
operation.
Fraud and abuse
We may be subject to various federal and state laws pertaining to healthcare
fraud and abuse, including anti-kickback laws and physician self-referral laws.
Violations of these laws are punishable by criminal and civil sanctions,
including, in some instances, exclusion from participation in federal and state
healthcare programs, including Medicare, Medicaid, Veterans Administration
health programs and TRICARE. While we believe that our operations are in
material compliance with such laws, because of the complex and far-reaching
nature of these laws, there can be no assurance that we would not be required to
alter one or more of its practices to be in compliance with these laws. Any
violations of these laws or regulations could result in a material adverse
effect on our business, financial condition and results of operations. Moreover,
if there is a change in law, regulation, administrative or judicial
interpretation, we may have to change our business practices or our existing
business practices could be challenged as unlawful, which could have a material
adverse effect on our business, financial condition and results of operations.
Anti-kickback and fraud laws. Our operations may be subject to federal and state
anti-kickback laws. Certain provisions of the Social Security Act, which are
commonly known collectively as the Medicare Fraud and Abuse Statute, prohibit
persons from knowingly and willfully soliciting, receiving, offering or
providing remuneration directly or indirectly to induce either the referral of
an individual, or the furnishing, recommending, or arranging for a good or
service, for which payment may be made under a federal healthcare program such
as Medicare and Medicaid. The definition of "remuneration" under this statute
has been broadly interpreted to include anything of value, including such items
as gifts, discounts, waiver of payments, and providing anything at less than its
fair market value. Many states have adopted prohibitions similar to the Medicare
Fraud and Abuse Statute, some of which apply to the referral of patients for
healthcare services reimbursed by any source, not only by the Medicare and
Medicaid programs.
HIPAA created two new federal crimes: healthcare fraud and false statements
relating to healthcare matters. The healthcare fraud statute prohibits knowingly
and willfully executing or attempting to execute a scheme or artifice to defraud
any healthcare benefit program, including private payers. The false statements
statute prohibits knowingly and willfully falsifying, concealing or covering up
a material fact or making any materially false, fictitious or fraudulent
statement or representation in connection with the delivery of or payment for
healthcare benefits, items or services. This statute applies to any health
benefit plan, not just Medicare and Medicaid. Additionally, HIPAA granted
expanded enforcement authority to HHS and the U.S. Department of Justice and
provided enhanced resources to support the activities and responsibilities of
the OIG and Department of Justice by authorizing large increases in funding for
investigating fraud and abuse violations relating to healthcare delivery and
payment. In addition, HIPAA mandates the adoption of standards for the
electronic exchange of health information.
Physician self-referral laws. We may also be subject to federal and state
physician self-referral laws. Federal physician self-referral legislation
(commonly known as the Stark Law) prohibits, subject to certain exceptions,
physician referrals of Medicare and Medicaid patients to an entity providing
certain "designated health services" if the physician or an immediate family
member has any financial relationship with the entity. The Stark Law also
prohibits the entity receiving the referral from billing any good or service
furnished pursuant to an unlawful referral, and any person collecting any
amounts in connection with an unlawful referral is obligated to refund such
amounts. Various states have corollary laws to the Stark Law, including laws
that require physicians to disclose any financial
15
interest they may have with a healthcare provider to their patients when
referring patients to that provider. Both the scope and exceptions for such laws
vary from state to state.
False claims laws. Under separate statutes, submission of claims for payment or
causing such claims to be submitted that are "not provided as claimed" may lead
to civil money penalties, criminal fines and imprisonment, and/or exclusion from
participation in Medicare, Medicaid and other federally funded state health
programs. These false claims statutes include the federal False Claims Act,
which prohibits the knowing filing of a false claim or the knowing use of false
statements to obtain payment from the federal government. When an entity is
determined to have violated the False Claims Act, it must pay three times the
actual damages sustained by the government, plus mandatory civil penalties of
between $5,500 and $11,000 for each separate false claim. Suits filed under the
False Claims Act, known as "qui tam" actions, can be brought by any individual
on behalf of the government and such individuals (known as "relators" or, more
commonly, as "whistleblowers") may share in any amounts paid by the entity to
the government in fines or settlement. In addition, certain states have enacted
laws modeled after the federal False Claims Act. Qui tam actions have increased
significantly in recent years causing greater numbers of healthcare companies to
have to defend a false claim action, pay fines or be excluded from the Medicare,
Medicaid or other federal or state healthcare programs as a result of an
investigation arising out of such action.
Risks Relating To Investment In The Debentures And Our Common Stock
Our stock price has been volatile historically and may continue to be volatile.
The price of our common stock, and therefore the price of the debentures, may
fluctuate significantly, which may make it difficult for holders to resell the
debentures or the shares of our common stock issuable upon conversion of the
debentures when desired or at attractive prices.
The market price for our common stock has been and may continue to be volatile.
For example, during the 52-week period ended July 31, 2003, the last reported
prices of our common stock on the New York Stock Exchange ranged from a high of
$36.30 to a low of $20.32. We expect our stock price to be subject to
fluctuations as a result of a variety of factors, including factors beyond our
control. These factors include:
o actual or anticipated variations in our quarterly operating results;
o announcements of technological innovations or new products or services by us
or our competitors;
o announcements relating to strategic relationships, acquisitions or
investments;
o changes in financial estimates or other statements by securities analysts;
o if the debentures received a lower rating than anticipated by investors or a
subsequent downgrade in ratings;
o changes in general economic conditions;
o terrorist attacks, and the effects of war; and
o changes in the economic performance and/or market valuations of other
companies in our industry.
Because of this volatility, we may fail to meet the expectations of our
stockholders or of securities analysts at some time in the future, and the
trading prices of our securities could decline as a result. In addition, the
stock market has experienced significant price and volume fluctuations that have
affected the trading prices of equity securities. These fluctuations have often
been unrelated or disproportionate to the operating performance of issuing
companies. In addition, any negative change in the public's perception of vision
care or women's healthcare related companies or medical device companies could
depress our stock price regardless of our operating results. Because the
debentures are convertible into shares of our common stock, volatility or
depressed prices for our common stock could have a similar effect on the trading
price of the debentures. Holders who receive common stock upon conversion also
will be subject to the risk of volatility and depressed prices of our common
stock.
16
We expect that the trading value of the debentures will be significantly
affected by the price of our common stock.
The market price of the debentures is expected to be significantly affected by
the market price of our common stock. This may result in greater volatility in
the trading value of the debentures than would be expected for nonconvertible
debt securities.
Our substantial indebtedness could adversely affect our financial health and
prevent us from fulfilling our obligations under these debentures.
We have now and expect to continue to have a significant amount of indebtedness.
As of July 31, 2003, we had total indebtedness of $192 million.
As of July 31, 2003, we had $144 million of availability under our secured
revolving credit facility for further borrowings.
Our substantial indebtedness could have important consequences to you. For
example, it could:
o make it more difficult for us to satisfy our obligations with respect to
these debentures;
o increase our vulnerability to general adverse economic and industry
conditions;
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital expenditures,
research and development efforts and other general corporate purposes;
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
o place us at a competitive disadvantage compared to our competitors that have
less debt; and
o limit our ability to borrow additional funds.
In addition, our credit facility contains financial and other restrictive
covenants that will limit our ability to engage in activities that may be in our
long-term best interests. Our failure to comply with those covenants could
result in an event of default which, if not cured or waived, could result in the
acceleration of all of our debts.
The debentures do not restrict our ability to incur additional debt or to take
other actions that could negatively impact holders of the debentures.
We are not restricted under the terms of the debentures from incurring
additional indebtedness, including secured debt. In addition, the limited
covenants applicable to the debentures do not require us to achieve or maintain
any minimum financial results relating to our financial position or results of
operations. Our ability to recapitalize, incur additional debt and take a number
of other actions that are not limited by the terms of the debentures could have
the effect of diminishing our ability to make payments on the debentures when
due. In addition, we are not restricted from repurchasing subordinated
indebtedness or common stock by the terms of the debentures. If the initial
purchasers exercise their option to purchase additional debentures, or if we
issue other debt securities in the future, our debt service obligations will
increase.
Your right to receive payments on these debentures is effectively subordinated
to the rights of our existing and future secured creditors and the creditors of
our subsidiaries.
Holders of our secured indebtedness have claims that are prior to your claims as
holders of the debentures to the extent of the value of the assets securing that
other indebtedness. Our credit facility is secured by liens on a
17
substantial portion of our assets. The debentures are effectively subordinated
to all that secured indebtedness. In the event of any distribution or payment of
our assets in any foreclosure, dissolution, winding-up, liquidation,
reorganization, or other bankruptcy proceeding, holders of secured indebtedness
will have prior claim to those of our assets that constitute their collateral.
Holders of the debentures will participate ratably with all holders of our
unsecured indebtedness that is deemed to be of the same class as the debentures,
and potentially with all of our other general creditors, based upon the
respective amounts owed to each holder or creditor, in our remaining assets. In
any of the foregoing events, we cannot assure you that there will be sufficient
assets to pay amounts due on the debentures. As a result, holders of debentures
may receive less, ratably, than holders of secured indebtedness.
As of July 31, 2003, we had total secured indebtedness of approximately
$79 million. We can incur an unlimited amount of secured or unsecured
indebtedness in the future under the terms of the indenture. As of July 31,
2003, our subsidiaries had total indebtedness of approximately $46 million,
including trade payables but excluding intercompany debt.
In addition, we conduct substantially all of our operations through our
subsidiaries and our subsidiaries do not guarantee the debentures. As a result,
holders of the debentures are effectively subordinated to the indebtedness and
other liabilities of our subsidiaries, including trade creditors. Therefore, in
the event of the insolvency or liquidation of a subsidiary, following payment by
such subsidiary of its liabilities, such subsidiary may not have sufficient
remaining assets to make payments to us a shareholder or otherwise. In the event
of a default by a subsidiary under any credit arrangement or other indebtedness,
its creditors could accelerate such debt, prior to such subsidiary distributing
amounts to us that we could have used to make payments on the debentures.
If you are able to resell your debentures, many other factors may affect the
price you receive, which may be lower than you believe to be appropriate.
If you are able to resell your debentures, the price you receive will depend on
many other factors that may vary over time, including:
o the number of potential buyers;
o the level of liquidity of the debentures;
o ratings, if any, published by major credit rating agencies;
o our financial performance;
o the amount of indebtedness we have outstanding;
o the level, direction and volatility of market interest rates generally;
o the market for similar securities;
o the performance of our common stock;
o the redemption and repayment features of the debentures to be sold; and
o the time remaining to the maturity of the debentures.
As a result of these factors, you may only be able to sell your debentures at
prices below those you believe to be appropriate, including prices below the
price you paid for them.
18
Securities we issue to fund our operations could dilute your ownership.
We may decide to raise additional funds through public or private debt or equity
financing to fund our operations. If we raise funds by issuing equity
securities, the percentage ownership of our current stockholders will be reduced
and the new equity securities may have rights prior to those of the common stock
issuable upon conversion of the debentures. We may not obtain sufficient
financing on terms that are favorable to you or us. We may delay, limit or
eliminate some or all of our proposed operations if adequate funds are not
available.
The conditional conversion feature of the debentures could result in you
receiving less than the value of the common stock into which a note would
otherwise be convertible.
The debentures are convertible into shares of our common stock only if specified
conditions are met. If the specific conditions for conversion are not met, you
will not be able to convert your debentures, and you may not be able to receive
the value of the common stock into which the debentures would otherwise be
convertible.
We may not be able to repurchase the debentures.
You may require us to repurchase all or a portion of your debentures on certain
dates or in the event of a fundamental change. We may not have enough funds to
pay the repurchase price on a purchase date (in which case, we could be required
to issue common stock to pay the repurchase price in the case of purchase dates
in 2013 and 2018) or pay the fundamental change purchase price in the event of a
fundamental change. Our existing and any future credit agreements or other debt
agreements (including other senior indebtedness) to which we become a party may
provide that our obligation to purchase or redeem the debentures would be an
event of default under such agreement. As a result, we may be restricted or
prohibited from repurchasing or redeeming the debentures. If we are prohibited
from repurchasing or redeeming the debentures, we could seek the consent of
then-existing lenders to repurchase or redeem the debentures or we could attempt
to refinance the borrowings that contain such prohibition. If we are unable to
obtain a consent or refinance the debt, we could not repurchase or redeem the
debentures. Our failure to redeem tendered debentures would constitute a default
under the indenture and might constitute a default under the terms of other
indebtedness that we incur. The term "fundamental change" is limited to certain
specified transactions and may not include other events that might adversely
affect our financial condition. Our obligation to repurchase the debentures upon
a fundamental change would not necessarily afford holders of debentures
protection in the event of a highly leveraged transaction, reorganization,
merger or similar transaction involving us.
We cannot assure you that a trading market will develop or be maintained for the
debentures.
We have been advised that there is only a limited trading market for the
debentures. The debentures are not listed and we do not intend to list them on
any exchange. We have been informed that one or more broker dealers makes a
market in the debentures, but no one is obligated to do so and those activities
may be ceased at any time. In addition, the liquidity of the trading market in
the debentures, and the market price quoted for the debentures, may be adversely
affected by changes in the overall market for this type of security and by
changes in our financial performance or prospects or in the prospects for
companies in our industry generally. In addition, such market-making activities
will be subject to limits imposed by the Securities Act and the Exchange Act. As
a result, we cannot assure you that even if there is a trading market for the
debentures that it will provide enough liquidity for you to sell your
debentures.
The debentures may not be rated or may receive a lower rating than anticipated.
We believe it is unlikely that the debentures will be rated. However, if one or
more rating agencies rates the debentures and assigns the debentures a rating
lower than the rating expected by investors, or reduces their rating in the
future, the market price of the debentures and our common stock would be harmed.
Certain anti-takeover effects.
Certain provisions of the our Restated Certificate of Incorporation, or the
restated certificate, and Amended and Restated By-laws, or the by-laws, may
inhibit changes in control of the Company not approved by our board of
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directors. These provisions include: (i) advance notice requirements for
stockholder proposals and nominations and (ii) the authority of our board to
issue without stockholder approval preferred stock with such terms as our board
may determine. We will also be afforded the protections of Section 203 of the
Delaware General Corporation Law, which could have similar effects. Our board of
directors adopted a preferred stock purchase rights plan, commonly known as a
"poison pill," pursuant to a rights agreement dated as of October 29, 1997. The
rights agreement is intended to prevent abusive hostile takeover attempts by
requiring a potential acquiror to negotiate the terms of an acquisition with our
board of directors. However, it could have the effect of deterring or preventing
an acquisition of our company, even if a majority of the our stockholders would
be in favor of such acquisition, and could also have the effect of making it
more difficult for a person or group to gain control of our company or to change
existing management.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table shows the ratio of earnings to fixed charges for us and our
consolidated subsidiaries for the periods indicated.
Years ended October 31, Nine months
-------------------------------------------------------------- ended
2002 2001 2000 1999 1998 July 31, 2003
---- ---- ---- ---- ---- -------------
7.3 9.6 6.9 4.8 4.0 8.7
These ratios have been calculated by dividing (i) income before income taxes
plus fixed charges (adjusted for capitalized interest) by (ii) fixed charges.
Fixed charges consist of interest incurred (expensed or capitalized) and the
portion of rent expense (one-third) which is deemed representative of interest.
USE OF PROCEEDS
The net proceeds from the sale of the securities covered by this prospectus will
be received by the selling securityholders. We will not receive any of the
proceeds from any sale by any selling securityholder of the securities covered
by this prospectus.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed and traded on the New York Stock Exchange under the
symbol "COO." The following table sets forth, for the fiscal periods indicated,
the range of high and low sale prices for our common stock. On September 30,
2003 the last reported sale price for our common stock was $40.75 per share.
Price Range
--------------------
Low High
-------------------------------------------------------------------------------------
Fiscal 2001
First Quarter............................................. $15.25 $20.75
Second Quarter............................................ 17.45 25.20
Third Quarter............................................. 20.45 25.70
Fourth Quarter............................................ 20.35 27.86
Fiscal 2002
First Quarter............................................. 21.02 25.37
Second Quarter............................................ 21.19 26.79
Third Quarter............................................. 19.17 27.55
Fourth Quarter............................................ 20.32 28.95
Fiscal 2003
First Quarter............................................. 23.10 31.47
Second Quarter............................................ 25.12 31.01
Third Quarter ............................................ 27.75 36.30
Fourth Quarter (through September 30, 2003)............... 32.03 44.75
As of July 31, 2003, we had approximately 835 stockholders of record.
In November 2002 our Board of Directors declared a two-for-one stock
split effected in the form of a stock dividend that was paid November 22, 2002.
On a split adjusted basis, we paid quarterly dividends of $0.01 per share
beginning July 5, 1999 through January 5, 2001. We increased our dividend in the
first quarter of 2001 to $0.05 per share annually, and paid semiannual dividends
of $0.025 per share beginning July 5, 2001. In November 2002 we increased our
annual dividend rate to $0.06 cents annually and paid a semiannual dividend of
$0.03 cents
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per share on each of January 6, 2003 and July 3, 2003. The continued payment of
dividends by us is subject to the discretion of our board of directors and will
depend on earnings, financial condition, capital requirements and other factors
deemed relevant by our board of directors.
22
DESCRIPTION OF THE DEBENTURES
The debentures were issued by us under an indenture, dated as of June 25, 2003
between us and Wells Fargo Bank, National Association, as trustee. The
debentures mature on July 1, 2023. Initially, the trustee will also act as
paying agent, conversion agent, transfer agent, and bid solicitation agent for
the debentures.
The following description is only a summary of the material provisions of the
debentures, the indenture and the registration rights agreement. We urge you to
read these documents in their entirety because they, and not this description,
define the rights of holders of the debentures. You may obtain copies of these
documents by visiting the SEC's website at www.sec.gov as set forth under
caption "Where you can find more information" or you may request copies of these
documents at our address set forth under the caption "Prospectus summary."
When we refer to "Cooper," "we," "our," or "us" in this section, we refer only
to The Cooper Companies, Inc., a Delaware corporation, and not to its
subsidiaries.
GENERAL
The debentures to be offered by the selling securityholders pursuant to this
prospectus:
o are limited to $115,000,000 in aggregate principal amount;
o bear interest at a per annum rate of 2.625%, payable semi-annually, on each
January 1 and July 1, beginning January 1, 2004;
o bear additional interest, which we refer to as "additional interest," if we
fail to comply with certain obligations set forth below under
"-- Registration Rights;"
o are issued only in denominations of $1,000 principal amount and multiples
thereof;
o are senior unsecured obligations of Cooper and rank equally in right of
payment with all of our other unsecured and unsubordinated indebtedness and
senior to any of our subordinated indebtedness; as indebtedness of Cooper,
the debentures are effectively subordinated to all indebtedness and other
liabilities of our subsidiaries;
o are convertible into our shares of common stock at an initial conversion
rate of 22.5201 shares per $1,000 principal amount of the debentures (which
represents a conversion price of approximately $44.40 per share) under the
conditions and subject to such adjustments as are described under
"-- Conversion Rights;" and "-- Conversion Rate Adjustment;"
o are redeemable by us for cash, at our option in whole or in part, beginning
on July 1, 2008 at a redemption price equal to 100% of the principal amount
of the debentures to be redeemed plus any accrued and unpaid interest,
including additional interest, to, but not including, the redemption date
as described under "-- Optional Redemption by Us;"
o are subject to repurchase by us at the option of the holders on July 1,
2008, July 1, 2013 and July 1, 2018 or upon a fundamental change (as
defined below) of Cooper occurring prior to July 1, 2013, as described
under "-- Repurchase of debentures at the Option of Holders -- Optional
put" and"-- Repurchase of debentures at the Option of Holders --
Fundamental change put;"
o are due on July 1, 2023, unless earlier converted, redeemed by us at our
option or repurchased by us at the option of the holders.
The indenture does not contain any financial covenants and does not restrict us
or our subsidiaries from paying dividends, incurring additional indebtedness or
issuing or repurchasing our other securities. The indenture also does not
protect the holders in the event of a highly leveraged transaction or a change
of control of Cooper, except to the
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limited extent described under "-- Repurchase of debentures at the Option of
Holders -- Fundamental change put" below.
The debentures will be our senior unsecured obligations and rank equally in
right of payment with all of our existing and future unsecured and
unsubordinated indebtedness. The debentures will effectively be subordinated to
all of our existing and future secured indebtedness. As of July 31, 2003, we
had total secured indebtedness of approximately $79 million and we had
$144 million of availability under our secured revolving credit facility. The
debentures will not be guaranteed by any of our subsidiaries and, accordingly,
the debentures are effectively subordinated to the indebtedness and other
liabilities of our subsidiaries, including trade creditors. As of July 31, our
subsidiaries had total indebtedness of approximately $46 million, including
trade payables but excluding intercompany debt.
No sinking fund is provided for the debentures, and the debentures are not
subject to defeasance. The debentures are issued only in registered form,
without coupons, in denominations of $1,000 principal amount and multiples
thereof.
Holders may present definitive debentures for conversion, registration of
transfer and exchange at our office or agency in New York City, which shall
initially be the office of the trustee. For information regarding registration
of transfer and exchange of global debentures, see "Book-Entry Delivery and
Settlement." No service charge is required for any registration of transfer or
exchange of debentures, but we may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection with such
registration of transfer or exchange.
Holders may not sell or otherwise transfer the debentures or the common stock,
if any, issuable upon conversion of the debentures except in compliance with the
provision set forth below under "Transfer Restrictions" and "-- Registration
Rights."
INTEREST
The debentures bear interest at a rate of 2.625% per annum from June 25, 2003.
We also will pay additional interest if we fail to comply with certain
obligations set forth below under "-- Registration Rights." We will pay interest
semi-annually on January 1 and July 1 of each year beginning January 1, 2004, to
the holders of record at the close of business on the preceding December 15 and
June 15, respectively. There are two exceptions to the preceding sentence:
o In general, we will not pay accrued interest on any debentures that are
converted into shares of our common stock. See "-- Conversion Procedures."
If a holder of debentures converts after a record date for an interest
payment but prior to the corresponding interest payment date, the holder on
the record date will receive on that interest payment date accrued interest
on those debentures, notwithstanding the conversion of those debentures
prior to that interest payment date, because that holder will have been the
holder of record on the corresponding record date. However, in that case at
the time that the holder surrenders debentures for conversion, the holder
must pay to us an amount equal to the interest that has accrued and that
will be paid on the related interest payment date. The preceding sentence
does not apply, however, if (1) we have specified a redemption date that is
after a record date for an interest payment but on or prior to the
corresponding interest payment date, (2) we have specified a repurchase
date following a fundamental change that is after a record date for an
interest payment but on or prior to the corresponding interest payment
date, or (3) any overdue interest exists at the time of conversion with
respect to the debentures converted, but only to the extent of the amount
of such overdue interest. Accordingly, under those circumstances, a holder
of debentures who chooses to convert those debentures on a date that is
after a record date but prior to the corresponding interest payment date,
will not be required to pay us, at the time that holder surrenders those
debentures for conversion, the amount of interest it will receive on the
interest payment date.
o We will pay interest to a person other than the holder of record on the
record date if we elect to redeem the debentures on a date that is after a
record date but on or prior to the corresponding interest payment date. In
this instance, we will pay accrued interest on the debentures being
redeemed to, but not including, the redemption date to the same person to
whom we will pay the principal of those debentures.
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Except as provided below, we will pay interest on:
o the global debenture to DTC in immediately available funds;
o any definitive debentures having an aggregate principal amount of
$5,000,000 or less by check mailed to the holders of those debentures; and
o any definitive debentures having an aggregate principal amount of more than
$5,000,000 by wire transfer in immediately available funds if requested by
the holders of those debentures.
At maturity, interest on the definitive debentures will be payable at the office
of the trustee as set forth above. We will make payments of interest at maturity
on global debentures to DTC, in immediately available funds.
Interest generally will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
CONVERSION RIGHTS
General
Holders may convert any outstanding debentures into shares of our common stock,
subject to the conditions described below, at an initial conversion rate of
22.5201 shares per $1,000 principal amount (which represents a conversion price
of approximately $44.40 per share). The conversion rate is subject to adjustment
as described below. We will not issue fractional shares of common stock upon
conversion of the debentures. Instead, we will pay the cash value of such
fractional shares based upon the sale price of our common stock on the business
day immediately preceding the conversion date. Upon a conversion, we will have
the right to deliver cash or a combination of cash and shares of our common
stock, as described below. Holders may convert debentures only in denominations
of $1,000 principal amount and multiples thereof.
Holders may surrender debentures for conversion into shares of our common stock
prior to the stated maturity in the following circumstances:
o during any fiscal quarter (beginning with the quarter ending October 31,
2003) if the sale price of our common stock for at least 20 consecutive
trading days in the 30 consecutive trading-day period ending on the last
trading day of the immediately preceding fiscal quarter exceeds 120% of the
conversion price on that 30th trading day;
o during any five consecutive trading-day period immediately following any
five consecutive trading-day period (the "Debenture Measurement Period") in
which the average trading price for the debentures during that Debenture
Measurement Period was less than 95% of the average conversion value for
the debentures during such period; provided, however, you may not convert
your debentures (in reliance on this subsection) after July 1, 2018 if on
any trading day during such Debenture Measurement Period the closing sale
price of shares of our common stock was between the then-current conversion
price of the debentures and 120% of the then-current conversion price of
the debentures;
o upon the occurrence of specified corporate transactions; or
o if we have called the debentures for redemption.
The "sale price" of our common stock on any date means the closing per share
sale price (or if no closing sale price is reported, the average of the bid and
ask prices or, if there is more than one bid or ask price, the average of the
average bid and the average ask prices) as reported in composite transactions
for the principal U.S. securities exchange on which the common stock is traded
or, if the common stock is not listed on a U.S. national or regional securities
exchange, as reported by the National Association of Securities Dealers
Automated Quotation system or by the National Quotation Bureau Incorporated. In
the absence of such a quotation, the board of directors of Cooper will make a
good faith determination of the sale price, which shall be conclusive. If a
holder exercises its right to require us to repurchase its debentures as
described under "-- Repurchase of debentures at the Option of Holders,"
25
such holder may convert its debentures into shares of our common stock only if
it withdraws its repurchase notice and converts its debentures prior to the
close of business on the business day immediately preceding the repurchase date.
The "market price" of a debenture on any date of determination means the average
of the secondary market bid quotations per $1,000 principal amount of debentures
obtained by the bid solicitation agent for $1,000,000 principal amount of
debentures at approximately 4:00 p.m., New York City time, on such determination
date from three securities dealers unaffiliated with us that we select, provided
that, if at least three such bids cannot be reasonably obtained by the bid
solicitation agent, but two bids are obtained, then the average of the two bids
will be used, and if only one such bid can be reasonably obtained by the bid
solicitation agent, this one bid will be used. If:
o the bid solicitation agent, through the exercise of reasonable efforts, is
unable to obtain at least one bid from a securities dealer, or
o in our reasonable judgment, the bid quotations are not indicative of the
secondary market value of the debentures,
then the market price of the debentures will equal (1) the then-applicable
conversion rate of the debentures multiplied by (2) the average sale price of
our common stock on the five trading days ending on such determination date. The
bid solicitation agent shall not be required to determine the market price of
the debentures unless requested in writing by us.
The bid solicitation agent will be appointed by us, but the bid solicitation
agent will not be our affiliate. The bid solicitation agent will solicit bids
from securities dealers, which may include the initial purchaser, that are
believed by us to be willing to bid for the debentures.
Conversion upon satisfaction of common stock market price conditions
You may surrender any of your debentures for conversion into shares of our
common stock during any fiscal quarter (beginning with the quarter ending
October 31, 2003) if the sale price of our common stock for at least 20
consecutive trading days in the 30 consecutive trading-day period ending on the
last trading day of the immediately preceding fiscal quarter exceeds 120% of the
conversion price on that 30th trading day.
Conversion upon satisfaction of debenture market price conditions
You may surrender any of your debentures for conversion into shares of our
common stock during any five consecutive trading-day period immediately
following any five consecutive trading-day period (the "Debenture Measurement
Period") in which the average trading price for the debentures during that
Debenture Measurement Period was less than 95% of the average conversion value
for the debentures during such period; provided, however, you may not convert
your debentures (in reliance on this subsection) after July 1, 2018 if on any
trading day during such Debenture Measurement Period the closing sale price of
shares of our common stock was between the then current conversion price of the
debentures and 120% of the then-current conversion price of the debentures.
"Conversion value" is equal to the product of the sale price for our common
stock on a given day multiplied by the then-current conversion rate.
Upon surrendering your debentures you will receive an amount of common stock at
the then-applicable conversion rate.
Conversion upon specified corporate transactions
Even if the market price contingencies described above under "- Conversion upon
satisfaction of common stock market price conditions" and "-- Conversion rights
-- Conversion upon satisfaction of debenture market price conditions" have not
occurred, if we elect to
26
o distribute to all holders of common stock certain rights or warrants
entitling them to purchase shares of common stock at less than the closing
price at the time of the distribution of the rights other than pursuant to
a stockholder rights plan, or
o distribute to all holders of our common stock our assets, cash, debt
securities or certain rights to purchase our securities, which distribution
has a per share value exceeding 10% of the closing price of the common
stock on the day preceding the declaration date for such distribution,
we must notify the holders of debentures at least 20 days prior to the
ex-dividend date for such distribution. Once we have given such notice, holders
may surrender their debentures for conversion at any time until the earlier of
the close of business on the business day prior to the ex-dividend date or our
announcement that such distribution will not take place.
In addition, if we are party to a consolidation, merger or binding share
exchange pursuant to which our common stock would be converted into cash,
securities or other property, a holder may surrender debentures for conversion
at any time from and after the date that is 15 days prior to the anticipated
effective date of the transaction until 15 days after the actual date of such
transaction. If we are a party to a consolidation, merger or binding share
exchange pursuant to which our common stock are converted into cash, securities
or other property, then at the effective time of the transaction, the right to
convert a debenture into common stock will be changed into a right to convert it
into the kind and amount of cash, securities or other property which the holder
would have received if the holder had converted its debenture immediately prior
to the transaction. If the transaction occurs prior to July 1, 2013 and also
constitutes a "fundamental change," as defined below, the holder can require us
to purchase all or a portion of its debentures as described under "-- Repurchase
of debentures at the Option of Holders -- Fundamental change put" instead of
converting such debentures pursuant to this provision.
Conversion upon notice of redemption
You may surrender for conversion any debentures we call for redemption at any
time prior to the close of business on the business day prior to the redemption
date, even if the debentures are not otherwise convertible at that time. If a
holder already has delivered a repurchase notice with respect to a debenture,
however, the holder may not surrender that debenture for conversion until the
holder has withdrawn the notice in accordance with the indenture.
CONVERSION PROCEDURES
By delivering to the holder the number of shares issuable upon conversion
together with a cash payment in lieu of any fractional shares, or cash or a
combination of cash and shares of our common stock in lieu thereof, we will
satisfy our obligation with respect to the conversion of the debentures. That
is, accrued interest will be deemed to be paid in full rather than canceled,
extinguished or forfeited. We will not adjust the conversion rate to account for
any accrued interest, including additional interest, if any.
If the holder converts after a record date for an interest payment but prior to
the corresponding interest payment date, such holder will receive on the
interest payment date interest accrued on those debentures, notwithstanding the
conversion of debentures prior to the interest payment date, assuming the holder
was the holder of record on the corresponding record date. However, each holder
agrees, by accepting a debenture, that if the holder surrenders any debentures
for conversion during such period, such holder must pay us at the time such
holder surrenders its debenture for conversion an amount equal to the interest
that has accrued and that will be paid on the debentures being converted on the
interest payment date. The preceding sentence does not apply, however, if (1) we
have specified a redemption date that is after a record date for an interest
payment but on or prior to the corresponding interest payment date, (2) we have
specified a repurchase date following a fundamental change or (3) any overdue
interest exists at the time of conversion with respect to the debentures
converted but only to the extent of the amount of such overdue interest.
Accordingly, under those circumstances, a holder of debentures who chooses to
convert those debentures on a date that is after a record date but prior to the
corresponding interest payment date, will not be required to pay us, at the time
that holder surrenders those debentures for conversion, the amount of interest
it will receive on the interest payment date.
27
In lieu of delivery of shares of our common stock upon conversion of any
debentures, for all or any portion of the debentures, we may elect to pay
holders surrendering debentures an amount in cash per debenture (or a portion of
a debenture) equal to the applicable stock price multiplied by the conversion
rate in effect on the conversion date. We will inform the holders through the
trustee no later than two business days following the conversion date of our
election to deliver shares of our common stock or to pay cash in lieu of
delivery of the shares, unless we have already informed holders of our election
in connection with our optional redemption of the debentures as described under
"-- Optional Redemption by Us." Shares of our common stock and cash deliverable
upon conversion will be delivered through the conversion agent no later than the
third business day following the determination of the applicable stock price. If
we elect to pay all of such payment in cash, the payment will be made to holders
surrendering debentures no later than the tenth business day following the
applicable conversion date. If an event of default, as described under
"-- Events of Default" below (other than a default in a cash payment upon
conversion of the debentures), has occurred and is continuing, we may not pay
cash upon conversion of any debentures or portion of the debentures (other
than cash for fractional shares).
The "applicable stock price" means an amount per share equal to the average of
the closing sale prices of our common stock over the five trading-day period
starting on the third trading day following the conversion date of the
debentures.
Holders of debentures are not required to pay any taxes or duties relating to
the issuance or delivery of our common stock upon exercise of conversion rights,
but they are required to pay any tax or duty which may be payable relating to
any transfer involved in the issuance or delivery of the common stock in a name
other than the name of the holder of the debenture. Certificates representing
shares of our common stock will be issued or delivered only after all applicable
taxes and duties, if any, payable by the holder have been paid.
To convert interests in a global debenture, the holder must deliver to DTC the
appropriate instruction form for conversion pursuant to DTC's conversion
program. To convert a definitive debenture, the holder must:
o complete and manually sign the conversion notice on the back of the
certificates (or a facsimile thereof);
o deliver the completed conversion notice and the debenture to be converted
to the specified office of the conversion agent;
o pay all funds required, if any, relating to interest on the debenture to be
converted to which the holder is not entitled, as described in the second
preceding paragraph; and
o pay all taxes or duties, if any, as described in the preceding paragraph.
The applicable "conversion date" for the conversion of any debenture is the date
on which all of the foregoing requirements have been satisfied. The debentures
will be deemed to have been converted immediately prior to the close of business
on the conversion date. Delivery of shares will be accomplished by delivery to
the conversion agent of certificates for the relevant number of shares, other
than in the case of holders of debentures in book-entry form with DTC, which
shares shall be delivered in accordance with DTC customary practices. A holder
will not be entitled to any rights as a holder of our common stock, including,
among other things, the right to vote and receive dividends and notices of
stockholder meetings, until the conversion is effective.
If a holder exercises its right to require us to repurchase its debentures as
described under
"-- Repurchase of debentures at the Option of Holders," such holder may convert
its debentures as provided above only if it withdraws its applicable repurchase
notice and converts its debentures prior to the close of business on the
business day immediately preceding the applicable repurchase date.
If we:
o reclassify our common stock into other another class of stock (other than
changes resulting from a subdivision or a combination); or
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o consolidate or combine with or merge into any person or sell or convey to
another person all or substantially all of our property and assets, and the
holders of all of our common stock receive cash, securities or other
property (including cash or any combination thereof) with respect to or in
exchange for all of their common stock), then at the effective time of the
transaction, the right to convert a debenture into our common stock will be
changed into a right to convert a debenture into the kind and amount of
cash, securities or other property which the holder would have received if
the holder had converted such debentures immediately prior to the
transaction. If the transaction occurs prior to July 1, 2013, and also
constitutes a "fundamental change," as defined below, the holder can
require us to repurchase all or a portion of its debentures as described
under "-- Repurchase of debentures at the Option of Holders-- Fundamental
change put."
CONVERSION RATE ADJUSTMENTS
We will adjust the conversion rate if any of the following events occur:
(1) we issue common stock as a dividend or distribution on our common stock
to all holders of our common stock;
(2) we issue to all holders of our common stock rights or warrants to
purchase our common stock or securities convertible into or exchangeable or
exercisable for our common stock, which rights or warrants are exercisable for
not more than 60 days, at less than the sale price of our common stock on the
trading day immediately preceding the time of announcement of such issuance
(other than pursuant to a stockholders' rights plan);
(3) we subdivide or combine our common stock;
(4) we distribute to all holders of our common stock shares of our capital
stock, evidences of our indebtedness or non-cash assets, including securities,
but excluding:
o rights or warrants listed in (2) above;
o dividends or distributions listed in (1) above; and
o any dividends or distributions paid exclusively in cash;
(5) prior to July 1, 2008, we make distributions consisting exclusively of
cash to all holders of our common stock to the extent that the aggregate cash
distributed per share of common stock, together with any cash and the fair
market value of other consideration paid in any tender offers by us or any of
our subsidiaries for our common stock expiring within the preceding 12-month
period described below (determined on a per share basis) for which no adjustment
has been made, exceeds:
o in any 12-month period (if ordinary cash dividends are paid on an annual
basis), the greater of (i) 10% of our basic earnings per share for the most
recent 12-month period for which financial statements are available and
(ii) 100% of the aggregate amount of ordinary cash dividends per share of
common stock paid during the most recent 12-month period for which
financial statements are available; or
o in any 6-month period (if ordinary cash dividends are paid on a semi-annual
basis), the greater of (i) 5% of our basic earnings per share for the most
recent 12-month period for which financial statements are available and
(ii) 100% of the aggregate amount of ordinary cash dividends per share of
common stock paid during the most recent 6-month period for which financial
statements are available; or
o in any 3-month period (if ordinary cash dividends are paid on a quarterly
basis), the greater of (i) 2.5% of our basic earnings per share for the
most recent 12-month period for which financial statements are available
and (ii) 100% of the aggregate amount of ordinary cash dividends per share
of common stock paid during the most recent 3-month period for which
financial statements are available;
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(6) prior to July 1, 2008, we or any of our subsidiaries makes purchases of
our common stock pursuant to a tender offer or exchange offer for our common
stock for cash or other consideration to the extent that the aggregate amount of
any cash and the fair value of any other consideration paid in any tender offers
or exchange offers by us or any of our subsidiaries for our common stock
expiring during the periods described below (determined on a per share basis),
together with the aggregate amount of distributions per share of common stock
consisting exclusively of cash to all holders of our common stock, within 12
months preceding the expiration of the tender offer for which no adjustment
has been made, exceeds:
o in any 12-month period (if ordinary cash dividends are paid on an annual
basis), the greater of (i) 10% of our basic earnings per share, in the
aggregate for all outstanding shares of our common stock, for the most
recent 12-month period for which financial statements are available and
(ii) 100% of the aggregate amount of ordinary cash dividends per share of
common stock paid to holders of our common stock during the most recent
12-month period for which financial statements are available;
o in any 6-month period (if ordinary cash dividends are paid on a semi-annual
basis), the greater of (i) 5% of our basic earnings per share, in the
aggregate for all outstanding shares of our common stock, for the most
recent 12-month period for which financial statements are available and
(ii) 100% of the aggregate amount of ordinary cash dividends per share of
common stock paid to holders of our common stock during the most recent
6-month period for which financial statements are available; or
o in any 3-month period (if ordinary cash dividends are paid on a quarterly
basis), the greater of (i) 2.5% of our basic earnings per share, in the
aggregate for all outstanding shares of our common stock, for the most
recent 12-month period for which financial statements are available and
(ii) 100% of the aggregate amount of ordinary cash dividends per share of
common stock paid to holders of our common stock during the most recent
3-month period for which financial statements are available;
(7) on or after July 1, 2008 we make distributions consisting exclusively of
cash to all holders of our common stock to the extent that those distributions,
combined with:
o all other such distributions made exclusively in cash within the preceding
12 months for which no adjustment has been made, plus
o any cash and the fair market value of other consideration paid in any
tender offers by us or any of our subsidiaries for our common stock
expiring with the preceding 12 months for which no adjustment has been
made,
exceeds 10% of our market capitalization on the record date for that
distribution; our "market capitalization," as of any date, is the product of the
sale price of our common stock on such date times the number of shares of our
common stock then outstanding; or
(8) on or after July 1, 2008 we or one of our subsidiaries make purchases of
our common stock pursuant to a tender offer or exchange offer for our common
stock to the extent such purchases involve an aggregate consideration that,
together with:
o any cash and the fair market value of any other consideration paid in any
other tender offer by us or any of our subsidiaries for our common stock
expiring within the 12 months preceding the tender offer for which no
adjustment has been made, plus
o the aggregate amount of any all-cash distributions referred to in (7) above
to all holders of our common stock within 12 months preceding the
expiration of the tender offer for which no adjustments have been made,
exceeds 10% of our market capitalization on the expiration of the tender offer.
The basic earnings per share and ordinary cash dividend amounts referred to in
clauses (5) and (6) above will be appropriately adjusted to take into account
any common stock dividends or distributions and sub-divisions or
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combinations of our common stock.If we make an adjustment pursuant to clause (5)
or (6) above, then the conversion rate shall be increased so that it equals the
rate determined by multiplying the conversion rate in effect on the record date
with respect to the cash distribution requiring such adjustment by a fraction,
(1) the numerator of which shall be the "current market price" (as defined
below) of a share of our common stock on such record date, and (2) the
denominator of which shall be the same current market price of a share of our
common stock on such record date less the amount of cash per share distributed
in excess of the amounts described in clause (5) or (6) above, as the case may
be. The "current market price" per share of our common stock for purposes of
clause (5) or (6) above is the average of the daily closing sale prices per
share of our common stock for the ten consecutive trading days ending on the
earlier of the date of determination and the day before the "ex" date with
respect to the distribution requiring such computation. For purposes of
determining the current market price, the term "ex" date, when used with respect
to any distribution, means the first date on which our common stock trades,
regular way, on the relevant exchange or in the relevant market from which the
closing sales price was obtained without the right to receive such distribution.
To the extent that we have a rights plan in effect upon conversion of the
debentures into common stock, the holder will receive, in addition to the common
stock, the rights under the rights plan whether or not the rights have separated
from the common stock at the time of conversion, subject to limited exceptions,
and no adjustments to the conversion rate will be made, except in limited
circumstances.
We will not make any adjustment to the conversion rate if holders of debentures
may participate in the transactions described above without conversion, or in
certain other cases.
To the extent permitted by law, we may, from time to time, increase the
conversion rate for a period of at least 20 days if our board of directors has
made a determination that this increase would be in our best interests. Any such
determination by our board will be conclusive. We would give holders at least 15
days notice of any increase in the conversion rate. In addition, we may increase
the conversion rate if our board of directors deems it advisable to avoid or
diminish any income tax to holders of common stock resulting from any stock
distribution.
We will not be required to make an adjustment in the conversion rate unless the
adjustment would require a change of at least 1% in the conversion rate.
However, we will carry forward any adjustments that are less than 1% of the
conversion rate. Except as described above in this section, we will not adjust
the conversion rate.
PAYMENT AT MATURITY
Each holder of $1,000 principal amount of the debentures shall be entitled to
receive $1,000, and accrued and unpaid interest, including additional interest,
if any, at maturity.
OPTIONAL REDEMPTION BY US
Prior to July 1, 2008, the debentures will not be redeemable at our option.
Beginning on July 1, 2008, we may redeem the debentures for cash at any time as
a whole, or from time to time in part, at a redemption price equal to 100% of
the principal amount of the debentures to be redeemed plus accrued and unpaid
interest, including additional interest, if any, to, but not including, the
redemption date.
We will give at least 30 days but not more than 60 days notice of redemption by
mail to holders of debentures. debentures or portions of debentures called for
redemption are convertible by the holder until the close of business on the
business day prior to the redemption date.
If we do not redeem all of the debentures, the trustee will select the
debentures to be redeemed in principal amounts of $1,000 or multiples thereof,
by lot or on a pro rata basis. If any debentures are to be redeemed in part
only, we will issue a new debenture or debentures with a principal amount equal
to the unredeemed principal portion thereof. If a portion of a holder's
debentures is selected for partial redemption and the holder converts a portion
of its debentures, the converted portion will be deemed to be taken from the
portion selected for redemption.
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If the holder converts after a record date for an interest payment but prior to
the corresponding interest payment date, such holder will receive on the
interest payment date interest accrued on those debentures, notwithstanding the
conversion of debentures prior to the interest payment date, assuming the holder
was the holder of record on the corresponding record date. However, each holder
agrees, by accepting a debenture, that if the holder surrenders any debentures
for conversion during such period, such holder must pay us at the time such
holder surrenders its debenture for conversion an amount equal to the interest
that has accrued and that will be paid on the debentures being converted on the
interest payment date. The preceding sentence does not apply, however, to a
holder that converts debentures that are called by us for redemption after a
record date for an interest payment but prior to the corresponding interest
payment date. Accordingly, if we elect to redeem debentures on a date that is
after a record date for the payment of interest on debentures of any holder, and
such holder chooses to convert those debentures, the holder will not be required
to pay us, at the time that holder surrenders those debentures for conversion,
the amount of interest it will receive on the interest payment date.
REPURCHASE OF DEBENTURES AT THE OPTION OF HOLDERS
Optional put
On each of July 1, 2008, July 1, 2013 and July 1, 2018, a holder may require us
to repurchase any outstanding debentures for which the holder has properly
delivered and not withdrawn a written repurchase notice, subject to certain
additional conditions, at a purchase price equal to 100% of the principal amount
of those debentures plus accrued and unpaid interest, including additional
interest, if any, to, but not including, the repurchase date. Holders may submit
their debentures for repurchase to the paying agent at any time from the opening
of business on the date that is 20 business days prior to the repurchase date
until the close of business on the business day immediately preceding the
repurchase date.
We will pay the repurchase price for any debentures submitted for repurchase by
us on July 1, 2008 in cash. At our sole option, we may elect to pay the
repurchase price for any debentures submitted for repurchase by us on July 1,
2013 and July 1, 2018 in cash, in shares of our common stock or a combination of
shares of our common stock and cash. The number of shares of our common stock a
holder will receive will equal the relevant amount of the purchase price divided
by the average of the sale price of our common stock for the 20 trading days
immediately preceding and including the third business day immediately preceding
the repurchase date. However, we may not pay the purchase price in shares of our
common stock or a combination of shares of our common stock and cash, unless we
satisfy certain conditions prior to the repurchase date as provided in the
indenture, including:
o registration of the shares of our common stock to be issued upon repurchase
under the Securities Act and the Exchange Act, if required by law;
o qualification of the shares of our common stock to be issued upon
repurchase under applicable state securities laws, if necessary, or the
availability of an exemption therefrom; and
o listing of our common stock on a U.S. national securities exchange or
quotation thereof in an inter-dealer quotation system of any registered
U.S. national securities association.
We are required to give notice at least 20 business days prior to each
repurchase date to all holders at their addresses shown in the register of the
registrar and to beneficial owners as required by applicable law stating, among
other things, the procedures that holders must follow to require us to
repurchase their debentures as described below and with respect to debentures
submitted for repurchase by us on July 1, 2013 and July 1, 2018, whether the
purchase price will be paid in cash or shares of our common stock, or a
combination of cash and shares of our common stock. Because the sale price of
our common stock will be determined prior to the applicable repurchase date,
holders of debentures bear the market risk that our common stock will decline in
value between the date the sale price is calculated and the repurchase date. The
repurchase notice given by each holder electing to require us to repurchase
debentures shall be given so as to be received by the paying agent no later than
the close of business on the business day immediately preceding the repurchase
date and must state:
o if certificated, the certificate numbers of the holders' debentures to be
delivered for repurchase;
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o the portion of the principal amount of debentures to be repurchased, which
must be $1,000 or a multiple thereof; and
o that the debentures are to be repurchased by us pursuant to the applicable
provisions of the debentures and the indenture.
If debentures are not in certificated form, your repurchase notice must comply
with appropriate DTC procedures.
A holder may withdraw any repurchase notice by delivering a written notice of
withdrawal to the paying agent prior to the close of business on the business
day immediately preceding the repurchase date. The notice of withdrawal shall
state:
o the principal amount of debentures being withdrawn;
o if certificated, the certificate numbers of the debentures being withdrawn;
and
o the principal amount, if any, of the debentures that remain subject to the
repurchase notice.
If debentures are not in certificated form, your repurchase notice must comply
with appropriate DTC procedures.
In connection with any repurchase, we will, to the extent applicable:
o comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender
offer rules under the Exchange Act which may then be applicable; and
o file Schedule TO or any other required schedule under the Exchange Act.
Our obligation to pay the purchase price for debentures for which a repurchase
notice has been delivered and not validly withdrawn is conditioned upon the
holder delivering the debentures, together with necessary endorsements, to the
paying agent at any time after delivery of the repurchase notice. We will cause
the purchase price for the debentures to be paid promptly following the later of
the repurchase date or the time of delivery of the debentures, together with
such endorsements.
If the paying agent holds money or shares of our common stock, as applicable,
sufficient to pay the purchase price of the debentures for which a repurchase
notice has been delivered on the business day immediately following the
repurchase date in accordance with the terms of the indenture, then, immediately
after the repurchase date, the debentures will cease to be outstanding and
interest, including additional interest, if any, on the debentures will cease to
accrue, whether or not the debentures are delivered to the paying agent.
Thereafter, all other rights of the holder shall terminate, other than the right
to receive the purchase price upon delivery of the debentures.
Our ability to repurchase debentures for cash may be limited by the ability of
Cooper to obtain funds for such repurchase through dividends from our
subsidiaries and the terms of our then-existing borrowing agreements. We cannot
assure you that we would have the financial resources, or would be able to
arrange financing, to pay the purchase price in cash for all the debentures that
might be delivered by holders of debentures seeking to exercise the repurchase
right. See "Risk factors -- We may not be able to repurchase the debentures."
Fundamental change put
If a fundamental change, as described below, occurs at any time prior to July 1,
2013 each holder will have the right to require us to repurchase all of its
debentures not previously called for redemption, or any portion of those
debentures that is equal to $1,000 in principal amount or multiples thereof, at
a purchase price equal to 100% of the principal amount of all debentures it
requires us to repurchase, plus accrued and unpaid interest, including
additional interest, if any, on those debentures to, but not including, the
repurchase date. Notwithstanding the foregoing, we may be required to offer to
repurchase any of our other senior debt on a pro rata basis with the debentures,
upon a fundamental change, if similar repurchase offers are or will be required
by our other senior debt upon such an event.
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If a fundamental change occurs on or after July 1, 2013, no holder will have the
right to require us to purchase any debentures, except as described under
"-- Repurchase of debentures at the Option of Holders -- Optional put."
A "fundamental change" is any transaction or event (whether by means of an
exchange offer, liquidation, sale, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise) in connection with
which any of the following occurs:
o any "person" or "group" is or becomes the "beneficial owner," (as such
terms are used in Section 13(d) and 14(d) of the Exchange Act) directly or
indirectly, of shares of our voting stock representing 50% or more of the
total voting power of all outstanding classes of our voting stock or has
the power, directly or indirectly, to elect a majority of the members of
our board of directors;
o the sale, lease or transfer of all or substantially all of our assets and
property to any "person" or "group" (as such terms are used in Section
13(d) and 14(d) of the Exchange Act);
o all or substantially all of our common stock is exchanged for, converted
into, acquired for or constitutes solely the right to receive,
consideration (excluding cash payments for fractional shares) which is not
all or substantially all common stock that is listed on, or immediately
after the transaction or event will be listed on, a United States national
securities exchange, or is approved, or immediately after the transaction
or event will be approved, for quotation on the NASDAQ National Market or
any similar United States system of automated dissemination of quotations
of securities prices;
o the holders of our capital stock approve any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the indenture); or
o at any time the following persons cease for any reason to constitute a
majority of our board of directors:
o individuals who on the first issue date of the debentures constituted
our board of directors; and
o any new directors whose election by our board of directors or whose
nomination for election by our stockholders was approved by at least a
majority of the directors then still in office who were either
directors on the first issue date of the debentures or whose election
or nomination for election was previously so approved.
The phrase "all or substantially all" will likely be interpreted under
applicable law and will be dependent upon particular facts and circumstances. As
a result, there may be a degree of uncertainty in ascertaining whether a sale,
lease or transfer of "all or substantially all" of our assets or an exchange,
conversion or acquisition of "all or substantially all" of our common stock has
occurred, in which case a holder's ability to require us to purchase their
debentures upon a fundamental change may be impaired.
Instead of paying the purchase price in cash, we may elect, at our sole option,
to pay the purchase price in shares of our common stock or, if we are not the
surviving corporation following the occurrence of the fundamental change, common
stock, ordinary shares or American Depositary Shares (or similar securities) of
the surviving corporation or its direct or indirect parent corporation or a
combination of the applicable securities and cash. The number of shares of the
applicable common stock or securities a holder will receive will equal the
relevant amount of the purchase price divided by the average of the sale prices
of the applicable common stock or securities for the 20 trading days immediately
preceding and including the third business day immediately preceding the
repurchase date. However, we may not pay the purchase price in the applicable
common stock or securities or a combination of the applicable common stock or
securities and cash, unless we satisfy certain conditions prior to the
repurchase date as provided in the indenture, including:
o registration of the shares of the applicable common stock or securities to
be issued upon repurchase under the Securities Act and the Exchange Act, if
required;
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o qualification of the shares of the applicable common stock or securities to
be issued upon repurchase under applicable state securities laws, if
necessary, or the availability of an exemption therefrom; and
o listing of the applicable common stock or securities on a U.S. national
securities exchange or quotation thereof on an inter-dealer quotation
system of any registered U.S. national securities association.
Within 30 days after the occurrence of a fundamental change for which a
repurchase right may be exercised, we are required to give each holder notice of
the occurrence of the fundamental change and of its resulting repurchase right
and whether the purchase price will be paid in cash, the applicable common stock
or securities, or a combination of cash and the applicable common stock or
securities. The repurchase date will be within 30 days after the date on which
we give notice of a fundamental change. To exercise the repurchase right, the
holder must deliver prior to the close of business on the business day
immediately preceding the repurchase date, written notice to the paying agent of
its exercise of its repurchase right and such repurchase notice must state:
o if certificated, the certificate numbers of the holders' debentures to be
delivered for repurchase;
o the portion of the principal amount of debentures to be repurchased, which
must be $1,000 or a multiple thereof; and
o that the debentures are to be repurchased by us pursuant to the applicable
provisions of the debentures and the indenture.
If debentures are not in certificated form, your repurchase notice must comply
with appropriate DTC procedures. A holder may withdraw any repurchase notice by
delivering a written notice of withdrawal to the paying agent prior to the close
of business on the business day immediately preceding the repurchase date. The
notice of withdrawal shall state:
o the principal amount of debentures being withdrawn;
o if certificated, the certificate numbers of the debentures being withdrawn;
and
o the principal amount, if any, of the debentures that remain subject to the
repurchase notice.
In connection with any repurchase, we will, to the extent applicable:
o comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender
offer rules under the Exchange Act which may then be applicable; and
o file Schedule TO or any other required schedule under the Exchange Act.
Our obligation to pay the purchase price for debentures for which a repurchase
notice has been delivered and not validly withdrawn is conditioned upon the
holder delivering the debentures, together with necessary endorsements, to the
paying agent at any time after delivery of the repurchase notice. We will cause
the purchase price for the debentures to be paid promptly following the later of
the repurchase date or the time of delivery of the debentures, together with
such endorsements. Because the sale price of the applicable common stock or
securities is determined prior to the applicable repurchase date, holders of
debentures bear the market risk that the applicable common stock or securities
will decline in value between the date the sale price is calculated and the
repurchase date.
If the paying agent holds money or shares of our common stock sufficient to pay
the purchase price of the debentures which holders have elected to require us to
repurchase on the business day following the repurchase date in accordance with
the terms of the indenture, then, immediately after the repurchase date, those
debentures will cease to be outstanding and interest, including additional
interest, if any, on the debentures will cease to accrue, whether or not the
debentures are delivered to the paying agent. Thereafter, all other rights of
the holder shall terminate, other than the right to receive the purchase price
upon delivery of the debentures.
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The foregoing provisions would not necessarily protect holders of the debentures
if highly leveraged or other transactions involving us occur. We could, in the
future, enter into certain transactions, including certain recapitalizations,
that would not constitute a fundamental change with respect to the fundamental
change purchase feature of the debentures but that would increase the amount of
our (or our subsidiaries') outstanding indebtedness.
Our ability to repurchase debentures for cash upon the occurrence of a
fundamental change is subject to important limitations. Our ability to
repurchase the debentures for cash may be limited by the ability of Cooper to
obtain funds for such repurchase through dividends from our subsidiaries and the
terms of our then-existing borrowing agreements. In addition, the occurrence of
a fundamental change could cause an event of default under, or be prohibited or
limited by, the terms of other indebtedness that we may incur from time to time.
Consequently, it is possible that we would not have the financial resources, or
would not be able to arrange financing, to pay the purchase price in cash for
all the debentures that might be delivered by holders of debentures seeking to
exercise the repurchase right. See "Risk factors -- We may not be able to
repurchase the debentures."
The fundamental change purchase feature of the debentures may in certain
circumstances make more difficult or discourage a takeover of our company. The
fundamental change purchase feature, however, is not the result of our knowledge
of any specific effort:
o to accumulate shares of our common stock;
o to obtain control of us by means of a merger, tender offer solicitation or
otherwise; or
o by management to adopt a series of anti-takeover provisions.
Instead, the fundamental change purchase feature is a standard term contained in
securities similar to the debentures.
EVENTS OF DEFAULT
Each of the following constitutes an event of default with respect to the
debentures:
o default in the payment when due of any principal of any of the debentures
at maturity, upon redemption or exercise of a repurchase right;
o default in the payment of any interest or additional interest, if any, when
due under the debentures, which default continues for 30 days;
o default in our obligation to satisfy our conversion obligation upon
exercise of a holder's conversion right;
o default in our obligation to repurchase debentures at the option of holders
upon a fundamental change;
o our failure to comply with any of our other agreements in the debentures or
the indenture upon our receipt of notice to us of such default from the
trustee or to us and the trustee from holders of not less than 25% in
aggregate principal amount at maturity of the debentures, and our failure
to cure (or obtain a waiver of) such default within 60 days after we
receive such notice;
o we fail or any of our "significant subsidiaries" (as such term is defined
in Rule 1-02(w) of Regulation S-X) fails to make any payment at maturity on
any indebtedness, including any applicable grace periods, in an amount in
excess of $15.0 million in the aggregate for all such indebtedness and such
amount has not been paid or discharged within 30 days after notice is given
in accordance with the indenture;
o a default by us or any of our significant subsidiaries on any indebtedness
that results in the acceleration of indebtedness in an amount in excess of
$15.0 million in the aggregate for all such indebtedness, without this
indebtedness being discharged or the acceleration being rescinded or
annulled for 30 days after notice is given in accordance with the
indenture; or
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o certain events of bankruptcy, insolvency or reorganization affecting us or
any or our significant subsidiaries.
If an event of default shall have occurred and be continuing, either the trustee
or the holders of not less than 25% in aggregate principal amount at maturity of
the debentures then outstanding may declare the principal amount of the
debentures then outstanding plus any interest (including additional interest) on
the debentures accrued and unpaid through the date of such declaration to be
immediately due and payable. At any time after a declaration of acceleration has
been made, but before a judgment or decree for payment of money has been
obtained by the trustee, and subject to applicable law and certain other
provisions of the indenture, the holders of a majority in aggregate principal
amount of the debentures then outstanding may, under certain circumstances,
rescind and annul such acceleration. In the case of certain events of bankruptcy
or insolvency, the principal amount of the debentures then outstanding together
with any accrued and unpaid cash interest (including additional interest)
through the occurrence of such event shall automatically become and be
immediately due and payable.
MERGERS AND SALES OF ASSETS
The indenture provides that we may not consolidate or merge with or into, or
sell, assign, convey, transfer or lease our properties and assets substantially
in their entirety (computed on a consolidated basis) to, another corporation,
person or entity unless (1) either (a) in the case of a merger or consolidation,
we are the surviving person or (b) the successor or transferee is a corporation
organized under the laws of the United States, any state thereof or the District
of Columbia and expressly assumes, by supplemental indenture, all of our
obligations under the debentures and the indenture, and (2) immediately after
such transaction, no default or event of default shall exist.
This covenant includes a phrase relating to the sale, assignment, conveyance,
transfer or lease of "our properties and assets substantially in their
entirety." There is no precise, established definition of this phrase under
applicable law. Accordingly, there may be uncertainty as to whether a sale,
assignment, conveyance, transfer or lease of less than all our properties and
assets is subject to this covenant.
MODIFICATION AND WAIVER
We and the trustee may modify or amend the indenture with the consent of the
holders of not less than a majority in aggregate principal amount of the
outstanding debentures; provided, however, that no such modification or
amendment may, without the written consent or the affirmative vote of the holder
of each debenture affected thereby:
o change the stated maturity of the principal of, or any premium due on, or
any installment of interest, including additional interest, if any, on or
with respect to the debentures;
o reduce the principal amount of, repurchase price or redemption price of or
interest or additional interest on any debenture;
o adversely affect the right of holders to convert or require us to
repurchase any of the debentures;
o adversely affect the right of holders to require us to repurchase any of
the debentures upon a fundamental change;
o alter the manner of calculation or rate of accrual of interest or
additional interest, redemption price or repurchase price on any debenture
or extend the time or payment of any such amount;
o impair the right to institute suit for the enforcement of any repurchase
of, payment on or with respect to, or conversion of any debenture,
including any payment on or after the stated maturity of the debentures, in
the case of redemption, on or after the redemption date or, in the case of
repurchase at the option of any holder, on or after the repurchase date;
o modify the optional redemption provisions in a manner that adversely
affects the holders;
37
o change the place of payment or the coin or currency in which the principal
of or any premium or interest with respect to the debentures is payable;
o reduce the percentage in principal amount of the outstanding debentures,
the consent of whose holders is required in order to take specific actions
including, but not limited to, the waiver of past defaults or the
modification or amendment of the indenture; or
o modify any of the above provisions.
We and the trustee may modify or amend the indenture and the debentures without
the consent of any holder in order to, among other things:
o provide for our successor pursuant to a consolidation, merger or sale of
assets;
o add to our covenants for the benefit of the holders of all or any of the
debentures or to surrender any right or power conferred upon us by the
indenture;
o provide for a successor trustee with respect to the debentures;
o cure any ambiguity or correct or supplement any provision in the indenture
which may be defective or inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising under the
indenture which, in each case, will not adversely affect the interests of
the holders of the debentures;
o add any additional events of default with respect to all or any of the
debentures;
o secure the debentures;
o increase the conversion rate or reduce the conversion price, provided that
the increase or reduction, as the case may be, is in accordance with the
terms of the indenture and will not adversely affect the interests of the
holders of the debentures;
o supplement any of the provisions of the indenture to such extent as shall
be necessary to permit or facilitate the discharge of the debentures,
provided that such change or modification does not adversely affect the
interests of the holders of the debentures;
o make any changes or modifications necessary in connection with the
registration of the debentures under the Securities Act as contemplated in
the registration rights agreement; provided that such change or
modification does not adversely affect the interests of the holder of the
debentures in any material respect; or
o add or modify any other provisions with respect to matters or questions
arising under the indenture which we and the trustee may deem necessary or
desirable and which will not adversely affect the interests of the holders
of debentures.
The holders of not less than a majority in aggregate principal amount of the
outstanding debentures may, on behalf of the holders of all of the debentures,
waive any past default and its consequences under the indenture, except a
default (1) in the payment of the principal of or any premium or interest
(including additional interest) on or with respect to the debentures or the
payment of the redemption price or repurchase price or (2) in respect of a
covenant or provision that cannot be modified without the consent of the holder
of each debenture affected thereby.
CALCULATIONS IN RESPECT OF THE DEBENTURES
We or our agents will be responsible for making all calculations called for
under the indenture. These calculations include, but are not limited to,
determination of the market price of the debentures and our common stock, and
38
amounts of additional interest payments, if any, on the debentures. We or our
agents will make all these calculations in good faith and, absent manifest
error, our and their calculations will be final and binding on holders of
debentures. We or our agents will provide a schedule of these calculations to
the trustee, and the trustee is entitled to conclusively rely upon the accuracy
of these calculations without independent verification.
THE TRUSTEE, PAYING AGENT, TRANSFER AGENT AND BID SOLICITATION AGENT
Wells Fargo Bank, National Association, is the trustee under the indenture. The
trustee and its affiliates also perform and may in the future perform certain
banking and other services for us in the ordinary course of their business. The
trustee will be the paying agent, conversion agent, transfer agent and bid
solicitation agent for the debentures.
FORM, DENOMINATION AND REGISTRATION OF DEBENTURES
The debentures will be issued in registered form, without interest coupons, in
denominations of $1,000 and multiples thereof, in the form of both global
securities and certificated securities, as further provided below. The
debentures will be represented by a global security. See "-- Book-entry Delivery
and Settlement" for more information.
No service charge will be imposed in connection with any transfer or exchange of
any debenture, but we may in general require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith.
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BOOK-ENTRY DELIVERY AND SETTLEMENT
We will issue the debentures in the form of one or more permanent global notes
in definitive, fully registered, book-entry form. The global notes will be
deposited with or on behalf of DTC and registered in the name of Cede & Co., as
nominee of DTC. DTC has advised us as follows:
o DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered under Section 17A of the Securities Exchange Act of
1934.
o DTC holds securities that its participants deposit with DTC and facilitates
the settlement among participants of securities transactions, such as
transfers and pledges, in deposited securities, through electronic
computerized book-entry changes in participants' accounts, thereby
eliminating the need for physical movement of securities certificates.
o Direct participants include securities brokers and dealers, trust
companies, clearing corporations and other organizations.
o DTC is owned by a number of its direct participants and by the New York
Stock Exchange, Inc., the American Stock Exchange LLC and the National
Association of Securities Dealers, Inc.
o Access to the DTC system is also available to others, such as securities
brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a direct participant, either
directly or indirectly.
o The rules applicable to DTC and its participants are on file with the SEC.
We have provided the following descriptions of the operations and procedures of
DTC solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to change by them from time to
time. None of Cooper, the initial purchasers or the trustee takes any
responsibility for these operations or procedures, and you are urged to contact
DTC or its participants directly to discuss these matters.
We expect that under procedures established by DTC:
o Upon deposit of the global notes with DTC or its custodian, DTC will credit
on its internal system the accounts of direct participants designated by
the initial purchaser with portions of the principal amounts of the global
debentures.
o Ownership of the debentures will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC or its
nominee, with respect to interests of direct participants, and the records
of direct and indirect participants, with respect to interests of persons
other than participants.
The laws of some jurisdictions require that purchasers of securities take
physical delivery of those securities in definitive form. Accordingly, the
ability to transfer interests in the debentures represented by a global
certificate to those persons may be limited. In addition, because DTC can act
only on behalf of its participants, who in turn act on behalf of persons who
hold interests through participants, the ability of a person having an interest
in debentures represented by a global certificate to pledge or transfer those
interests to persons or entities that do not participate in DTC's system, or
otherwise to take actions in respect of such interest, may be affected by the
lack of a physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a global certificate,
DTC or that nominee will be considered the sole owner or holder of the
debentures represented by that global certificate for all purposes under the
indenture and under the debentures. Except as provided below, owners of
beneficial interests in a global certificate will not be entitled to have
debentures represented by that global certificate registered in their names,
will not
40
receive or be entitled to receive physical delivery of certificated debentures
and will not be considered the owners or holders thereof under the indenture or
under the debentures for any purpose, including with respect to the giving of
any direction, instruction or approval to the trustee. Accordingly, each holder
owning a beneficial interest in a global certificate must rely on the procedures
of DTC and, if that holder is not a direct or indirect participant, on the
procedures of the participant through which that holder owns its interest, to
exercise any rights of a holder of debentures under the indenture or the global
debentures.
debentures represented by a global certificate will be exchangeable for
registered certificated securities with the same terms only if: (1) DTC is
unwilling or unable to continue as depositary or if DTC ceases to be a clearing
agency registered under the Exchange Act and a successor depositary is not
appointed by us within 90 days; (2) we decide to discontinue use of the system
of book-entry transfer through DTC (or any successor depositary); or (3) a
default under the indenture occurs and is continuing.
Neither Cooper nor the trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of debentures by
DTC, or for maintaining, supervising or reviewing any records of DTC relating to
the debentures.
Payments on the debentures represented by the global certificates will be made
to DTC or its nominee, as the case may be, as the registered owner thereof. We
expect that DTC or its nominee, upon receipt of any payment on the debentures
represented by a global certificate, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the global certificate as shown in the records of DTC or its nominee. We also
expect that payments by participants to owners of beneficial interests in the
global certificate held through such participants will be governed by standing
instructions and customary practice as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. The participants will be responsible for those payments.
Payments on the debentures represented by the global certificates will be made
in immediately available funds. Transfers between participants in DTC will be
effected in accordance with DTC rules and will be settled in immediately
available funds.
41
DESCRIPTION OF CAPITAL STOCK
As of May 31, 2003, the Company was authorized to issue (i) 70,000,000
shares of common stock, $0.10 par value, of which 31,119,498 shares were
outstanding, and (ii) 1,000,000 shares of preferred stock, $0.10 par value.
The Company has a Preferred Share Purchase Rights Plan under which a right is
attached to each share of its common stock. The rights may only be exercisable
under certain circumstances involving actual or potential acquisitions of 20% or
more of its common stock by certain people or groups. Depending on the
circumstances, if the rights become exercisable, the holder may be entitled to
purchase units of the Company's senior A junior participating preferred stock,
shares of the Company's common stock or shares of common stock of the acquiror.
The rights remain in existence until October 29, 2007 unless they are
terminated, exercised or redeemed.
The following summary does not purport to be complete and is qualified in its
entirety by reference to the applicable provisions of Delaware law and the
Company's Restated Certificate of Incorporation, as amended (the "Certificate of
Incorporation.")
COMMON STOCK
The holders of our common stock are entitled to one vote per share on any matter
to be voted upon by stockholders. The holders of our common stock are entitled
to dividends as our board of directors may declare from time to time from
legally available funds subject to the preferential rights of the holders of any
shares of our preferred stock that we may issue in the future.
Our amended and restated certificate of incorporation does not provide for
cumulative voting in connection with the election of directors. Accordingly,
directors will be elected by a plurality of the shares voting once a quorum is
present. No holder of our common stock will have any preemptive right to
subscribe for any shares of capital stock issued in the future.
Upon any voluntary or involuntary liquidation, dissolution or winding up of our
affairs, the holders of our common stock are entitled to share, on a pro rata
basis, all assets remaining after payment to creditors and subject to prior
distribution rights of any shares of preferred stock that we may issue in the
future. All of the outstanding shares of common stock are fully paid and
non-assessable.
PREFERRED STOCK RIGHTS AGREEMENT
On October 29, 1997, our Board of Directors declared a dividend of one preferred
share purchase right (a "Right") for each share of common stock, $0.10 par value
(the "Common Shares"), outstanding at the close of business on November 17,
1997. According to the rights agreement (as amended from time to time, the
"Rights Agreement"), as long as the Rights are attached to the Common Shares, we
will issue one Right (subject to adjustment) with each new Common Share so that
all such shares will have attached Rights. On November 4, 2002, our Board of
Directors declared a 100 percent stock dividend on the Common Shares. As a
result of the stock dividend, each Common Share outstanding has attached to it
one-half of a Right. When exercisable, each one-half of a Right will entitle the
registered holder to purchase from us one two-hundredths of a share of Series A
Junior Participating Preferred Stock (the "Preferred Shares") at a price of
$72.50 per one two-hundredths of a Preferred Share, subject to adjustment (the
"Purchase Price"). The description presented below is intended to as a summary
only and is qualified in its entirety by reference to the Rights Agreement,
which previously has been filed with the Securities and Exchange Commission and
is incorporated by reference.
Until the earlier to occur of (i) ten (10) days following a public announcement
that a person or group of affiliated or associated persons has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the Common
Shares (an "Acquiring Person") or (ii) ten (10) business days (or such later
date as may be determined by action of our Board of Directors prior to such time
as any person or group of affiliated persons becomes an Acquiring Person)
following the commencement or announcement of an intention to make a tender
offer or
42
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the Common Shares (the earlier
of (i) and (ii) being called the "Distribution Date"), the Rights will be
evidenced, with respect to any of the Common Share certificates then
outstanding, by such Common Share certificate together with a copy of this
Summary of Rights.
The Agreement provides that until the Distribution Date (or earlier redemption
exchange, termination, or expiration of the Rights), the Rights will be
transferred with and only with the Common Shares. Until the Distribution Date
(or earlier redemption or expiration of the Rights), new Common Share
certificates issued after the close of business on the Record Date upon transfer
or new issuance of the Common Shares will contain a notation incorporating the
Agreement by reference. Until the Distribution Date (or earlier redemption,
exchange, termination or expiration of the Rights), the surrender for transfer
of any certificates for Common Shares, with or without such notation or a copy
of this Summary of Rights, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Shares as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on October 29, 2007, subject to our right to extend such date (the "Final
Expiration Date"), unless earlier redeemed or exchanged by us or terminated.
Each Preferred Share purchasable upon exercise of the Rights will be entitled,
when, as and if declared, to a minimum preferential quarterly dividend payment
of $1.00 per share but will be entitled to an aggregate dividend of 100 times
the dividend, if any, declared per Common Share. In the event of liquidation,
dissolution or winding up of our Company, the holders of the Preferred Shares
will be entitled to a minimum preferential liquidation payment of $100 per share
(plus any accrued but unpaid dividends) but will be entitled to an aggregate
payment of 100 times the payment made per Common Share. Each Preferred Share
will have 100 votes and will vote together with the Common Shares. Finally, in
the event of any merger, consolidation or other transaction in which Common
Shares are exchanged, each Preferred Share will be entitled to receive 100 times
the amount received per Common Share. Preferred Shares will not be redeemable.
These rights are protected by customary antidilution provisions. Because of the
nature of the Preferred Share's dividend, liquidation and voting rights, the
value of one one-hundredth of a Preferred Share purchasable upon exercise of
each Right should approximate the value of one Common Share.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares or convertible
securities at less than the current market price of the Preferred Shares or
(iii) upon the distribution to holders of the Preferred Shares of evidences of
indebtedness, cash, securities or assets (excluding regular periodic cash
dividends at a rate not in excess of 125% of the rate of our last regular
periodic cash dividend theretofore paid or, in case regular periodic cash
dividends have not theretofore been paid, at a rate not in excess of 50% of our
average net income per share for the four quarters ended immediately prior to
the payment of such dividend, or dividends payable in Preferred Shares (which
dividends will be subject to the adjustment described in clause (i) above)) or
of subscription rights or warrants (other than those referred to above).
In the event that a Person becomes an Acquiring Person or if we were the
surviving corporation in a merger with an Acquiring Person or any affiliate or
associate of an Acquiring Person and the Common Shares were not changed or
exchanged, each holder of a Right, other than Rights that are or were acquired
or beneficially owned by the Acquiring Person (which Rights will thereafter be
void), will thereafter have the right to receive upon exercise that number of
Common Shares having a market value of two times the then current Purchase Price
of the Right. In the event that, after a person has become an Acquiring Person,
we were acquired in a merger or other business combination transaction or more
than 50% of its assets or earning power were sold, proper provision shall be
made so that each holder of a Right shall thereafter have the right to receive,
upon the exercise thereof at the then current Purchase Price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction would have a market value of two times the then current
Purchase Price of the Right.
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At any time after a Person becomes an Acquiring Person and prior to the earlier
of one of the events described in the last sentence of the previous paragraph or
the acquisition by such Acquiring Person of 50% or more of the outstanding
Common Shares, our Board of Directors may cause us to exchange the Rights (other
than Rights owned by an Acquiring Person which will have become void), in whole
or in part, for Common Shares at an exchange rate of one Common Share per Right
(subject to adjustment).
No adjustment in the Purchase Price will be required until cumulative
adjustments require an adjustment of at least 1% in such Purchase Price. No
fractional Preferred Shares or Common Shares will be issued (other than
fractions of Preferred Shares which are integral multiples of one one-hundredth
of a Preferred Share, which may, at our election, be evidenced by depository
receipts), and in lieu thereof, a payment in cash will be made based on the
market price of the Preferred Shares or Common Shares on the last trading date
prior to the date of exercise.
The Rights may be redeemed in whole, but not in part, at a price of $0.01 per
Right (the "Redemption Price") by our Board of Directors at any time prior to
the close of business on the tenth day following the first date of public
announcement that a Person has become an Acquiring Person. Our Board of
Directors may extend the period during which the Rights are redeemable beyond
the ten (10) days following the public announcement that a Person has become an
Acquiring Person. The redemption of the Rights may be made effective at such
time, on such basis and with such conditions as our Board of Directors in its
sole discretion may establish. Immediately upon any redemption of the Rights,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights as
a stockholder of us beyond those as an existing stockholder, including, without
limitation, the right to vote or to receive dividends.
Any of the provisions of the Agreement may be amended by our Board of Directors
for so long as the Rights are then redeemable, and after the Rights are no
longer redeemable, we may amend or supplement the Agreement in any manner that
does not adversely affect the interests of the holders of the Rights.
DELAWARE ANTI-TAKEOVER LAW
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:
o prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
o upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned by persons who are directors and
also officers and by excluding employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
o on or subsequent to that date, the business combination is approved by the
board of directors of the corporation and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that
is not owned by the interested stockholder.
Section 203 defines "business combination" to include the following:
o any merger or consolidation involving the corporation and the interested
stockholder;
o any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
44
o subject to certain exceptions, any transaction that results in the issuance
or transfer by the corporation of any stock of the corporation to the
interested stockholder;
o any transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or
o the receipt by the interested stockholder or the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as an entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
45
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain U.S. federal income
tax considerations relevant to the purchase, ownership, and disposition of the
debentures and common stock acquired upon conversion of debentures. This
discussion applies only to persons who hold the debentures and common stock as
capital assets (generally, property held for investment within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code")).
This discussion is based upon the Code, Treasury Regulations, Internal Revenue
Service ("IRS") rulings and pronouncements, and judicial decisions now in
effect, all of which are subject to change at any time by legislative,
administrative, or judicial action, possibly with retroactive effect. This
discussion does not discuss every aspect of U.S. federal income taxation that
may be relevant to a particular taxpayer in light of their personal
circumstances or to persons who are otherwise subject to special tax treatment
(including, without limitation, banks, broker-dealers, insurance companies,
pension and other employee benefit plans, tax-exempt organizations and entities,
investors in pass-through entities, persons who acquire debentures in connection
with the performance of services, certain U.S. expatriates, persons holding
debentures or common stock as a part of a hedging or conversion transaction or a
straddle, certain hybrid entities and owners of interest therein, U.S. persons
whose functional currency is not the U.S. dollar and, except to the extent
discussed below, persons who are not U.S. Holders (as defined below)) and it
does not discuss the effect of any applicable U.S. state and local or non-U.S.
tax laws or U.S. tax laws other than U.S. income tax law. We have not sought and
will not seek any rulings from the IRS concerning the tax consequences of the
purchase, ownership or disposition of the debentures or common stock and,
accordingly, there can be no assurance that the IRS will not successfully
challenge the tax consequences described below.
If a partnership holds debentures or common stock acquired upon conversion of
the debentures, the tax treatment of a partner in the partnership will generally
depend upon the status of the partner and the activities of the partnership. If
you are a partner of a partnership holding our debentures, you should consult
your tax advisor regarding the tax consequences of the ownership and disposition
of the debentures and common stock acquired upon conversion of the debentures.
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT SUCH PURCHASER'S OWN TAX ADVISOR
WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF HOLDING AND
DISPOSING OF DEBENTURES AND COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES
APPLICABLE UNDER THE LAWS OF ANY U.S. STATE, LOCAL, OR NON-U.S. TAXING
JURISDICTION.
U.S. HOLDERS
As used herein, the term "U.S. Holder" refers to a person that is classified for
U.S. federal income tax purposes as a U.S. person. For this purpose, a U.S.
person includes (i) a citizen or resident of the United States, (ii) a
corporation created or organized in the United States or under the laws of the
United States or of any state or political subdivision thereof, (iii) an estate
the income of which is subject to U.S. federal income taxation regardless of its
source, or (iv) a trust whose administration is subject to the primary
supervision of a U.S. court and which has one or more U.S. persons who have the
authority to control all substantial decisions of the trust. Notwithstanding the
preceding sentence, to the extent provided in Treasury Regulations, certain
trusts in existence on August 20, 1996, and treated as U.S. persons prior to
such date that elect to continue to be treated as U.S. persons, shall also be
considered U.S. Holders.
Interest
Interest
Interest paid or accrued on the debentures will be taxable to a U.S. Holder as
ordinary income at the time it is accrued or received in accordance with the
holder's method of accounting for U.S. federal income tax purposes.
46
Conversion
Conversion into common stock
A U.S. Holder of a debenture generally will not recognize gain or loss on the
conversion of a debenture into common stock except (as discussed below) with
respect to (i) cash received in lieu of fractional shares and (ii) shares
received that are attributable to accrued interest.
Conversion into common stock and cash
The tax treatment of a conversion of a debenture by a U.S. Holder into common
stock and cash is not entirely clear. Although not free from doubt, the most
likely consequence is that the U.S. Holder should generally recognize gain (but
not loss) to the extent that the cash (other than cash received in lieu of a
fractional share or attributable to accrued interest) and the value of the
common stock (other than common stock attributable to accrued interest) exceed
its adjusted tax basis in the debenture, but in no event should the amount of
recognized gain exceed the amount of cash received (other than cash received in
lieu of a fractional share or attributable to accrued interest). This gain
generally should be capital gain and should be taxable as described under "Sale,
retirement, redemption or other taxable disposition of debentures," below.
Alternatively, the U.S. Holder could be required to recognize gain or loss equal
to the difference between the amount of cash received (other than cash
attributable to accrued interest) and the holder's tax basis allocable to the
portion of the debentures that are exchanged for such cash--i.e., the portion of
the holder's adjusted tax basis in the debenture that bears the same ratio to
the holder's adjusted tax basis in the debenture as the ratio of the amount of
cash received to the sum of the amount of cash received plus the fair market
value of the common stock received upon the conversion (in each case, other than
cash or common stock attributable to accrued interest). U.S. Holders are urged
to consult their own tax advisor with respect to the U.S. federal income tax
consequences of a conversion of a debenture into common stock and cash.
The holding period of the common stock received upon conversion (other than
common stock attributable to accrued interest) should generally include the
holding period for the respective debenture and the holder's aggregate tax basis
in the common stock received should generally be the same as its basis in the
respective debenture (exclusive of any basis allocable to a fractional share),
decreased by the amount of any cash received (other than cash received in lieu
of a fractional share), and increased by the amount of gain, if any, recognized
by such holder (other than gain with respect to a fractional share). However, if
gain or loss is computed under the alternative method described in the preceding
paragraph upon a conversion into common stock and cash, the holder's aggregate
tax basis in the common stock in such event would equal the holder's adjusted
tax basis in the portion of the debentures that are converted into such common
stock.
The amount of cash and the fair market value of shares of common stock received
by a holder that is attributable to accrued interest will generally be taxed as
ordinary income. A U.S. Holder's tax basis in such shares of common stock will
equal such accrued interest and the holding period will begin on the day
following the conversion.
A U.S. Holder of a debenture will recognize gain or loss for U.S. federal income
tax purposes upon the receipt of cash in lieu of a fractional share of common
stock in an amount equal to the difference between the amount of cash received
and the holder's tax basis in such fractional share. This gain or loss should
generally be capital gain or loss and should be taxable as described under
"Sale, retirement, redemption or other taxable disposition of debentures,"
below.
Conversion into cash
If a U.S. Holder receives cash upon the conversion of a debenture in complete
satisfaction thereof, the U.S. Holder will recognize gain or loss, as described
below under "Sale, retirement, redemption or other taxable disposition of
debentures."
47
Change in conversion ratios
Under Section 305 of the Code, a U.S. Holder of a debenture may be deemed to
have received a constructive distribution from us, which may result in the
inclusion of ordinary dividend income, in the event of certain adjustments, or
failure to make such adjustments, to the conversion price of the debentures (for
example, an adjustment to reflect a taxable dividend or similar event).
Similarly, a failure to adjust the conversion price of the debentures could give
rise to a constructive distribution to U.S. Holders of common stock.
Repurchase by Cooper at the option of holders
Repurchase of debentures in exchange for our common stock (or shares of our
surviving corporation following the occurrence of a fundamental change)
If a U.S. Holder requires us to repurchase a debenture on a repurchase date or
upon a fundamental change and we issue shares of our common stock (or shares of
our surviving corporation following the occurrence of a fundamental change) in
full satisfaction of the repurchase price, the repurchase will be treated the
same as a conversion into common stock, as described above under "Conversion
into common stock."
Repurchase of debentures in exchange for our common stock (or shares of our
surviving corporation following the occurrence of a fundamental change) and cash
A U.S. Holder that requires us to repurchase a debenture on a repurchase date or
upon a fundamental change and that receives a combination of cash and shares of
our common stock (or shares of our surviving corporation following the
occurrence of a fundamental change) in payment of the repurchase price should
generally recognize gain (but not loss) to the extent that the cash (other than
cash received in lieu of a fractional share or attributable to accrued interest)
and the fair market value of the shares of common stock (other than common stock
attributable to accrued interest) exceed its adjusted tax basis in the
debenture, but in no event should the amount of recognized gain exceed the
amount of cash received. This gain should generally be capital gain and should
be taxable as described under "Sale, retirement, redemption or other taxable
disposition of debentures," below.
The holding period of the common stock received in the repurchase (other than
common stock attributable to accrued interest) should generally include the
holding period for the debenture that was repurchased and the holder's aggregate
tax basis in the shares of common stock received should generally be the same as
its basis in the debenture repurchased by us, decreased by the amount of cash
received, and increased by the amount of gain, if any, recognized by such
holder. This gain or loss should be capital gain or loss and should be taxable
as described under "Sale, retirement, redemption or other taxable disposition of
debentures," below.
The amount of cash and the fair market value of shares of common stock received
by a holder that is attributable to accrued interest will generally be taxed as
ordinary income. A U.S. Holder's tax basis in such shares of common stock will
equal such accrued interest and the holding period will begin on the day
following the conversion.
Repurchase of debentures in exchange for cash
If a U.S. Holder requires us to repurchase a debenture on a repurchase date and
we deliver to such holder cash in full satisfaction of the repurchase price, the
repurchase will be treated the same as a sale of the debenture, as described
below under "Sale, retirement, redemption or other taxable disposition of the
debentures."
Repurchase of debentures for other securities
Notwithstanding anything in this discussion to the contrary, if a U.S. Holder
receives securities other than our own common stock (or, in some cases, shares
of our surviving corporation following the occurrence of a fundamental change)
in exchange for a debenture, the receipt of such securities will generally be
treated in the same manner as the receipt of cash.
48
Sale, retirement redemption or other taxable disposition of debentures
Except as set forth under "Conversion--Conversion into common stock,"
"Conversion--Conversion into common stock and cash," "Repurchase by Cooper at
the option of holders--Repurchase of debentures in exchange for our common stock
(or shares of our surviving corporation following the occurrence of a
fundamental change)," and "Repurchase by Cooper at the option of
holders--Repurchase of debentures in exchange for our common stock (or shares of
our surviving corporation following the occurrence of a fundamental change) and
cash," upon the sale, retirement, redemption or other taxable disposition of a
debenture (including a repurchase of a debenture by a third party), a U.S.
Holder will recognize gain or loss to the extent of the difference between the
sum of the cash and the fair market value of any property received in exchange
therefor (except to the extent attributable to the payment of accrued and unpaid
interest on the debentures, which generally will be taxed as ordinary income to
the extent that the holder has not previously recognized this income), and the
U.S. Holder's adjusted tax basis in the debentures. A U.S. Holder's tax basis in
a debenture will initially equal the cost of the debenture and will subsequently
be increased by any market discount previously included in income by the U.S.
holder with respect to the debenture and reduced by any premium taken into
account by the U.S. holder with respect to the debenture. Generally, except as
set forth under "Market Discount," any such gain or loss recognized by a U.S.
Holder upon the sale, retirement, redemption or other taxable disposition of a
debenture will be capital gain or loss. In the case of a non-corporate U.S.
Holder, such capital gain will be subject to tax at a reduced rate if the
debenture is held for more than one year. The deductibility of capital losses is
subject to limitation.
Market discount
If a U.S. Holder acquires a debenture at a cost that is less than the stated
redemption price at maturity of the debenture, the amount of such difference is
treated as market discount for federal income tax purposes, unless such
difference is less than .0025 multiplied by the stated redemption price at
maturity multiplied by the number of complete years to maturity (from the date
of acquisition). The market discount provisions of the Code require a U.S.
Holder who acquires a debenture at a market discount to treat as ordinary income
any gain recognized on the disposition of that debenture to the extent of the
accrued market discount on that debenture at the time of maturity or disposition
that such holder has not previously included in income. In addition, a U.S.
Holder that disposes of a debenture with market discount in certain otherwise
nontaxable transactions must include accrued market discount as ordinary income
as if such holder had sold the debenture at its then fair market value.
A U.S. Holder may elect to include market discount in income over the life of
the debenture. Once made, this election applies to all market discount
obligations acquired on or after the first taxable year to which the election
applies and may not be revoked without the consent of the IRS. In general,
market discount will be treated as accruing on a straight-line basis over the
remaining term of the debenture at the time of acquisition, or, at the election
of the U.S. Holder, under a constant yield method. If such an election is made,
it will apply only to the debenture with respect to which it is made, and may
not be revoked. A U.S. Holder who acquires a debenture at a market discount and
who does not elect to include accrued market discount in income over the life of
the debenture may be required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry the
debenture until maturity or until the debenture is disposed of in a taxable
transaction. If a U.S. Holder acquires a debenture with market discount and
receives common stock upon conversion of the debenture, the amount of accrued
market discount not previously included in income with respect to the converted
debenture through the date of conversion will generally be treated as ordinary
income when the holder disposes of the common stock to the extent of gain
recognized upon the disposition of such stock.
Amortizable premium
A U.S. Holder who purchases a debenture at a premium over the sum of all amounts
payable on the debenture after the acquisition date (other than stated interest
payments) generally may elect to amortize that premium (referred to as Section
171 premium) from the purchase date to the debenture's maturity date under a
constant-yield method that reflects semiannual compounding based on the
debenture's payment period. Amortizable premium will not include any amount
attributable to a debenture's conversion feature. The amount attributable to the
conversion feature may be determined under any reasonable method, including by
comparing the debenture's purchase price to the market price of a similar
debenture that does not have a conversion feature. Amortized Section 171 premium
is treated as an offset to interest income on a debenture and not as a separate
deduction. The election to amortize premium on a
49
constant yield method, once made, applies to all debt obligations held or
subsequently acquired by the electing U.S. Holder on or after the first day of
the first taxable year to which the election applies and may not be revoked
without the consent of the IRS.
Distributions on common stock
Distributions made on our common stock after a conversion generally will be
taxable to U.S. Holders as ordinary income (except as discussed in the following
paragraph) to the extent paid out of our current or accumulated earnings and
profits, then as a tax-free return of capital to the extent of the U.S. Holder's
tax basis in the common stock, and thereafter as capital gain from the sale or
exchange of such common stock. Subject to certain restrictions, dividends
received by a corporate U.S. Holder will be eligible for a dividends received
deduction.
Under recently enacted legislation, with respect to U.S. Holders that are
non-corporate taxpayers for taxable years beginning after December 31, 2002 and
before January 1, 2009, such dividends may be taxed at a lower capital gains
rate provided that certain holding period requirements are satisfied.
Non-corporate U.S. Holders are strongly urged to consult their own tax advisors
as to the applicability of the lower capital gain rate to dividends received
with respect to common stock.
Disposition of common stock
A U.S. Holder will recognize capital gain or loss upon the sale, exchange or
other taxable disposition of the common stock in an amount equal to the
difference between the amount of cash and the fair market value of other
property received by the U.S. Holder and the U.S. Holder's tax basis in the
common stock. In the case of a non-corporate U.S. Holder, such capital gain will
be subject to tax at a reduced rate if the common stock is held for more than
one year. The deductibility of capital losses is subject to limitation.
Information reporting; backup withholding
We are required to furnish to the record holders of the debentures and common
stock, other than corporations and other exempt holders, and to the IRS,
information with respect to interest paid on the debentures and dividends paid
on the common stock.
A U.S. Holder may be subject to backup withholding with respect to interest paid
on the debentures, dividends paid on the common stock or with respect to
proceeds received from a disposition of the debentures or shares of common
stock. Certain holders (including, among others, corporations and certain
tax-exempt organizations) are generally not subject to backup withholding. A
U.S. Holder will be subject to backup withholding if such holder is not
otherwise exempt and such holder (i) fails to furnish its taxpayer
identification number ("TIN"), which, for an individual is ordinarily his or her
social security number; (ii) furnishes an incorrect TIN; (iii) is notified by
the IRS that it has failed to properly report payments of interest or dividends;
or (iv) fails to certify, under penalties of perjury, that it has furnished a
correct TIN and that the IRS has not notified the U.S. Holder that it is subject
to backup withholding. Backup withholding is not an additional tax but, rather,
is a method of tax collection. U.S. Holders will be entitled to credit any
amounts withheld under the backup withholding rules against their actual tax
liabilities provided the required information is furnished to the IRS.
NON-U.S. HOLDERS
As used herein, the term "Non-U.S. Holder" refers to a person that is classified
for U.S. federal income tax purposes as (i) a non-resident alien individual,
(ii) a foreign corporation, or (iii) a nonresident alien fiduciary of a foreign
estate or trust.
50
Interest
In general, interest received on the debentures by a Non-U.S. Holder will not be
subject to U.S. federal withholding tax under the so-called "portfolio interest"
exception provided that:
o the Non-U.S. Holder does not actually or constructively own 10% or more of
the total combined voting power of all our classes of stock entitled to
vote;
o the Non-U.S. Holder is not a controlled foreign corporation that is related
to us actually or constructively through stock ownership;
o the Non-U.S. Holder is not a bank that received the notes on an extension
of credit made pursuant to a loan agreement entered into in the ordinary
course of its trade or business; and
o either (1) the Non-U.S. Holder certifies on IRS Form W-8BEN (or a suitable
substitute or successor form) provided to us or the paying agent, under
penalties of perjury, that it is not a U.S. person and provides its name
and address, (2) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary
course of its trade or business and holds the notes on behalf of the
Non-U.S. Holder certifies to us or the paying agent under penalties of
perjury that it, or the financial institution between it and the Non-U.S.
Holder, has received from the Non-U.S. Holder a statement, under penalties
of perjury, that such holder is not a U.S. person and provides us or the
paying agent with a copy of such statement or (3) the Non-U.S. Holder holds
its notes directly through a "qualified intermediary" and the qualified
intermediary has sufficient information in its files indicating that the
holder is not a U.S. Holder. A qualified intermediary is a bank, broker or
other intermediary that (i) is either a U.S. or non-U.S. entity, (ii) is
acting out of a non-U.S. branch or office and (iii) has signed an agreement
with the IRS providing that it will administer all or part of the U.S. tax
withholding rules under specified procedures.
If a Non-U.S. Holder cannot satisfy the requirements described above, payments
of interest to such holder will be subject to the 30% U.S. federal withholding
tax and will be made net of such withholding, unless, prior to such payment of
interest, the holder provides us with a properly executed (1) IRS Form W-8BEN
(or successor form) claiming an exemption from or reduction in withholding under
the benefit of an applicable tax treaty or (2) IRS Form W-8ECI (or successor
form) stating that interest paid on the debenture is not subject to withholding
tax because it is effectively connected with the conduct of a U.S. trade or
business. These forms must be periodically updated. If a Non-U.S. Holder is
engaged in a trade or business in the United States and interest on a debenture
is effectively connected with the conduct of that trade or business, the holder
will be subject to U.S. federal income tax on that interest on a net income
basis (although the holder will be exempt from the 30% withholding tax, provided
the certification requirements described above are satisfied) in the same manner
as if the Non-U.S. Holder was a U.S. person as defined under the Code. In
addition, if the Non-U.S. Holder is a foreign corporation, it may be subject to
a branch profits tax equal to 30% (or lower applicable treaty rate) of its
earnings and profits for the taxable year, subject to adjustments, that are
effectively connected with its conduct of a trade or business in the United
States.
The certification requirements described above may require a Non-U.S. Holder
that provides an IRS form, or that claims the benefit of an income tax treaty,
to also provide its United States taxpayer identification number. The applicable
regulations generally also require, in the case of a debenture held by a foreign
partnership, that:
o the certification described above be provided by the partners and
o the partnership provide certain information.
Further, a look-through rule will apply in the case of tiered partnerships.
Special rules are applicable to intermediaries. Prospective investors should
consult their tax advisors regarding the certification requirements for non-U.S.
persons.
51
Dividends on common stock
In general, dividends (i.e., distributions or deemed distributions to the extent
of our current or accumulated earnings and profits for U.S. federal income tax
purposes) received by Non-U.S. Holders of common stock will be subject to
withholding of U.S. federal income tax at a 30% rate, unless such rate is
reduced by an applicable income tax treaty. Dividends that are effectively
connected with such Non-U.S. Holder's conduct of a trade or business in the
United States (and if a tax treaty applies, dividends that are attributable to a
U.S. permanent establishment of such Holder) are generally subject to U.S.
federal income tax on a net income basis and are exempt from the 30% withholding
tax (assuming compliance with certain certification requirements). Any such
effectively connected dividends received by a Non-U.S. Holder that is a
corporation may also, under certain circumstances, be subject to an additional
branch profits tax at a 30% rate or such lower rate as may be applicable under
an income tax treaty.
In order to claim the benefit of a tax treaty or to claim exemption from
withholding because the income is effectively connected with the conduct of a
trade or business in the U.S., a Non-U.S. Holder must provide a properly
executed IRS Form W-8BEN for treaty benefits or W-8ECI for effectively connected
income (or successor form), prior to the payment of dividends. These forms must
be periodically updated. Non-U.S. Holders may obtain a refund of any excess
amounts withheld by timely filing an appropriate claim for refund.
In addition, the conversion rate of the debentures is subject to adjustment in
some circumstances which could give rise to a taxable deemed distribution (which
is subject to withholding in the same manner as a dividend, as described above)
to Non-U.S. Holders of debentures. See "U.S. Holders -- Conversion -- Change in
conversion ratios," above.
Gain on disposition of debentures or common stock
Non-U.S. Holders generally will not be subject to U.S. federal income taxation,
including by way of withholding, on gain recognized on a disposition of
debentures or common stock unless (i) the gain is effectively connected with the
conduct by the Non-U.S. Holder of a trade or business within the United States
(or if a tax treaty applies, the gain is effectively connected with the conduct
by the Non-U.S. Holder of a trade or business within the United States and
attributable to a U.S. permanent establishment maintained by such Non-U.S.
Holder), (ii) in the case of a Non-U.S. Holder who is an individual, such
Non-U.S. Holder is present in the United States for 183 days or more in the
taxable year of disposition and certain other requirements are met, or (iii) we
are or have been a "U.S. real property holding corporation" for U.S. federal
income tax purposes. We believe we are not and do not anticipate becoming a
"U.S. real property holding corporation" for U.S. federal income tax purposes.
A Non-U.S. Holder whose gain is effectively connected with the conduct of a
trade or business within the United States generally will be subject to U.S.
federal income tax on the net gain derived from the sale. Any such effectively
connected gain received by a Non-U.S. Holder that is a corporation may also,
under certain circumstances, be subject to an additional branch profits tax at a
30% rate or such lower rate as may be applicable under an income tax treaty.
Information reporting; backup withholding
Generally, payments of interest or principal on the debentures to Non-U.S.
Holders will not be subject to information reporting or backup withholding if
the Non-U.S. Holder certifies, under penalties of perjury, as to its foreign
status or otherwise establishes an exemption.
We must report annually to the IRS and to each Non-U.S. Holder the amount of
interest paid on debentures and the dividends paid on common stock to such
Non-U.S. Holder (and, in each case, the tax withheld with respect thereto),
regardless of whether withholding was reduced or eliminated by an applicable tax
treaty. Pursuant to tax treaties or other agreements, the IRS may make its
reports available to tax authorities in the recipient's country of residence.
Backup withholding will generally not apply to payments of dividends made by us
to a Non-U.S. Holder of common stock if the holder has provided its TIN or the
required certification that it is not a U.S. person as described above.
Information reporting may still apply with respect to such dividends even if
such certification is provided.
52
Notwithstanding the foregoing, backup withholding may apply if we have actual
knowledge, or reason to know, that the holder is a U.S. person.
Information reporting requirements and backup withholding generally will not
apply to any payments of the proceeds of the disposition of debentures or shares
of common stock effected outside the U.S. by a foreign office or a foreign
broker (as defined in applicable Treasury Regulations). However, unless such
broker has documentary evidence in its records that the beneficial owner is a
Non-U.S. Holder and certain other conditions are met, or the beneficial owner
otherwise establishes an exemption, information reporting (but not backup
withholding) will apply to any such payments effected outside the U.S. by such a
broker if it:
o derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the U.S.;
o is a controlled foreign corporation for U.S. federal income tax purposes;
or
o is a foreign partnership that, at any time during its taxable year, has 50%
or more of its income or capital interests owned by U.S. persons or is
engaged in the conduct of a U.S. trade or business.
Payments of the proceeds of a disposition of debentures or shares of common
stock effected by the U.S. office of a broker will be subject to information
reporting requirements and backup withholding tax unless the Non-U.S. Holder
properly certifies under penalties of perjury as to its foreign status and
certain other conditions are met or it otherwise establishes an exemption.
Any amount withheld under the backup withholding rules may be credited against
the Non-U.S. Holder's U.S. federal income tax liability and any excess may be
refundable if the proper information is provided to the IRS.
53
SELLING SECURITYHOLDERS
We originally issued and sold the debentures to the initial purchasers
in a private placement transaction exempt from the registration requirements of
the Securities Act. The debentures were immediately resold by the initial
purchasers in transactions exempt from registration under Rule 144A under the
Securities Act to persons reasonably believed by the initial purchasers to be
qualified institutional buyers under Rule 144A. Selling securityholders, which
term includes their transferees, pledgees, donees and successors, may from time
to time offer and sell the debentures and the common stock into which the
debentures are convertible pursuant to this prospectus and any applicable
prospectus supplement.
The following table sets forth certain information by the named selling
securityholders, as of the date they completed a selling securityholder
questionnaire(dates ranging from July 15, 2003 to August 15, 2003) and a
supplemental selling securityholder questionnaire (dates ranging from September
9, 2003 to September 23, 2003), with respect to the principal amount of
debentures beneficially owned and the number of shares of common stock issuable
upon conversion of those debentures that may be offered from time to time under
this prospectus by the selling securityholders named in the table. This
information is based on information provided by or on behalf of the selling
securityholders. The selling securityholders may offer all, a portion or name of
the debentures or common stock issuable upon conversion of the debentures.
Because the selling securityholders may offer all or a portion of the debentures
or common stock, we cannot estimate the amount of the debentures or the common
stock that will be held by the selling securityholders upon termination of any
of these sales. In addition, selling securityholders identified below may have
sold, transferred or otherwise disposed of all or a portion of their debentures
since the date on which they provided the information regarding their debentures
in transactions exempt from the registration requirements of the Securities Act.
The percentage of debentures outstanding beneficially owned by each selling
securityholder is based on $115,000,000 aggregate principal amount of debentures
outstanding. The number of shares of common stock owned prior to the offering
does not include shares of common stock issuable upon conversion of the
debentures. The percentage of common stock outstanding beneficially owned by
each selling securityholder is based on 31,443,498 shares of common stock
outstanding on August 31, 2003. The number of shares of common stock issuable
upon conversion of the debentures offered hereby is based on an initial
conversion price of $44.40 per share. This conversion rate is subject to
adjustment as described under "Description of the debentures--Conversion
Rights." Accordingly, the number of conversion shares may increase or decrease
from time to time. Under the terms of the indenture, fractional shares will not
be issued upon conversion of the debentures, but will be paid in cash.
Unless set forth below, to our knowledge none of the selling
securityholders has had a material relationship with us or any of our affiliates
within the past three years.
Principal
Amount of Shares of
Debentures Common
Beneficially Stock Conversion
Owned and Percentage of Owned Shares Percentage of
Offered Debentures Prior to the Offered Common Stock
Name Hereby Outstanding(a) Offering(1) Hereby(2) Outstanding(3)
---- ------ -------------- ----------- --------- --------------
1976 Distribution Trust FBO $5,000 * 0 113 *
A.R. Lauder/Zinterhofer
2000 Revocable Trust FBO A.R. $5,000 * 0 113 *
Lauder/Zinterhofer
Alcon Pharmaceuticals $294,000 * 0 6,621 *
Allentown City Firefighters $15,000 * 0 338 *
Pension Plan
Allentown City Officers & $12,000 * 0 270 *
Employees Pension Fund
Allentown City Police Pension $23,000 * 0 518 *
Plan
Arapahoe County Colorado $36,000 * 0 811 *
54
Arlington County Employees $507,000 * 0 11,418 *
Retirement System
Asante Health $76,000 * 0 1,712 *
Barclays Global Investors $150,000 * 0 3,378 *
Diversified Alpha Plus Funds
c/o Forest Investment
Management LLC
BBT Fund, L.P. $2,800,000 2.4 0 63,056 *
Bear, Stearns & Co. Inc. (5) $2,000,000 1.7 0 45,040 *
British Virgin Islands Social $66,000 * 0 1,486 *
Security Board
Calamos'r'Convertible Growth $10,000,000 8.7 0 225,201 *
and Income Fund - Calamos'r'
Investment Trust
City of New Orleans $155,000 * 0 3,491 *
City University of New York $113,000 * 0 2,545 *
CNH CA Master Account, L.P. $1,000,000 * 0 22,520 *
Concentrated Alpha Partners, $700,000 * 0 15,764 *
L.P.
CQS Convertible & $1,000,000 * 0 22,520 *
Quantitative Strategies
Master Fund Limited
Delaware State Retirement Fund $1,174,000 1.0 0 26,439 *
Fidelity Financial Trust: $7,500,000 6.5 0 168,901 *
Fidelity Convertible
Securities Fund
Forest Fulcrum Fund LP (5) $602,000 * 0 13,557 *
Forest Global Convertible $1,848,000 1.6 0 41,617 *
Fund Ltd.
Forest Multi-Strategy Master $550,000 * 0 12,386 *
Fund SPC, on behalf of its
Multi-Strategy Segregates
Georgia Municipal Employees $4,000 * 0 90 *
Global Bermuda Limited $500,000 * 0 11,260 *
Partnership
Grady Hospital Foundation $100,000 * 0 2,252 *
HFR CA Select Fund $800,000 * 0 18,016 *
Independence Blue Cross $190,000 * 0 4,279 *
Lakeshore International $2,000,000 1.7 0 45,040 *
Limited
LLT Limited $175,000 * 0 3,941 *
Lyxor/Forest Fund Limited c/o $1,025,000 * 0 23,083 *
Forest Investment Management
LLC
55
McMahan Securities Co. L.P. $500,000 * 0 11,260 *
(5)
Merril Lynch Insurance Group $151,000 * 0 3,401 *
Municipal Employees $181,000 * 0 4,076 *
New Orleans Firefighter $103,000 * 0 2,320 *
Pension / Relief Fund
Occidental Petroleum $203,000 * 0 4,572 *
Corporation
Ohio Bureau of Workers $83,000 * 0 1,869 *
Compensation
Pioneer High Yield Fund (6) $3,500,000 3.0 0 78,820 *
Pioneer U.S. High Yield $4,000,000 3.4 0 90,080 *
Corporate Bond Sub Fund (6)
Polaris Vega Fund L.P. $750,000 * 0 16,890 *
Policeman and Firemen $255,000 * 0 5,743 *
Retirement System of the City
of Detroit
Pro-mutual $570,000 * 0 12,836 *
Relay 11 Holdings Co. c/o $125,000 * 0 2,815 *
Forest Investment Management
LLC
San Diego County Employee $1,700,000 1.5 0 38,284 *
Retirement Association
San Francisco City and County $1,121,000 * 0 25,245 *
ERS
Sphinx Convertible Arbitrage $75,000 * 0 1,689 *
SPC c/o Forest Investment
Management LLC
State of Maryland Retirement $2,431,000 2.1 0 54,746 *
Agency
Sunrise Partners Limited $7,750,000 6.7 0 174,531 *
Partnership (6)
The Grable Foundation $68,000 * 0 1,531 *
Trustmark Insurance $259,000 * 0 5,833 *
UBS AG (6) $30,000 * 0 676 *
UBS Securities LLC (5) $8,470,000 7.4 0 190,745 *
Univest Convertible Arbitrage $100,000 * 0 2,252 *
Fund Ltd. c/o Forest
Investment Management LLC
White River Securities L.L.C. $2,000,000 1.7 0 45,040 *
(5)
Xavex Convertible Arbitrage & $100,000 * 0 2,252 *
Fund c/o Forest Investment
Management LLC
Zazove Convertible Arbitrage $2,500,000 2.1 0 56,300 *
Fund, L.P.
Zazove Hedged Convertible $1,500,000 1.3 0 33,780 *
Fund, L.P.
56
Zazove Income Fund, L.P. $1,700,000 1.5 0 38,284 *
Zurich Institutional $800,000 * 0 18,016 *
Benchmarks Master Fund Ltd.
Zurich Institutional $250,000 * 0 5,630 *
Benchmarks Master Fund Ltd.
c/o Forest Investment
Management LLC
All other holders of 38,300,000 33.3 N/A 862,520 2.7
debentures or future
transferees, pledges or
donees of such holders(4)
Total 115,000,000 100.0 N/A 2,589,812 7.7
-----------
* Less than one percent of the debentures or common stock outstanding, as
applicable.
(a) Percentages may not sum due to rounding.
(1) Does not include shares of common stock issuable upon conversion of the
debentures.
(2) Consists of shares of common stock issuable upon conversion of the
debentures, assuming a conversion rate of 22.5201 shares per $1,000
principal amount of debentures (which represents a conversion price of
approximately $44.40 per share and a cash payment in lieu of any
fractional share interest. The conversion price is subject to
adjustment as described under "Description of the debentures -
Conversion Rate Adjustments."
(3) Calculated based on Rule 13d-3(d)(i) under the Securities Exchange Act
of 1934, as amended, using 31,443,498 shares outstanding on August 31,
2003. In calculating this amount, we treated as outstanding the number
of shares of common stock issuable upon conversion of the debentures.
However, we did not assume the conversion of any other holder's
debentures.
(4) We confirm that if we add any newly identified selling securityholders
who can use this prospectus to offer any registered security, we will
do so by a post-effective amendment.
(5) This selling securityholder has identified itself as a broker-dealer,
and accordingly is an underwriter with respect to its offering.
(6) This selling securityholder has identified itself as an affiliate of a
broker dealer and has indicated that it bought the securities in the
ordinary course of business, and at the time of purchase of the
securities to be resold, had no agreements or understandings directly
or indirectly, with any person to distribute the securities.
Information concerning the selling securityholders may change from time
to time and any changed information will be set forth in supplements to this
prospectus if and when necessary.
57
PLAN OF DISTRIBUTION
The selling securityholders and their successors, which term includes
their transferees, pledgees or donees or their successors may sell the
debentures and the underlying common stock directly to purchasers or through
underwriters, broker-dealers or agents, who may receive compensation in the form
of discounts, concessions or commissions from the selling securityholders or the
purchasers. These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the
types of transactions involved.
The securities may be sold in one or more transactions at:
o fixed prices;
o prevailing market prices at the time of sale;
o prices related to the prevailing market prices;
o varying prices determined at the time of sale; or
o negotiated prices.
These sales may be effected in transactions:
o on any national securities exchange or quotation service on which our
common stock may be listed or quoted at the time of sale, including the
New York Stock Exchange;
o in the over-the-counter market;
o otherwise than on such exchanges or services or in the over-the-counter
market;
o through the writing of options, whether the options are listed on an
options exchange or otherwise; or
o through the settlement of short sales.
These transactions may include block transactions or crosses. Crosses
are transactions in which the same broker acts as agent on both sides of the
trade. In connection with the sale of the debentures and the underlying common
stock or otherwise, the selling securityholders may enter into hedging
transactions with broker-dealers or other financial institutions. These
broker-dealers or financial institutions may in turn engage in short sales of
the common stock in the course of hedging the positions they assume with selling
securityholders. The selling securityholders may also sell the debentures and
the underlying common stock short and deliver these securities to close out such
short positions, or loan or pledge the debentures or the underlying common stock
to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling securityholders from the sale of
the debentures or the underlying common stock offered by them hereby will be the
purchase price of the debentures or common stock less discounts and commissions,
if any. Each of the selling securityholders reserves the right to accept and,
together with their agents from time to time, to reject, in whole or in part,
any proposed purchase of common stock to be made directly or through agents. We
will not receive any of the proceeds from this offering.
Our outstanding common stock is listed for trading on the New York
Stock Exchange. We do not intend to list the debentures for trading on any
national securities exchange or on the New York Stock Exchange and can give no
assurance about the development of any trading market for the debentures. In
order to comply with the securities laws of some states, if applicable, the
debentures and the underlying common stock may be sold in these jurisdictions
only through registered or licensed brokers or dealers.
Broker-dealers or agents that participate in the sale of the debentures
and the underlying common stock are "underwriters" within the meaning of Section
2(11) of the Securities Act. Selling securityholders that participate in the
sale of the debentures and the underlying common stock may also be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act.
Profits on the sale of the debentures and the underlying common stock by selling
securityholders and any discounts, commissions or concessions received by any
broker-dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. Selling securityholders who are deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act will
58
be subject to the prospectus delivery requirements of the Securities Act. To the
extent the selling securityholders may be deemed to be "underwriters," they may
be subject to statutory liabilities, including, but not limited to, Sections 11,
12 and 17 of the Securities Act.
The selling securityholders and any other person participating in a
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder. Regulation M of the Exchange Act may limit
the timing of purchases and sales of any of the securities by the selling
securityholders and any other person. In addition, Regulation M may restrict the
ability of any person engaged in the distribution of the securities to engage in
market-making activities with respect to the particular securities being
distributed for a period of up to five business days before the distribution.
The selling securityholders have acknowledged that they understand their
obligations to comply with the provisions of the Exchange Act and the rules
thereunder relating to stock manipulation, particularly Regulation M, and have
agreed that they will not engage in any transaction in violation of such
provisions.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholder and any underwriter,
broker-dealer or agent regarding the sale of the common stock by the selling
securityholders.
A selling securityholder may decide not to sell any debentures or the
underlying common stock described in this prospectus. We cannot assure holders
that any selling securityholder will use this prospectus to sell any or all of
the debentures or the underlying common stock. Any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 or Rule 144A of the
Securities Act may be sold under Rule 144 or Rule 144A rather than pursuant to
this prospectus. In addition, a selling securityholder may transfer, devise or
gift the debentures and the underlying common stock by other means not described
in this prospectus.
With respect to a particular offering of the debentures and the
underlying common stock, to the extent required, an accompanying prospectus
supplement or, if appropriate, a post-effective amendment to the registration
statement of which this prospectus is a part will be prepared and will set forth
the following information:
o the specific debentures or common stock to be offered and sold;
o the names of the selling securityholders;
o the respective purchase prices and public offering prices and other
material terms of the offering;
o the names of any participating agents, broker-dealers or underwriters;
and
o any applicable commissions, discounts, concessions and other items
constituting, compensation from the selling securityholders.
We entered into the registration rights agreement for the benefit of
holders of the debentures to register their debentures and the underlying common
stock under applicable federal and state securities laws under certain
circumstances and at certain times. The registration rights agreement provides
that the selling securityholders and Cooper will indemnify each other and their
respective directors, officers and controlling persons against specific
liabilities in connection with the offer and sale of the debentures and the
underlying common stock, including liabilities under the Securities Act, or will
be entitled to contribution in connection with those liabilities. We will pay
all of our expenses and specified expenses incurred by the selling
securityholders incidental to the registration, offering and sale of the
debentures and the underlying common stock to the public, but each selling
securityholder will be responsible for payment of commissions, concessions, fees
and discounts of underwriters, broker-dealers and agents.
59
VALIDITY OF SECURITIES
The validity of the securities being offered hereby will be passed upon
for us by Latham & Watkins LLP, New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedule of The
Cooper Companies, Inc. and subsidiaries as of October 31, 2002 and 2001 and for
each of the years in the three year period ended October 31, 2002 have been
incorporated by reference herein and in the registration statement in reliance
upon the reports of KPMG LLP, independent accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The combined financial statements of the Eye Care Division of Biocompatibles
International plc. incorporated in this Prospectus by reference to the Current
Report on Form 8-K/A, filed on April 29, 2002, have been so incorporated in
reliance on the report of PricewaterhouseCoopers, independent auditors, given on
the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act and in
accordance therewith file reports, proxy statements and other information with
the SEC. These reports, proxy statements and other information may be inspected
and copied at the Public Reference Room of the SEC at 450 Fifth Street, N.W.,
Room 1024, Judiciary Plaza, Washington, D.C. 20549-1004. Information on the
operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. Reports, proxy and information statements and other information,
including the registration statement of which this prospectus is a part, filed
electronically with the SEC are available at the SEC's website at www.sec.gov.
The information in this prospectus may not contain all the information that
may be important to you. You should read the entire prospectus, as well as the
documents incorporated by reference in the prospectus, and the registration
statement of which this prospectus is a part, including the exhibits thereto,
before making an investment decision.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In this prospectus, we have incorporated by reference certain
information we have filed, or will file, with the SEC. The information
incorporated by reference is an important part of this prospectus, and
information that we file later with the SEC will automatically update and
supersede this information. Any statement contained in any document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded, for purposes of this prospectus, to the extent that a statement
contained in or omitted from this prospectus, or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
We incorporate by reference the documents listed below and any further filings
made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act
until we sell all of the debentures or we terminate this offering:
(a) Our Annual Report on Form 10-K for the fiscal year ended October 31, 2002;
(b) The portions of our Annual Report to Stockholders for the fiscal year
ended October 31, 2002 that were incorporated by reference into our
October 31, 2002 Form 10-K;
60
(c) The portions of the Proxy Statement for our March 25, 2003 Annual Meeting
of stockholders that were incorporated by reference into our October 31,
2002 Form 10-K;
(d) Our Quarterly Reports on form 10-Q for the periods ended January 31,
2003, April 30, 2003 and July 31, 2003;
(e) Our Current Reports on Form 8-K filed on November 6, 2002, November 22,
2002, December 12, 2002, January 30, 2003, February 26, 2003, March 25,
2003, April 28, 2003, May 5, 2003 June 4, 2003, June 19, 2003, June 20,
2003, June 25, 2003 and September 3, 2003; the combined profit and loss
account of the Eye Care Division of Biocompatibles International plc for
the year ended 31 December 2001 included as part of the Item 7(a)(1) in
our Form 8-K filed on April 29, 2002; and Exhibit 99 of Item 7(c) of our
Current Report on Form 8-K filed on June 19, 2003;
(f) The description of our Common Stock contained in our registration
statement on Form 8-A filed October 28, 1983; and
(g) The description of the preferred stock purchase rights contained in our
registration statement on Form 8-A filed November 3, 1997.
All documents filed by us under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 after the date of this prospectus and before we
sell all of the debentures or terminate this offering shall be deemed to be
incorporated by reference into this prospectus from the respective dates of
filing of such documents.
Upon request, we will provide you without charge, a copy of any or all of the
documents incorporated by reference (other than exhibits to such documents
unless the exhibits are specifically incorporated by reference in the
documents). Please direct requests to the Corporate Secretary, The Cooper
Companies, Inc., 6140 Stoneridge Mall Road, Suite 590, Pleasanton, California
94588 (telephone number (925) 460-3600).
61
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as........................'r'