<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
UNITED STATES SURGICAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
UNITED STATES SURGICAL CORPORATION
150 GLOVER AVENUE
NORWALK, CONNECTICUT 06856
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 1998
--------------------
To the Stockholders of
United States Surgical Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
UNITED STATES SURGICAL CORPORATION (the "Company") will be held at The Equitable
building, 787 Seventh Avenue, New York, New York 10019, on May 5, 1998 at 2:00
P.M. (local time), for the following purposes:
1. To elect a board of thirteen directors to serve until the next
Annual Meeting of Stockholders or until their successors are elected and
qualified;
2. To transact such other business, including two shareholder
proposals, as may properly be brought before the meeting or any adjournments
thereof.
The Board of Directors has fixed the close of business on March 9,
1998, as the record date for determination of the stockholders entitled to
notice of and to vote at the Annual Meeting, and only holders of record of the
Company's Common Stock on said date will be entitled to receive notice of and to
vote at the meeting.
Stockholders are cordially invited to attend the meeting. Whether or
not you plan to attend the meeting, please mark, sign, date and return the
enclosed Proxy. The giving of your Proxy will not affect your right to vote in
person in the event you find it convenient to attend the meeting. You may revoke
the Proxy at any time before the closing of the polls at the meeting.
ATTENDANCE AT THE ANNUAL MEETING WILL BE LIMITED TO STOCKHOLDERS AND
INVITED GUESTS OF THE COMPANY. ADMITTANCE TICKETS WILL BE REQUIRED.
If you are a stockholder and plan to attend, you must request an
admittance ticket by writing to the Office of the Secretary at the address shown
above. If your shares are not registered in your own name, evidence of your
stock ownership, which you can obtain from your bank, stockbroker, etc., must
accompany your letter. An admittance ticket will be sent to you.
By order of the Board of Directors
PAMELA KOMENDA
Corporate Secretary
March 30, 1998
PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY IN THE
ENCLOSED ENVELOPE.
<PAGE> 3
(USSC LOGO)
UNITED STATES SURGICAL CORPORATION
150 GLOVER AVENUE
NORWALK, CONNECTICUT 06856
---------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 1998
March 30, 1998
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of United States Surgical Corporation, a Delaware
corporation (the "Company"), of proxies to be voted at the Annual Meeting of
Stockholders of the Company to be held at The Equitable building, 787 Seventh
Avenue, New York, New York 10019, on May 5, 1998, at 2:00 P.M. (local time), and
at any adjournments thereof, for the purposes set forth in the attached Notice
of Annual Meeting of Stockholders.
When proxies in the enclosed form are returned properly executed, the
shares represented thereby will be voted at the meeting and, where instructions
have been given by the stockholder, will be voted in accordance therewith. If
the stockholder does not otherwise specify, the stockholder's shares will be
voted for the election of the listed nominees and in accordance with the
directors' recommendations on the other subjects listed on the proxy card. If
any other matter is properly presented for action at the meeting, the persons
named in the enclosed form of proxy will vote on such matter in their
discretion. Any proxy may be revoked by the stockholder, either by attending the
meeting and voting in person or by submitting a revocation in writing to the
Company (including a subsequent signed proxy) at any time prior to the closing
of the polls at the meeting.
STOCKHOLDER VOTE REQUIRED
To be elected a director, a nominee must receive the affirmative vote
of a plurality of shares present in person or represented by proxy at the
meeting and entitled to vote in the election of directors. A plurality vote
means that the thirteen individuals who receive the largest number of votes cast
will be elected as directors. Withheld votes will not affect the outcome of the
election of directors. For each other matter specified in the Notice of Annual
Meeting of Stockholders, the affirmative vote of a majority of the shares
present at the annual meeting in person or by proxy and entitled to vote on such
matter is required for approval. Abstentions will be considered shares present
in person or by proxy and entitled to vote and will, therefore, have the effect
of a vote against the matter. In instances where brokers are prohibited by the
rules of the New York Stock Exchange from exercising discretionary authority for
beneficial owners who have not returned proxies to the brokers (referred to as
"broker non-votes"), those shares will not be included in the vote totals and
will have no effect on the vote. However, properly returned proxies which
withhold authority to vote for directors, abstain, or reflect a broker non- vote
will be counted for purposes of determining if a quorum is present for the
annual meeting.
The Company's auditors are Deloitte & Touche LLP, 333 Ludlow Street,
Stamford, Connecticut 06904. A representative of Deloitte & Touche LLP will be
present at the meeting, will have an opportunity to make a statement if the
representative desires to do so, and will be available to respond to appropriate
questions.
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 WILL BE PROVIDED,
WITHOUT CHARGE, TO ANY STOCKHOLDER UPON WRITTEN REQUEST. REQUESTS SHOULD BE
DIRECTED TO INVESTOR RELATIONS, UNITED STATES SURGICAL CORPORATION, 150 GLOVER
AVENUE, NORWALK, CT 06856.
<PAGE> 4
OUTSTANDING SHARES, VOTING RIGHTS AND PRINCIPAL STOCKHOLDERS
Holders of record of outstanding shares of the Company's Common Stock,
$.10 par value ("Common Stock") at the close of business on March 9, 1998, will
be entitled to notice of and to vote at the meeting. Voting rights are vested
exclusively in the holders of the Common Stock. Each share of Common Stock
outstanding on the record date will be entitled to one vote. Shares held as
treasury shares by the Company are not entitled to be voted. At the close of
business on December 31, 1997, a total of 75,883,266 shares of Common Stock (not
including 7,015,207 shares held as treasury shares) were outstanding.
The following table sets forth the only persons known to the Company to
be beneficial owners as of December 31, 1997, of more than five percent of the
Company's Common Stock.
<TABLE>
<CAPTION>
Voting Securities
Name and Address Title Number of Number of Total Number Percent of
of Stockholder of Class Shares Options of Shares Class
- -------------- -------- ------ ------- --------- -----
<S> <C> <C> <C> <C> <C>
Leon C. Hirsch (1) Common 1,683,300 3,443,834 5,127,134 6.46% (2)
150 Glover Avenue
Norwalk, Connecticut 06856
T. Rowe Price Associates, Inc. Common 6,387,548 6,387,548 8.4% (3)
("Price Associates") (3)
100 E. Pratt Street
Baltimore, Maryland 21202
</TABLE>
- --------------
(1) Options are exercisable on or become exercisable within 60 days following
December 31, 1997. Excludes shares beneficially owned, and options to purchase
shares held, by his wife, an officer and director of the Company, as to which
shares Mr. Hirsch disclaims beneficial ownership.
(2) Percent of class is based on 75,883,266 shares of Common Stock outstanding
on December 31, 1997, plus 3,443,834 shares subject to options held by Mr.
Hirsch which are exercisable on or become exercisable within 60 days following
such date.
(3) As reported in a Schedule 13G filed with the Securities and Exchange
Commission, Price Associates has sole voting power with regard to 1,286,451
shares and sole dispositive power with regard to 6,387,548 shares. Percent of
class is based on 75,883,266 shares of Common Stock outstanding on December 31,
1997.
2
<PAGE> 5
SHARE OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the shares
of the Company's Common Stock beneficially owned as of December 31, 1997, except
as otherwise indicated, by all directors, nominees, executive officers
identified in the Summary Compensation Table below, and all executive officers
and directors as a group. Except as noted, each person listed has sole voting
and investment powers as to shares beneficially owned by such person.
<TABLE>
<CAPTION>
Number of Shares Percent
of Common Stock of
Name Beneficially Owned Class(1)
- ---- ------------------ --------
<S> <C> <C>
Julie K. Blake 11,000(2) *
John A. Bogardus, Jr. 34,000(2) *
Thomas R. Bremer 350,364(2) *
Thomas D. Guy 200,000(2) *
Leon C. Hirsch 5,127,134(3) 6.46%
Turi Josefsen 1,172,880(2) 1.53%
Douglas L. King 25,000(2) *
Robert A. Knarr 430,774(2) *
William F. May 14,010(2) *
James R. Mellor 5,000+ *
Barry D. Romeril 7,000(2) *
Howard M. Rosenkrantz 308,034(2) *
Marianne Scipione 276,158(2) *
John R. Silber 22,000(2) *
All executive officers and directors as a group
(26 persons) 9,410,996(4) 11.30%
</TABLE>
- ------------
* Ownership of less than one percent.
+ Includes restricted stock award of 4,000 shares on March 7, 1998.
(1) Percent of class for each person and all executive officers and directors as
a group is based on shares of Common Stock outstanding on December 31, 1997,
plus shares subject to options held by the individual or the group, as
applicable, which are exercisable on or become exercisable within 60 days
following such date.
(2) Includes the following shares which may be acquired on or within 60 days
following December 31, 1997, through the exercise of stock options under Company
sponsored plans: Ms. Blake, 4,000; Mr. Bogardus, 30,000; Mr. Bremer, 334,333;
Mr. Guy, 200,000; Ms. Josefsen, 983,666; Mr. King, 23,000; Mr. Knarr, 426,974;
Mr. May, 8,000; Mr. Romeril, 2,000; Mr. Rosenkrantz, 307,666; Ms. Scipione,
259,000; and Dr. Silber, 6,000. No voting or investment power exists with
respect to such shares prior to acquisition.
(3) See Note (1) under "Outstanding Shares, Voting Rights and Principal
Stockholders".
(4) Includes options to purchase 7,400,795 shares exercisable on or within 60
days following December 31, 1997.
3
<PAGE> 6
PROPOSAL 1: ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
NOMINEES
The persons named in the accompanying form of proxy intend, except as
otherwise directed, to vote for the election as directors of the thirteen
nominees listed below, each for a term expiring at the next Annual Meeting or
until his or her successor is duly elected and qualified. All nominees are now
serving as directors of the Company, and all have informed management that they
are willing to serve as directors of the Company. If any of the nominees should
decline or be unable to act as a director, the persons named as proxies in the
form of proxy will vote in accordance with their best judgment and shall have
discretionary authority to vote for a substitute nominee. The Board of Directors
has fixed its present size at, and for the purposes of this meeting authorized
the election of, thirteen directors.
The following table sets forth certain information as to the nominees
for directors of the Company.
<TABLE>
<CAPTION>
SERVING AS
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AGE FIVE YEARS AND OTHER DIRECTORSHIPS SINCE____
- ---- --- ---------------------------------- -----
<S> <C> <C> <C>
Julie K. Blake (A)(D)(E) 50 1992-1994, Executive Vice President and 1995
Chief Operating Officer, Flavin, Blake & Co., Inc.;
Vice President, J.P. Morgan & Co. Incorporated,
1970-1992.
John A. Bogardus, Jr. 70 Director, Alexander & Alexander Services Inc., 1981
(A)(B)(C)(D) insurance brokerage and financial services
firm, New York, N.Y., from l988 to
May 1995; prior thereto, its
Chairman of the Board and Director
since l987; prior thereto, its
Chairman of the Board, Chief
Executive Officer and Director.
Thomas R. Bremer 45 Senior Vice President and General Counsel 1993
since January, 1994; Vice President and
General Counsel since 1989; prior
thereto, General Counsel since 1988.
Leon C. Hirsch (B)(E) 70 Chairman of the Board, and 1964
Chief Executive Officer since July, 1996;
prior thereto, Chairman of the Board, President
and Chief Executive Officer since 1987.
Turi Josefsen (B)(E) 61 Executive Vice President and, since 1977
July, 1994 President, International Operations;
prior thereto, Executive Vice President
and President and CEO, Auto Suture Companies.
Douglas L. King 56 President and Director, Smyth, 1984
(A)(B)(D) Sanford & Gerard Reinsurance Intermediaries,
Inc., insurance and reinsurance brokers.
Director, Healthplex, Inc., a dental administration
service company, New York, N.Y.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Robert A. Knarr (E) 49 Executive Vice President, Sales and Marketing, North 1998
America since January, 1997; prior thereto, Senior
Vice President and General Manager, United States
and Canada since July, 1994; prior thereto,
Senior Vice President, Marketing since January, 1992.
William F. May 82 Chairman of the Board, Statue of 1984
(A)(B)(C)(D) Liberty - Ellis Island Foundation, Inc., New York,
N.Y., since 1995, prior thereto, its
Chairman and Chief Executive
Officer; Trustee, University of
Rochester; Trustee, American Museum
of Natural History; Director,
Lincoln Center; Trustee, Columbia
Presbyterian Hospital; Trustee,
Committee for Economic Development;
Member, Advisory Board, Columbia
University, University Genome
Center.
James R. Mellor (D)(E) 67 Former Chairman and Chief Executive Officer, General 1997
Dynamics Corporation, from May 1994 to May, 1997,
prior thereto, its President and
Chief Executive Officer from 1993 to
1994, President and Chief Operating
Officer from 1991 to 1993, and
Executive Vice President from 1981
to 1990; Director, General Dynamics
Corporation, Bergan Brunswig
Corporation, Computer Sciences
Corporation, and Pinkerton's, Inc.
Barry D. Romeril (A)(C)(E) 54 Executive Vice President and Chief Financial 1996
Officer, Xerox Corporation; Director, Fuji-Xerox,
Japan.
Howard M. Rosenkrantz (E) 54 President and Chief Operating Officer since July, 1996; 1995
prior thereto, Senior Vice President, Finance and Chief
Financial Officer since 1992; prior thereto,
Vice President, Finance; Trustee, Committee for
Economic Development; Trustee, Norwalk
Symphony Orchestra.
Marianne Scipione 51 Vice President, Corporate Communications 1992
since 1981; Director, The Norwalk Community-
Technical College Foundation, Inc.
John R. Silber (A)(C)(E) 71 Chancellor, Boston University since June, 1996; prior
1994 thereto, President, Boston University; Director,
Seragen, Inc. and Mutual of America Institutional
Funds Inc.
</TABLE>
- -------
(A) Member of Audit Committee. Mr. May is Chair.
(B) Member of Executive Committee. Mr. King is Chair.
(C) Member of Compensation/Option Committee. Mr. Romeril is Chair.
(D) Member of Nominating Committee. Mr. Bogardus is Chair.
(E) Member of Transaction and Finance Committee. Ms. Blake is
Chair.
Leon C. Hirsch and Turi Josefsen are husband and wife. No other family
relationship exists between any of the directors or between any director and any
officer of the Company. With respect to certain relationships between the
Company and certain of the business entities listed in the above table, see
"Executive Compensation and Transactions--Certain Transactions," below.
5
<PAGE> 8
MEETINGS AND COMMITTEES
In 1997, the Board of Directors held 11 meetings and committees of the
Board held the following number of meetings: Audit Committee, 4;
Compensation/Option Committee, 8; Nominating Committee, 2; and the Transaction
and Finance Committee, 8. The Executive Committee did not meet in 1997. Each
director in 1997 attended 75% or more of the total number of meetings held by
the Board of Directors and all committees of the Board Directors on which he or
she served except for Ms. Josefsen, who attended 72% of the total number of
meetings of the board and the committees on which she served.
The Audit Committee's function is to assist the Board in fulfilling its
duties in connection with the internal control, accounting and reporting
practices of the Company and to maintain communication between the Board and the
Company's auditors, including review of the Company's financial statements,
press releases and independent auditors' reports. Its authority includes power
to resolve certain disputes, if any, concerning accounting policies, practices
and changes and internal controls and to retain attorneys, investigators and
others as it deems appropriate to assist it in carrying out its functions. The
Compensation/Option Committee's function is to establish officers' and key
employees' bonus objectives, compensation and bonuses, including performance
standards, and to administer Company sponsored stock and other benefit plans.
The function of the Nominating Committee is to nominate directors and committee
members, subject to Board approval. The Nominating Committee must act
unanimously and will not consider nominees recommended by stockholders. The
Executive Committee's function is to act on important matters occurring during
time periods between scheduled meetings of the Board of Directors. The
Transaction and Finance Committee reviews and makes recommendations to the Board
as to acquisitions, other transactions, and financial plans.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR EACH OF THE NOMINEES LISTED ABOVE.
SHAREHOLDER PROPOSALS
SHAREHOLDER PROPOSAL NO. 1
(ITEM 2 ON PROXY CARD)
The Central Pension Fund of the International Union of Operating
Engineers and Participating Employers, 4115 Chesapeake Street, NW, Washington,
D.C. 20016-4666, beneficial owner of 13,750 shares of the Common Stock of the
Company, has submitted the following proposal:
CONFIDENTIAL VOTING PROPOSAL
"BE IT RESOLVED: That the Stockholders of United States Surgical
Corporation ("Company") recommend that our board of directors take the necessary
steps to adopt and implement a policy of confidential voting at all meetings of
its stockholders which includes the following provisions:
1. that the voting of all proxies, consents and
authorizations be secret and that no such document
shall be available for examination nor shall the vote
or identity of any shareholder be disclosed except to
the extent necessary to meet the legal requirements,
if any, of the company's state of incorporation; and
2. that the receipt, certification and tabulation of
such votes shall be performed by independent election
inspectors."
SUPPORTING STATEMENT
It is the proponent's belief that it is vitally important that a system
of confidential proxy voting be established at the Company. Confidential
balloting is a basic tenet of our political electoral process ensuring its
integrity. The integrity of corporate board elections should also be protected
against potential abuses given the importance of corporate policies and
practices to corporate owners and our national economy.
The implementation of a confidential voting system would enhance
shareholder rights in several ways. First, in protecting the confidentiality of
the corporate ballot, shareholders would feel free to oppose management nominees
and issue positions without fear of retribution. This is especially important
for professional money managers whose business relationships can be jeopardized
by their voting positions.
6
<PAGE> 9
The second important benefit of confidential voting would be to
invigorate the corporate governance process at the Company. We believe that
shareholder activism would be promoted within the Company. It is our belief that
shareholders empowered with a free and protected vote would be more active in
the proposing of corporate policy resolutions and alternate board candidates.
Finally, it is our belief that the enhancement of the proxy voting
process would change the system where too often shareholders vote "with their
feet," not with their ballots. This change would help to develop a long-term
investment prospective where corporate assets could be deployed and used, in a
more effective and efficient manner.
Confidential voting is gaining popularity. Over 100 U.S. publicly
traded companies have adopted confidential proxy voting procedures for corporate
elections. The list of Fortune 500 companies with confidential voting includes
AT&T, U.S. West, American Express, American Brands, Coca Cola, CitiCorp,
Gillette, Exxon, Sara Lee, J.P. Morgan, Bear Stearns, General Electric, General
Mills, General Motors, Colgate-Palmolive, American Home Products, Honeywell,
Avon Products, 3M, DuPont, Boeing, Lockheed, Rockwell International, Amoco,
Mobil, Eastman Kodak, IBM, Xerox and many others. It's time for our Company to
do the same.
For the reasons outlined above, we urge you to VOTE FOR THIS PROPOSAL.
BOARD OF DIRECTORS RECOMMENDATION
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION TO THE PROPOSAL
The Board of Directors believes that the proposed policy of
confidential voting is not in the best interests of the Company and its
shareholders.
Clearly, the proposal is not directed specifically at the Company's
voting policies and its shareholder communications. Rather, the Company is,
presumably, only one of many corporations to which the identical proposal has
been or will be submitted, in an indiscriminate and broad-based effort to reform
corporate governance as it is and has been practiced at the vast majority of
corporations.
The Company's current proxy voting procedures comply in all respects
with the proxy rules of the Securities and Exchange Commission (SEC) and the
corporate law of the State of Delaware. When the SEC revised its proxy rules in
1992, it did not require confidential voting. Those revised rules did, however
facilitate the ability of shareholders to communicate among themselves. In light
of this development, the Board of Directors believes that its ability to
communicate directly with shareholders during a proxy solicitation, should not
be limited under any circumstances.
The establishment of a confidential voting policy would restrict the
ability of the Company and its representatives to communicate with the
shareholders concerning voting decisions. When an important matter is submitted
to a shareholder vote, the Board of Directors may need to clarify issues
directly with shareholders, counter erroneous statements made by others, and
discuss with shareholders the Board's views regarding the outcome that the Board
believes is in the best interests of the Company and its shareholders. In
addition, the Company should have the ability to communicate with shareholders
who have not returned proxies to assure a quorum, or with others whose proxies
contain errors or irregularities so that corrections may be made in time for
their votes to be counted in accordance with the shareholder's intentions.
The Board of Directors also favors an open voting procedure because it
fosters accountability. Many shares are voted by institutional holders such as
managers of pension plans and mutual funds. These managers act in a
representative capacity for beneficiaries or others who hold the indirect
pecuniary interest in the shares. The Board believes that the voting decisions
of those holders acting in a representative capacity should not be kept
confidential from the Company or the people these managers represent.
7
<PAGE> 10
The supporting statement of the proponent asserts that confidential
voting would allow shareholders "To feel free to oppose management nominees and
issue positions without fear of retribution." Any suggestion by the proponent
that the Company might take action against a shareholder in retribution for a
voting decision is fanciful at best. Implying that somehow this Company, or any
other, can take coercive action against a fund manager is ludicrous. The
directors, officers and employees of the Company respect the right of each
shareholders to vote in accordance with his own best judgment free from any form
of coercion. Further, the shareholders can always sell their stock if they
disagree with any action of the Board, or, indeed, if they do not agree with any
shareholder vote.
Finally, the Board believes that a confidential voting policy is
unnecessary. Under the Company's current proxy voting procedures, any
shareholder who desires confidential voting may achieve this goal by registering
his shares in the name of a bank, broker or other nominee. In this way, each
shareholder may choose whether his vote will be disclosed, rather than having
this decision made for him by the adoption of a confidential voting policy.
The Board also notes that the aspect of the proposal calling for
independent election inspectors is unnecessary. The company has its transfer
agent, First Chicago Trust Company of New York, to count the votes and serve as
inspectors of elections for the 1998 annual meeting of shareholders. First
Chicago Trust Company of New York tabulates all votes and at the annual meeting
of stockholders reports only the total vote and not any individual votes.
The Board of Directors believes that this proposal is not in the best
interests of the Company and its shareholders.
The affirmative vote of a majority of the votes cast at the meeting is
required to adopt the shareholder proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE AGAINST THIS PROPOSAL.
SHAREHOLDER PROPOSAL NO. 2
(ITEM 3 ON PROXY CARD)
The Massachusetts Laborers' Pension Fund, 14 New England Executive
Park, Suite 200, P.O. Box 4000, Burlington, Massachusetts 01803-0900, beneficial
owner of 700 shares of the Common Stock of the Company, has submitted the
following proposal:
INDEPENDENT DIRECTOR PROPOSAL
"The shareholders urge that the Board of Directors adopt a policy that
no board member shall serve on the Compensation/Option Committee if he or she is
not an independent director. For these purposes, the board should adopt the
following definition of independence to mean a director who:
- is not employed by the Company or an affiliate in an executive
capacity;
- is not a member of a corporation or firm that is one of the Company's
paid advisers or consultants;
- is not employed by a significant customer or supplier to the company;
- has no personal services contract with the Company or one of it's
affiliates;
- is not employed by a foundation or university that receives grants or
endowments from the Company;
- is not a relative of an executive of the corporation or one of it's
affiliates;
- is not part of an interlocking directorate in which the CEO or other
executive officer of the Company serves on the board of another
corporation that employs a director;
- and does not have any personal, financial and/or professional
relationships with the CEO or other executive officer that would
interfere with the exercise of independent judgment by such director."
SUPPORTING STATEMENT
The purpose of this proposal is to incorporate within the
Compensation/Option Committee a standard of independence that will permit
objective decision making on compensation issues at U. S. Surgical. While U. S.
8
<PAGE> 11
Surgical does require that directors meet a minimal standard of independence to
serve on the committee, this standard is not sufficient to ensure that a
director is free of relationships that could diminish his or her independent
judgment. Currently, there is one director on the Compensation/Option Committee
with potential conflict of interest issues.
John Silber, the chair of the Compensation Committee, and CEO Leon
Hirsch currently have an undisclosed interlocking directorate relationship.
Silber, one of the highest paid university officials in the nation, is the
current Chancellor and former President of Boston University. Mr. Hirsch is a
trustee of Boston University.
In addition, Mr. Silber and Mr. Hirsch have an undisclosed and
significant financial relationship in Seragen Incorporated, a Boston-based
biotechnology firm. Boston University is the largest institutional investor in
Seragen, holding 72% of the company's shares. Leon Hirsch and his wife are the
first and second largest individual shareholders. John Silber is a Director of
Seragen and is the company's sixth largest individual shareholder. U. S.
Surgical recently invested $5 million in Seragen.
The financial relationships of John Silber to Leon Hirsch and U. S.
Surgical present the appearance of a significant conflict of interest.
Shareholders would be best served if members of the Committee are truly
independent. This is especially important in light of the large compensation
packages awarded to executive officers of U. S. Surgical. According to
compensation expert Graef Crystal, in 1996 Leon Hirsch was one of the most
overpaid CEOs in the country relative to company performance and size.
For the above reasons, we urge a vote FOR this resolution.
BOARD OF DIRECTORS RECOMMENDATION
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION TO THE PROPOSAL
The Board of Directors believes that the proposed policy establishing a
particular definition of independence for director eligibility to serve on the
Compensation/Option Committee should be rejected by the shareholders.
The proponent's concern about potential conflicts of interest already
is more than adequately addressed by various statutes and regulations to which
the Company is already subject. The Board believes that its current policy of
complying with IRS and SEC guidelines is consistent with the practice of many
public companies and is more than sufficient to assure that directors serving on
the Compensation/Option Committee are independent.
As stated in the Company's Compensation/Option Committee Report, it is
the Company's policy to comply with the requirements of Section 162(m) of the
Internal Revenue Code (IRC) of 1986, as amended. Section 162(m) requires that
directors administering performance-based compensation plans must qualify as
"outside directors." In order to be considered an "outside director" for this
purpose, a director may not be an employee of the Company, a former employee who
is still receiving compensation for his prior services, or a former officer of
the Company. A director also may not receive either direct or indirect
remuneration from the Company in any capacity other than as a director. This
later requirement could prevent a non employee director from qualifying as an
"outside director" if the Company made payments to another corporation which
employed that director or in which that director had an equity interest of more
than five percent. All directors who currently serve on the Company's
Compensation/Option Committee qualify as "outside directors" under Section
162(m).
It is also the Company's longstanding policy to administer its stock
incentive plans in accordance with the requirements of Rule 16b-3 adopted by the
Securities and Exchange Commission (SEC). In order for Committee approval to
qualify as a basis for exemption under the provisions of Rule 16b-3, the
Committee must be composed of two or more "non employee directors." In order to
qualify as a non employee director under this Rule, a director not only may not
be employed by the Company but also may not receive compensation from the
Company in any capacity other than as a director in an amount of $60,000 or more
and may not possess an interest in any other transaction involving the Company
which is required to be disclosed in this proxy statement as a related party
9
<PAGE> 12
transaction, such as the disclosure below under the caption "Certain
Transactions". There are no company employee directors who serve on the
Compensation/Option Committee. Indeed, the directors who serve on the
Compensation/Option Committee qualify as "non employee directors" for purposes
of SEC Rule 16b-3.
The Company meets all legal requirements for all of its
Compensation/Option Committee to be independent. The proponent just prefers an
additional standard. The Board believes that the standards established by
Section 162(m) of the IRC and Rules 16b-3 of the SEC are more than sufficient to
assure that the Company's Compensation/Option Committee is composed of directors
who are independent and free from relationships which could diminish the
exercise of their independent judgment.
The proponent is entirely incorrect in its assertion that Mr. Hirsch's
service as a Trustee of Boston University has resulted in an "undisclosed
interlocking directorate relationship" with Dr. Silber. The Trustees of Boston
University include the Chairman of General Motors, the Chairwoman of LBJ Holding
Company, a Professor of Surgery at Harvard Medical School, the Executive Vice
President of the Federal Reserve Bank of New York, the Prime Minister of Lebanon
and over 40 other similarly internationally known dignitaries and corporate
leaders. Obviously, as only one of so many esteemed Trustees, Mr. Hirsch,
personally, has little influence over the direction of the University or over
Dr. Silber's compensation.
Moreover, the premise upon which the proponent apparently advances its
proposal, namely that "interlocking directorates" are improper, is itself
faulty. The fact that the Chairman of a publicly held company generously
contributes his time and expertise to serve as a Trustee of a highly respected
university is certainly not rendered improper simply because that University's
Chancellor is a member of the company's board of directors.
In any case, while Dr. Silber remains a member of the Company's
Compensation/Option Committee, he has rotated out of the position of Chairman of
that committee. Such rotation is common, and the Company encourages and
appreciates when outstanding Board members, such as Dr. Silber, rotate their
committee responsibilities.
The proponent also asserts that an "undisclosed significant financial
relationship" between Dr. Silber and Mr. Hirsch exists as a result of the
Company's investment in a company called Seragen. However, that investment and
Dr. Silber's relationship to that company is neither undisclosed nor improper.
Indeed, the Company affirmatively disclosed its investment in Seragen in the
Company's Quarterly Report to the SEC on Form 10-Q for the quarter ended
September 30, 1997. The report was publicly available several weeks prior to the
Proponent's submission of its proposal to the Company. In addition, the
investment was again disclosed in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, and is yet again disclosed in this proxy
statement under "Certain Transactions".
The Company's investment in Seragen was not at all improper.
The decision to make the investment was based entirely on sound scientific and
business considerations which had nothing whatsoever to do with the fact that
Dr. Silber is a member of the Company's Board. In fact, the investment was given
even closer scrutiny than similar contemplated investments precisely because Dr.
Silber is on the Company's Board and Mr. Hirsch does own a significant interest
in Seragen. Moreover, neither Dr. Silber nor Mr. Hirsch participated in the
deliberations or vote of the Board's Transaction and Finance Committee regarding
this investment.
CONCLUSION
The proposal is, in the Board's view, unnecessary, part of an attempt
by a Massachusetts union pension fund to further its own agenda and is not in
the best interests of the Company and its stockholders. Accordingly, the Board
asks that you vote against this shareholder proposal.
The affirmative vote of a majority of the votes cast at the meeting is
required to adopt the shareholder proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE AGAINST THIS PROPOSAL
10
<PAGE> 13
EXECUTIVE COMPENSATION AND TRANSACTIONS
EXECUTIVE OFFICERS' COMPENSATION
The following table shows compensation paid by the Company and its
subsidiaries for services in all capacities during 1995, 1996 and 1997 to each
of the Chief Executive Officer and the other four most highly compensated
executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Securities
Name and Underlying All Other
Principal Salary Bonus Options LTIP Payouts Compensation
- -Position Year ($)(1) ($) (#)(2) ($)(3) ($)(4)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leon C. Hirsch 1997 $1,078,295 $ 0 725,081 (5) $ 0 $508,845
Chairman and Chief 1996 1,077,335 2,646,432 1,500,000 234,867 655,196
Executive Officer 1995 1,026,016 806,125 0 0 745,578
Howard M. Rosenkrantz 1997 670,256 0 547,908 0 11,841
President and Chief 1996 512,111 304,078 50,000 38,496 17,369
Operating Officer 1995 368,360 175,000 12,000 0 15,008
Turi Josefsen 1997 667,812 0 494,561 0 14,509
Executive Vice President, and 1996 666,852 271,975 100,000 106,279 23,272
President, International 1995 635,080 431,704 17,000 0 21,170
Operations
Robert A. Knarr 1997 520,256 0 427,425 0 8,025
Executive Vice President, Sales 1996 333,246 125,582 50,000 30,916 13,040
and Marketing, North America 1995 317,360 0 12,000 0 11,155
Thomas D. Guy 1997 395,256 0 324,076 0 13,264
Senior Vice President 1996 333,246 156,976 50,000 29,331 15,397
Operations 1995 317,360 149,500 12,000 0 13,272
</TABLE>
(1) Includes base salary and car allowance.
(2) Although Company sponsored stock plans permit the granting of SAR's, no
SAR's have been granted.
(3) Mr. Guy was not eligible for LTIP awards for the performance periods ended
in 1995.
(4) Represents for Mr. Hirsch accrued bonuses payable pursuant to the terms of
installment option purchase agreements and for all of the named executives the
value of the benefit of premiums on life insurance paid by the Company (for Mr.
Hirsch, $29,839, 1997, $30,355, 1996, $25,152, 1995). The computation reflects
the present value to the named executives of the premium payments rather than
the present value of the anticipated cash benefit to the executive, resulting in
a greater portion of benefits allocated earlier in the policy term. Mr. Hirsch's
installment option purchase agreement, the principal balance of which was repaid
by Mr. Hirsch in 1994, is described on page 22 under the heading "Certain
Transactions".
(5) See Option/SAR Grants in 1997 table on page 12 for additional information
with respect to options granted to Mr. Hirsch.
Perquisites and other personal benefits, securities or property did not
exceed the lesser of either $50,000 or 10% of the total of annual salary and
bonus reported for the named executive officers.
11
<PAGE> 14
OPTIONS
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
Under the Company's stock incentive program, the Compensation/Option
Committee (the "Committee") may grant stock options and related stock
appreciation rights ("SAR's") to executive officers to purchase shares of the
Company's common stock at prices not less than the fair market value of the
stock on the date of grant. SAR's entitle an option holder to surrender
unexercised stock options for cash or stock equal to the excess of the fair
market value of the shares with respect to which the stock options are
surrendered over the option price of such shares. No SAR's have been granted.
See Report of Compensation/Option Committee, below.
The following table contains information concerning the grant of stock
options to the five named executive officers of the Company.
OPTION/SAR GRANTS IN 1997
<TABLE>
<CAPTION>
Number of Securities % of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or Grant Date
Granted Employees Base Price Expiration Present
Name (#) (1) In Fiscal Year ($/SH) Date Value (3)
- ---- ------- -------------- ------ ---- ---------
<S> <C> <C> <C> <C> <C>
Leon C. Hirsch 418,038 4.77% $30.7500 4-1-01 $3,981,143
2,000,000 (2) 22.84 47.8750 3-5-01 0 (2)
307,043 3.51 32.5625 8-15-01 2,726,143
Howard M. Rosenkrantz 171,219 1.96 30.7500 4-1-01 1,630,587
215,000 2.46 36.9875 2-4-07 2,965,065
161,689 1.85 32.5625 8-15-01 1,435,588
Turi Josefsen 146,893 1.68 30.7500 4-1-01 1,398,921
200,000 2.28 36.9875 2-4-07 2,758,200
147,668 1.69 32.5625 8-15-01 1,311,100
Robert A. Knarr 113,413 1.30 30.7500 4-1-01 1,080,077
200,000 2.28 36.9875 2-4-07 2,758,200
114,012 1.30 32.5625 8-15-01 1,012,278
Thomas D. Guy 71,341 0.81 30.7500 4-1-01 679,409
175,000 2.00 36.9875 2-4-07 2,413,425
77,735 0.89 32.5625 8-15-01 690,186
</TABLE>
- -----------
(1) Each of the named executive officers in this table elected to forego 100%
of their 1997 bonus opportunity under the PPO and EPS cash components and 100%
of their 1997 bonus opportunity under the long term component under the
Incentive Plan (defined below) in consideration of which the Company granted
options, included above, on April 1, 1997 and August 15, 1997 under the Key
Management Equity Investment Plan (defined below). Each of the options granted
on April 1, 1997 became vested on January 1, 1998 and are exercisable on
appreciation of the market price of the common stock above the option grant
price as follows: one third are exercisable if the market price reaches $33.825
per share prior to the option expiration date; one third are exercisable if the
market price reaches $36.90 per share prior to the option expiration date; and
one third are exercisable if the market price reaches $39.975 per share prior to
the option expiration date. Each of the options granted on August 15, 1997
became vested on January 1, 1998 and are exercisable on appreciation of the
market
12
<PAGE> 15
price of the common stock above the option grant price as follows: one third are
exercisable if the market price reaches $35.81875 per share prior to the option
expiration date; one third are exercisable if the market price reaches $39.075
prior to the option expiration date; and one third are exercisable if the market
prices reaches $42.33125 prior to the option expiration date. Notwithstanding
the foregoing price appreciation thresholds, in certain events, such as change
of control of the Company, and during the last six months prior to the option
expiration date, the option may be exercised for the total number of shares
under the option grant irrespective of the current market price.
(2) An option was purchased from the Company at fair market value on date of
purchase. The option is exercisable commencing on April 17, 1998 on the same
terms as provided with respect to options granted to corporate officers under
the Company's employee stock options plans, excluding rights in connection with
a change of control of the Company up until April 17, 1998, except that the
option expires on the Chief Executive Officer's death, permanent disability
which prevents him from performing a significant proportion of his employment
responsibilities, or termination of employment for cause. Since Mr. Hirsch paid
consideration equal to the fair market value of the options, the Black-Scholes
valuation model produces a grant date present value of zero.
(3) The estimated fair value of stock options is measured at the date of grant
under the Black-Scholes option pricing model based on four assumptions: expected
volatility of .34 based on the average of the high and low prices of the
Company's Common Stock for the last three years; expected term to exercise of
approximately four years; interest rates equal to the U.S. Treasury Note rates
in effect at the date of the grant (6%) for the expected term of the option; and
a dividend yield of .5% based on the yield at the grant date. The actual value,
if any, an executive may realize will depend on the excess of the stock price
over the exercise price on the date the option is exercised. Consequently, there
is no assurance the value realized by an executive will be at or near the value
estimated above.
The table below sets forth certain information about the exercise of
stock options during 1997 by each of the named executive officers and the value
of unexercised in-the-money options held by such officers at December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST YEAR AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Options/SAR's at Year-End at Year-End(2)(3)
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($)(1) (#) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leon C. Hirsch 334,000 7,494,125 3,143,834 3,925,081 1,621,197 0
Howard M. Rosenkrantz ---- --- 211,000 572,908 768,938 189,063
Turi Josefsen 200,000 4,487,500 817,000 594,561 55,356 538,750
Robert A. Knarr ---- --- 335,308 452,425 1,866,193 189,063
Thomas D. Guy 104,333 2,279,909 116,667 349,076 112,711 189,063
</TABLE>
(1) Value is calculated by determining the difference between the fair market
value at the date of exercise of the securities and the exercise price of the
option.
(2) Although the Company's option plans permit the granting of SAR's, no SAR's
have been granted.
(3) Value is calculated by determining the difference between the fair market
value of the securities underlying the options at year-end and the exercise
price of the options.
LONG TERM INCENTIVE AWARDS
Under the long term component of the Company's Executive Incentive
Compensation Plan (for awards through performance periods ending in 1998, the
Long Term Incentive Plan), described more fully in the Compensation/Option
Committee's Report beginning below, senior executives have the opportunity to
earn a cash payment at the end of a performance cycle (currently two periods of
eighteen months each) based on certain objective performance criteria
established by the Committee at the beginning of a performance period.
13
<PAGE> 16
LONG TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Performance Estimated Potential Payouts
Securities or Other Under Non-Stock Price-Based Plans(3)
Underlying Period Until Minimum Target Aggressive Maximum
Options/SARs Maturation ($) ($) ($) ($)
Name Granted (#) (1) or Payout (2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leon C. Hirsch 309,658 1.5 Years $806,755 $1,054,160 $1,366,105 $1,613,510
1.5 Years 860,979 1,125,013 1,457,924 1,721,958
Howard M. Rosenkrantz 114,146 1.5 Years 297,375 389,891 508,841 594,750
1.5 Years 317,363 416,098 543,043 634,725
Turi Josefsen 94,770 1.5 Years 250,173 322,591 421,343 493,762
1.5 Years 266,988 344,274 449,663 526,949
Robert A. Knarr 73,170 1.5 Years 193,167 249,083 325,333 381,250
1.5 Years 206,150 265,825 347,200 406,875
Thomas D. Guy 43,902 1.5 Years 114,375 152,500 194,438 228,750
1.5 Years 122,063 162,750 207,506 244,125
</TABLE>
(1) Represents number of shares which equate to 66.7% (twelve months of 1997
divided by the eighteen months in the performance period) of the maximum
potential payment.
(2) 1997-1999 Performance Cycle consists of 2 eighteen month measurement
periods, respectively, from January 1, 1997 through June 30, 1998, and July 1,
1998 through December 31, 1999.
(3) The above dollar amounts represent the bonus dollars that would be paid out
at the end of each eighteen month measurement period if the maximum, aggressive,
target or minimum levels in the five performance criteria (year to year increase
in sales, book value per share, cash flow from operations, return on equity and
return on investment) were met. All of the participants in the long term
incentive plan have chosen to forego bonus payment opportunities relating to the
first eighteen month measurement period and received options in place of bonus
dollars (See footnote 1 to Options/SAR Grants in 1997 table on pg. 12).
OPTION REPRICING
Following the initial grant of the February 4, 1997 options, market
conditions, in the view of the Committee, depressed the market price of the
Common Stock, making these options, as originally priced, significantly
out-of-the money shortly after issuance for reasons unrelated to the Company's
performance. Consequently, the Committee determined that, because these options
are designed as an incentive for the executive officers, it was desirable to
reprice those options to bring their exercise prices closer into line to the
then-current market price for the Company's Common Stock. Accordingly, the
Committee repriced the February, 1997 options at a price equal to 110% of the
market price on the date of repricing.
14
<PAGE> 17
Set forth below is certain information concerning the repricing of
options that were granted to executive officers, other than the Chief Executive
Officer, on February 4, 1997 and repriced on April 30, 1998:
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
Length of
Original Option
Term
Market Price of Exercise Price at Remaining at
Number of Stock at Time of Time of Date of
Options/SARS Repricing or Repricing or Repricing or
Repriced or Amendment Amendment New Exercise Amendment
Name Amended ($/SH) ($/SH) Price ($/SH) (Months)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
H. Rosenkrantz
at 215,000 $33.625 $42.3125 $36.9875 117
T. Josefsen and
R. Knarr, each 200,000 33.625 42.3125 36.9875 117
at
T. Bremer, R.
Douville and
T. Guy, each at 175,000 33.625 42.3125 36.9875 117
P. Burtscher, R.
Granger, L.
Mazzarese, E.
Nahum, J.
Scherpf, J.
Sciallo and M.
Scipione, each 75,000 33.625 42.3125 36.9875 117
at
C. Johnson and
P. Komenda,
each at 60,000 33.625 42.3125 36.9875 117
</TABLE>
COMMON STOCK PERFORMANCE GRAPH
Set forth below is a graph comparing the cumulative total shareholder
return on the Company's Common Stock with the cumulative total return of the S &
P 500 Index and the S & P Medical Products & Supplies Index.
Cumulative total shareholder return assumes reinvestment of dividends.
The comparison is based upon the assumption that $100 was invested on
December 31, 1992 in United States Surgical Corporation's Common Stock, the S &
P 500 Index and the S & P Medical Products & Supplies Index.
15
<PAGE> 18
The following depiction of shareholder return shall not be deemed
incorporated by reference into any filings by the Company under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
[SHAREHOLDER RETURN GRAPHIC]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
USSC 100 33 28 31 58 44
S & P 500 Index 100 110 112 153 189 252
S & P Medical Product & Supplies Index 100 76 90 153 175 219
</TABLE>
REPORT OF COMPENSATION/OPTION COMMITTEE
The compensation of the Company's executive officers is reviewed and
approved at least on an annual basis by the Compensation/Option Committee (the
"Committee") of the Board of Directors, which consists exclusively of
independent, non-employee Directors who qualify as "outside directors" under
Section 162(m) of the Internal Revenue Code, discussed below.
GENERAL POLICY
The Company's compensation policy, which is endorsed by the Committee,
is to attract and retain the best management talent available, and to pay that
talent based on Company and individual performance. Base salaries are set at
competitive levels, but a substantial portion of an executive officer's
compensation opportunity is "at risk" and is realized only for achievement of
specific goals. For 1997, the Committee set achievement of specific objectives
for growth in earnings as the benchmark for 1997 incentive compensation in order
to continue the improvement in the financial strength of the Company. As the
Company pursues its aggressive growth and expansion plans, the Committee will
utilize other measurements it believes will further the Company's goals. The
Committee also thinks that, while performance goals should include corporate
financial results, executives should
16
<PAGE> 19
also be held accountable for individual performance objectives. The Committee
established personal performance objectives for each of the Company's
executives. Stock options, which align the interests of the Company's executives
with those of the shareholders, are also an important part of the Company's
compensation program.
The Committee believes annual salaries and incentive compensation
opportunities should be at the higher end of the market for executive talent.
The Company's strategic plan targets significant growth and requires a senior
management team that can create the growth and manage the business as it grows.
The Company, as it expands into additional surgical specialties, such as
orthopedics, cardiology, urology, and others, is becoming increasingly complex.
The Company demands superior performance from its executives and typically
assigns most executive officers of the Company broader, more complex
responsibilities than corresponding positions in comparative companies. The
Company must, in many cases, compete against significantly larger and more
heavily capitalized firms, and executives must be retained who are equal in
ability to the senior executives at these larger firms. The Committee believes
that the senior management team responsible for the turnaround of the Company
following the healthcare reform downturn during 1993 and 1994, under the
direction of the Chief Executive Officer, must be retained and that those
executives, along with other officers of like ability who are hired, should be
offered an opportunity for rewards based on continued growth in the value of the
business.
The Company will continue to hire executives whose talent and
performance place them within the high end of the pool of available executives,
and the Committee intends to set compensation packages which are adequate to
meet this need while furthering Company objectives.
The total compensation program is designed to balance incentives
between short and long term performance, and consists of annual compensation,
which includes base salary and the opportunity to earn an annual bonus, and a
long term incentive program, which includes stock options and the opportunity to
earn cash awards over a multi-year performance period.
Each element of the compensation program, including a specific
discussion as to the Chief Executive Officer's compensation, is set out below.
ANNUAL COMPENSATION.
Generally, annual compensation of executive officers under the
Executive Compensation Program for 1997 consisted of salary and bonus
components.
1. Salary.
Under the Company's compensation program, executive officers are paid a
base salary based upon their level of responsibility and their contribution to
the Company, including informal assessments as to their compliance with the
Company's overall corporate policies. The 1997 salaries of executive officers,
including the Chief Executive Officer, were reviewed and approved by the
Compensation/Option Committee in January, 1997. Salaries were increased ranging
from 10% to 59% from 1996 levels for the named executive officers, including the
Chief Executive Officer, and for other executives of the Company. The Chief
Executive Officer and two other of the named executive officers received no
increase in base salary from their respective 1996 levels.
2. Bonus.
A significant portion of 1997 executive officer annual compensation was
based on corporate performance. Annual bonuses under the Company's executive
compensation program were based on the Earnings Per Share ("EPS") bonus
component and personal performance objectives.
Annual bonuses are based on performance. For 1997, all of the regular
annual bonus opportunities were weighted equally for most executives between the
EPS component, and the personal performance objective component. Each bonus
performance element was evaluated independently, however, a failure to achieve
personal performance objectives was designed to ratably reduce the opportunity
for awards for achievement of the EPS component. Bonus opportunity levels are
set as a percentage of base salary. For 1997, regular annual bonus
17
<PAGE> 20
opportunities were increased for the Chief Executive Officer and the other named
executives dependent upon achieving minimum, target and maximum levels of EPS
and personal performance objectives.
Performance goals are established by the Committee. Following year-end,
the Committee reviews the extent to which the goals have been achieved with the
assistance of the Company's independent auditors, assesses personal performance
objectives, and determines the amount of the bonus to be paid to the executive
officers, if any. Awards are based on financial performance criteria and may be
reduced, in the Committee's discretion, if individual performance objectives are
not met.
The EPS Bonus Component: The 1997 EPS bonus opportunity ranged from
12.5% to 60% of the salary levels of the executives named in the Summary
Compensation Table, with 70% for the Chief Executive Officer. A percentage of
the bonus may be earned based on a particular year's EPS above a minimum base
(subject to attainment of personal performance objectives), up to a maximum
determined by the Committee. The EPS goals were exceeded for 1997 and the
maximum amounts were paid for the EPS Bonus Component to the Chief Executive
Officer and to the other named (and other) executive officers of the Company.
The PPO Bonus Component: Under the PPO Bonus component, individual
performance objectives are established for the Chief Executive Officer and the
other named (and other) executives by the Committee. Each PPO is weighted and is
related to the particular area for which an executive officer is responsible.
Examples of objectives include, but are not limited to, budget control,
achievement of sales objectives and product development. In 1997, the portion of
cash compensation opportunity represented by this component of compensation
ranged from 12.5% to 60% of the salary levels of the executives named in the
Summary Compensation Table, with 70% for the Chief Executive Officer.
In addition to successful financial performance and product
introductions in the Company's existing businesses, the executive officers
achieved substantial success during 1997 in implementing strategies to develop
new markets and business opportunities to enhance the Company's long term
growth. These successes have to a large degree resulted from the Company being
able to effectively evaluate, negotiate, structure and complete a substantial
number of acquisition opportunities which were not available to the Company at
the time performance criteria for executive officer compensation were
established by the Committee. These opportunities include the acquisition during
late 1997 of Valleylab, the largest acquisition in the Company's history, as
well as significant acquisitions in spine surgery, vascular, cardiovascular and
interventional cardiology, and breast care. The Report of the Committee last
year specifically stated "As the Company pursues its aggressive growth and
expansion plans the Committee will utilize other measurements it believes will
further the Company's goals". The Committee continues to believe that
alternative measurements are appropriate and wishes to recognize the successes
achieved in addressing these new opportunities during the past year.
Accordingly, the Committee adopted an alternative bonus measurement for 1997 by
substituting the EPS bonus component for the EPS bonus and personal performance
bonus components. This determination reflects the Committee's judgment that the
past year presented certain unique challenges and that the successful
implementation of corporate strategies during 1997 successfully position the
Company for increasing long term shareholder value.
In 1997 the Committee adopted the 1997 Key Management Equity Investment
Plan (the "Key Management Plan"). The purpose of the Key Management Plan is to
secure for the Company and its stockholders the benefits of the incentive
inherent in additional common stock ownership by permitted selected employees of
the Company to elect a grant of options for the purchase of shares of the
Company's common stock by foregoing annual and/or long term bonus compensation
opportunities. The Key Management Plan is intended to provide financial
advantages to the Company by saving cash and reducing expenses, and will allow
selected employees of the Company to demonstrate their commitment to the Company
by choosing the options under the Key Management Plan over part or all of
potential bonuses, thereby taking an additional personal economic risk in the
Company's future. The Plan provides for the grant of options for the purchase of
up to an aggregate maximum of 3,000,000 shares of common stock, subject to
adjustment in certain events including future stock dividends, stock splits and
recapitalizations.
In 1997, each of the named (and other) executive officers elected to
forego 100% of their 1997 bonus opportunity under the PPO and EPS cash
components and 100% of their 1997 bonus opportunity under the long term
component under the Incentive Plan (defined below), as the case may be, in
consideration of which the
18
<PAGE> 21
Company granted options on April 1, 1997 and August 15, 1997 under the Key
Management Plan at option grant prices of $30.75 per share and $32.5625,
respectively with option expiration dates of April 1, 2001 and August 15, 2001,
respectively. The options granted on April 1, 1997 are exercisable on
appreciation of the market price of the common stock above the option grant
price as follows: one third are exercisable if the market price reaches $33.825
per share prior to the option expiration date; one third are exercisable if the
market price reaches $36.90 per share prior to the option expiration date; and
one third are exercisable if the market price reaches $39.975 per share prior to
the option expiration date. The options granted on August 15, 1997 are
exercisable on appreciation of the market price of the common stock above the
option grant price as follows: one third are exercisable if the market price
reaches $35.81875 per share prior to the option expiration date; one third are
exercisable if the market price reaches $39.075 prior to the option expiration
date; and one third are exercisable if the market prices reaches $42.33125 prior
to the option expiration date. Notwithstanding the foregoing price appreciation
thresholds, in certain events, such as change of control of the Company, and
during the last six months prior to the option expiration date, the option may
be exercised for the total number of shares under the option grant irrespective
of the current market price.
LONG TERM INCENTIVE PROGRAM
The Company's long term incentive program, developed with the advice of
outside compensation consultants, consists of stock options, which directly link
the interests of management with those of the stockholders, and cash incentives
based on financial performance over a three year performance period.
1. Stock Options.
The Company seeks to have its executives think of themselves as having
a personal stake in the Company by awarding stock options which give such
officers the opportunity to participate in the growth in the value of the
Company's stock. This approach aligns the interest of the executive officers
with those of the stockholders because the value of the executive officers'
stock options will depend exclusively on how the Company's stock performs. Stock
options only have value to the recipient when the price of the Company's Common
Stock exceeds the exercise price of the option, which is at least the fair
market value at date of grant. Thus, options provide a powerful incentive for
employees to maximize the Company's sales and profits, and build the value of
the business, all of which should be reflected over the long term in the price
of the Company's Common Stock. The Committee believes that stockholders benefit
proportionately. During 1997, an option grant was made to the named executive
officers other than the Chief Executive Officer, and to other executive
officers, as an incentive for continuing the growth in value of the business and
as a retention incentive for the core management group which is key to the
continued improvement of the performance of the Company. The exercise price of
options granted to executive officers was set at the market price on the date of
grant, with the exception of the grant to Ms. Josefsen, which was set at a ten
percent premium to the market price on the date of grant in accordance with a
settlement of shareholder derivative litigation, and the options that were
granted to executive officers, other than the Chief Executive Officer, on
February 4, 1997 and subsequently repriced. The Committee took into account that
many of the outstanding option grants that were granted prior to 1997 preceded
the downturn in the health care industry, were out of the money, and were not
adequate to further the purpose of the stock grant program. The number of
options granted to the named (and other) executives, other than the Chief
Executive Officer, was at market levels, determined with the input of the
Committee's independent compensation consultant following review of the
Company's option program in comparison with option grants at other companies.
The stock option grants are also intended to provide participants with a
potential source of retirement income since the Company does not provide
pensions.
During 1997, the Committee authorized the Chief Executive Officer to
purchase from the Company, at fair market value, an option for the purchase of
2,000,000 shares of Common Stock with an exercise price of $47.875 per share,
exercisable commencing on April 17, 1998 and with an expiration date of March 5,
2001. The purchase price for the options is $1.33 per share, or $2,660,000 in
the aggregate. The options are exercisable on the same terms as provided at
present with respect to options granted to corporate officers under the
Company's stock option plans, excluding rights in connection with a change of
control of the Company up until April 17, 1998, except that the options expire
on the Chief Executive Officer's death, permanent disability which prevents him
from performing a significant proportion of his employment responsibilities, or
termination of employment by the Company for proveable cause. Any shares of
common stock purchased by the Chief Executive Officer pursuant
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to exercise of such options are offered and will be sold to the Chief Executive
Officer without registration under the Securities Act of 1933, as amended, in
reliance on the exemption from registration requirements in Section 4(2) of the
Act. The grant was based, in part, on the Committee's view that such option
would allow the Chief Executive Officer to further demonstrate his commitment to
the Company by taking an additional personal economic risk in the Company's
future and at the same time to provide an additional incentive for appreciation
in the price of the Company's common stock. The grant to the Chief Executive
Officer was determined with input from the Committee's independent compensation
consultant.
2. Long Term grants under the Executive Incentive Compensation Plan.
The Company's Executive Incentive Compensation Plan (the "Incentive
Plan"), approved by the stockholders at the 1996 annual meeting, continues the
Company's program of compensating executive officers (as well as other
employees) based on their achievement of specific objectives established by the
Compensation/Option Committee of the Board. Executives have the opportunity to
earn annual (discussed above under Annual Compensation) and multi-year bonus
awards. The Committee believes that the incentive compensation program is
important in attracting and retaining individuals of superior ability and in
holding executives personally accountable for the achievement of important
corporate objectives.
Under the long term component of the Incentive Plan (for performance
cycles beginning prior to 1996, the predecessor Long Term Incentive Plan), cash
payouts may be earned by a limited number of senior executives based on
achievement of a weighted combination of measurable financial objectives set by
the Committee. For 1997 awards, the objectives included the following: year to
year sales increase; book value per share; cash flow from operations; return on
equity (pre tax); and return on investment (pre tax). The persons eligible for
long term awards are the executive officers of the Company; during 1997, 7
persons were issued awards, including the Chief Executive Officer and the other
officers named in the Summary Compensation Table. Other employees of the Company
will continue to be eligible to receive annual cash incentive bonuses outside of
and under terms substantially the same as in the Incentive Plan.
The long term cash incentive opportunity encourages executives to take
steps which build the business for the future, avoiding a possible disincentive
for prudent long term decisions out of concern as to the possible impact on
short term results. Levels of performance are graded on four tiers -- minimum,
target, aggressive and maximum (corresponding to the columns under the table
describing Long Term Incentive Plan Awards in Last Fiscal Year on page 14) --
with no compensation if the performance is below the minimum aggregate
achievement level and no additional compensation if the performance is above the
maximum aggregate achievement level approved by the Committee. The amount of the
payout is based on a percentage of the recipient's average annual base salary
during each eighteen month measurement period during the cycle, ranging from a
minimum of 30% to a maximum of 90% under the payout formula for aggregate
achievement. For the Chief Executive Officer, the payout ranges from a minimum
of 75% to a maximum of 150% under the payout formula for aggregate achievement.
The maximum long term award for a covered executive in any year is $2.5 million.
ALL OTHER COMPENSATION.
Included with respect to the Chief Executive Officer as "all other
compensation" reported in the Summary Compensation Table was interest accrued
pursuant to the terms of an Installment Option Purchase Agreement which was
entered into in 1984 by the Chief Executive Officer and the Company. The
Installment Option Purchase Agreement ("IOPA") was originally entered into to
encourage Mr. Hirsch, and other executives, to exercise options in the Company's
stock. In 1994, at the Committee's request, Mr. Hirsch repaid the outstanding
principal option price of $5,370,000 in full to the Company in cash. To keep Mr.
Hirsch in substantially the same position on interest, the Committee agreed to
continue to pay the accrued interest as a bonus as it becomes due and to repay
interest expenses of a personal loan by Mr. Hirsch to obtain the funds to pay
the option price. In effect, the transaction substituted a third party for the
Company as the lender under the installment option purchase arrangement. The
Company obtained a significant net cash benefit and additional equity, and Mr.
Hirsch received no advantage.
In 1997, the Company entered into agreements (the "Agreements") with
each of the executive officers which would provide them with certain benefits in
the event of a change in control of the Company, as defined in
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<PAGE> 23
the Agreements. The Agreements, which are approved by the Committee and the
Board of Directors, are to foster the Company's ability to retain key management
personnel and to continue to receive and rely upon their advice as to the best
interests of the Company, including his or her assessment as to whether such
change in control would be in the best interests of the Company, without concern
that the executive officer might be distracted by the personal uncertainties and
risks created by the possibility of a change in control. The Agreements provide
that in the event of a change of control and the executive officer's employment
is terminated without cause, as defined in the Agreement, within three years
thereafter, the executive officer will be eligible for certain specified
severance payments and benefits including a lump sum cash payment equal to 2.99
times the executive officer's annual base salary, maximum bonus opportunity and
car allowance. Also in such event, the Agreements provide that the executive
officer's unvested stock options will become immediately vested and exercisable,
coverage under Company benefit plans will continue for an additional 3 years and
the executive officer will receive certain outplacement services.
TAX CONSIDERATIONS
In 1994, federal tax laws imposed a limit on deductions for each of a
company's five highest paid executives to $1 million. Certain compensation,
including compensation based on performance, is not subject to this limit if
certain conditions are met, primarily, that the compensation is based on
objective performance criteria approved by the stockholders. The Compensation
payments must also be made pursuant to a plan administered by a committee of
outside directors. The Committee must certify that the performance goals were
achieved before payments can be awarded.
The Committee believes that its executive compensation program is
consistent with the intent of this legislation and has taken steps designed to
minimize its effect. The Company's stock option plans under which options may be
granted to executive officers have been approved by the stockholders and qualify
for the exclusion from the deduction limits for grants through the date of the
annual meeting in 1998. Grants made under the LTIP for performance periods
beginning in 1995 were approved by the shareholders and compensation for such
periods, if earned, will qualify for the deduction. The annual bonus opportunity
likewise qualifies for the deduction. Base salary and certain other compensation
amounts disclosed in the summary compensation table do not qualify for the
exclusion from the $1 million limit but such amounts of compensation are not
expected to exceed the deduction limits significantly. The Committee intends to
take steps in the future, including stockholder approval, to maintain deductions
for its incentive compensation plans to the greatest extent practical while
maintaining flexibility to take actions which it deems in the best interests of
the Company and its stockholders but which may result in certain compensation
not qualifying for tax deductions.
COMPENSATION/OPTION COMMITTEE:
Barry D. Romeril, Chairman
John A. Bogardus, Jr.
William F. May
John R. Silber
DIRECTORS' COMPENSATION
Directors who are also officers (currently, Messrs. Hirsch, Bremer,
Knarr and Rosenkrantz and Mmes. Josefsen and Scipione) serve as such without
additional compensation. During 1997, outside directors were each paid the
following fees in each of the capacities served: directors, $34,400 plus $2,755
for each Board meeting attended; Chairman of a Committee, $4,825; other members
of a Committee, $3,440 per Committee; all Committee members received $1,380 for
each Committee meeting attended on a non-Board meeting day.
Certain Eligible Directors (defined as directors who are not, and have
not been for the preceding l2 months, employees of the Company or its
subsidiaries, and who are not the beneficial owner of five percent or more of
the outstanding Common Stock) have received stock award, and option grants under
the Outside Directors Stock Plan ("ODSP"). The ODSP provides for stock awards,
and option grants of up to an aggregate maximum of
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<PAGE> 24
260,000 shares of Common Stock, of which 74,000 shares remained available for
grant as of December 31, 1997. Upon the forfeiture of shares prior to vesting,
and upon expiration of an option, the forfeited shares and any shares subject to
the option which remain unexercised generally become available again under the
ODSP. The ODSP is administered by the Compensation/Option Committee of the Board
of Directors. The selection and eligibility of grantees and the dates and
amounts of option grants are defined in the ODSP and are not subject to the
discretion of any person.
Option grants of 4,000 shares are automatically made under the ODSP to
Eligible Directors each year upon his or her reelection to the Board by the
stockholders. The option price is the fair market value of the Common Stock on
the date of grant. Each option becomes exercisable as to one-half of the shares
covered by it commencing one year after the date of grant and as to the
remaining one-half commencing two years after the date of grant, provided the
optionee has been in continuous service on the Board at all times since the date
of grant. However, each option becomes fully exercisable in the event of the
grantee's death or permanent disability, and may be exercised to the extent
otherwise exercisable if the grantee retires with the consent of the Board or
his or her service on the Board is terminated after a Change in Control, as
defined. The Eligible Directors each received an option for 4,000 shares in
1997, with an option exercise price of $33.75. Assuming an Eligible Director is
reelected, such director will receive an option for 4,000 shares on May 5, 1998.
Eligible Directors also receive a one-time stock award of 4,000 shares of
restricted stock following the first anniversary of their election to the board.
Mr. Romeril received such an award during 1997 and Mr. Mellor will receive such
an award during March, 1998.
CERTAIN TRANSACTIONS
(a) In connection with the exercise of certain options granted under
the 1981 Employee Stock Option Plan, the Company entered an installment option
purchase agreement (the "Agreement") with Leon C. Hirsch in 1984 where the
Agreement, as amended, permitted Mr. Hirsch to pay the option price in three
equal installments, with the last installment payable in 1999. Mr. Hirsch
agreed, at the request of the Company, to repay the outstanding principal option
price of $5,370,000 during 1994. In exchange, the Company agreed to continue to
award Mr. Hirsch a bonus equal to scheduled installments of interest payments on
the original option price and for the interest costs on a personal loan taken to
repay the option price. The interest rate on such personal loan is at an annual
rate of 8.10%; interest on the installment payments of interest at the original
option price is at an annual rate of 6.33%.
Bonuses accrued in 1997 under the Agreement aggregated $479,006. Total
accrued interest under the Agreement at December 31, 1997 was $3,550,205. Under
the Agreement, an amount equal to 100% of the interest for the term of the
Agreement is to be paid as a bonus to Mr. Hirsch while he remains an employee of
the Company as and when such interest is due. See footnote (3) to the Summary
Compensation Table above.
(b) In 1997, Smyth Sanford & Gerard Reinsurance Intermediaries, Inc.,
of which Mr. King, a director of the Company, is President and a director,
performed certain insurance brokerage services for the Company for which it
received compensation of $238,753. Mr. King may have benefited indirectly from
these transactions as an officer and employee of that firm.
(c) In 1997, The Company entered into a license with Seragen, Inc.
("Seragen"), which provides the Company exclusive worldwide rights to make, use
and sell a fusion protein for restenosis in cardiovascular applications and a
right of first refusal to make, use and sell intravenous infusion pumps and
lines to be used in conjunction with a second fusion protein. The Company made
an initial payment of $5 million to Seragen upon signing the agreement and has
the option to terminate the agreement within 15 months, in which event Seragen
would receive the Company's test data evaluating the technology covered by the
agreement and the Company would receive $5 million in Seragen common stock,
valued at the lower of the closing price of Seragen common stock on the date of
the agreement or the date of termination. If the Company determines not to
exercise such right of termination, it will be obligated to pay Seragen up to an
additional $22.5 million, contingent upon Seragen's achieving certain milestones
related to the commercialization of such technology. The Company would also be
obligated to pay royalties to Seragen on sale of products incorporating such
technology, if and when approved for marketing by applicable regulatory
authorities. The Company's right and royalty obligations under the agreement
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<PAGE> 25
would extend for the life of the Seragen proprietary patents and during the term
of Seragen's licensed patents, which are subject to termination in certain
circumstances.
Mr. Hirsch and Ms. Josefsen are officers and directors of the Company
and are husband and wife. As of December 31, 1997, Mr. Hirsch owned 7,000 shares
of Seragen Series B preferred stock ("Seragen Series B Shares"), which
represented 18.9% of the total voting power of the Seragen capital stock and
which are convertible into 20,588,235 shares of Seragen common stock, as well as
warrants to purchase 816,666 shares of Seragen common stock exercisable at $4.75
per share and a warrant to purchase 4,053,525 shares of Seragen common stock
exercisable at $4.00 per share. As of December 31, 1997, Ms. Josefsen owned
3,000 Seragen Series B Shares, which represented 18.9% of the total voting power
of the Seragen capital stock and which are convertible into 8,823,529 shares of
Seragen common stock, as well as warrants to purchase 350,000 shares of Seragen
common stock exercisable at $4.75 per share and a warrant to purchase 1,737,221
shares of Seragen common stock exercisable at $4.00 per share. Securities owned
by Mr. Hirsch exclude securities owned by Ms. Josefsen and securities owned by
Ms. Josefsen exclude securities owned by Mr. Hirsch. Each of them disclaim
beneficial ownership of securities owned by the other.
Dr. Silber, a director of the Company, is also a director of Seragen.
As of December 31, 1997, Dr. Silber owned jointly with his wife, Kathryn U.
Silber, 171,000 shares of Seragen common stock, which represented less than 1%
of the total voting power of the Seragen capital stock, and a warrant to
purchase 7,500 shares of Seragen common stock exercisable at $10.00 per share.
Dr. Silber is the Chancellor of Boston University. As of December 31,
1997, Boston University through a nominee partnership owned 8,299,077 shares of
Seragen common stock, 11,800 Seragen Series B Shares, which are convertible into
34,705,882 shares of Seragen common stock, a warrant to purchase 1,376,666
shares of Seragen common stock exercisable at $4.75 per share, a warrant to
purchase 6,833,099 shares of Seragen common stock exercisable at $4.00 per
share, stock options exercisable for 15,000 shares of Seragen common stock and
5,000 shares of Seragen Series C preferred stock, which are convertible into
3,360,625 shares of Seragen common stock. Boston University's aggregate share
holdings represented 80.6% of the total voting power of the Seragen capital
stock. During 1997, Boston University completed the purchase of Seragen's
manufacturing and clinical operations facilities for $5 million, and most of
Seragen's employees involved in the manufacturing and clinical operations became
employees of Boston University. Simultaneously with such purchase, Boston
University provided Seragen with certain services related to product research,
development, manufacturing, clinical trials, quality control and quality
assurance, for which Seragen has agreed to pay approximately $12.1 million in
fees during the first two years of such agreement.
In connection with the issuance of the Seragen Series B Shares, Seragen
transferred all of its patents ("the Patents") to Seragen Technology, Inc.
("STI"). STI has no operations, and its sole assets are the Patents. The capital
stock of STI consists of 214,200 shares of STI Class A Common Stock, which are
owned by Seragen, and 23,800 shares of STI Class B Common Stock, which are owned
by the holders of the Seragen Series B Shares. Each share of STI Class A Common
Stock and STI Class B Common Stock is entitled to one vote on all matters
submitted to a vote of STI shareholders, voting together as a single class. STI
provided Seragen with an irrevocable worldwide exclusive license with respect to
the Patents (the "Irrevocable License Agreement"). Under the Irrevocable License
Agreement, Seragen is obligated to pay quarterly royalties in an amount equal to
the amount of any dividend that the holders of the Series B Shares are entitled
to receive but have not received by the royalty due date (which is one day after
each quarterly dividend payment date for the Series B Shares). STI's Class B
Common Stock provides for cumulative dividends payable in the same amount as any
royalties payable by Seragen under the Irrevocable License Agreement. Shares of
STI Class B Common Stock will be redeemed whenever Seragen Series B Shares are
redeemed, in an amount equal to the number of Series B Shares redeemed. In
consideration for Seragen's contribution of the Patents to STI, STI delivered to
Seragen shares of its Class A Common Stock and shares of its Class B Common
Stock, provided Seragen with the Irrevocable License Agreement, and agreed to
execute and deliver to the holders of the Series B Shares a collateral
assignment made in their favor securing STI's dividend obligations with respect
to STI's Class B Common Stock. At the closing of the issuance of the Series B
Shares, Seragen delivered to the holders of the Series B Shares its shares of
STI's Class B Common Stock and STI executed and delivered to an escrow agent
appointed pursuant to an escrow arrangement with the holders of the Series B
Shares the collateral assignment of the Patents, subject to the Irrevocable
License Agreement. At the closing, the holders of the Series B Shares delivered
a reassignment of the Patents to the
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<PAGE> 26
escrow agent. Under the terms of the escrow arrangements, the escrow agent is
required to deliver the collateral assignment of patents to the holders of the
Series B Shares in the event that, after notice, STI fails for 60 days to pay
any dividend due in respect of the Class B Common Stock. Seragen did not make
its royalty payments due January 1, April 1, July 1, and October 1, 1997 or
January 1, 1998. To the Company's knowledge, the holders of the Series B Shares
agreed to forebear from exercising the right to deliver a notice of default to
the escrow agent until March 1, 1998 and have not provided notice of the STI
dividend payment failure to the escrow agent. In the event that STI redeems its
STI Class B Common Stock, the escrow agent is required to redeliver a
reassignment of the Patents to Seragen.
On November 6, 1996, Seragen entered into a shareholders agreement (the
"Shareholders Agreement") with Boston University, Mr. Hirsch, Ms. Josefsen, and
others (collectively, the "Shareholders"). Pursuant to the Shareholders
Agreement, the Shareholders have agreed, among other things, to vote their
respective Seragen shares to maintain the number of persons comprising the
Seragen Board of Directors at nine and not to elect more than two persons
designated by or affiliated with Boston University to the Seragen Board of
Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and any persons who own more than ten
percent of the Company's Common Stock to file with the Securities and Exchange
Commission and the New York Stock Exchange various reports as to ownership of
such Common Stock. Such persons are required by Securities and Exchange
Commission regulation to furnish the Company with copies of all Section 16(a)
forms they file. To the Company's knowledge, based solely on its review of the
copies of such reports furnished to the Company and written representations to
the Company that no reports were required, all the aforesaid Section 16(a)
filing requirements were met on a timely basis during 1997.
STOCKHOLDERS' PROPOSALS
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting must be received at the Company's principal executive offices, 150
Glover Avenue, Norwalk, Connecticut 06856, Attention: Corporate Secretary, for
inclusion in the Company's Proxy Statement and form of proxy relating to that
Annual Meeting, no later than November 30, 1998.
DIRECTOR NOMINEES OR OTHER BUSINESS FOR PRESENTATION
AT THE ANNUAL MEETING
Shareholders who wish to present director nominations or other business
at the Annual Meeting are required to notify the Corporate Secretary of their
intent at least 60 days but not more than 120 days before the meeting and the
notice must provide information as required in the By-laws. A copy of these
By-law requirements will be provided upon request in writing to the Corporate
Secretary of the Company, 150 Glover Avenue, Norwalk, Connecticut 06856. This
requirement does not affect the deadline for submitting shareholder proposals
for inclusion in the Proxy Statement, nor does it apply to questions a
shareholder may wish to ask at the meeting.
EXPENSES OF SOLICITATION
The solicitation of proxies in the form enclosed is made on behalf of
the Board of Directors of the Company. The expenses of the solicitation of
proxies, including preparing, handling, printing and mailing the proxy
soliciting material, will be borne by the Company. Solicitation will be made by
use of the mails and, if necessary, by advertising, electronic
telecommunications and personal interview. The Company has retained the services
of Kissel-Blake Inc. to assist in connection with the soliciting of proxies by
such methods for a fee estimated at $13,000 plus out-of-pocket expenses.
Management may use the services of its directors, officers and employees in
soliciting proxies, who will receive no compensation therefor in addition to
their regular compensation, but who will be reimbursed for their out-of-pocket
expenses incurred. The Company will reimburse banks, brokers, nominees,
custodians and fiduciaries for their expenses in forwarding copies of the proxy
soliciting material to the beneficial owners of the stock held by such persons
and in requesting authority for the execution of proxies.
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<PAGE> 27
OTHER MATTERS
The persons named in the enclosed form of proxy have no present
intention of bringing before the meeting for action any matters other than those
specifically referred to above, nor has management or the Board of Directors any
such intention, and none of such persons, management or the Board of Directors
is aware of any matters which may be presented by others. If any such business
should properly come before the meeting, the persons named in the form of proxy
intend to vote thereon in accordance with their best judgment.
By Order of the Board of Directors
PAMELA KOMENDA
Corporate Secretary
Dated: March 30, 1998
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COMMON STOCK UNITED STATES SURGICAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR ANNUAL MEETING MAY 5, 1998
The undersigned hereby constitutes and appoints John A. Bogardus, Jr., Leon
P C. Hirsch and William F. May, and each of them, his true and lawful agents
and proxies with full power of substitution in each, to represent and vote
R all the Common Shares held by the undersigned at the Annual Meeting of
Stockholders of UNITED STATES SURGICAL CORPORATION to be held at The
O Equitable building, 787 Seventh Avenue, New York, N.Y. 10019, on Tuesday,
May 5, 1998, at 2:00 P.M. (local time), and at any adjournments thereof, as
X directed on this card upon the matters set forth on the reverse side
hereof, as described in the proxy statement, and in their discretion upon
Y any other business which may properly come before said meeting. The
undersigned hereby revokes all proxies heretofore given with respect to
such meeting.
Election of Directors -- Nominees:
Julie K. Blake, John A. Bogardus, Jr., Thomas R. Bremer, Leon C.
Hirsch, Turi Josefsen, Douglas L. King, Robert A. Knarr,
William F. May, James R. Mellor, Barry D. Romeril, Howard M.
Rosenkrantz, Marianne Scipione, John R. Silber.
You are encouraged to specify your choices by marking the appropriate box
(SEE REVERSE SIDE). Shares will be voted in accordance with such choices.
IF YOU DO NOT MARK ANY BOX THE SHARES WILL BE VOTED IN ACCORDANCE WITH THE
BOARD OF DIRECTORS' RECOMMENDATIONS. The named proxies cannot vote your
shares unless you sign and return this card.
______________
| |
| SEE REVERSE |
| SIDE |
|______________|
- FOLD AND DETACH HERE -
<PAGE> 29
X Please mark your |
votes as in this |
example. ----
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR
election of directors and AGAINST proposals 2 and 3.
______________________________________________________________________________
The Board of Directors recommends a vote FOR proposal 1.
______________________________________________________________________________
FOR WITHHELD
1. Election of Directors
(see reverse)
For, except vote withheld from the following nominee(s):
________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
The Board of Directors recommends a vote AGAINST proposals 2 and 3.
______________________________________________________________________________
FOR AGAINST ABSTAIN
2. Approval of Shareholder Proposal on
Confidential Voting
3. Approval of Shareholder Proposal on
Independent Compensation Option
Committee
______________________________________________________________________________
SIGNATURE(S) _________________________________________________
Note: Please sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such.
DATE ______________ The signer hereby revokes all proxies heretofore given
by the signer to vote at said meeting or any adjourments
thereof.
- FOLD AND DETACH HERE -
[USSC LOGO] THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
SERVICES AVAILABLE TO USSC STOCKHOLDERS
---------------------------------------
A telephone response center is available at USSC's transfer agent, First
Chicago Trust Company of New York, to provide shareholders personal assistance
with:
[ ] Verifying the number of USSC shares in your account.
[ ] Replacing lost or stolen stock certificates.
[ ] Re-registration of stock in the event of marriage, death and estate
transfers, gifts of stock to minors in custodial accounts...any transfer
of stock ownership.
[ ] Inquiries about lost or stolen dividend checks and 1099-DIV's.
[ ] Any shareholder inquiries concerning USSC common stock.
[ ] Consolidation of accounts to eliminate multiple accounts for one holder
and certain duplicate stockholder mailings going to one address.
(Dividend checks, annual reports and proxy materials would continue to
be mailed to each stockholder.)
[ ] Electronic Funds Transfer (Direct Deposit) of Dividends:
[ ] Dividend monies deposited directly into your bank account.
[ ] No worry of lost dividend checks.
[ ] Immediate access to dividend money; no mail delays.
[ ] Verfication of dividend receipts on monthly bank statement.
Call First Chicago Trust Company of New York at (201) 324-1255, or write:
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
To Participate in Electronic Deposit of Dividends: (800) 870-2340
For hearing impaired: (201) 222-4955
E-mail address: fctc @ em.fcnbd.com
Internet Address: http://www.fctc.com
Customer Services Representatives are available from 8:30 a.m. to 7:00 p.m.
Eastern Time, Monday through Friday; automated telephone service is available
24 hours, seven days a week.
