<PAGE>
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Confidential, for Use of the
[_] Preliminary Proxy Statement Commission Only (as permitted by
Rule 14a-6(e) (2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COMMISSION FILE NUMBER: 1-11885
ALLEGIANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-4095179
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1430 WAUKEGAN ROAD 60085
MCGAW PARK, ILLINOIS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(847) 689-8410
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
----------------
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
Common Stock, $1.00 par value New York Stock Exchange
Chicago Stock Exchange
Series A Junior Participating Preferred Stock Purchase New York Stock Exchange
Rights (currently traded with Common Stock) Chicago Stock Exchange
</TABLE>
----------------
(2) Aggregate number of securities to which transaction applies:
----------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
LOGO
March 28, 1997
NOTICE OF ANNUAL MEETING OF THE
STOCKHOLDERS OF
ALLEGIANCE CORPORATION
The Annual Meeting of Stockholders of Allegiance Corporation, a Delaware
corporation (the "Company"), will be held at the Company's headquarters in
McGaw Park, Illinois (Building N), on Thursday, May 15, 1997, at 10:30 a.m.
CDT, for the following purposes:
1. To elect two directors to hold office until the annual meeting in
2000; and
2. To transact such other business, if any, as may properly be presented
at the meeting.
Only holders of record of the common stock of the Company at the close of
business on March 20, 1997, will be entitled to vote at the meeting. A proxy
statement with respect to the annual meeting accompanies and forms a part of
this Notice. The annual report of the Company for the fiscal year ended
December 31, 1996 also accompanies this proxy statement.
By order of the Board of Directors.
Allegiance Corporation
By
/s/ Lester B. Knight
Lester B. Knight
Chairman of the Board and
Chief Executive Officer
/s/ William L. Feather
William L. Feather
Senior Vice President, Secretary
and General Counsel
YOUR VOTE IS IMPORTANT
Please mark, sign, and date your proxy and return
it promptly in the enclosed envelope whether or not
you plan to attend the meeting.
<PAGE>
ALLEGIANCE CORPORATION
1430 WAUKEGAN ROAD
MCGAW PARK, ILLINOIS 60085
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Directors of the
Company for use at the Annual Meeting of Stockholders of the Company to be
held on May 15, 1997, and any adjournments thereof. This proxy statement and
accompanying proxy are first being mailed to stockholders on or about March
28, 1997.
Shares represented by an effective proxy given by a stockholder will, unless
revoked, be voted as directed by the stockholder. If a properly signed proxy
form is returned to the Company and is not marked, it will be voted in
accordance with the recommendation of the Board of Directors on the
proposal(s). A stockholder giving a proxy may revoke it at any time prior to
the voting of the proxy by giving written notice to the secretary of the
Company, by executing a later-dated proxy, or by attending the meeting and
voting in person.
The Company's common stock, $1.00 par value (the "Common Stock"), is the
only issued and outstanding class of stock. Only stockholders of record at the
close of business on March 20, 1997 are entitled to notice of and to vote at
the meeting. At the close of business on March 20, 1997, the Company had
55,403,778 shares of Common Stock outstanding and entitled to vote. Each share
of the Common Stock is entitled to one vote. A list of stockholders entitled
to vote at the meeting will be kept at the office of the secretary of the
Company, 1430 Waukegan Road, McGaw Park, IL 60085, for a period of 10 days
prior to the meeting.
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of three classes, as nearly
equal in number as possible. One of the three classes, comprising
approximately one-third of the directors, is elected each year to succeed the
directors whose terms are expiring. The number of directors of the Company is
currently eight. Directors hold office until the annual meeting for the year
in which their terms expire and until their successors are elected and
qualified, unless prior to that time, they have resigned, retired, or
otherwise left office.
The Board of Directors has nominated Silas S. Cathcart and Michael D.
O'Halleran for election as directors at the 1997 annual meeting. Both nominees
are current directors of the Company. It is not contemplated that either of
these nominees will be unavailable for election, but if such a situation
should arise, the proxy will be voted in accordance with the best judgment of
the proxyholder unless a stockholder has directed otherwise. Under the
Company's bylaws, directors are elected by a plurality of the voting power of
the shares of capital stock of the Company present in person or represented by
proxy at the meeting and entitled to vote for the election of directors.
Shares represented at the meeting in person or by proxy but withheld or
otherwise not cast for the election of directors (including broker nonvotes)
will have no effect on the outcome of the election.
Each of the directors of the Company has been a director since 1996.
1
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS TO BE ELECTED
FOR A TERM OF THREE YEARS ENDING AT THE ANNUAL MEETING OF STOCKHOLDERS IN 2000
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING THE PAST FIVE
YEARS
NAME AGE AND OTHER INFORMATION
- - ---- --- ----------------------------------------
<S> <C> <C>
Silas S. Cathcart............... 70 Mr. Cathcart is a director of General
Electric Company and The Quaker Oats
Company. Mr. Cathcart is also a trustee of
Northern Funds Mutual Fund. From 1985 to
1987, and from 1990 to 1996, Mr. Cathcart
served as a director of Baxter
International Inc. ("Baxter"). From 1970 to
1985, he served as a director of American
Hospital Supply Corporation. From 1972 to
1986, he was chairman of the board and
chief executive officer of Illinois Tool
Works Inc. Mr. Cathcart was chairman of the
board of Kidder, Peabody Group Inc., an
investment banking firm, from 1988 to 1989,
and president and chief executive officer
from 1987 to 1988.
Michael D. O'Halleran........... 46 Since 1995, Mr. O'Halleran has been
president of Aon Group, Inc., an insurance
holding company, and since 1988, he has
been the chairman of the board of Aon Risk
Services, Inc., a subsidiary of that
company.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE FOR
DIRECTOR NAMED ABOVE.
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE
TERMS EXPIRING AT THE ANNUAL MEETING OF STOCKHOLDERS IN 1998
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING THE PAST FIVE
YEARS
NAME AGE AND OTHER INFORMATION
- - ---- --- ----------------------------------------
<S> <C> <C>
Connie R. Curran................ 49 Since 1995, Ms. Curran has been the
president of CurranCare, Inc., a
nationwide, hospital based, home care
management company. From 1990 to 1995, she
was the vice chairman and national director
of patient services of APM, Inc.
Joseph F. Damico................ 43 Mr. Damico has been president and chief
operating officer of the Company since June
1996. From 1992 to September 1996, he was a
corporate vice president of Baxter. From
1979 to 1992, he held various positions at
Baxter Healthcare Corporation, including
vice president and general manager of the
Custom Sterile unit and president of the
Convertors/Custom Sterile business.
Arthur F. Golden................ 50 Since 1978, Mr. Golden has been a partner
of Davis Polk & Wardwell, a general
practice law firm. Mr. Golden joined Davis
Polk & Wardwell in 1969. Davis Polk &
Wardwell performs legal services for the
Company from time to time. He also serves
as a director of Borg Warner Security
Corporation.
</TABLE>
2
<PAGE>
TERMS EXPIRING AT THE ANNUAL MEETING OF STOCKHOLDERS IN 1999
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING THE PAST FIVE
YEARS
NAME AGE AND OTHER INFORMATION
- - ---- --- ----------------------------------------
<S> <C> <C>
Kenneth D. Bloem................ 50 Since 1996, Mr. Bloem has been chief
executive officer of Georgetown University
Medical Center. From 1994 to 1996, Mr.
Bloem was chief executive officer of the
Advisory Board Company, a privately held
research and publishing company. From 1989
to 1994, he was president of Stanford
University Hospital.
David W. Grainger............... 69 Since 1968, Mr. Grainger has been chairman
of the board of W.W. Grainger, Inc., a
nationwide distributor of maintenance,
repair and operating equipment and
supplies. He joined W.W. Grainger, Inc. in
1952. Mr. Grainger served as a director of
Baxter from 1990 to 1996.
Lester B. Knight................ 38 Mr. Knight has been chairman of the board
and chief executive officer of the Company
since June 1996. From 1992 to September
1996, he was an executive vice president of
Baxter. He was elected a corporate vice
president of Baxter in 1990. Mr. Knight
joined Baxter Healthcare Corporation in
1981.
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company was incorporated in June 1996 as a wholly-owned subsidiary of
Baxter, and the Common Stock was distributed to the stockholders of Baxter on
September 30, 1996 (the "Spin-Off").
There were five meetings of the Company's Board of Directors during the year
ended December 31, 1996. During 1996, all incumbent directors attended at
least 75% of the meetings of the Board of Directors and the committees thereof
on which they served.
The Board of Directors has two standing committees, the duties of which are
described in the Company's bylaws: the Audit and Public Policy Committee and
the Compensation and Nominating Committee.
The Audit and Public Policy Committee consists of six directors who are not
employees of the Company. The committee assists the Board of Directors in
fulfilling its responsibilities for the Company's accounting and financial
reporting practices and provides a channel of communication between the Board
of Directors and the Company's independent accountant. The committee also
assists the Board of Directors in establishing and monitoring compliance with
the ethical standards of the Company and reviews the policies and practices of
the Company to assure that they are consistent with its social
responsibilities to employees, customers, and society, including policies
relating to health and safety. In addition, the committee selects the
independent accountant of the Company and recommends to the Board of Directors
any change in the appointment of the independent accountant which the
committee deems to be in the best interests of the Company and its
stockholders. The members of the Audit and Public Policy Committee are Messrs.
O'Halleran (chairman), Bloem, Cathcart, Golden, and Grainger and Ms. Curran.
The Audit and Public Policy Committee met three times during 1996.
3
<PAGE>
The Compensation and Nominating Committee consists of four directors who are
not employees of the Company. The committee determines the compensation of
officers and recommends to the Board of Directors that it ratify the
committee's determination of the compensation for the chairman of the board
and chief executive officer. It also exercises the authority of the Board of
Directors relating to the Company's employee benefit plans, including serving
as the administration committee of the Company's stock option plans. In
addition, the committee assists and advises the Board of Directors in
connection with board membership, and board committee structure and
membership. The members of the Compensation and Nominating Committee are
Messrs. Cathcart (chairman), Bloem, and O'Halleran and Ms. Curran. Mr. Golden
served as a member of the committee until February 11, 1997. The Compensation
and Nominating Committee met two times during 1996.
The Board of Directors will consider qualified candidates recommended by the
stockholders for designation as nominees for election at the Annual Meeting of
Stockholders to be held in 1998 and subsequent years. In order for a candidate
recommended by a stockholder to be considered by the Board of Directors for
designation as a nominee for election at the Annual Meeting of Stockholders to
be held in 1998, the name and address of such stockholder and of such
candidate, a representation that the stockholder is a holder of record of
stock in the Company and entitled to vote at the Annual Meeting of
Stockholders, a description of all arrangements or understandings between such
stockholder and such candidate and any other person or persons (naming such
person or persons) pursuant to which the nomination is being made by the
stockholder, such other information as would be required to be included in the
proxy statement filed pursuant to the proxy rules of the U.S. Securities and
Exchange Commission (the "Commission"), and the consent of such nominee to
serve as a director of the Company if elected, must be received by the
secretary of the Company between February 14, 1998 and March 16, 1998. The
presiding officer of the Annual Meeting of Stockholders will refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedures.
OWNERSHIP OF THE CAPITAL STOCK OF THE COMPANY
The following table sets forth information with respect to the number of
shares of Common Stock beneficially owned by (i) each director of the Company,
(ii) the chairman of the board and chief executive officer, and the four other
most highly compensated executive officers of the Company named in the table
under "Summary of Compensation of Executive Officers" (the "Named Executive
Officers"), (iii) all directors and officers of the Company as a group, and
(iv) each stockholder known by the Company to be a beneficial owner of more
than 5% of any class of the Company's voting securities. The Company believes
that except as otherwise noted, each individual named has sole investment and
voting power with respect to the shares of Common Stock indicated as
beneficially owned by such individual. Except as otherwise noted, the
information set forth below is reported as of March 6, 1997.
<TABLE>
<CAPTION>
PERCENT OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED (1) OWNED
------------------------ ------------ ------------
<S> <C> <C>
Kenneth D. Bloem................................ -- (2) *
Silas S. Cathcart............................... 2,155(2) *
Connie R. Curran................................ -- (2) *
Joseph F. Damico................................ 30,576(3) *
Arthur F. Golden................................ -- (2) *
David W. Grainger............................... 7,788(2) *
Lester B. Knight................................ 48,250(4) *
Peter B. McKee.................................. 1,868(5) *
Michael D. O'Halleran........................... -- (2) *
Kathy Brittain White............................ 1,891(6) *
Robert J. Zollars............................... 18,642(7) *
All directors and officers as a group (18
members)....................................... 130,346(8) *
FMR Corp........................................ 7,111,520(9) 12.94
David L. Cohen.................................. 3,136,480(10) 5.71
Harold J. Levy.................................. 3,136,480(10) 5.71
</TABLE>
4
<PAGE>
- - --------
*Represents less than 1%
(1) Calculated pursuant to Rule 13d-1 under the Securities Exchange Act of
1934 (the "Exchange Act").
(2) In October 1996, each non-employee director received a stock option grant
to purchase 15,833 shares of Common Stock which will vest in May 1998.
This initial grant covered the partial term year from October 1996
through May 1997 plus the term year May 1997 through May 1998. In the
event a director is not re-elected in 1997, the 10,000 shares associated
with that term year will not vest.
(3) Mr. Damico has shared voting and dispositive power with respect to 366
shares.
(4) Mr. Knight has shared voting and dispositive power with respect to 757
shares, 605 of which are beneficially owned under the Allegiance
Corporation Retirement Plan, a qualified defined contribution retirement
plan (the "Retirement Plan"). The Retirement Plan amounts are included as
of February 28, 1997, the latest information available.
(5) Mr. McKee has shared voting and dispositive power with respect to 704
shares, 344 of which are beneficially owned under the Retirement Plan,
and 120 shares which are beneficially owned by a child of Mr. McKee.
(6) Ms. White has shared voting and dispositive power with respect to 11
shares which are beneficially owned under the Retirement Plan.
(7) Mr. Zollars has shared voting and dispositive power with respect to 712
shares.
(8) Of the shares shown as beneficially owned by the officers and directors
as a group, 4,342 shares are subject to shared voting and dispositive
power, and 893 shares shown as beneficially owned by the officers and
directors as a group are beneficially owned by family members of officers
and directors. The officers and directors as a group do not have the
right to acquire any Common Stock within 60 days.
(9) A Schedule 13G was filed with the Commission by FMR Corp. on February 14,
1997 which reported the beneficial ownership of 7,111,520 shares as of
December 31, 1996. The address for FMR Corp. is 82 Devonshire Street,
Boston, Massachusetts 02109.
(10) Mr. Cohen and Mr. Levy jointly filed a Schedule 13G on February 10, 1997
reporting a combined beneficial ownership of the same 3,136,480 shares of
Common Stock as of December 31, 1996, consisting of the same 2,965,640
shares of Common Stock owned by Iridian Asset Management LLC and 170,840
owned by First Eagle Fund of America, Inc. ("First Eagle Fund"). Mr.
Cohen and Mr. Levy each have shared voting and dispositive power with
respect to such shares. Mr. Cohen and Mr. Levy disclaim beneficial
ownership of the shares of Common Stock held by First Eagle Fund. The
address for Mr. Cohen and Mr. Levy is c/o Iridian Asset Management LLC,
276 Post Road West, Westport, Connecticut 06880-4704.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that certain of the Company's
directors, officers, and stockholders file with the Commission and the New
York Stock Exchange ("NYSE") an initial statement of beneficial ownership and
certain statements of changes in beneficial ownership of equity securities of
the Company. Based solely on its review of such forms received by the Company
and written representations from the directors and officers that no other
reports were required, the Company is unaware of any instances of
noncompliance, or late compliance, with such filings during the fiscal year
ended December 31, 1996 by its directors, officers, or stockholders.
5
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY OF BOARD OF DIRECTORS' COMPENSATION
Cash compensation of non-employee directors consists of a $1,000 fee for
each board and each committee meeting attended. Chairpersons of committees
receive an additional annual retainer of $3,000. Employee directors are not
compensated separately for their board or committee activities.
In addition, to align the directors' interests more closely with the
interests of all of the Company's stockholders, each non-employee director
receives an annual retainer in the form of stock options on 10,000 shares of
Common Stock. The grant price for the stock options is the fair market value
of a share of the Common Stock on the NYSE on the date of grant. The stock
options vest on the day of the annual meeting the year after they are granted,
and expire ten years from the grant date.
SUMMARY OF COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth a summary of the compensation of the Named
Executive Officers for the year ended December 31, 1996; information for prior
years is omitted in accordance with the rules of the Commission. The following
table includes the compensation earned by the listed individuals as employees
of Baxter through September 30, 1996 and as employees of the Company from
October 1, 1996 through December 31, 1996. References to "stock options" mean
options to purchase Common Stock.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(3)
----------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
POSITION YEAR ($)(1) ($)(1) ($)(2) OPTIONS(#) ($)(4)
------------------ ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Lester B. Knight 1996 $420,600 $458,750 -- 576,549 $23,010
Chairman of the Board &
Chief Executive Officer
Joseph F. Damico 1996 $335,169 $276,250 -- 361,972 $15,155
President & Chief
Operating Officer
Peter B. McKee 1996 $190,385 $550,000 -- 164,000 $ 346
Senior Vice President &
Chief Financial Officer
Robert J. Zollars 1996 $230,000 $240,000 -- 119,962 $ 8,196
Corporate Vice President
Kathy Brittain White 1996 $260,000 $178,125 -- 167,282 $ 4,500
Senior Vice President &
Chief Information
Officer
</TABLE>
- - --------
(1) Amounts shown include cash compensation earned by the Named Executive
Officers during 1996, including amounts deferred at the election of those
officers. Bonuses are generally paid in the year following the year in
which they are earned. The bonus amount shown for Mr. Zollars was related
to special incentives. Mr. Zollars resigned from the Company in February
1997. Of the bonus amount shown for Mr. McKee, $450,000 was a special
incentive associated with his employment by the Company.
(2) As permitted by the Commission's rules regarding disclosure of executive
compensation, this column excludes perquisites and other personal benefits
for the Named Executive Officers if their aggregate cost in 1996 did not
exceed the lesser of $50,000 or 10% of the total of annual salary and
bonus reported for the Named Executive Officers.
6
<PAGE>
(3) Prior to the Spin-Off, the Named Executive Officers received restricted
stock awards from Baxter related to a Baxter long-term incentive plan. The
grants were as follows: Mr. Knight--19,690 shares; Mr. Damico--8,958
shares; Mr. McKee--2,500 shares; Mr. Zollars--3,681 shares; Ms. White--
8,413 shares. As a result of Mr. Zollars' resignation from the Company,
Mr. Zollars forfeited all of his Baxter restricted stock and Company stock
options.
(4) Amounts shown represent the Company's matching contributions in the
Retirement Plan and additional matching contributions in the Allegiance
Corporation Excess Benefit Plan, an unfunded non-qualified excess plan.
Those two amounts, expressed in the same order as described for the Named
Executive Officers are as follows: Mr. Knight--$4,500, $18,510; Mr.
Damico--$4,500, $10,655; Mr. McKee--$346, $0; Mr. Zollars--$4,500, $3,696;
Ms. White--$4,500, $0.
STOCK OPTION GRANTS
The following table contains information relating to stock option grants
made in 1996 under the Allegiance Corporation 1996 Incentive Compensation
Program ("Incentive Program") to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#) FISCAL YEAR ($/SH)(2) DATE ($)(3)
- - ---- ---------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Mr. Knight....... 514,000 8.0% $18.38 10/10/06 $3,747,060
62,549 1.0% $22.88 11/24/06 $ 553,559
Mr. Damico....... 330,000 5.1% $18.38 10/10/06 $2,405,700
31,972 0.5% $22.88 11/24/06 $ 282,952
Mr. McKee........ 164,000 2.5% $18.38 10/10/06 $1,195,560
Mr. Zollars...... 106,000 1.6% $18.38 10/10/06 $ 772,740
13,962 0.2% $22.88 11/24/06 $ 123,564
Ms. White........ 124,000 1.9% $18.38 10/10/06 $ 903,960
43,282 0.7% $22.88 11/24/06 $ 383,046
</TABLE>
- - --------
(1) All stock options shown in this table become exercisable in three equal
installments on the first, second, and third anniversary from the
respective grant dates which were October 10, 1996 and November 26, 1996.
The Incentive Program provides that if specified corporate control changes
occur, all outstanding stock options become exercisable immediately.
(2) The exercise price shown is the closing price of the Common Stock on the
date of grant.
(3) The amounts shown are based on the Black-Scholes option pricing model. The
material assumptions incorporated in the Black-Scholes model in estimating
the value of the options include the following: exercise prices of $18.38
and $22.88 equal to the fair market value of the underlying stock on the
date of grant; option term of seven years (which assumes that options will
not be held full term); interest rates of 6.53% and 6.05% that represent
the interest rate on a U.S. Treasury security on the date of grant with a
maturity date corresponding to that of the option term; volatility of
30.32% and 30.48% calculated using weighted average volatility based on
weekly stock price history for peer companies including Bergen Brunswig
Corporation, Fisher Scientific International Inc., Maxxim Medical, Inc.,
Owens & Minor, Inc., and Tecnol Medical Products, Inc. (actual volatility
is insufficient as a result of the Spin-Off); dividends at the rate of
$0.40 per share representing the annualized dividends paid with respect to
a share of Common Stock beginning
7
<PAGE>
with the first dividend payment declared in November 1996. The actual
value, if any, an optionee will realize upon exercise of an option will
depend on the excess of the market value of the Common Stock over the
exercise price on the date the option is exercised. There is no assurance
the value realized by an optionee will be at or near the value estimated by
the Black-Scholes model.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table summarizes the stock option grants outstanding on
December 31, 1996 for the Named Executive Officers. No officer exercised
options to purchase Common Stock in 1996.
AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT AT FISCAL YEAR-END
ACQUIRED ON VALUE FISCAL YEAR-END(#) ($)(1)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- - ---- ----------- -------- -------------------- --------------------
<S> <C> <C> <C> <C>
Mr. Knight...... -0- N/A -0- / 576,549 -0- / $5,051,608
Mr. Damico...... -0- N/A -0- / 361,972 -0- / $3,204,367
Mr. McKee....... -0- N/A -0- / 164,000 -0- / $1,517,000
Mr. Zollars..... -0- N/A -0- / 119,962 -0- / $1,046,820
Ms. White....... -0- N/A -0- / 167,282 -0- / $1,352,590
</TABLE>
- - --------
(1) The dollar amounts in this column represent the number of unexercisable
stock options which were "In-the-Money" on December 31, 1996, multiplied
by the difference between the closing price of the Common Stock on
December 31, 1996, which was $27.63 per share, and the exercise price of
the Company's stock options. For purposes of these calculations, In-the-
Money stock options are those with an exercise price below $27.63 per
share.
CHANGE OF CONTROL PLAN
The Company has adopted the Allegiance Corporation Change of Control Plan
("Change of Control Plan"). Pursuant to agreements entered into under the
Change of Control Plan, employees selected to participate (including each of
the Named Executive Officers) are entitled to separation pay and benefits
following a change of control in the Company and the employee's subsequent
termination of employment unless such termination is voluntary and unprovoked
or results from death, disability, retirement, or cause. An eligible
termination must occur within 24 months of the change of control or the
agreement entered into under the Change of Control Plan is void. Each
agreement will continue until October 1, 1999 and renew every three years from
that date unless a participant receives written notice of termination of the
agreement at least ninety days prior to the renewal date.
Under the Change of Control Plan, the separation pay equals either three
years' annualized base salary and target cash bonus ("Three Times
Compensation") or one year's annualized base salary and target cash bonus (as
has been determined by the Compensation and Nominating Committee of the Board
of Directors in its discretion depending on the employee's position) plus the
value of all deferred or unvested awards granted under the Incentive Program.
In the event that any payments to those individuals receiving Three Times
Compensation would be subject to an excise tax under the Internal Revenue
Code, the Company will pay an additional gross-up amount for any excise tax
and federal, state, and local income taxes, such that the net amount of the
payments would be equal to the net payments after income taxes had the excise
tax and resulting additional taxes not been imposed.
8
<PAGE>
REPORT OF THE COMPENSATION AND NOMINATING COMMITTEE OF THEBOARD OF DIRECTORS
The Compensation and Nominating Committee of the Board of Directors (the
"Committee"), which is comprised of four independent outside directors,
establishes and administers the executive compensation programs for the
Company. In determining the appropriate compensation for the executive
officers, including the Named Executive Officers, the Committee relies on
input from leading compensation consultants and also reviews the
recommendations of management. There are no Committee interlocks and there is
no insider participation on the Committee. The Committee has provided the
following report on executive compensation for inclusion in this proxy
statement.
COMPENSATION PHILOSOPHY FOR EXECUTIVE OFFICERS
The Committee views compensation as a total package which includes base
salary, annual bonus, and long-term incentives. For executive officers,
including the Named Executive Officers, the total compensation package is
structured to have between 50% and 80% of pay at risk associated with
achievement of key financial commitments and the creation of value for the
stockholders. The Committee reviews the executive compensation annually to
ensure that the Company and the stockholders benefit from a total compensation
structure which is consistent with competitive practices, encourages superior
leadership and management skills, motivates management's long-term commitment
to the Company, aligns the interests of management with the interests of the
stockholders, and rewards behaviors which drive the greatest results for the
Company and the stockholders.
The Company's philosophy with respect to the limit on the tax-deductibility
of executive compensation is to maximize the benefit of tax laws for the
Company's stockholders by seeking performance-based exemptions which are
consistent with the Company's compensation policies and practices. The Company
has adopted performance goals for its performance-based annual incentive
awards which are expected to satisfy the deductibility requirements with
respect to any payments under the applicable plans.
COMPENSATION ELEMENTS
The total compensation structure for executive officers, including the Named
Executive Officers, is targeted to be competitive when compared to other
companies of similar focus and size. These companies are reported in surveys
whose participants include many companies in the Fortune 500, as well as other
companies with which the Company and its subsidiaries compete for executive
talent ("Comparable Companies"). Several of the Comparable Companies are
included in the indices utilized in the Comparison of Cumulative Total Return
graph set forth on page 11.
Base salaries are targeted to be competitive with salaries of executive
officers in Comparable Companies. Individual base salaries are determined by
comparing the responsibilities and accountabilities of each executive's
position to similar positions in Comparable Companies, the importance of the
executive's position to the Company in achieving critical performance
commitments, and the knowledge and experience of the executive.
Under the Incentive Program, the Company has implemented the 1997
Performance-Based Annual Incentive Plan ("1997 Incentive Plan") which links
financial rewards for all employees, including the Named Executive Officers,
to the achievement of the Company's financial objectives of net earnings after
tax and cash flow for the year. The 1997 Incentive Plan is intended to focus
on the individual contributions of all employees and the direct impact of such
contributions on the Company's results, as well as support the Company's
philosophy of sharing goals, risks, and rewards.
9
<PAGE>
Under the 1997 Incentive Plan, bonus targets are established based on
position and level. Specifically for the Named Executive Officers, bonuses are
targeted to be competitive with similar positions identified within the
Comparable Companies. After year-end results are calculated, the bonus pool
for the 1997 Incentive Plan will be determined based on the Company's
achievement of net earnings after tax and cash flow. Actual bonus awards for
participants are determined based on the bonus pool established and the
contributions of the participant's business unit or function to the Company's
overall success.
The Company values the importance of employee stock ownership. Stock options
are used as a long-term incentive vehicle to motivate employees to generate
and subsequently share in the creation of stockholder value. In determining
the number of stock options to be awarded, the Committee generally establishes
a level of award targeted to provide an annual opportunity to earn stock-based
compensation at an above average competitive level. The Committee also takes
into consideration the employee's responsibilities and his or her ability to
influence the long-term results of the Company. In October 1996, the Named
Executive Officers received a grant equal to two times their annual target.
The grant included a roll-forward into 1996 of the annual target grant that
otherwise would have been anticipated for 1997. This roll-forward was effected
to provide a strong and immediate link between the interests of senior
managers and the stockholders. A second stock option grant was made in
November 1996 to the Named Executive Officers except for Mr. McKee. This grant
was made to individuals who forfeited Baxter stock options as a result of the
Spin-Off to recognize their value and contributions to the Company.
Approximately 2,000 employees received stock options through the two grants in
1996. All of the stock options described above are exercisable in three annual
installments on the anniversary date of the grants, have a ten year term, and
are priced at the fair market value of the Common Stock on the date of grant.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Knight's annual salary has been set at $450,000 effective October 1,
1996. The Committee chose to set Mr. Knight's base salary below that of
similar positions in Comparable Companies and set his annual bonus target at a
higher percentage of total compensation to reinforce Mr. Knight's critical
role in leading the Company in achieving its financial commitments in order to
build stockholders' confidence in this new organization.
Mr. Knight received a cash bonus award for 1996 of $458,750. For 1996, the
Committee adopted Baxter's Officer Incentive Compensation Plan which linked
Mr. Knight's bonus award to the growth in net income and cash flow performance
of both the Company and Baxter. The Committee also balanced Mr. Knight's
leadership role in building a strong foundation for the future success of the
Company with the economic challenges the Company faced in 1996.
In line with the Company's philosophy of employee stock ownership, the
Committee awarded Mr. Knight a non-qualified stock option to purchase 514,000
shares at the fair market value of the Common Stock on the grant date as part
of his total compensation package. This grant included a roll-forward into
1996 of the annual target grant that otherwise would have been anticipated for
1997. This roll-forward was effected to provide a strong and immediate link
between the interests of the chief executive officer and the stockholders. Mr.
Knight also received a stock option grant to purchase 62,549 shares at the
fair market value of the Common Stock on the grant date to recognize the
Baxter stock options which Mr. Knight forfeited as a result of the Spin-Off.
Compensation and Nominating
Committee
Silas S. Cathcart, Chairman
Kenneth D. Bloem
Connie R. Curran
Michael D. O'Halleran
10
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph compares cumulative total stockholder return on the
Common Stock against a peer group of companies and the Standard and Poor's
MidCap 400 Index for a three month period ending December 31, 1996. The graph
assumes $100 is invested in the Common Stock and each of the two indices at
the closing market quotations on September 24, 1996, and that dividends are
reinvested. The graph represents performance over the short period of time the
Company has been a publicly traded organization and is not necessarily
indicative of future price performance.
[PERFORMANCE GRAPH APPEARS HERE]
* Peer Group is: Bergen Brunswig Corporation, Fisher Scientific International
Inc., Maxxim Medical, Inc., McKesson Corporation, Owens & Minor, Inc., and
Tecnol Medical Products, Inc.
<TABLE>
<CAPTION>
BASE INDEXED RETURNS
PERIOD MONTHS ENDING
--------- ---------------------------------------
COMPANY/INDEX 24-SEP-96 29-SEP-96 31-OCT-96 29-NOV-96 31-DEC-96
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ALLEGIANCE CORP............... 100 120.00 125.00 150.00 184.83
PEER GROUP.................... 100 100.70 103.19 106.89 108.99
S&P MIDCAP 400 INDEX.......... 100 100.89 101.19 106.89 107.00
</TABLE>
INDEPENDENT ACCOUNTANT
The Company's Certified Public Accountant for the year 1996 was Price
Waterhouse LLP, and such firm has been selected by the Audit and Public Policy
Committee of the Board of Directors to audit the Company's accounts for the
year 1997. Price Waterhouse LLP is expected to have a representative at the
1997 Annual Meeting of Stockholders who will be available to respond to
appropriate questions at that time and have an opportunity to make a statement
at the meeting if he or she so desires.
11
<PAGE>
PROXY SOLICITATION EXPENSE
The expense of the proxy solicitation will be paid by the Company. In
addition to the solicitation of proxies by use of the mails, solicitation may
also be made by telephone, telegram or personal interview by directors,
officers, and regular employees of the Company, none of whom will receive
additional compensation for any such solicitation. In addition, the Company
has retained Georgeson & Company Inc. to assist in the solicitation of proxies
for a fee of $11,000, plus out-of-pocket expenses. The Company will, upon
request, reimburse brokers, banks and similar organizations for reasonable
out-of-pocket and reasonable clerical expenses incurred in forwarding proxy
material to their principals.
FUTURE STOCKHOLDER PROPOSALS
From time to time stockholders present proposals which may be proper
subjects for inclusion in the proxy statement. To be included in the proxy
statement for the 1998 annual meeting, proposals must be received by the
Company no later than November 28, 1997.
In addition, stockholders may present proposals which are proper subjects
for consideration at an annual meeting, even if the proposal is not submitted
by the deadline for inclusion in the proxy statement. To do so, the
stockholder must comply with the procedures specified by the Company's bylaws.
The Company's bylaws require that all stockholders who intend to make
proposals at an annual stockholders meeting submit their proposals to the
Company during the period 60 to 90 days before the anniversary date of the
previous year's annual meeting. To be eligible for consideration at the 1998
annual meeting, proposals which have not been submitted by the deadline for
inclusion in the proxy statement must be received by the Company between
February 14, 1998 and March 16, 1998.
OTHER MATTERS
The Board of Directors knows of no matters to be presented at the annual
meeting other than the one set forth in the Notice of Annual Meeting of
Stockholders. However, if any other matters do come before the meeting, it is
intended that the holders of the proxies will vote thereon in their
discretion.
By order of the Board of Directors.
/s/ William L. Feather
William L. Feather
Senior Vice President, Secretary and
General Counsel
1430 Waukegan Road
McGaw Park, Illinois
March 28, 1997
Each stockholder, whether or not he or she expects to be present in person
at the annual meeting, is requested to SIGN, DATE, and RETURN THE ENCLOSED
PROXY in the accompanying envelope as promptly as possible. A stockholder
may revoke his or her proxy at any time prior to voting.
12
<PAGE>
LOGO
<PAGE>
- - --------------------------------------------------------------------------------
Please mark your 8937
[X] votes as in this
example.
This proxy when properly signed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR election of directors.
- - --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR proposal 1.
- - --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of [_] [_] 2. To transact such other business as may
Directors properly be presented at the meeting.
(see reverse)
For, except vote withheld from the following nominee:
- - --------------------------------------------------------------------------------
Change of [_]
address on
reverse side
Mark the box [_]
if you will attend the
Annual Meeting
Please sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such.
--------------------------------------------------------
--------------------------------------------------------
SIGNATURE(S) DATE
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof.
- - --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
Allegiance Corporation
1997 Annual Meeting of Stockholders
The Annual Meeting of Stockholders of Allegiance Corporation will be held on
Thursday, May 15, 1997, at 10:30 a.m. The meeting will be held at the company's
headquarters at 1450 Waukegan Road, McGaw Park, Illinois.
Registration will open at 10:00 a.m. CDT and the meeting will start promptly at
10:30 a.m. The meeting is expected to last about 30 minutes.
IMPORTANT: 1) If you are planning to attend the meeting, please check the box on
the proxy above. 2) This letter is your admission ticket to the meeting. It must
be shown at the gate before entering the Allegiance campus and presented to the
registration desk on the day of the meeting.
Directions:
- - -----------
Allegiance Corporation is located just east of the Tri-State Tollway, on the
west side of Waukegan Road between Route 137 (Buckley Road) and Route 120
(Belvidere Road). After passing through the gate house, turn left and follow the
signs to the meeting.
- - --------------------------------------------------------------------------------
<PAGE>
ALLEGIANCE CORPORATION [LOGO ALLEGIANCE]
P Proxy Solicited on Behalf of the Board of Directors of Allegiance Corporation
R Allegiance Corporation for the Annual Meeting of 1430 Waukegan Road
O Stockholders on May 15, 1997 McGaw Park, IL 60085
X 847-689-8410
Y The undersigned hereby appoint(s) Lester B. Knight, Joseph F. Damico and
Connie R. Curran and each of them, as proxyholders, with the powers the
undersigned would possess if personally present, and with full power of
substitution, to vote all shares of common stock of Allegiance Corporation
that the undersigned is entitled to vote at the Annual Meeting of
Stockholders to be held on May 15, 1997, and at any adjournment thereof, upon
all subjects that may properly be presented at the meeting, including the
matter described in the proxy statement furnished herewith, subject to any
direction indicated on the reverse side of this card.
Election of Directors. Change of Address:
Nominees:
-------------------------------
-------------------------------
Silas S. Cathcart
Michael D. O'Halleran -------------------------------
-------------------------------
(If you have written in the
above space, please mark the
corresponding box on the reverse
side of this card.)
You are encouraged to specify your choices by marking the appropriate boxes.
SEE REVERSE SIDE. You need not mark either box if you wish to vote in
accordance with the Board of Director's recommendation. The proxyholders
named above cannot vote your shares unless you sign and return this card.
Please mark, sign and date this proxy card and mail it in the envelope
provided.
- - --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
