<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NO. 1-9776
UNITED STATES SURGICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2518270
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 GLOVER AVENUE, NORWALK, CONNECTICUT 06856
(Address of principal executive offices) (Zip Code)
(203) 845-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Number of shares of Common Stock,
par value $.10 per share,
outstanding at June 30, 1996 62,368,966 Shares
<PAGE> 2
Form 10-Q
June 30, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I--FINANCIAL INFORMATION
Financial Statements:
Consolidated Balance Sheets at June 30, 1996 (Unaudited) and
December 31, 1995 ........................................................................................ 3
Consolidated Statements of Operations (Unaudited) for the Six Months and
Three Months Ended June 30, 1996 and 1995................................................................. 4
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the
Six Months Ended June 30, 1996 and 1995 .................................................................. 5
Consolidated Statements of Cash Flows (Unaudited) for the Six Months
Ended June 30, 1996 and 1995.............................................................................. 6
Notes to Consolidated Financial Statements (Unaudited).................................................... 7
Review by Independent Accountants......................................................................... 8
Independent Accountants' Report and Letter................................................................ 9
Management's Discussion and Analysis of Interim Financial Condition and Results
of Operations............................................................................................. 10-13
PART II--OTHER INFORMATION
Legal Proceedings......................................................................................... 14
Submission of Matters to a Vote of Security Holders....................................................... 15
Exhibits and Reports on Form 8-K.......................................................................... 15
Signature................................................................................................. 15
</TABLE>
-2-
<PAGE> 3
Form 10-Q
June 30, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
In thousands, except share data 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS ........................................................................ (Unaudited)
Current assets:
Cash and cash equivalents .................................................. $ 77,100 $ 10,500
Receivables, less allowance ($10,800 June 30, 1996 and
$8,200 December 31, 1995) ............................................... 278,100 247,300
Inventories:
Finished goods ........................................................... 106,200 92,700
Work in process .......................................................... 36,900 28,800
Raw materials ............................................................ 33,700 39,700
----------- -----------
176,800 161,200
Other current assets ....................................................... 93,600 87,900
----------- -----------
Total Current Assets ................................................... 625,600 506,900
----------- -----------
Property, plant, and equipment at cost: ....................................... 737,500 753,100
Less: Allowance for depreciation and amortization ............................ (261,600) (248,200)
----------- -----------
475,900 504,900
Other assets (net) ............................................................ 272,200 253,700
----------- -----------
Total Assets ........................................................... $ 1,373,700 $ 1,265,500
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 30,100 $ 28,600
Accrued liabilities ........................................................ 162,300 148,900
Income taxes payable ....................................................... 74,300 78,600
Current portion of long-term debt .......................................... 3,600 4,200
----------- -----------
Total Current Liabilities .............................................. 270,300 260,300
----------- -----------
Long-term debt ................................................................ 150,700 256,500
Deferred income taxes ......................................................... 10,200 7,600
Stockholders' equity:
Preferred stock $5.00 par value, authorized 2,000,000 shares; 9.76% Series A
cumulative convertible, 177,400 shares
issued and outstanding (liquidation value - $200 million) ................ 900 900
Additional paid-in capital - preferred stock ............................... 190,600 190,600
Common stock $.10 par value, authorized 250,000,000 shares; issued,
70,453,523 at June 30, 1996 and 65,293,157 at
December 31, 1995 ........................................................ 7,000 6,500
Additional paid-in capital - common stock .................................. 562,900 394,200
Retained earnings .......................................................... 269,200 233,200
Treasury stock at cost; 8,084,557 shares at June 30, 1996
and 8,127,219 shares at December 31, 1995 ................................ (86,400) (86,600)
Accumulated translation adjustments ........................................ (1,700) 2,300
----------- -----------
Total Stockholders' Equity ............................................. 942,500 741,100
----------- -----------
Total Liabilities and Stockholders' Equity ............................. $ 1,373,700 $ 1,265,500
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE> 4
Form 10-Q
June 30, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------------- -----------------------
In thousands, except per share data 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ................................. $549,600 $504,200 $283,600 $263,600
-------- -------- -------- --------
Costs and expenses:
Cost of products sold .................. 229,000 230,700 116,800 117,800
Research and development ............... 24,300 19,600 11,900 9,500
Selling, general and administrative .... 226,700 199,700 116,400 105,700
Interest ............................... 7,200 10,700 3,200 5,800
-------- -------- -------- --------
487,200 460,700 248,300 238,800
-------- -------- -------- --------
Income before income taxes ................ 62,400 43,500 35,300 24,800
Income taxes .............................. 14,300 10,000 8,100 5,700
-------- -------- -------- --------
Net income ................................ 48,100 33,500 27,200 19,100
Preferred stock dividends ................. 9,800 9,800 4,900 4,900
-------- -------- -------- --------
Net income applicable to common shares .... $ 38,300 $ 23,700 $ 22,300 $ 14,200
======== ======== ======== ========
Average number of common shares outstanding 58,100 56,900 59,000 56,900
======== ======== ======== ========
Net income per common share
(primary and fully diluted) ............ $ .66 $ .42 $ .38 $ .25
======== ======== ======== ========
Dividends declared per common share ....... $ .04 $ .04 $ .02 $ .02
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE> 5
Form 10-Q
June 30, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
For the six months ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Additional Additional
Paid-in Paid-in
Preferred Capital - Common Capital -
In thousands, except share data Stock Preferred Stock Common
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 ...................... $ 900 $ 190,600 $ 6,500 $ 380,700
Common stock issued to employees -
net (135,583 shares) ........................ 2,200
Aggregate adjustment resulting from the
translation of foreign financial statements .
Preferred stock dividends .....................
Common stock dividends declared
($.04 per share) ............................
Net income ....................................
--------- --------- --------- ---------
BALANCE AT JUNE 30, 1995 ...................... $ 900 $ 190,600 $ 6,500 $ 382,900
========= ========= ========= =========
BALANCE AT JANUARY 1, 1996 ...................... $ 900 $ 190,600 $ 6,500 $ 394,200
Issuance of common stock - net
(4,300,000 shares) .......................... 400 141,400
Common stock issued to employees -
net (862,703 shares) ......................... 100 18,500
Income tax benefit from stock options exercised 8,800
Aggregate adjustment resulting from the
translation of foreign financial statements .
Preferred stock dividends .....................
Common stock dividends declared
($.04 per share) ............................
Net income ....................................
--------- --------- --------- ---------
BALANCE AT JUNE 30, 1996 ...................... $ 900 $ 190,600 $ 7,000 $ 562,900
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Retained Translation Treasury
In thousands, except share data Earnings Adjustments Stock Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 ...................... $ 178,100 $ (8,100) $ (86,700) $ 662,000
Common stock issued to employees -
net (135,583 shares) ........................ 2,200
Aggregate adjustment resulting from the
translation of foreign financial statements . 12,800 12,800
Preferred stock dividends ..................... (9,800) (9,800)
Common stock dividends declared
($.04 per share) ............................ (2,200) (2,200)
Net income .................................... 33,500 33,500
--------- --------- --------- ---------
BALANCE AT JUNE 30, 1995 ...................... $ 199,600 $ 4,700 $ (86,700) $ 698,500
========= ========= ========= =========
BALANCE AT JANUARY 1, 1996 ...................... $ 233,200 $ 2,300 $ (86,600) $ 741,100
Issuance of common stock - net
(4,300,000 shares) .......................... 141,800
Common stock issued to employees -
net (862,703 shares) ......................... 200 18,800
Income tax benefit from stock options exercised 8,800
Aggregate adjustment resulting from the
translation of foreign financial statements . (4,000) (4,000)
Preferred stock dividends ..................... (9,800) (9,800)
Common stock dividends declared
($.04 per share) ............................ (2,300) (2,300)
Net income .................................... 48,100 48,100
--------- --------- --------- ---------
BALANCE AT JUNE 30, 1996 ...................... $ 269,200 $ (1,700) $ (86,400) $ 942,500
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
-5-
<PAGE> 6
Form 10-Q
June 30, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
In thousands 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers .......................................... $ 512,500 $ 488,700
Cash paid to vendors, suppliers and employees ......................... (445,800) (389,200)
Interest paid ......................................................... (8,200) (8,900)
Income taxes paid ..................................................... (10,300) (4,200)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................... 48,200 86,400
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ............................ (22,500) (17,100)
Acquisitions .......................................................... (1,700) (11,700)
Other assets .......................................................... (5,700) 3,600
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES ............................... (29,900) (25,200)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings ............................................. 1,083,600 1,007,100
Long-term debt repayments ............................................. (1,184,400) (1,063,700)
Issuance of common stock (net) ........................................ 141,800
Common stock issued from stock plans .................................. 18,800 2,200
Dividends paid ........................................................ (12,100) (12,000)
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES .............................................. 47,700 (66,400)
----------- -----------
Effect of exchange rate changes .......................................... 600 3,900
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................................... 66,600 (1,300)
Cash and cash equivalents, beginning of period ........................ 10,500 11,300
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................. $ 77,100 $ 10,000
=========== ===========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET INCOME ............................................................... $ 48,100 $ 33,500
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ........................................................ 32,900 35,500
Amortization ........................................................ 10,600 10,300
Adjustment of property, plant and equipment reserves ................ 10,900 6,000
Receivables -- (increase) ........................................... (33,900) (17,300)
Inventories -- (increase) ........................................... (24,300) (4,600)
Adjustment of inventory reserves .................................... 7,500 13,600
Other current assets (increase) ..................................... (7,100) (7,000)
Accounts payable/accrued liabilities --
(decrease)/increase ............................................... (600) 6,500
Income taxes payable and deferred --
(decrease)/increase ............................................... (4,700) 9,900
Income tax benefit from stock options exercised ..................... 8,800 0
----------- -----------
Total adjustments ................................................. 100 52,900
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................ $ 48,200 $ 86,400
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-6-
<PAGE> 7
Form 10-Q
June 30, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements for the
six-month and three-month periods ended June 30, 1996 and 1995 have been
prepared in accordance with the instructions to Form 10-Q. All
adjustments which, in the opinion of management, are necessary for a fair
presentation of the consolidated financial statements for the six-month
and three-month periods ended June 30, 1996 and 1995 have been reflected.
All such adjustments are of a normal recurring nature. It is suggested
that the June 30, 1996 consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
2. INCOME TAXES
The 1995 and 1996 effective tax rates of 23% reflect the recognition of
certain previously fully reserved net operating loss carryforwards and/or
tax credit carryforwards and the availability of tax credits under
Section 936 of the Internal Revenue Code related to operations in Puerto
Rico.
3. COMMON STOCK OFFERING
In the second quarter of 1996 the Company sold an additional 4.3 million
shares of its Common Stock in a public offering for approximately $141.8
million net of issuance costs. A portion of the proceeds were used to
repay certain domestic bank debt and the balance of the proceeds which is
reflected in the $77.1 million of cash and cash equivalents at June 30,
1996 will be used for general corporate purposes, including acquisitions.
-7-
<PAGE> 8
Form 10-Q
June 30, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
REVIEW BY INDEPENDENT ACCOUNTANTS
The June 30, 1996 and 1995 consolidated financial statements included in this
Quarterly Report on Form 10-Q have been reviewed by Deloitte & Touche LLP, in
accordance with established professional standards and procedures for such a
review. In addition, the December 31, 1995 consolidated balance sheet was
audited by Deloitte & Touche LLP, in accordance with generally accepted auditing
standards.
-8-
<PAGE> 9
Form 10-Q
June 30, 1996
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
UNITED STATES SURGICAL CORPORATION
We have reviewed the accompanying consolidated balance sheet of United States
Surgical Corporation and subsidiaries as of June 30, 1996, and the related
consolidated statements of operations for the six month and three month periods
ended June 30, 1996 and 1995 and the consolidated statements of changes in
stockholders' equity and cash flows for the six-month periods ended June 30,
1996 and 1995. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion. Based on our review, we
are not aware of any material modifications that should be made to such
consolidated financial statements for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of United States Surgical Corporation
and subsidiaries as of December 31, 1995, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended (not presented herein); and in our report dated January 22,
1996 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1995 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
STAMFORD, CONNECTICUT
JULY 19, 1996
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
United States Surgical Corporation
150 Glover Avenue
Norwalk, CT 06856
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim consolidated
financial information of United States Surgical Corporation and subsidiaries for
the periods ended June 30, 1996 and 1995, as indicated in our report dated July
19, 1996; because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 is
incorporated by reference in Registration Statement No. 33-59729 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
STAMFORD, CONNECTICUT
JULY 19, 1996
-9-
<PAGE> 10
Form 10-Q
June 30, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In the second quarter of 1996 the Company attained sales of $284 million
compared with sales of $264 million in the second quarter of 1995. In the first
half of 1996, the Company achieved sales of $550 million compared with sales of
$504 million in the first half of 1995. Sales increased 8% in the second quarter
and increased 9% in the first half of 1996 in comparison to the corresponding
periods in 1995.
In the second quarter of 1996, the Company reported net income of $27 million
and $.38 per common share (after preferred dividends of $5 million) compared
with net income of $19 million and $.25 per common share (after preferred
dividends of $5 million) in the second quarter of 1995. The effect of changes in
foreign currency exchange rates on results of operations was to decrease net
income by $4 million in the second quarter of 1996 in comparison to the
corresponding period in 1995.
In the first half of 1996, the Company reported net income of $48 million and
$.66 per common share (after preferred dividends of $10 million) compared with
net income of $34 million and $.42 per common share (after preferred dividends
of $10 million) in the first half of 1995. The effect of changes in foreign
currency exchange rates on results of operations was to decrease net income by
$1 million in the first half of 1996 in comparison to the corresponding period
in 1995.
The following table analyzes the increase in sales in the second quarter and
first half of 1996 compared with the corresponding periods in 1995:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
In thousands June 30, 1996 June 30, 1996
------------ ------------------ ----------------
<S> <C> <C>
Composition of Sales Increase:
Sales volume increases $ 26,300 $ 42,500
Net price changes 1,800 7,000*
Effects of changes in foreign
currency exchange rates (8,100) (4,100)
-------- --------
Sales Increase $ 20,000 $ 45,400
======== ========
</TABLE>
* Approximately $13 million of the sales increase, accounted for in net
price changes above, in the six months ended June 30, 1996 is the
result of the Company's acquisition of its former Japanese
distributor and the change from distributor pricing to subsidiary
pricing as of April 1, 1995.
Changes in the health care industry continue to significantly affect the
Company's marketplace. Industry consolidations, intense competition, and pricing
pressures due to ongoing reform of the health care system continue in 1996.
-10-
<PAGE> 11
Form 10-Q
June 30, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Cost of products sold expressed as a percentage of sales decreased to 41% in the
second quarter and 42% in the first half of 1996 compared to 45% and 46%,
respectively, in the corresponding periods in 1995. The reduction in cost of
products sold and improved gross margins over the comparable periods in 1995 is
primarily attributable to lower costs of producing the Company's products which
have resulted from ongoing cost reduction initiatives and the inclusion of
higher margin sales resulting from the acquisition of the Company's former
Japanese distributor subsequent to the first quarter of 1995. Gross margin from
operations (sales less cost of products sold divided by sales) was 59% in the
second quarter and 58% in the first half of 1996 in comparison to 55% and 54%,
respectively, for the corresponding periods in 1995. Changes in foreign currency
exchange rates from those existing in 1995 decreased cost of products sold by $1
million in the second quarter and first half of 1996.
The Company's expenditures for research and development increased to $12 million
in the second quarter and $24 million in the first half of 1996 from $10 million
and $20 million, respectively, in the corresponding periods in 1995. The Company
is continuing its commitment to develop and acquire unique new products for use
in new surgical procedures and specialty areas.
Selling, general and administrative expenses expressed as a percentage of sales
increased to 41% in the second quarter and first half of 1996, compared with 40%
in the comparable periods in 1995. The increase in selling, general and
administrative expenses in 1996 over the comparable periods in 1995 results from
operations and acquisition related expenditures and is primarily attributable to
the acquisitions of the Company's former Japanese distributor ($10 million) and
Surgical Dynamics, Inc. ($6 million). Changes in foreign currency exchange rates
from those existing in 1995 had the effect of decreasing selling, general, and
administrative expenses by $3 million and $1 million in the second quarter and
first half of 1996, respectively.
The 1995 and 1996 effective tax rates of 23% reflect the recognition of certain
previously fully reserved net operating loss carryforwards and/or tax credit
carryforwards and the availability of tax credits under Section 936 of the
Internal Revenue Code related to operations in Puerto Rico.
-11-
<PAGE> 12
Form 10-Q
June 30, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION
The Company's current substantial cash and cash equivalent balances, existing
borrowing capacity and projected operating cash flows are currently well in
excess of its foreseeable operating cash flow requirements. In the second
quarter of 1996 the Company sold 4.3 million shares of its common stock in a
public offering for approximately $141.8 million of proceeds net of issuance
costs. A portion of the proceeds were used to repay certain domestic bank debt
and the balance of the proceeds which is reflected in the $77.1 million of cash
and cash equivalents at June 30, 1996 will be used for general corporate
purposes, including acquisitions. The Company has the ability to enter into an
additional committed credit facility of $75 million. This credit facility, if
accepted, will be similar, except for its one year term, to the Company's
present syndicated credit facility. During December 1995, the Company entered
into a new five-year, $325 million syndicated credit facility agreement which
replaced its previous $350 million revolving credit facility which was scheduled
to mature in January 1997. Additionally, during 1995, the Company entered into
uncommitted facilities for 3 billion Japanese Yen (approximately $30 million)
with two Japanese banks and $50 million with three other domestic banks. The
borrowings under the uncommitted credit agreements are short term in nature but
are categorized as long-term debt since they will be refinanced under the
Company's five-year bank credit agreement.
Outstanding bank borrowings decreased $99 million during the first half of 1996
to $24 million at June 30, 1996. The decrease in bank borrowings during the
first half of 1996 was primarily due to the repayments of domestic borrowings
from a portion of the proceeds of the Company's sale of common stock during the
second quarter of 1996. The new credit agreement and the Company's operating
lease for its primary domestic manufacturing, distribution and warehousing
complex in North Haven, Connecticut provide for certain restrictions including
sales of assets, capital expenditures, dividends and subsidiary debt. The most
restrictive covenants of the Company's financing agreements require the
maintenance of certain minimum levels of tangible net worth, fixed charges
coverage and a maximum ratio of total debt to total capitalization, as defined.
The Company is generally limited to declaring dividends on its common stock up
to 20% of net income, subject to changes in the number of common shares
outstanding, until it meets certain financial objectives, as defined. The
Company is in full compliance with all of the covenants associated with its
various financing agreements.
The increase in accounts receivable ($31 million) since December 31, 1995 is
primarily attributable to the acquisition of certain assets from the Company's
former Japanese distributor on September 29, 1995. The December 31, 1995
consolidated balance sheet reflected Japanese receivables resulting from two
months of operations (international subsidiaries have a November 30 year-end)
whereas the June 30, 1996 consolidated balance sheet reflects receivables
resulting from operations subsequent to September 1995 which arise from the
Japanese subsidiary granting credit terms of up to 120 days.
Additions to property, plant, and equipment totaled $23 million in the first
half of 1996 compared with $17 million in the corresponding period in 1995, and
consist primarily of additions to machinery and equipment ($13 million) and
molds and dies ($7 million).
-12-
<PAGE> 13
Form 10-Q
June 30, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The increase in accrued liabilities of $13 million results primarily from the
accrual of the cash obligation due July 1996 under the Company's North Haven
operating lease, with a corresponding increase in other assets. There were no
material changes in accrued restructuring charges in the first half of 1996.
The Company routinely enters into foreign currency exchange contracts to reduce
its exposure to foreign currency exchange rate changes on the results of
operations of its international subsidiaries. As of June 30, 1996 the Company
had approximately $34 million of such contracts outstanding that will mature at
various dates through August 1996 . Realized and unrealized foreign currency
gains and losses are recognized when incurred. As a result of the Company's
hedging program the changes in foreign currency exchange rates had an immaterial
effect on its results of operations during the first half of 1996.
-13-
<PAGE> 14
Form 10-Q
June 30, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A. In the pending action by the Company against Johnson & Johnson, and
its subsidiary, Ethicon, Inc. ("Ethicon") alleging infringement of patents
covering the Company's endoscopic multiple clip applier (see Item 3 of Part I of
the Company's Annual Report on Form 10-K for the year ended December 31, 1995),
the United States Supreme Court, on April 29, 1996, vacated the decision of the
United States Court of Appeals for the Federal Circuit denying the Company's
appeal from a jury verdict which held that the asserted patent claims were
invalid and not infringed. The Supreme Court remanded the case to the Court of
Appeals for reconsideration in light of its recent decision in Markman v.
Westview Instruments, Inc., the most significant decision by the Supreme Court
in patent jurisprudence in recent years, holding that patent claims should be
interpreted by a judge rather than by a jury. The Company participated
significantly on behalf of the prevailing party in the Markman appeal, in which
the Supreme Court drew heavily in its opinion from the brief submitted by the
Company as Amicus Curiae. The District Court Judge had submitted the Company's
case to a jury without first interpreting its patent claims, contrary to the
approach required by Markman. The Company has filed a motion with the Court of
Appeals for remand of the case to the District Court for further proceedings and
for a new trial in accordance with the procedure specified by the Markman
decision.
B. In the action by Ethicon Endo-Surgery against the Company in the
United States District Court for the Southern District of Ohio, alleging
infringement by the Company's instruments of a single patent for a safety
lockout mechanism on a linear cutter/stapler (see Part I, Item 3 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1995 and
Part II, Item 1 of the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996), oral argument was heard on May 9, 1996, before the Court
of Appeals for the Federal Circuit, on Ethicon's appeal from the lower Court's
decision dismissing Ethicon's claims against the Company. No decision has been
rendered on the appeal.
C. The Company is engaged in other litigation, primarily as the
defendant, in cases involving product liability claims.
***
The Company believes it is adequately insured in all material respects
against the product liability claims referred to above. In the opinion of
management, based on the advice of counsel, the ultimate outcome of all of the
aforementioned lawsuits should not have a materially adverse effect on the
Company's consolidated financial statements.
-14-
<PAGE> 15
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders held on May 2, 1996 the
following members were elected to the Board of Directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Julie K. Blake 54,711,169 2,234,322
John A. Bogardus, Jr. 54,696,238 2,249,252
Thomas R. Bremer 54,677,485 2,268,006
Leon C. Hirsch 54,533,417 2,412,073
Turi Josefsen 54,626,957 2,318,534
Douglas L. King 54,633,227 2,312,264
William F. May 54,649,986 2,295,505
Barry Romeril 54,686,860 2,258,630
Howard M. Rosenkrantz 54,598,226 2,347,265
Marianne Scipione 54,667,658 2,277,833
John R. Silber 54,681,538 2,263,952
</TABLE>
There were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
c. Exhibits
(10) Material Contracts
10 (a) 1996 Employee Stock Option Plan. Filed Herewith.
10 (b) Executive Incentive Compensation Plan. Filed Herewith.
Exhibit 27 - Financial Data Schedule.
d. Reports on Form 8-K - A Form 8-K relative to a warning letter
from the Food and Drug Administration Center for Devices and
Radiological Health and a Company Press Release was filed on
June 4, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATES SURGICAL CORPORATION
Registrant
By:
----------------------------------
Howard M. Rosenkrantz
Senior Vice President, Finance and
Chief Financial Officer
Dated: July 23, 1996
-15-
<PAGE> 16
EXHIBIT INDEX
EXHIBIT No. DESCRIPTION
10(A) 1996 EMPLOYEE STOCK OPTION PLAN
10(B) EXECUTIVE INCENTIVE COMPENSATION PLAN
27 FINANCIAL DATA SCHEDULE
<PAGE> 1
UNITED STATES SURGICAL CORPORATION
1996 EMPLOYEE STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of the 1996 Employee Stock Option Plan (the "Plan") is to secure for
United States Surgical Corporation (the "Company") and its stockholders the
benefits of the incentive inherent in Common Stock ownership by permitting
selected employees of the Company and its subsidiaries to obtain suitable
recognition for services which have contributed or will contribute materially to
the success of the Company. It is intended that the Plan will aid in retaining,
encouraging and attracting employees of exceptional ability because of the
opportunity offered to them to acquire a proprietary interest, or increase their
proprietary interest, in the business of the Company.
2. Definitions.
(a) "Applicable Federal Rate" is the rate of interest provided pursuant
to Section 1274(d) of the Internal Revenue Code.
(b) "Appreciation Rights" means a right granted under the Plan to
receive an amount representing appreciation in the Fair Market Value of a share
of Common Stock between the date of grant and the date of exercise of such
right, payable in cash or Common Stock.
(c) "Board" means the Board of Directors of the Company.
(d) "Committee" means the Compensation/Option Committee of the Board or
any successor committee appointed by the Board to administer the Plan.
(e) "Common Stock" means the authorized common stock of the Company.
(f) "Company" means United States Surgical Corporation.
(g) "Eligible Employee" means any person who is, at the time of the
grant of an Incentive Award, an officer of the Company, including a person who
is also a member of the Board.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute.
(i) "Fair Market Value" means, at any date, the value of a share of
Common Stock on such date as determined by the Committee by any fair and
reasonable means, provided, however, that in the absence of a specific Committee
determination to the contrary in a particular circumstance, "Fair Market Value"
means the average of the high and low quoted sales prices of a share of Common
Stock on the New York Stock Exchange on such date or, if no such sales were made
on such date, the closing price of such shares on the New York Stock Exchange on
the next preceding date on which there were such sales.
(j) "Incentive Award" means an Option or Appreciation Right.
(k) "Incentive Stock Option" means an option to purchase Common Stock
which has been granted under the Plan and which is intended to qualify under
Section 422 of the Internal Revenue Code and regulations thereunder.
(l) "Nonqualified Stock Option" means an option to purchase Common
Stock which has been granted under the Plan and which is not an Incentive Stock
Option.
<PAGE> 2
(m) "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
(n) "Participant" means any Eligible Employee selected to receive and
accepting an Incentive Award pursuant to Section 5.
(o) "Plan" means the 1996 Employee Stock Option Plan as set forth
herein and as amended from time to time.
(p) "Subsidiary" means any subsidiary corporation, as defined in
Section 424 of the Internal Revenue Code, of the Company.
3. Shares of Common Stock Subject to the Plan.
(a) Subject to the provisions of Section 3(c) and Section 8 of the
Plan, the aggregate number of shares of Common Stock that may be issued or
transferred pursuant to Incentive Awards under the Plan shall not exceed
2,500,000. Payment of cash in lieu of shares shall be deemed to be an issuance
of the shares, and payment pursuant to an Appreciation Right shall be deemed to
be an issuance of the shares covered thereby.
(b) The shares of Common Stock to be delivered under the Plan will be
made available, at the discretion of the Company, either from authorized but
unissued shares of Common Stock or from previously issued shares of Common Stock
reacquired by the Company, including shares purchased on the open market.
(c) If shares covered by any Incentive Award cease to be issuable or
transferable for any reason, such number of shares will no longer be charged
against the limitations provided for in Section 3(a) and may again be made
subject to Incentive Awards. However, shares subject to an Option which has been
surrendered in connection with the exercise of a related Appreciation Right will
not become available for the grant of any additional Incentive Awards, and
shares subject to that portion of an Incentive Award which has been cancelled
pursuant to Section 9(h) will not become available for the grant of any
additional Incentive Awards.
4. Administration of the Plan.
(a) The Plan will be administered by the Committee, which will consist
of three or more persons (i) who are not eligible to receive Incentive Awards
under the Plan and (ii) who qualify as "disinterested persons" under Rule 16b-3,
or any successor or rule, under the Exchange Act, and (iii) who qualify as
"outside directors" under Section 162(m) of the Internal Revenue Code, as
amended, and regulations issued thereunder ("Section 162(m)"). The maximum
number of shares which may be issuable to any one Participant pursuant to an
Incentive Award shall be 1,500,000.
(b) The Committee has and may exercise such powers and authority of the
Board as may be necessary or appropriate for the Committee to carry out its
functions as described in the Plan. The Committee has authority in its
discretion to determine the Eligible Employees to whom, and the time or times at
which, Incentive Awards may be granted and the number of shares subject to each
Incentive Award. The Committee also has authority to (i) interpret the Plan,
(ii) determine the terms and provisions of the Incentive Award instruments and
(iii) make all other determinations necessary or advisable for Plan
administration. The Committee has authority to prescribe, amend, and rescind
rules and regulations relating to the Plan. All interpretations, determinations,
and actions by the Committee will be final, conclusive, and binding upon all
parties.
2
<PAGE> 3
(c) No member of the Board or the Committee will be liable for any
action taken or determination made in good faith by the Board or the Committee
with respect to the Plan or any Incentive Award made under the Plan.
5. Grants.
(a) The Committee has authority, in its discretion, after receiving the
recommendations of the management of the Company, to determine and designate
from time to time those Eligible Employees who are to be granted Incentive
Awards. The Committee shall determine the type of each Incentive Award to be
granted and the number of shares covered thereby or issuable upon exercise
thereof. Each Incentive Award will be evidenced by a written instrument briefly
describing the material terms and conditions of the Incentive Award, including
such terms and conditions, consistent with the Plan, as the Committee may deem
advisable.
(b) No person will be eligible for the grant of an Incentive Stock
Option who owns, directly or indirectly, stock possessing more than ten percent
of the total combined voting power of all classes of stock of the Company or of
any parent corporation or Subsidiary, within the meaning of Section 422 of the
Internal Revenue Code. This limitation will not apply if, at the time such
Incentive Stock Option is granted, the Incentive Stock Option exercise price is
at least 110% of the Fair Market Value of the Common Stock. In this event, the
Incentive Stock Option by its terms will not be exercisable after the expiration
of five years from the date of grant.
6. Terms and Conditions of Options.
(a) Unless otherwise determined by the Committee, the price at which
Common Stock may be purchased by a Participant under an Option shall be the Fair
Market Value of the Common Stock on the date of grant; provided, however, that
in no event shall the purchase price be less than the Fair Market Value of the
Common Stock on the date of grant.
(b) The Committee shall determine the option exercise period of each
Option. The period shall not exceed 15 years from the date of grant.
(c) Upon the exercise of an Option, the purchase price will be payable
in full in cash; or, in the discretion of the Committee, by installment payments
or by a promissory note, in each case secured by shares of Common Stock and
bearing interest at a rate determined by the Committee, but not less than the
Applicable Federal Rate; or by a combination of any of the above. The Committee
may permit installment payments or promissory note payments to be made by the
assignment and delivery to the Company of shares of Common Stock owned by the
Participant, in which case such shares will be valued at the Fair Market Value
of the Common Stock on the date of payment.
(d) With respect to Incentive Stock Options granted under the Plan, the
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of the number of shares with respect to which Incentive Stock
Options are exercisable for the first time by a Participant in any calendar year
(under all stock option plans of the Company and Subsidiaries) shall not exceed
$100,000 or such other limit as may be required by the Internal Revenue Code.
(e) No fractional shares will be issued pursuant to the exercise of an
Option nor will any cash payment be made in lieu of fractional shares.
3
<PAGE> 4
7. Terms and Conditions of Appreciation Rights.
(a) An Appreciation Right may be granted in connection with an Option,
either at the time of grant or at any time thereafter during the term of the
Option.
(b) An Appreciation Right will entitle the Participant, upon exercise,
to surrender such Option or any portion thereof to the extent unexercised, with
respect to the number of shares as to which such Appreciation Right is
exercised, and to receive payment of an amount computed pursuant to Section
7(d). Such Option will, to the extent surrendered, cease to be exercisable.
(c) Subject to Section 7(i), an Appreciation Right granted in
connection with an Option hereunder will be exercisable at such time or times,
and only to the extent, that the related Option is exercisable, and will not be
transferable except to the extent that the related Option may be transferable.
(d) Upon the exercise of an Appreciation Right related to an Option,
the Participant will be entitled to receive payment of an amount determined by
multiplying:
(i) The difference obtained by subtracting the purchase price
of a share of Common Stock specified in the related Option from the Fair Market
Value of a share of Common Stock on the date of exercise of such Appreciation
Right, by
(ii) The number of shares as to which such Appreciation Right
has been exercised.
(e) The Committee may also grant to Eligible Employees Appreciation
Rights that are not related to Options. An Appreciation Right granted without
relationship to an Option will be exercisable as determined by the Committee but
in no event after 15 years from the date of grant.
(f) An Appreciation Right granted without relationship to an Option
will entitle the Participant, upon exercise of the Appreciation Right, to
receive payment of an amount determined by multiplying:
(i) The difference obtained by subtracting the Fair Market
Value of a share of Common Stock on the date the Appreciation Right is granted
(the "Base Price") from the Fair Market Value of a share of Common Stock on the
date of exercise of such Appreciation Right, by
(ii) The number of shares as to which such Appreciation Right
has been exercised.
(g) At the time of grant of an Appreciation Right, the Committee may
determine a maximum amount that could be payable with respect to such
Appreciation Right.
(h) Payment of the amount determined under Section 7(d) or (f) may be
made in whole shares of Common Stock valued at their Fair Market value on the
date of exercise of the Appreciation Right, in cash, or in combination of the
two, as the Committee determines in its sole discretion. If the Committee
decides that payment may be made in shares of Common Stock and the amount
payable results in a fractional share, payment for the fractional share will be
made in cash.
4
<PAGE> 5
(i) No Appreciation Right granted to an officer of the Company may be
exercised before six months after the date of grant except in the event that
death or disability of the officer occurs before the expiration of the six-month
period.
8. Adjustment Provisions.
(a) Subject to Section 8(b), if the outstanding shares of Common Stock
of the Company are increased, decreased, or exchanged for a different number or
kind of shares or other securities, or if additional shares or new or different
shares or other securities are distributed with respect to such shares of Common
Stock, through merger, consolidation, sale of all or substantially all the
property of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock Split or other distribution with
respect to such shares of Common Stock, an appropriate and proportionate
adjustment may be made in (i) the maximum number and kind of shares provided in
Section 3, (ii) the number and kind of shares or other securities subject to the
then-outstanding Incentive Awards, and (iii) the purchase price or Base Price
for each share or other unit of any other securities subject to then-outstanding
Incentive Awards without change in the aggregate purchase price and Base Price
as to which such Incentive Awards remain exercisable.
(b) Subject to Section 8(c), upon dissolution or liquidation of the
Company or upon a reorganization, merger, or consolidation of the Company with
one or more corporations as a result of which the Company is not the surviving
corporation, or upon the sale of all or substantially all the property of the
Company, all Incentive Awards then outstanding under the Plan and held by
Participants who have been employed or engaged as a consultant by the Company
for at least one year at such time will be fully vested and exercisable, and the
Committee may provide in connection with such transaction for the continuance of
the Plan and the assumption of such Incentive Awards or the substitution for
such Incentive Awards of new incentive awards covering the stock of a successor
employer corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices.
(c) In the event a Change of Control of the Company occurs, all
Incentive Awards then outstanding under the Plan and held by Participants who
have been employed or engaged as a consultant by the Company for at least one
year at such time under the Plan will be fully vested and exercisable, effective
upon the occurrence of such Change of Control. In the event that any Person
makes a filing under Section 14(d) of the Exchange Act with respect to the
Company, the exercise dates of any outstanding Incentive Awards held by
Participants who have been employed or engaged as a consultant by the Company
for at least one year at such time shall be without further action by the
Committee accelerated to make them fully vested and exercisable. In addition, in
the event a Change of Control of the Company occurs, or in the event that any
Person makes a filing under Section 14(d) of the Exchange Act with respect to
the Company, the Committee may, in its sole discretion, without obtaining
stockholder approval, and subject to the limitations imposed by Section 16 of
the Securities Exchange Act of 1934, as amended, take any one or more of the
following actions or any other action permitted under this Plan, subject in all
cases to the limitations of Section 3(a):
(i) Grant Appreciation Rights to holders of outstanding
Options as permitted under Section 7(a);
(ii) Pay cash to Participants in exchange for the cancellation
of their outstanding Incentive Awards in accordance with Section 9(h); and
(iii) Make any other appropriate adjustments or amendments to
the Plan and outstanding Incentive Awards or substitute new Incentive Awards for
outstanding Incentive Awards.
5
<PAGE> 6
For purposes of this Section 8(c), the following definitions shall
apply:
(A) A "Change in Control" of the Company shall have occurred
when a Person, alone or together with its Affiliates and Associates, becomes the
beneficial owner of 20% or more of the general voting power of the Company.
(B) "Affiliate and Associates" shall have the respective
meanings ascribed to such terms in Rule 12b-2, or any successor rule, of the
General Rules and Regulations under the Exchange Act.
(C) "Person" shall mean an individual, firm, corporation or
other entity or any successor to such entity, but "Person" shall not include the
Company; any Subsidiary; any employee benefit plan or employee stock plan of the
Company or any Subsidiary, or any Person organized, appointed, established or
holding Voting Stock by, for or pursuant to the terms of such a plan.
(D) "Voting Stock" shall mean shares of the Company's capital
stock having general voting power, with "voting power" meaning the power under
ordinary circumstances (and not merely upon the happening of a contingency) to
vote in the election of directors.
(d) Adjustments under Sections 8(a), (b) and (c) will be made by the
Committee, whose determination as to what adjustments will be made and the
extent thereof will be final, binding, and conclusive. No fractional shares will
be issued under the Plan on account of any such adjustments.
9. General Provisions.
(a) Nothing in the Plan or in any instrument executed pursuant to the
Plan will confer upon any Participant any right to continue in the employ of the
Company or any of its Subsidiaries or affect the right of the Company or any
Subsidiary to terminate the employment of any Participant at any time with or
without cause.
(b) No shares of Common Stock will be issued or transferred pursuant to
an Incentive Award unless and until all then-applicable requirements imposed by
Federal and state securities and other laws, rules and regulations and by any
regulatory agencies having jurisdiction, and by any stock exchanges upon which
the Common Stock may be listed, have been fully met. As a condition precedent to
the issuance of shares pursuant to the grant or exercise of an Incentive Award,
the Company may require the Participant to take any reasonable action to meet
such requirements.
(c) No Participant and no beneficiary or other person claiming under or
through such Participant will have any right, title or interest in or to any
shares of Common Stock allocated or reserved under the Plan or subject to any
Incentive Award except as to such shares of Common Stock, if any, that have been
issued or transferred to such Participant.
(d) The Committee shall adopt rules regarding the withholding of
federal, state or local taxes of any kind required by law to be withheld with
respect to payments and delivery of shares to Participants under the Plan. With
respect to any Incentive Award, the Committee may, in its discretion, permit the
Participant to satisfy, in whole or in part, any tax withholding obligation
which may arise in connection with the exercise of the Incentive Award by
electing to have the
6
<PAGE> 7
Company withhold shares of Common Stock having a Fair Market Value equal to the
amount of the tax withholding.
(e) No Incentive Award and no right under the Plan, contingent or
otherwise, will be transferable or assignable or subject to any encumbrance,
pledge or charge of any nature except that, under such rules and regulations as
the Committee may establish pursuant to the terms of the Plan, a beneficiary may
be designated with respect to an Incentive Award in the event of death of a
participant. If such beneficiary is the executor or administrator of the estate
of the Participant, any rights with respect to such Incentive Award may be
transferred to the person or persons or entity (including a trust) entitled
thereto under the will of the holder of such Incentive Award.
(f) The Company may make a loan to a Participant in connection with the
exercise of an Option in an amount not to exceed the aggregate exercise price of
the Option being exercised for the purpose of assisting such Participant to
exercise such Option. The Company may additionally permit payment of all or any
portion of the exercise price of an Option in installment payments. Any such
loan or installment payment arrangement shall be secured by shares of Common
Stock and shall comply in all respects with all applicable laws and regulations.
The Committee may adopt policies regarding eligibility for such arrangements,
the maximum amounts thereof and any terms and conditions not specified in the
Plan upon which such arrangements will be made. In no event will the interest
rate be less than the Applicable Federal Rate.
(g) The Committee may cancel, with the consent of the Participant, all
or a portion of any Option or Appreciation Right granted under the Plan to be
conditioned upon the granting to the Participant of a new Option or Appreciation
Right for the same or a different number of shares as the Option or Appreciation
Right surrendered, or may require such voluntary surrender as a condition to a
grant of a new Option or Appreciation Right to such Participant. Subject to
other provisions of the Plan, such new Option or Appreciation Right shall be
exercisable at the price, during the period and in accordance with any other
terms or conditions specified by the Committee at the time the new Option or
Appreciation Right is granted, all determined in accordance with the provisions
of the Plan without regard to the price, period of exercise, or any other terms
or conditions of the Option or Appreciation Right surrendered; provided,
however, that the exercise price with respect to such new Option or Stock
Appreciation Right shall be not less than the exercise price under the Option or
Appreciation cancelled or surrendered in connection with such new grant.
(h) If authorized by the Committee, the Company may, with the consent
of the Participant and at any time or from time to time, cancel all or a portion
of any Incentive Award granted under the Plan then subject to exercise and
discharge its obligation with respect to the cancelled portion of such Incentive
Award either by payment to the Participant of an amount of cash equal to the
excess, if any, of the Fair Market Value, at such time, of the shares subject to
the portion of the Incentive Award so cancelled over the aggregate purchase
price or Base Price specified in the Incentive Award covering such shares, or by
issuance or transfer to the Participant of shares of Common Stock with a Fair
Market Value, at such time, equal to any such excess, or by a combination of
cash and shares. Upon any such payment of cash or issuance of shares, there
shall be charged against the aggregate limitations set forth in Section 3(a) a
number of shares equal to the number of shares subject to the portion of the
Incentive Award so cancelled.
(i) The Committee may, in its sole discretion, cancel any Incentive
Award if the employment of the Participant holding such Incentive Award is
terminated and such Participant has engaged in activities which are, in the
judgment of the Committee, competitive with, prejudicial to or in conflict with
the interests of the Company or a Subsidiary or has breached the terms of any
7
<PAGE> 8
agreement with the Company or a Subsidiary with respect to confidentiality and
non-use of information or with respect to disclosure and assignment of
inventions and ideas. Such actions by a Participant, whose employment has been
terminated, prior to, or during six months after, exercise of an Incentive Award
shall constitute a rescission of the exercise, requiring the payment to the
Company of, in the case of an Option, the difference between the purchase price
of the Common Stock as to which the Option was exercised and the Fair Market
Value on the date of exercise of such Common Stock or, in the case of an
Appreciation Right, the amount paid to the Participant upon exercise of the
Appreciation Right, in each case within ten days after notice of such rescission
has been given to the terminated employee by the Company.
10. Amendment and Termination.
(a) The Board shall have the power, in its discretion, to amend,
suspend or terminate the Plan at any time, subject to approval of the
stockholders of the Company to the extent necessary for the continued
applicability of Rule 16b-3, or any successor rule under the Exchange Act, or
for the continued qualification of compensation pursuant to Incentive Awards
under the Plan as "performance based" compensation under Section 162(m).
(b) The Committee may, with the consent of a Participant, make such
modifications in the terms and conditions of an Incentive Award as it deems
advisable; provided, however, that no such modification shall reduce the
exercise price under such Incentive Award.
(c) No amendment, suspension or termination of the Plan will, without
the consent of the Participant, impair or adversely affect any right or
obligation under any Incentive Award previously granted under the Plan.
11. Effective Date of Plan and Duration of Plan.
The Plan shall become effective upon its adoption by the Board, subject to the
approval of the Company's stockholders. Unless previously terminated, the Plan
will terminate when no more shares of Common Stock are available for issuance or
transfer pursuant to Incentive Awards under the limitations of Section 3(a).
8
<PAGE> 1
UNITED STATES SURGICAL CORPORATION
EXECUTIVE INCENTIVE COMPENSATION PLAN
1. PURPOSE
The purposes of the United States Surgical Corporation Executive
Incentive Compensation Plan (the "Plan") are to provide an additional incentive
for senior management employees to maximize the long term performance of the
Company, consistent with the Company's strategic objectives, and to attract,
motivate and retain achievement-oriented senior management employees by
providing a competitive compensation opportunity predicated on the long term
success of the Company.
2. DEFINITIONS
"Annual Performance Period" means a period corresponding to the fiscal
year of the Company.
"Annual Performance Opportunity" means an opportunity established at
the inception of an Annual Performance Period for a Participant to earn an
amount equal to the Award Value or Award Values established in accordance with
this Plan based on attainment of Performance Objectives applicable to such
Annual Performance Opportunity.
"Average (Weighted) Annual Base Salary" means the total base salary
paid during the Performance Period divided by the number of years in the
Performance Period. For purposes of determining a Participant's base salary at
the beginning of the Performance Period, the Committee may assume that certain
annual percentage increases in base salary will occur during the Performance
Period. If at the end of a Performance Period, it is determined that average
(weighted) annual base salary actually paid during the Performance Period was
more than assumed, then the Committee may make appropriate increases in the
Award Values with respect to an Annual Performance Opportunity or, with respect
to a Long Term Performance Period, in the number of Performance
<PAGE> 2
Units awarded or in the Award Values in respect of such Performance Period. Any
such increases shall be such that the percentages of the Participant's actual
average (weighted) annual base salary equal the percentages that were originally
represented by the Award Values but shall not exceed the maximum Award Value as
approved by the stockholders of the Company. If at the end of the Performance
Period it is determined that Average (Weighted) Annual Base Salary actually paid
during the Performance Period was less than the assumed amount, then the Award
Values with respect to an Annual Performance Opportunity or, with respect to a
Long Term Performance Period, the number of Performance Units awarded or the
Award Values in respect of such Performance Period shall be reduced by the
Committee. Any such reductions shall be such that the percentages of the
Participant's actual Average (Weighted) Annual Base Salary represented by the
reduced Award Values for the Performance Period do not exceed the percentages of
the Participant's assumed Average (Weighted) Annual Base Salary that were
originally represented by the Award Values.
"Award Value" means an amount, determined by the Committee at the
inception of a Performance Period, which a Participant will be entitled to be
paid following the end of such Performance Period for an Annual Performance
Opportunity or a Performance Unit granted to such Participant at the inception
of such Performance Period, if the Performance Objective(s) applicable to such
Performance Unit is attained at the end of such Performance Period and if the
other terms and conditions of the Plan applicable to such Performance Unit and
of the written document evidencing such Performance Unit are fulfilled. The
Award Value of each Annual Performance Opportunity or Performance Unit granted
for any given Performance Period shall be the same, but need not be the same as
the Award Value of any Annual Performance Opportunity or Performance Unit
granted for any prior or subsequent Performance Period. The Award Value for any
Participant shall not exceed a maximum amount, in dollars, approved by the
stockholders of the Company.
"Board" means the Board of Directors of the Company.
"Beneficiary" means such persons or entities (including a trust or
estate) as a Participant designates at any time and from time to time to receive
any amounts that may become payable under the Plan after such Participant's
death, provided that such designation is made on a form prescribed by and
delivered to the Secretary of the Company, and provided further, that the
Company consents to such designation after it is made. Any designation of a
Beneficiary by a Participant may be revoked by such Participant on a form
prescribed for that purpose by, and delivered to, the Secretary of the Company,
or by designating a different Beneficiary in accordance with the next preceding
sentence. If any amount becomes payable under the Plan in respect of a
Participant after such Participant's death, and if no Beneficiary of the
Participant has been so designated or if no Beneficiary who or which has been so
designated is alive or in existence at the time such amount becomes payable,
then such Participant's Beneficiary shall be the legal representative of the
Participant's estate.
"Change in Control" means (i) the stockholders of the Company approve
any plan for the liquidation or dissolution of the Company or for a
consolidation or merger of the Company in which the Company would not be the
continuing or surviving corporation or pursuant to which shares of the Company's
common stock would be converted into cash, securities or other property, other
than a merger of the Company in which the holders of the Company's common stock
immediately prior to the merger have the same proportionate ownership of common
stock
-2-
<PAGE> 3
of the surviving corporation immediately after the merger, (ii) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, (iii)
any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), becomes the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
30% or more of the Company's outstanding common stock, or (iv) during any period
of two consecutive years or less, individuals who at the beginning of such
period constitute the entire Board of Directors shall cease for any reason to
constitute a majority thereof unless the election, or the nomination for
election by the Company's stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
"Committee" means the Compensation/Option Committee of the Board.
"Company" means United States Surgical Corporation, a Delaware
corporation.
"Disability" means termination of employment under circumstances that
entitle a Participant (or that will entitle a Participant after any applicable
waiting period) to disability benefits under the long-term disability insurance
plan of the Company applicable to such Participant at the time of such
termination.
"Participant" means an employee who has been granted an opportunity for
an Annual Performance Opportunity and/or a Performance Unit under the Plan.
"Plan" means the United States Surgical Corporation Executive Incentive
Compensation Plan set forth herein, as it may be amended from time to time.
"Long-Term Performance Period" means a period of three consecutive
calendar years, unless the Committee determines at the inception of any new
period that a different period (i.e., shorter or longer than three years) shall
be used, in which case it shall mean such different period determined by the
Committee.
"Performance Objectives" means performance goals, which shall be
objectively determinable as contemplated by Section 162(m) of the Internal
Revenue Code, as amended, and the regulations issued thereunder ("Section
162(m)") , shall be selected from performance goals approved by the stockholders
of the Company, and shall be established in writing by the Committee not later
than 90 days after the commencement of the applicable Performance Period to
which such Performance Objectives relate. Such Performance Objectives must
state, in terms of an objective formula or standard, the method for computing
the amount of compensation payable to the Participant if the Performance
Objectives are achieved; provided, that the Committee may in its discretion
decrease or eliminate the award otherwise payable on achievement of such
Performance Objectives based on a failure of a Participant to satisfy other
criteria or goals established by the Committee.
-3-
<PAGE> 4
"Performance Unit" means an opportunity granted at the inception of a
Long Term Performance Period for a Participant to earn an amount, equal to or
greater than the Threshold Award Value of such Performance Unit but not in
excess of the Maximum Award Value of such Performance Unit, if the Threshold
Performance Objective applicable to such Performance Unit is attained or
exceeded by the end of such Performance Period and if the other terms and
conditions of the Plan applicable to such Performance Unit and of the document
evidencing such Performance Unit are fulfilled. Every Performance Unit granted
under the Plan shall be evidenced by a written document, executed by an officer
of the Company thereunto duly authorized and delivered to the Participant, which
shall be subject to, and incorporate by reference, the terms and conditions of
the Plan, and which shall contain such other terms and conditions, not
inconsistent with the Plan, as the Committee may prescribe. Such written
document need not be delivered to the Participant at the time such Performance
Unit is granted, provided that no Participant shall have any legally enforceable
rights in respect of such Performance Unit under the Plan or otherwise unless
and until such a written and duly executed document evidencing such Performance
Unit is delivered to him.
"Retirement" means the termination of a Participant's employment with
the Company and its subsidiaries if such termination occurs with the written
consent of the Company (given with specific reference to this Plan).
3. ADMINISTRATION
(a) This Plan shall be administered by the Committee, which shall
consist exclusively of members of the Board of Directors who shall each be an
"outside director" within the meaning of Section 162(m) and who shall not be
eligible to receive an incentive compensation award under the Plan.
(b) The Committee shall have full power and authority, subject to the
provisions of the Plan, to select employees to participate in this Plan from
among those eligible, to determine the Annual Performance Opportunities and/or
Performance Units to be granted each Participant, to establish the Performance
Objectives and Award Values of Annual Performance Opportunities and/or
Performance Units, to determine terms and conditions of the written documents
evidencing Annual Performance Opportunities and/or Performance Units, to
determine the extent to which the Performance Objectives established for Annual
Performance Opportunities and/or Performance Units granted for a Performance
Period have been attained, to interpret this Plan and all documents and
instruments issued hereunder, and to adopt, revise, and interpret such rules and
procedures as it may deem necessary or advisable. All decisions under this Plan
shall
-4-
<PAGE> 5
be final, conclusive, and binding on the Company, each Participant, each
Beneficiary, and any person claiming under or through any of them.
(c) As soon as practicable after the end of each calendar year in a
Performance Period, the Committee shall determine the extent to which the
Performance Objectives established for Annual Performance Opportunities and/or
Performance Units granted for such Performance Period have been attained, based
on financial statements of the Company for such Performance Periods prepared in
accordance with generally accepted accounting principles consistently applied,
or on other criteria, as applicable, and in accordance with this Plan.
4. ELIGIBILITY
Eligibility to participate under the Plan shall be limited to the
corporate officers of the Company. Long Term grants shall be limited to those
corporate officers of the Company who, in the opinion of the Committee, are in a
position, on or before June 30 of the first calendar year of such Performance
Period, to have a measurable impact on the performance of the Company during
such Performance Period, or who are in such a position on or before such later
date during such first calendar year as the Committee may in special cases
approve. In selecting Participants, the Committee shall consider an individual's
duties and responsibilities, the potential impact such individual may have on
the Company's long-term performance, and such other factors as the Committee
deems relevant or appropriate.
5. PERFORMANCE PERIODS AND GRANTS
(a) Annual Incentive Awards. If the Committee determines to establish
an Annual Incentive Opportunity for any Annual Performance Period, it shall
determine the Participants therein and establish Performance Objectives and
Award Values applicable to such Annual Incentive Opportunity, in writing, not
later than the 90th day of the year to which the Performance Objectives relate.
Attainment of Performance Objectives established at the inception of an Annual
Performance Period (as such objectives may be changed or adjusted in accordance
with the provisions of Section 9 below) will entitle a Participant to be paid
the Award Value of a Performance Unit following the end of such Performance
Period, determined in accordance with Section 6 below and subject to the other
provisions of the Plan. The Performance Objectives applicable to any Annual
Performance Opportunity granted to a
-5-
<PAGE> 6
Participant need not be the same as the Performance Objectives applicable to any
other Annual Performance Opportunity granted to such Participant or to any other
Participant for the same or any prior or subsequent Annual Performance Period.
(b) Grants of Performance Units. The first Long Term Performance Period
shall begin as of January 1, 1996. Unless otherwise determined by the Board, a
new Long Term Performance Period of three consecutive calendar years shall
commence as of January 1, 1997 and as of January 1 of each subsequent calendar
year prior to the Termination Date referred to in Section 12 of the Plan. For
each Long Term Performance Period, the Committee shall determine the
Participants therein, the number of Performance Units to be granted to each
Participant and the Performance Objectives and Award Values applicable to such
Performance Units, not later than the 90th day after the beginning of such Long
Term Performance Period. Attainment of Performance Objectives established at the
inception of a Long Term Performance Period (as such objectives may be changed
or adjusted in accordance with the provisions of Section 9 below) will entitle a
Participant to be paid the Award Value of a Performance Unit following the end
of such Performance Period, determined in accordance with Section 6 below and
subject to the other provisions of the Plan. The Performance Objectives
applicable to any Performance Unit granted to a Participant need not be the same
as the Performance Objectives applicable to any other Performance Unit granted
to such Participant or to any other Participant for the same or any prior or
subsequent Performance Period.
6. EARNED AWARD VALUE DETERMINATION
Compensation or awards shall be made under the Plan only upon
certification by the Committee in writing that the Performance Objectives and
any other material terms relating to an Annual Performance Opportunity or a
Performance Unit have been satisfied.
At the end of each Annual Performance Period, Annual Performance
Opportunities granted for such Performance Period shall expire if they have not
already expired pursuant to the other provisions of the Incentive Plan. After
the end of each Annual Performance Period, the Committee shall certify in
writing whether the Performance Objectives and any other material terms of such
Annual Performance Opportunity have been satisfied and determine the Award
Value, if any, which each Participant is entitled to be paid for each Annual
Performance Opportunity granted to such Participant for such Annual Performance
Period,
At the end of each Long Term Performance Period, Performance Units
granted for such Long Term Performance Period shall expire if they have not
already expired pursuant to the other provisions of the Plan. After the end of
each Long Term Performance Period, the Committee shall certify in writing
whether the Performance Objectives and any other material
-6-
<PAGE> 7
terms of such Performance Units have been satisfied and shall determine the
amount, if any, which each Participant is entitled to be paid for each
Performance Unit granted to such Participant for such Performance Period, as
follows:
(a) If the Threshold Performance Objective applicable to a
Performance Unit was not attained or exceeded at the end of such
Performance Period, or if any other term or condition of the Plan
applicable to such Performance Unit or of the written document
evidencing such Performance Unit has not been fulfilled, the
Participant shall not be entitled to any payment for such Performance
Unit.
(b) If the Threshold Performance Objective applicable to a
Performance Unit was attained but not exceeded at the end of such
Performance Period, and all other terms and conditions of the Incentive
Plan applicable to such Performance Unit and of the written document
evidencing such Performance Unit have been fulfilled, the Participant
shall be entitled to be paid the Threshold Award Value of such
Performance Unit.
(c) If the Target Performance Objective applicable to a
Performance Unit was attained but not exceeded at the end of such
Performance Period, and all other terms and conditions of the Incentive
Plan applicable to such Performance Unit and of the written document
evidencing such Performance Unit have been fulfilled, the Participant
shall be entitled to be paid the Target Award Value of such Performance
Unit.
(d) If the Maximum Performance Objective applicable to a
Performance Unit was attained but not exceeded at the end of such
Performance Period, and all other terms and conditions of the Incentive
Plan applicable to such Performance Unit and of the written document
evidencing such Performance Unit have been fulfilled, the Participant
shall be entitled to be paid the Maximum Award Value of such
Performance Unit.
(e) If, at the end of such Performance Period, (i) the
Threshold Performance Objective applicable to a Performance Unit was
exceeded but the Target Performance Objective applicable to such
Performance Unit was not attained, or (ii) the Target Performance
Objective applicable to a Performance Unit was exceeded but the Maximum
Performance Objective was not attained, and if in either case (i) or
(ii) all other terms and conditions of the Plan applicable to such
Performance Unit and of the written document evidencing such
Performance Unit have been fulfilled, the Participant shall be entitled
to be paid such amount, but, in the case of (i) above, not less than
the Threshold Award Value nor more than the Target Award Value of such
Performance Unit, and, in the case of (ii) above, not less than the
Target Award Value nor more than the Maximum Award Value of such
Performance Unit, as may have been prescribed therefore (whether by
schedule, formula or otherwise) in the written document evidencing such
Performance Unit or, if no such amount was so prescribed, an amount
determined by straight-line matrix interpolation between the Threshold
Award Value and Target Award Value of such Performance Unit (in the
case of (i) above) or between the Target Award Value and Maximum Award
Value of such Performance Unit (in the case of (ii) above).
7. PAYMENT
As soon as practicable after the end of a Performance Period, the
Committee shall determine, in accordance with Section 6 and the other provisions
of the Plan, the amount, if any, which each Participant in such Performance
Period is entitled to be paid for Annual Performance
-7-
<PAGE> 8
Opportunities and/or Performance Units granted to him at the inception of such
Performance Period, and cash payment thereof (less any amount which the Company
determines should be withheld pursuant to Paragraph 11(1) below) shall be made
as soon as practicable, provided that amounts payable hereunder may, at the
election of each Participant, be deferred under, and subject to the terms and
conditions of, any deferred compensation plan of the Company that specifically
provides for such deferral and the timing of the election thereof, and, provided
further, that in all events it shall be a condition to the Company's obligation
to make such payment, and a condition to the Participant's entitlement to such
payment, that the Participant shall have refrained, at all times prior to the
time when such payment is made (or, in the case of a payment deferred at the
election of the Participant, at all times prior to the time when payment would
have been made had payment not been deferred), from competition which in the
good faith opinion of the Committee is materially detrimental to the Company or
any subsidiary of the Company.
8. TERMINATION OF EMPLOYMENT DURING PERFORMANCE PERIOD
(a) Except if and to the extent otherwise expressly provided by the
provisions of paragraph (b) below of this Section 8, it shall be a condition to
the Company's obligation to make any payment with respect to an Annual
Performance Opportunity or Performance Unit, and a condition to the
Participant's entitlement to such payment, that the Participant shall remain in
the continuous employ of the Company and its subsidiaries through the end of the
Performance Period for which such Annual Performance Opportunity or Performance
Unit was granted. If a Participant's employment with the Company and its
subsidiaries terminates during a Performance Period, any Annual Performance
Opportunity or Performance Units granted to such Participant for such
Performance Period shall thereupon expire and, except if and to the extent
otherwise expressly provided by the provisions of paragraph (b) below of this
Section 8, the Participant shall not be entitled to any payment for such Annual
Performance Opportunities and/or Performance Units. Notwithstanding the
foregoing, if a Participant voluntarily terminates employment with the Company
and its subsidiaries during a Performance Period, the Committee, at its sole
discretion, may pay such Participant a prorata portion of any Award Value
applicable to an Annual Performance Opportunity or Performance Unit payment
pursuant to this Section 8(a), provided that such fractional amount shall be
payable at the same time and on the same terms and conditions (including
Performance Objectives) as would have applied under the Plan (including but not
limited to Sections 6 and 7 thereof) and under the written document evidencing
such Annual Performance Opportunities and/or Performance Units had the
-8-
<PAGE> 9
Participant's employment with the Company and its subsidiaries continued through
the end of such Performance Period.
(b) If a Participant's employment with the Company and its subsidiaries
is terminated during a Performance Period (i) by death, (ii) by Disability,
(iii) by Retirement, or (iv) by the Company and its subsidiaries without cause
(as determined by the Committee), then the Participant shall be entitled to be
paid the amount, if any, that he would have been entitled to be paid for such
Annual Performance Opportunities and/or Performance Units had his employment
with the Company and its subsidiaries continued through the end of such
Performance Period, multiplied by a fraction, the numerator of which shall be
the number of full calendar months in which the Participant was employed by the
Company and its subsidiaries during such Performance Period, and the denominator
of which shall be the number of full calendar months in which the Participant
would have been employed by the Company and its subsidiaries during such
Performance Period had his employment with the Company and its subsidiaries
continued through the end of such Performance Period. Such fractional amount
shall be payable at the same time and on the same terms and conditions
(including Performance Objectives) as would have applied under the Plan
(including but not limited to Sections 6 and 7 thereof) and under the written
document evidencing such Annual Performance Opportunities and/or Performance
Units had the Participant's employment with the Company and its subsidiaries
continued through the end of such Performance Period.
9. CHANGES AND ADJUSTMENTS IN PERFORMANCE OBJECTIVES
The Committee may, but in no event shall be required to, provide for
such changes and adjustments in the Performance Objectives applicable to an
Annual Performance Opportunity and/or Performance Unit (including those which
would increase or reduce the amount otherwise payable for an Annual Performance
Opportunity and/or Performance Unit hereunder) as the Committee determines,
based on preestablished, objectively determinable criteria, to be necessary or
appropriate to maintain the relationships between performance and reward
contemplated by the Performance Objectives applicable to such Annual Performance
Opportunity and/or Performance Unit at the inception of the Performance Period.
Such criteria may include (a) a stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the Company
or any of its subsidiaries, (b) a merger, consolidation, separation,
reorganization, spin-off, sale of assets, partial or complete liquidation or
dissolution of the Company or any of its subsidiaries or divisions, (c) changes
in accounting practices, (d) any acquisition by the Company or a unit of the
Company, (e) any extraordinary,
-9-
<PAGE> 10
unusual, or non-recurring revenues or expenses, or (f) any other factor that the
Committee deems relevant or appropriate.
10. CHANGE IN CONTROL
Any provisions of the Plan to the contrary notwithstanding, if a Change
in Control of the Company occurs prior to the end of the Performance Period for
which an Annual Performance Opportunity and/or Performance Unit was granted, and
if the Committee shall not have directed otherwise prior to such Change in
Control, then
(i) such Performance Period shall terminate as of the date of such
Change in Control,
(ii) such Annual Performance Opportunity and/or Performance Unit shall
thereupon expire, and
(iii) the Company shall thereupon pay the Participant for such Annual
Performance Opportunity and/or Performance Unit such amount, if any, as the
Committee determines would have been paid to the Participant for such Annual
Performance Opportunity and/or Performance Unit after the end of such
Performance Period had such Change in Control not occurred, multiplied by a
fraction, the numerator of which shall be the number of full calendar months
that elapsed in such foreshortened Performance Period and the denominator of
which shall be the number of full calendar months that would have elapsed in
such Performance Period by the end thereof had such Change in Control not
occurred. Such determination shall be made by the Committee by extrapolating
performance results attained through the end of such foreshortened Performance
Period into the future.
11. GENERAL PROVISIONS
(a) The grant of an Annual Performance Opportunity and/or Performance
Unit under the Plan to a Participant for any Performance Period shall not create
any right in such Participant or in any other employee to be granted any other
Annual Performance Opportunity and/or Performance Unit for the same or any prior
or subsequent Performance Period.
(b) The Company shall maintain on its books a separate account for each
Participant to which shall be credited such amount, if any, as may from time to
time be payable to such Participant under the Plan. However, all payments to be
made under the Plan shall be paid in cash from the general funds of the Company
and no special or separate fund shall be established and no segregation of
assets shall be made to assure payment of amounts payable under the Plan. To the
extent that any person acquires a right to receive any payment from the Company
under the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company. Nothing contained in the Plan or in any
instrument delivered or executed hereunder
-10-
<PAGE> 11
shall create or be construed to create a trust of any kind, or a fiduciary
relationship between the Company and any participant or other person.
(c) The Plan is an unfunded deferred compensation plan for a select
group of management or highly compensated employees. The Plan shall be
administered, interpreted and construed to carry out such intention, and any
provision of the Plan that cannot be so administered, interpreted and construed
shall, to that extent, be disregarded.
(d) No participant or other person shall have any right, title or
interest in or to any asset or investment which may (but need not) be acquired
or made by the Company to aid it in meeting its obligations under the Plan.
(e) No provision of the Plan, nor any aspect of its operation or
administration, nor any document delivered or executed pursuant to or describing
the Plan, shall limit or restrict in any way the right of the Company or a
subsidiary employer to terminate the employment of any employee at any time with
or without cause or assigning a reason therefor, or shall be construed to impose
upon the Company or any subsidiary employer any liability not expressly and
specifically assumed by the Company under the Plan, whether for any forfeiture
of Annual Performance Opportunities and/or Performance Units or rights under
Annual Performance Opportunities and/or Performance Units, or any loss of
eligibility for the future grant of Annual Performance Opportunities and/or
Performance Units, that may result if the employment of any employee should be
so terminated, or otherwise.
(f) Any costs incidental to the administration of the Plan shall be
borne by the Company.
(g) No rights under the Plan, contingent or otherwise, shall be
assignable, alienable or subject to any encumbrance, pledge or charge of any
nature, or, to the full extent permitted by law, be subject to any lien or to
attachment, levy or execution, and no such rights shall be transferable other
than by designation of a Beneficiary or by will or the laws of descent and
distribution.
(h) By accepting any benefits under the Plan, each Participant, each
Beneficiary and each person claiming under or through any Participant or
Beneficiary, shall be conclusively deemed to have indicated his acceptance and
ratification of, and consent to, all provisions of the Plan and any action or
decision taken or made or to be taken or made under the Plan by the Company, the
-11-
<PAGE> 12
Board or any Committee thereof, the Chief Executive Officer, the Secretary, or
other officers of the Company.
(i) The Board may rely upon any information supplied to it by any
officer of the Company, by the Company's independent public accountants or by
legal counsel, and may rely upon the advice of such accountants and counsel, and
shall be fully protected in relying upon any such information and advice.
(j) The fact that a member of the Board shall at the time be, or shall
theretofore have been or thereafter may be, a Participant or eligible to be
selected as a Participant shall not disqualify him from taking part in and
voting at any time as a director in favor of or against amendment or termination
of the Plan or other matters affecting the Plan.
(k) (i) Any instrument to be delivered under the Plan to the Company,
the Board, the Chief Executive Officer or the Secretary of the Company shall be
deemed to have been properly delivered in each case if and when delivered to the
Secretary of the Company in person or three days after deposit thereof, in a
post office box regularly maintained by the United States Government, in an
envelope, properly stamped, addressed to the Secretary of the Company at the
principal office of the Company.
(ii) Any instrument to be delivered under the Plan to a
Participant or employee shall be deemed to have been properly delivered in each
case if and when delivered in person to such Participant or employee or three
days after deposit thereof, in a post office box regularly maintained by the
United States Government, in an envelope, properly stamped, addressed to such
Participant or employee at his address as it appears on the books of the
Company.
(iii) Headings are given to sections of the Plan solely as a
convenience to facilitate reference; neither such headings nor any numbering or
paragraphing shall be deemed in any way material or relevant to the construction
of the Plan or any provision thereof.
(iv) The use of the masculine gender shall also include within
its meaning the feminine.
(l) The Company may withhold any taxes that it determines are required
to be withheld from amounts payable under the Plan under the applicable laws or
other regulations of any governmental authority, whether Federal, state or local
and whether domestic or foreign.
-12-
<PAGE> 13
(m) The place of administration of the Plan shall be conclusively
deemed to be within the State of Connecticut, and the validity, construction,
interpretation and administration of the Plan, and of any rules and regulations
or determinations or decisions made thereunder, and the rights of any and all
persons having or claiming to have any interest therein or thereunder, shall be
governed by, and determined exclusively and solely in accordance with, the laws
of the State of Connecticut, without giving effect to the principles of
conflicts of laws thereof. Without limiting the generality of the foregoing, the
period within which any action arising under or in connection with the Plan or
any payment or grant made or purportedly made under or in connection therewith,
must be commenced shall be governed by the laws of the State of Connecticut,
without giving effect to the principles of conflicts of laws thereof,
irrespective of the place where the act or omission complained of took place and
of the residence of any party where the action may be brought.
(n) The Plan is not intended to be a substitute for, or preclude
continuance or establishment of, other incentive compensation, profit
participation or bonus plans of the Company or its subsidiaries, divisions or
profit centers or any other plan, practice or arrangement for the payment of
compensation or fringe benefits, including, without limitation, commissions,
prizes, suggestion or special awards, production or similar bonuses, retirement,
profit sharing, group insurance, stock purchase or stock bonus plans or other
bonus plans or arrangements or any stock option or restricted stock plan, that
may now or may hereafter be in effect for employees generally or any group or
class of employees, and any such plan, practice or arrangement may be continued
or authorized and payment thereunder made independently of the Plan.
(o) Anything in this Plan to the contrary notwithstanding:
(i) In the event that any provision of this Plan shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Plan not so invalid or unenforceable shall be
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law;
(ii) Any provision of this Plan which may be invalid or
unenforceable in any jurisdiction shall be limited by construction thereof, to
the end that such provision shall be valid and enforceable in such jurisdiction;
and
-13-
<PAGE> 14
(iii) Any provision of this Plan which may for any reason be
invalid or unenforceable in any jurisdiction shall remain in effect and be
enforceable in any jurisdiction in which such provision shall be valid and
enforceable.
12. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall be effective as of the date of its adoption by the Board
(the "Effective Date"), subject to the approval of the stockholders of the
Company of the adoption of the Plan. Annual Performance Opportunities and/or
Performance Units may be granted under the Plan at any time and from time to
time on or after the Effective Date and prior to the date of the Company's
Annual Meeting in the year 2001 (the "Termination Date"). Annual Performance
Opportunities and/or Performance Units may not be granted under the Plan on or
after the Termination Date, but the Plan shall continue in effect in accordance
with its terms on and after the termination Date with respect to Annual
Performance Opportunities and/or Performance Units granted prior thereto.
13. AMENDMENT OR TERMINATION
The Incentive Plan may at any time be terminated, or at any time and
from time to time be amended, by the Board, provided that no termination or
amendment of the Plan shall, without the consent of affected Participants,
affect adversely any Annual Performance Opportunity and/or Performance Unit
granted prior to such termination or amendment of the Incentive Plan; provided
further, that the approval of the stockholders of any amendments shall be
required to the extent necessary under Section 162(m) of the Internal Revenue
Code, as amended.
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 77100
<SECURITIES> 0
<RECEIVABLES> 288900
<ALLOWANCES> 10800
<INVENTORY> 176800
<CURRENT-ASSETS> 625600
<PP&E> 737500
<DEPRECIATION> 261600
<TOTAL-ASSETS> 1373700
<CURRENT-LIABILITIES> 270300
<BONDS> 0
0
900
<COMMON> 7000
<OTHER-SE> 934600
<TOTAL-LIABILITY-AND-EQUITY> 1373700
<SALES> 549600
<TOTAL-REVENUES> 549600
<CGS> 229000
<TOTAL-COSTS> 229000
<OTHER-EXPENSES> 247800
<LOSS-PROVISION> 3200
<INTEREST-EXPENSE> 7200
<INCOME-PRETAX> 62400
<INCOME-TAX> 14300
<INCOME-CONTINUING> 48100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48100
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
</TABLE>
