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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:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Mallinckrodt Group Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Merrill Corporation
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
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:*
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / 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:
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[LOGO]
NOTICE OF 1994
ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
MALLINCKRODT GROUP INC.
(FORMERLY IMCERA GROUP INC.)
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[LOGO]
MALLINCKRODT GROUP INC.
September 13, 1994
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Mallinckrodt Group Inc. to be held at the headquarters of one of the
Corporation's operating subsidiaries, Mallinckrodt Veterinary, Inc., at 421 East
Hawley Street, Mundelein, Illinois 60060, on Wednesday, October 19, 1994, at
10:00 a.m. local time. A Notice of this Annual Meeting and a Proxy Statement
covering the formal business of the meeting and related information that will be
of interest to you are enclosed. At the meeting we shall also report on
operations in the fiscal year ended June 30, 1994.
We hope you will attend the meeting. If you plan to do so, please check the
appropriate box on the accompanying proxy card. A map showing the location of
the meeting place is set out at the end of the Proxy Statement.
Whether or not you expect to attend, please promptly sign and return the
proxy card in the accompanying postage-paid envelope. This will assure that your
shares are represented at the meeting and will help us avoid the expense of a
follow-up mailing. Even though you execute this proxy, you may revoke it at any
time before it is voted. If you attend the meeting you will be able to vote in
person if you wish to do so, even if you have previously returned your proxy
card.
Your cooperation and prompt attention to this matter will be appreciated.
Sincerely,
[SIGNATURE] [SIGNATURE]
GEORGE D. KENNEDY C. RAY HOLMAN
CHAIRMAN PRESIDENT & CHIEF EXECUTIVE OFFICER
7733 FORSYTH BLVD., ST. LOUIS, MISSOURI 63105 TELEPHONE (314) 854-5200
<PAGE>
[LOGO]
MALLINCKRODT GROUP INC.
HEADQUARTERS OFFICE: 7733 FORSYTH BLVD., ST. LOUIS, MISSOURI 63105
-------------------
NOTICE OF EIGHTY-FIFTH ANNUAL MEETING OF STOCKHOLDERS
-----------------
To our Stockholders:
The Eighty-Fifth Annual Meeting of Stockholders of Mallinckrodt Group Inc.,
a New York corporation, will be held on Wednesday, October 19, 1994, at 10:00
a.m. local time, in the headquarters of the Corporation's subsidiary,
Mallinckrodt Veterinary, Inc., at 421 East Hawley Street, Mundelein, Illinois
60060, to consider and act upon the following matters, each of which is
explained more fully in the following Proxy Statement. A proxy card for your use
in voting on these matters is also enclosed.
1. Electing one director for a term expiring in 1995 and three directors
for terms expiring in 1997, as RECOMMENDED by the Board of Directors.
2. Ratifying the appointment of independent auditors to examine and report
on the financial statements of the Corporation for fiscal 1995, as
RECOMMENDED by the Board of Directors.
3. Considering and acting upon a proposal to approve the Long-Term
Incentive Compensation Plan and the material terms of the performance
goals for such Plan, as RECOMMENDED by the Board of Directors.
4. Considering and acting upon a proposal to adopt the Deferral Election
Plan for Non-Employee Directors, as RECOMMENDED by the Board of
Directors.
5. Transacting any other business that may properly come before the meeting
or any adjournment thereof.
Only Common and 4% Cumulative Preferred stockholders of record at the close
of business on August 30, 1994, are entitled to notice of and to vote at the
meeting.
Dated: September 13, 1994
By Order of the Board of Directors
[SIGNATURE]
ROGER A. KELLER
VICE PRESIDENT, SECRETARY AND
GENERAL COUNSEL
Your vote is important. If you do not expect to attend the Annual Meeting of
Stockholders, or if you do plan to attend but wish to vote by proxy, please
mark, date, sign and return promptly the enclosed proxy for which a return
envelope is provided.
<PAGE>
PROXY STATEMENT
MALLINCKRODT GROUP INC.
7733 FORSYTH BOULEVARD, ST. LOUIS, MISSOURI 63105
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Mallinckrodt Group Inc. for the Annual
Meeting of Stockholders to be held on October 19, 1994, notice of which, to all
stockholders of record entitled to vote as of August 30, 1994, accompanies this
statement. Only Common and 4% Cumulative Preferred stockholders of record at the
close of business on August 30, 1994, are entitled to vote at this meeting. At
that time, the number of outstanding shares of capital stock of the Corporation
entitled to vote was as follows: 4% Cumulative Preferred Stock, par value $100
per share, 98,330 shares and Common Stock, par value $1 per share, 76,892,719
shares. Each such share is entitled to one vote on each matter properly brought
before the Annual Meeting.
Shares represented by proxies will be voted in accordance with directions
given on the proxy card by a stockholder. Any signed and returned proxy not
specifying to the contrary will be voted as recommended by the Board of
Directors. A stockholder giving a proxy has the right to revoke it at any time
before it has been voted at the meeting.
Proxies marked as abstaining will be treated as present for purposes of
determining a quorum for the Annual Meeting, but will not be counted as voting
in respect of any matter as to which abstinence is indicated. Proxies returned
by brokers as "non-votes" on behalf of shares held in street name because
beneficial owners' discretion has been withheld as to one or more matters on the
agenda for the Annual Meeting will not be treated as present for purposes of
determining a quorum for the Annual Meeting unless they are voted by the broker
on at least one matter on the agenda; such shares will not be counted as to the
matters for which a non-vote is indicated on the broker's proxy. With respect to
the proposals regarding the Long-Term Incentive Compensation Plan and the
Deferral Election Plan for Non-Employee Directors, abstentions and broker
non-votes will have the same effect as votes against these proposals, because
under the laws of New York, the Corporation's state of incorporation, the
affirmative vote of holders of a majority of the outstanding shares of the
Corporation's 4% Cumulative Preferred Stock and Common Stock entitled to vote at
the meeting, voting without regard to class, is required for approval.
The Annual Report of the Corporation for the fiscal year ended June 30,
1994, this Proxy Statement, and the proxy card are first being mailed to
stockholders commencing on or about September 13, 1994.
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AGENDA ITEM 1
ELECTION OF DIRECTORS
At the outset of fiscal 1994, the Board of Directors consisted of twelve
members. At the annual meeting of stockholders in October 1993, Keith D. Bunnel,
a director since 1983, did not stand for reelection, having reached the
retirement age of 70 for directors under the Board's directors' retirement
policy. Effective February 15, 1994, the Board elected Claudine B. Malone a
director and effective April 1, 1994, elected Brian M. Rushton a director, and
the Board size was increased to accommodate these elections. Paul R. Judy, a
director since 1983, retired from the Board effective April 4, 1994, since which
time the Board has consisted of twelve members.
Of the twelve, C. Ray Holman, the Company's President and Chief Executive
Officer, is the only employee of the Corporation. The Chairman of the Board,
George D. Kennedy, was the Chief Executive Officer until his retirement as an
officer in November 1991, and Raymond F. Bentele was President and Chief
Executive Officer of Mallinckrodt, Inc., a subsidiary, and Executive Vice
President of the Corporation until his retirement as an officer in December
1992. The remaining directors are not and have not been officers or employees of
the Corporation.
Effective on the date of this Annual Meeting, Dr. Louis Fernandez, a
director of the Corporation since 1986, will retire as a director because of the
Board's directors' retirement policy and George D. Kennedy, a director of the
Corporation since 1975 and currently the Chairman of the Board, has elected to
retire from the Board at the same time. Accordingly, the Board has reduced the
size of the Board of Directors to ten members effective on the date of this
meeting.
As provided in the certificate of incorporation and by-laws, the Board is
divided into three classes, with one class standing for election each year for
three-year terms. The classes of the Board are kept as equal in size as
practicable and each must have a minimum of three directors. The Class of 1994
has consisted of four directors: Dr. Fernandez, Mr. Holman, Mr. Kennedy, and Mr.
Moskin. Dr. Fernandez and Mr. Kennedy are retiring from the Board, as indicated.
Upon the recommendation of the Corporate Governance Committee, the Board
believes Messrs. Holman and Moskin should be continued in office and has
nominated each for re-election by the stockholders for three-year terms.
Ms. Malone and Dr. Rushton, having been selected by the Board to fill
interim vacancies, are required by New York law to be elected by the
stockholders at this meeting to continue in office. The Corporate Governance
Committee has recommended, and the Board has nominated, Ms. Malone for election
by the stockholders for a three-year term and Dr. Rushton for a one-year term in
order to keep the three classes of directors as nearly equal as practicable.
Each of the four nominees is willing to so serve.
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The shares represented by the proxies named on the enclosed proxy card will
be voted, unless authorization to do so is withheld, in favor of the election of
the nominees as directors to serve for the terms indicated or until their
successors shall have been duly elected and qualified. Biographical information,
current as of July 1, 1994, concerning each of the nominees and the directors
continuing in office follows. There are no family relationships between any of
the nominees or any of the incumbents or any executive officer of the
Corporation or any of its subsidiaries. Except for Ms. Malone and Dr. Rushton,
all nominees have previously been considered and elected by the stockholders.
As required by New York law, directors are to be elected by a plurality of
the votes cast at the meeting in person or by proxy by the holders of shares
entitled to vote in the election.
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF THE FOLLOWING FOUR
NOMINEES (ITEM NO. 1 ON THE PROXY CARD).
NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 1997
<TABLE>
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(PHOTO) C. RAY HOLMAN, 51, President and Chief Executive Officer and
a director of the Corporation since December 1992. Mr. Holman
joined Mallinckrodt, Inc., as assistant controller in 1976, and
held increasingly more responsible positions thereafter:
controller, 1977; chief financial officer, 1979; group vice
president, finance and corporate development and chief financial
officer, 1982; and group vice president for hospital and
laboratory products, 1983, and for medical products, 1985. He
continued in operations after the Corporation acquired
Mallinckrodt, Inc., in 1986, became president and chief executive
officer of Mallinckrodt Medical in 1989, and a corporate vice
president in 1990. He is a director of Laclede Gas Company and is
active in industry and civic organizations. Member, Executive
Committee.
(PHOTO) CLAUDINE B. MALONE, 58, president of Financial & Management
Consulting, a management consulting firm located in McLean,
Virginia. Ms. Malone was a visiting professor at Colgate-Darden
Business School, University of Virginia, from 1984 to 1987, and
an adjunct professor at Georgetown University, School of Business
Administration, from 1982 to 1984. She currently serves on the
boards of Dell Computer Corporation; Hannaford Bros. Co.; Hasbro,
Inc.; Houghton Mifflin Company; Lafarge Corporation; The Limited
Inc.; Scott Paper Company; The Union Pacific Corporation; and
Science Applications International Corporation. Mallinckrodt
director since February 1994. Member, Organization and
Compensation Committee and Social Responsibility Committee (each
since February 1994).
</TABLE>
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<TABLE>
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(PHOTO) MORTON MOSKIN, 67, Partner, White & Case. He joined the law
firm of White & Case, New York City, in 1950, and has been a
partner since 1962. Mallinckrodt director since 1973. Chairman,
Corporate Governance Committee and Member, Executive Committee.
</TABLE>
NOMINEE FOR ELECTION AS DIRECTOR FOR TERM EXPIRING IN 1995
<TABLE>
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(PHOTO) BRIAN M. RUSHTON, Ph.D., 60, president-elect of the American
Chemical Society (ACS). Dr. Rushton most recently served as
senior vice president, research and development, for Air Products
and Chemicals, Inc., in Allentown, Pennsylvania, from 1992-93. He
joined Air Products in 1981 as vice president of research and
development. Dr. Rushton served as President of Celanese Research
Corporation for Celanese Corporation (now Hoeschst Celanese) in
Summit, New Jersey, from 1975-81, and also held the post of
corporate vice president technology from 1980-81. Mallinckrodt
director since April 1994. Member, Audit Committee and Social
Responsibility Committee (each since April 1994).
</TABLE>
DIRECTORS CONTINUING IN OFFICE
<TABLE>
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(PHOTO) RAYMOND F. BENTELE, 57. Mr. Bentele joined Mallinckrodt, Inc.
in 1967, became Controller and then Vice President, Finance
Administration in 1977, Chief Operating Officer in 1979, and was
President and Chief Executive Officer from 1981 until his
retirement in December 1992. He joined the Corporation as Senior
Vice President when it acquired Mallinckrodt, Inc. in 1986, and
was Executive Vice President of the Corporation from 1989 until
retirement. He is a director of the Kellwood Company and of IMC
Fertilizer Group, Inc. Mallinckrodt director since 1990. Member,
Audit Committee and Social Responsibility Committee. Term expires
in 1996.
</TABLE>
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<TABLE>
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(PHOTO) DR. RONALD G. EVENS, 54, medical doctor, Director of the Mal-
linckrodt Institute of Radiology at Washington University, St.
Louis, Missouri, head of the Department of Radiology and
Mallinckrodt Professor of Radiology of the University's Medical
School, and Professor of Medical Economics at the Olin School of
Business. He was Vice Chancellor for Financial Affairs of the
University during 1988-1990 and President and Chief Executive
Officer of Children's Hospital, St. Louis, during 1985-1988. He
is a director of The Boatmen's National Bank of St. Louis and
Blue Cross/Blue Shield, Inc. of Missouri. Mallinckrodt director
since 1990. Chairman, Social Responsibility Committee, and Mem-
ber, Audit Committee. Term expires in 1996.
(PHOTO) ALEC FLAMM, 67, Retired Vice Chairman, President, and Chief
Operating Officer of Union Carbide Corporation. Mr. Flamm joined
Union Carbide in 1949 and over the years he had increasingly
important responsibilities in technology, marketing, operations,
and management. He became a director of Union Carbide in 1981 and
retired from the board and the company in 1986. He is also a
director of the Continental Corporation. Mallinckrodt director
since 1986. Member, Organization and Compensation Committee and
Executive Committee. Term expires in 1996.
(PHOTO) ROBERTA S. KARMEL, 57, Professor of Law, Brooklyn Law School
since 1985; Partner, Kelley, Drye & Warren since January 1, 1987.
She serves as a director of Kemper National Insurance Companies.
Mrs. Karmel was a partner in the law firm of Rogers & Wells, New
York City, from 1972 until 1977 and then served as a Commissioner
of the U.S. Securities and Exchange Commission from 1977 until
1980. She returned to practice with Rogers & Wells during
1980-85. Mrs. Karmel served as a director of the New York Stock
Exchange from 1983 until June 1989. Mallinckrodt director since
1980. Member, Corporate Governance Committee and Organization and
Compensation Committee. Term expires in 1995.
(PHOTO) HERVE M. PINET, 68, international consultant. Senior Advisor,
Merrill Lynch & Co. from 1984 until May 1991. Mr. Pinet was
President, Compagnie Financiere de Paribas and Chairman and Chief
Executive Officer, Becker Paribas Inc. from 1982 until 1984. From
1975 to 1978 he was Executive Vice President of Paribas and then
President of Paribas International until 1982. Mallinckrodt
director since 1973. Member, Corporate Governance Committee and
Executive Committee (since April 1994).Term expires in 1996.
</TABLE>
5
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<TABLE>
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(PHOTO) DANIEL R. TOLL, 66, corporate and civic director. He serves
as a director of Brown Group, Inc., A.P. Green Industries,
Inc., Kemper National Insurance Companies, Kemper Corporation,
Lincoln National Convertible Securities Fund, Inc., Lincoln
National Income Fund, Inc., and NICOR, Inc. He was formerly
President and a director of Walter E. Heller International
Corporation, a financial services firm, and was a director of its
subsidiary, The American National Bank and Trust Company of
Chicago until 1985. Since then he has been a corporate and civic
director. Mallinckrodt director since 1985. Chairman, Audit
Committee and Member, Corporate Governance Committee. Term
expires in 1995.
</TABLE>
INFORMATION ABOUT THE BOARD OF DIRECTORS
In accordance with the laws of the State of New York, the Board of Directors
is responsible for supervising the overall affairs of the Corporation. Five
committees of the Board, as described below, assist the Board in carrying out
its duties.
The Board held six regular meetings and two special telephone meetings
during the fiscal year. Overall attendance of directors at Board and committee
meetings was in excess of 95%. All directors attended at least 75% of the
meetings of the Board and all committees of the Board of which they were
members, except for Mr. Bentele, who missed several meetings because of a family
illness and whose attendance was 64%, and Ms. Malone whose attendance, 70%, was
affected by previously outstanding commitments at the time of her election to
the Board in February.
COMMITTEES OF THE BOARD
The Executive Committee, the Audit Committee, the Corporate Governance
Committee, the Organization and Compensation Committee, and the Social
Responsibility Committee are the standing committees of the Board of Directors.
The committees held a total of twenty regular meetings and four special
telephone meetings during fiscal 1994. The Executive Committee consisted of
Messrs. Kennedy and Holman and three non-employee directors. The Audit
Committee, the Corporate Governance Committee, the Organization and Compensation
Committee, and the Social Responsibility Committee each consisted of
non-employee directors (although Mr. Bentele, who is a member of the Audit
Committee and the Social Responsibility Committee, is a former officer and
employee of the Corporation). Members of these committees during the past year
are identified in the personal information about each of the directors in this
Proxy Statement.
EXECUTIVE COMMITTEE. The Executive Committee, between meetings of the Board
and subject to limitations imposed by law or by the Board of Directors, may
exercise the powers of the Board as necessary in the best interests of the
Corporation. The Executive Committee met once during the last fiscal year.
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AUDIT COMMITTEE. The Audit Committee, which met four times during the past
fiscal year, evaluates the performance of the Corporation's independent auditors
and their fees for services; reviews the scope and results of the audit
examination to be performed each year with the independent auditors, the
Corporation's internal auditing staff, and management; reviews the non-auditing
services performed by the independent auditors and considers the effects thereof
on their independence; and also reviews the Corporation's internal accounting
control systems with the independent auditors.
CORPORATE GOVERNANCE COMMITTEE. The Corporate Governance Committee met
seven times during the last fiscal year. Its functions include making
recommendations to the Board of persons to be nominated for election as
directors of the Corporation. It also evaluates Board procedures and the
performance of the Board, its members, and its committees and reviews
developments in the governance of publicly held companies as they may affect the
Corporation. This Committee will consider persons recommended by stockholders as
potential future nominees for election to the Board if the names of such persons
are submitted (in accordance with the bylaws' time requirements described below
under "Miscellaneous Information") in writing to the Secretary of the
Corporation, together with a full description of the qualifications and business
or professional experience of the proposed nominees and a statement from them of
their willingness to serve.
ORGANIZATION AND COMPENSATION COMMITTEE. The Organization and Compensation
Committee met eight times during the last fiscal year. The responsibilities of
this Committee include overview of the Corporation's stock option plans,
incentive compensation, pension and other benefit plans; the review of
perquisites and other benefits available to various levels of corporate
personnel; and the review and approval and/or recommendation to the Board for
approval of the amount and nature of compensation to be paid to corporate
officers and other key employees. See pages 30-36 for the report of, and
additional information about, this Committee.
SOCIAL RESPONSIBILITY COMMITTEE. The Social Responsibility Committee had
four meetings during the last fiscal year. Its function is to review the
Corporation's policies and procedures in business matters having particular
social concern, including environmental protection, equal employment
opportunities, occupational health and safety, regulatory compliance, and
product quality and safety; to review the aspects of the Corporation's research
and development activities relevant to the Committee's purpose; and to review
political and social developments as they may affect the Corporation.
DIRECTORS' COMPENSATION
COMPENSATION FOR DIRECTORS' SERVICES
Mr. Holman is the only employee director of the Corporation at this time.
Employee directors receive no fees or remuneration, as such, for service on the
Board or on any committee of the Board. As former employees, the director
compensation of Mr. Kennedy and, until November 1993, Mr. Bentele, was
encompassed by their fees as consultants to the Corporation, as described below
under "Compensation for Non-director Services."
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Each non-employee director receives an annual retainer, which in fiscal 1994
amounted to $28,333. Each such director is also paid a fee for each Board and
committee meeting he or she attends. Each Board meeting in recent years has
extended over a period of two days rather than one day as theretofore, and
effective November 1, 1993, Board compensation for non-employee directors was
increased to reflect the increased demands on director time and responsibility.
Fees for attendance at meetings of the Board in respect of Board meetings
attended in person went from $1,000 to $2,000 per meeting (from $500 to $750 if
participation was by telephone) and from $750 to $1,000 in respect of committee
meetings attended in person (from $375 to $500 if participation was by
telephone). In addition, committee chairs and members of the Executive Committee
receive an annual retainer fee at the rate of $3,600 per year ($2,500 per year
until November 1, 1993, and pro-rated for the fiscal year so that the actual fee
paid for fiscal 1994 was $3,233).
Through June 30, 1994 directors could elect to defer receipt of all or
designated portions of director compensation in cash and two non-employee
directors deferred their retainer and fees under this plan with interest
accruing at the Bankers Trust Company of New York prime rate at the beginning of
each quarter compounded quarterly. Three non-employee directors have elected to
defer all of their retainers and fees under a proposed new Deferral Election
Plan for Non-Employee Directors which, subject to approval of such Plan at the
Annual Meeting by the Corporation's stockholders (Item 4 of this Proxy
Statement), will permit deferrals to be in the form of cash and/or shares of the
Corporation's Common Stock.
Non-employee directors participate in the stockholder-approved Directors
Stock Option Plan under which, commencing with the 1990 annual meeting until
that held in the year 2000, annual grants of stock options are automatically
made to each individual who is elected to the Board of Directors at such meeting
or who had previously been elected to the Board and is continuing on the Board
for a term extending beyond such meeting. Each option grant permits the
non-employee director, for a period of up to ten years from the date of grant
(unless the period is shortened under provisions taking effect upon death or
retirement), to purchase from the Corporation up to 1,500 shares (as adjusted to
reflect a three-for-one stock split effective November 12, 1991) of the
Corporation's Common Stock at the fair market value of such shares on the date
the option is granted. One-half of the total number of shares covered by each
option grant become exercisable on and after its first anniversary and the
remaining one-half on and after the second anniversary. An aggregate of 225,000
shares of Common Stock are subject to the Plan. The following automatic grants
have been made under the Plan: 15,000 shares in the aggregate to the ten
non-employee directors on October 17, 1990, at an exercise price of $18.54 per
share; 15,000 shares in the aggregate to the ten non-employee directors on
October 16, 1991, at an exercise price of $40.00 per share; 13,500 shares in the
aggregate to nine such directors on October 21, 1992, at an exercise price of
$34.75 per share; and 13,500 shares in the aggregate to nine non-employee
directors on October 21, 1993, at an exercise price of
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$34.44 per share. Additional grants of 1,500 shares to each eligible director
will automatically be made effective and at the market value on the date of this
Annual Meeting. The options are nonstatutory options not intended to qualify
under Section 422A of the Internal Revenue Code. The Plan is administered by the
Board of Directors. The Board, however, has no authority in respect of grants,
which occur automatically as provided in the Plan, and in general, may not
materially increase the benefits under the Plan or, without further approval of
the stockholders, amend the Plan in any respect involving grants.
Non-employee directors are also provided with accident coverage while on
Company business and may participate in the Company's matching gift program for
gifts up to $2,000 per year.
Pursuant to a Director Retirement Service Plan adopted in 1984, as amended,
non-employee directors who serve at least five years as a director, agree to
remain available to provide consultation services to Mallinckrodt management,
and do not work for a competitor, will upon attainment of age 70 and after
retirement from the Board, receive an annual nonqualified pension from the
Corporation. As the Plan was amended in June 1991, effective as to retirements
after that time, the annual pension (which was payable for ten years) is now
payable for the longer of the retired director's years of service or ten years,
in an amount equal to a percentage of the annual retainer in effect at
retirement, depending upon the length of the director's service (60% if five-six
years, 70% if seven, 80% if eight, 90% if nine, and 100% if ten years or more).
If any retired director dies before receiving the full benefit, the remaining
benefit is payable to the surviving spouse until completion or the spouse's
earlier death. The Corporation accrued $226,500 in fiscal 1994 against future
liabilities under the Plan.
In accordance with Board policy, the Chief Executive Officer, the Chairman
of the Board if he or she is not the Chief Executive Officer, and non-employee
directors retire from the board at the annual meeting next following their
reaching age 70. Directors who are officers (other than the CEO and the Chairman
if he or she is not the CEO) retire at the annual meeting next following the end
of their service as an officer subject to the Board's discretion to recommend
that the retired officer (if otherwise eligible) be elected as a non-employee
director.
COMPENSATION FOR NON-DIRECTOR SERVICES
Mr. Kennedy became a consultant upon his retirement as Chief Executive
Officer on November 1, 1991, and agreed to continue as a director and as
Chairman of the Board, in each case if so elected, until the annual meeting in
October 1993, in consideration of $675,000 per annum (inclusive of director
compensation). His contract was extended for one additional year ending in
October 1994 at a fee (inclusive of director compensation) of $500,000 per
annum.
Mr. Bentele had an employment contract with the Corporation whereunder he
was to serve as Executive Vice President of the Corporation and President and
Chief Executive
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Officer of Mallinckrodt, Inc., and as a director and Vice Chairman of the Board,
in each case if so elected, until the 1993 Annual Meeting of Stockholders at a
minimum base salary of $425,000 per annum. By amendment to the contract dated
November 30, 1992, he retired on December 1, 1992, continuing, however, as a
director and Vice Chairman of the Board, and he became a consultant to the
Corporation until October 31, 1993. Mr. Bentele received fees of about $163,000
from July through October 1993 in that capacity (inclusive of director
compensation).
Dr. Evens, a director of the Corporation, has for some years rendered
consulting services to Mallinckrodt Medical's diagnostic division. During fiscal
1994, he was paid $35,004 for these services. In general, there has been a
history of research grants and contributions to, and other support by
Mallinckrodt and its businesses of Washington University, with which Dr. Evens
is associated in several capacities; in fiscal 1994, this totalled about
$441,000.
The firm of White & Case, of which Mr. Moskin, a director of the
Corporation, is a partner, performed legal services for the Corporation during
fiscal 1994 for which that firm was paid its usual and customary charges.
Mr. Pinet, a director of the Corporation, rendered international consulting
services for the Corporation and its subsidiaries in fiscal 1994, for which he
received $120,000.
LITIGATION
The Corporation, Mr. Kennedy, Mr. Bentele, and two former officers no longer
with the Corporation are named as defendants in two purported class actions
brought in February 1992 by two alleged stockholders. These actions, which have
been consolidated and are now pending in the United States District Court for
the Southern District of New York, allege violations of federal securities laws
and related state laws. The plaintiffs base their allegations principally on the
Corporation's February 18, 1992, press release about an FDA inspection of
Pitman-Moore's (now Mallinckrodt Veterinary's) Kansas City plant that also
cautioned that estimates of security analysts regarding fiscal 1992 earnings
from continuing operations in excess of $1.65 per share "were probably too
optimistic." The estimates had been marginally higher ($1.67). The thrust of the
allegations is that disclosure of manufacturing deficiencies was not made on a
timely basis. On October 4, 1993, the district court granted defendants' motion
to dismiss the complaint without leave to replead. Plaintiffs thereafter moved
to reopen the judgment and for leave to file an amended pleading, which motion
was denied. Plaintiffs have appealed both decisions and the appeal has been
briefed and is awaiting argument.
In September 1992, a stockholder's derivative suit was filed in the United
States District Court for the Southern District of New York, purportedly on
behalf of the Corporation, against all of the then directors of the Corporation
asserting claims for alleged violation of the federal proxy rules, for alleged
breach of fiduciary duty, and in Mr. Kennedy's case for alleged misappropriation
of confidential business information. The
10
<PAGE>
case was assigned to the same judge as the above class actions and was
consolidated with them for pre-trial purposes. This case, like the class
actions, arose as a consequence of the FDA inspection and the February 18, 1992,
press release referred to above in the class actions. On October 4, 1993, the
district court granted defendants' motion to dismiss the complaint for, among
other things, failure to make a demand on the Board before commencing suit.
Plaintiff did not appeal this decision. Rather, plaintiff's counsel served a
purported demand letter on the Board requesting that appropriate action be taken
to redress the alleged misconduct that was the subject of plaintiff's prior
complaint. By letter dated December 7, 1993, the Corporation requested further
information from plaintiff regarding the allegations in the demand letter, but
to date has not received any response to this request.
The Corporation believes the aforementioned suits are without merit and will
have no material effect. The Corporation is paying the legal fees and expenses
incurred in defending these cases including advancing, in accordance with New
York law, the fees and expenses attributable to the defense of the individual
directors. A portion may be reimbursed by insurance.
OWNERSHIP OF THE CORPORATION'S SECURITIES
OWNERSHIP BY DIRECTORS AND OFFICERS
The Securities and Exchange Commission considers any person who has or
shares voting and/or investment power with respect to a security or who has the
right to acquire a security within sixty days (such as through the exercise of
an option), to be the beneficial owner of that security. The following table
shows the number of shares of the Corporation's Common Stock held beneficially
as of July 1, 1994, by each director and nominee for director, each of the named
executive officers in the Summary Compensation Table (except Mr. W.J. Mercer,
who resigned as an officer and employee of both the Corporation and Mallinckrodt
Veterinary, Inc. ("MVI") effective July 20, 1994), and all such persons and all
other present executive officers as a group. Included are 534,450 shares which
are subject to stock options held by all such officers of the Corporation as a
group which may be exercised within sixty days of July 1, 1994 (such options
being referred to hereinafter as "exercisable stock options"). Also included are
5,000 shares of restricted stock contingently awarded under the Corporation's
1973 Stock Option and Award Plan.
<TABLE>
<CAPTION>
NUMBER OF
COMMON
SHARES OWNED PERCENT
BENEFICIALLY OF CLASS
NAME AS OF 7/1/94 OUTSTANDING (1)(2)
----------------------------- ------------ ------------------
<S> <C> <C>
Raymond F. Bentele 120,600
Ronald G. Evens 6,700
Louis Fernandez 6,750
Alec Flamm 4,650
Beverley L. Hayes 22,579
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
COMMON
SHARES OWNED PERCENT
BENEFICIALLY OF CLASS
NAME AS OF 7/1/94 OUTSTANDING (1)(2)
----------------------------- ------------ ------------------
<S> <C> <C>
C. Ray Holman 165,013
Roberta S. Karmel 6,050
George D. Kennedy 279,368
Claudine B. Malone 300
Morton Moskin 4,353
Robert G. Moussa 42,171
Mack G. Nichols 122,704
Herve M. Pinet 10,750
Brian M. Rushton 0
Daniel R. Toll 5,250
All directors and executive
officers as a group (20
individuals) 942,247 1.22%
<FN>
- - ------------------------
(1) No individual director or officer is a beneficial owner of more than
four-tenths of one percent of the class outstanding.
(2) The total number of shares of the Common Stock outstanding for calculation
of the percentage of the class in the above table does not include shares
held by or for the account of the Corporation, but does include, in
addition to the 77,006,323 shares of Common Stock actually outstanding on
July 1, 1994, the above shares under exercisable stock options and shares
of contingent restricted stock.
</TABLE>
The table does not include 1,885 shares held in the names of officers or
directors or family members of officers or directors the beneficial ownership of
which is disclaimed by the respective officer or director. The shares shown in
the table include 917,497 shares as to which directors and officers exercise
sole voting and sole investment power and 24,750 shares as to which voting and
investment power is shared in joint tenancy or otherwise.
OWNERSHIP OF VOTING STOCK BY OTHERS
On the basis of filings with the Securities and Exchange Commission and
other information deemed reliable by the Corporation (but excluding holdings of
Cede & Co. and Kray & Co., nominees for depositories of the New York and Chicago
Stock Exchanges, respectively), the Corporation believes that as of on or about
August 31, 1994, the following
12
<PAGE>
named institution owned more than 5% of the Corporation's Common Stock. No
changes in this holding have come to its attention since then. To the
Corporation's knowledge, no person or concern beneficially owns more than 5% of
its Preferred Stock.
<TABLE>
<CAPTION>
VOTING DISPOSITIVE TOTAL
AUTHORITY AUTHORITY AMOUNT OF
-------------------------- -------------------------- BENEFICIAL % OF
NAME AND ADDRESS SOLE SHARED SOLE SHARED OWNERSHIP CLASS
- - ----------------------------------------- --------- --------------- --------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
College Retirement Equities Fund ........ 4,289,850 0 4,289,850 0 4,289,850 5.54%
New York, N.Y.
Investment Company
</TABLE>
OTHER TRANSACTIONS WITH AND SECTION 16(A) FILINGS
OF DIRECTORS AND OFFICERS
Mr. Holman has an employment contract with the Corporation that provides for
his serving as President and Chief Executive Officer for a minimum base salary
of $500,000 per annum until March 1, 1995, and participation in incentive
compensation programs and other benefits. His base salary was increased to
$580,020 per annum on July 1, 1994.
Messrs. Nichols and Moussa have two-year employment contracts with the
Corporation (through March 1, 1995) as corporate vice presidents and,
respectively, president of Mallinckrodt Chemical, Inc. ("MCI") and president of
Mallinckrodt Medical, Inc. ("MMI"), that provide a minimum base salary of
$300,000 in each case, as well as participation in incentive compensation plans.
Effective July 1, 1994, their respective base salaries were increased to
$376,200 and $343,200.
Agreements with 9 executive officers, including those named in the Summary
Compensation Table (except Mr. Mercer, who has resigned as an officer and
employee of both the Corporation and MVI), and 39 key managers, to become
effective in the event of a change in control of the Corporation, are intended
to assure the Corporation and its operating subsidiaries of the continued
services of those executives. In general, all provide that, in the event there
is a change in control of the Corporation (as defined in the agreements), the
executive shall remain employed by the Corporation in his or her then current
position at then current base and incentive compensation and benefit levels for
a period of three years, subject to earlier expiration because of voluntary
resignation (as defined), retirement, disability, or termination for cause as
defined and as determined by the Board of Directors, during which the executive
is to devote his or her full-time efforts faithfully and efficiently to the
Corporation. Should there be both a change in control and a subsequent breach by
the Corporation of any of these agreements, the Corporation would become
obligated to provide certain severance benefits, including two years' base
salary plus twice the average of the prior two or three years' bonuses, and if
necessary the costs of enforcement thereof against the Corporation up to
$200,000 in each such case provided the executive has acted in good faith. In
addition, the Corporation would become obligated to continue the executive's
participation in various compensation and benefit plans mentioned in this Proxy
13
<PAGE>
Statement in which the executive is participating or was eligible to participate
when the agreement became effective, provided the executive does not engage in
harmful competition with the Corporation or breach his or her confidentiality
obligations. The Corporation is not aware of any current or potential
development that would result in a change in control. "Change in control" is
defined in the agreements substantially as indicated at pages 28-29.
Certain provisions of the Revenue Act of 1984 impose a 20% tax surcharge
upon former executives of a corporation and deny Federal income tax
deductibility to the corporation as to a significant portion of severance
payments made to the former executive because of a change in control if such
payments as a whole exceed three times his or her average annual base and
incentive compensation for the most recent five years. The amounts estimated to
be payable under the agreements, should those agreements become effective, are
not believed to be large enough to subject the executives to the surcharge or to
deprive the Corporation of any deduction. However, the Corporation has entered
into separate agreements with each of the executives involved which, in the
event of a change in control and subsequent breach of a contingent employment
agreement requiring payment of these severance related benefits, would provide
reimbursement for any resulting tax surcharge the executive became obligated to
pay ("grossed up" to include any tax due on such additional amounts paid to him
or her), up to a specified maximum in each case.
Were a change in control to occur and were all the contingent employment
agreements then to be breached by the Corporation, the aggregate amount of cash
that would be payable in respect of all contracts is estimated (as of July 1,
1994, and excluding any gross-up) to be $23,016,760 including the following
estimated amounts for the individuals listed in the compensation table on page
22 (except Mr. Mercer): Ms. Hayes, $639,733; Mr. Holman, $1,766,707; Mr.
Nichols, $1,099,067;and Mr. Moussa, $961,067; and all present executive officers
as a group, $7,628,534.
Section 16(a) of the Securities Exchange Act of 1934 and rules promulgated
thereunder require directors and certain officers and beneficial owners of the
Corporation's equity securities to file with the Securities and Exchange
Commission reports about such ownership and changes in ownership. So far as the
Corporation is aware, based solely upon a review of the reports known by it to
have been filed with the SEC, its compensation programs involving its equity
securities, and representations of its directors and officers, all of the
required filings for the period beginning July 1, 1993, and ending June 30,
1994, have been timely made except: (a) in January 1994 an amendment to a prior
Form 4 was filed for Mr. Kennedy in respect of a stock option mistakenly
reported for October 1993; and (b) in February 1994 an amendment was filed on
behalf of Mr. Bentele to correct filings made in July 1991 and August and
December 1992 in respect of the number of shares of Common Stock owned by him.
14
<PAGE>
AGENDA ITEM 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Since 1913 the firm of Ernst & Young and its predecessors (including Arthur
Young & Company), independent auditors, has examined and reported on the
financial statements of the Corporation. The Board of Directors, upon
recommendation of the Audit Committee, has appointed Ernst & Young as
independent auditors to examine and report on the financial statements of the
Corporation for the current year ending June 30, 1995, subject to stockholder
approval.
During the year ended June 30, 1994, Ernst & Young provided the Corporation
with audit services, including examinations of and reporting on the
Corporation's consolidated financial statements, as well as those of several of
its subsidiaries and of certain of its employee benefit plans. Audit services
also included accounting advisory services and review of filings with the
Securities and Exchange Commission and the annual report to shareholders. Ernst
& Young's fees for such services during fiscal 1994, including travel and
related expenses, totalled $2,151,300.
Representatives of Ernst & Young are expected to be present at the Annual
Meeting and will have the opportunity to make any statements they may desire.
They also will be available to respond to appropriate questions of the
stockholders.
Ratification of the appointment of Ernst & Young as independent auditors
requires the affirmative vote of a majority of the votes cast at the meeting by
holders of the Corporation's 4% Cumulative Preferred Stock and Common Stock,
voting without regard to class.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THIS APPOINTMENT (ITEM NO. 2 ON THE PROXY CARD).
AGENDA ITEM 3
APPROVAL OF LONG-TERM INCENTIVE COMPENSATION PLAN
AND THE MATERIAL TERMS OF THE PERFORMANCE GOALS
FOR SUCH PLAN
The Company's Long-Term Compensation Plan for Senior Management that was in
effect for the three-year period ended June 30, 1994, has by its terms expired.
Because the Board continues to believe that long-term incentives are important
factors in attracting, motivating, and retaining officers and other key
employees, the directors adopted at their June 1994 meeting and subject to
approval by the stockholders of the Corporation, a new Long-Term Incentive
Compensation Plan (the "Plan"). The Plan is designed to provide awards to
certain key employees of the Corporation and its subsidiaries based on the
attainment of certain long-term financial objectives. The Plan is intended to
reward participants based on increases in the long-term growth and profitability
of the Company and its subsidiaries.
15
<PAGE>
The approval by the stockholders of the Plan and the material terms of the
performance goals is intended to conform the Plan to recent changes in federal
income tax laws. The stockholders are asked to approve the material terms of the
performance based incentives established thereunder in order to satisfy the
requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended,
with respect to the deductibility of compensation. The material terms of the
Plan and the performance-based objectives, as described below, consist of the
following: (i) the classes of individuals eligible to receive compensation under
the Plan; (ii) the business criteria on which long-term incentive compensation
is payable under the Plan; and (iii) the maximum amounts of compensation payable
under the Plan.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS APPROVE
THE PLAN AND THE MATERIAL TERMS OF THE PERFORMANCE GOALS ESTABLISHED FOR THE
PLAN (ITEM 3 ON THE PROXY CARD). The performance goals and the Plan are
described below, but reference should be made to the text of the Plan, which is
set forth in APPENDIX A, for complete information. If the Plan is not approved
by the Corporation's stockholders, the Board will take such actions as it deems
to be in the best interests of the Corporation's stockholders, consistent with
the Corporation's policies regarding executive compensation as hereinafter
described.
Under the Plan, certain officers and other senior management of the
Corporation and its subsidiaries are eligible to receive long-term incentive
awards. Awards payable under the Plan will be paid 50% in cash and 50% in shares
of common stock of the Corporation. One million (1,000,000) shares of the
Corporation's Common Stock have been reserved for issuance under the Plan.
Shares delivered under the Plan to any reporting person under Section 16 of the
Securities Exchange Act of 1934 will not be transferrable for a period of six
(6) months after the delivery thereof, except in the event of a change in
control of the Corporation. The Board may amend, suspend or modify the Plan at
any time, except as limited by the terms of the Plan.
Generally, a participant must be employed by the Corporation or a subsidiary
as of the last day of the performance cycle. If employment is terminated prior
to the last day of the performance cycle due to the participant's death,
disability, or qualified retirement, a prorated award may, at the sole
discretion of the Organization and Compensation Committee, be paid to the
participant or to the participant's designated beneficiary. In the event of the
termination of a participant's employment under certain circumstances following
a change in control of the Corporation, the participant will be entitled to
receive the full amount of the award which would otherwise have been payable to
the participant. Similarly, a participant's award will be prorated if the
participant first becomes an employee of the Corporation after the first day of
a performance cycle.
The Organization and Compensation Committee will administer the Plan and
will approve the participants and the objective performance goals in writing
before the beginning of each performance cycle. A performance cycle under the
Plan is a period of three
16
<PAGE>
consecutive fiscal years of the Corporation. The initial performance cycle will
be the three fiscal year period commenced July 1, 1994. The Organization and
Compensation Committee may establish additional performance cycles under the
Plan, provided that as to each such additional cycle the positions or classes of
eligible participants, the objective performance goals, and the maximum awards
payable to any participant must be approved by the Corporation's stockholders.
All amounts paid as compensation pursuant to the Plan must be payable as the
result of the achievement of objectively measured performance targets from the
following list of quantifiable, measurable business criteria. The performance
goals for a performance cycle will include any or all of the following: net
after-tax income; net after-tax income per share; earnings from continuing
operations; earnings from continuing operations per share; operating earnings;
operating earnings per share; return on assets; return on equity; return on
invested capital; debt ratings; revenues; and revenue growth. The specific
targets relating to the performance goals constitute confidential business
information and are not disclosed.
The Organization and Compensation Committee must certify, in writing, that
the goals have been met before any payments to participants may be made. The
Organization and Compensation Committee will have no discretion to increase the
awards payable to any participant or to otherwise alter the performance goals
after the beginning of a performance cycle but, to the extent permitted under
Section 162(m) of the Internal Revenue Code of 1986, as amended, will retain the
ability to eliminate or decrease an award otherwise payable to a participant.
The following table sets forth the range of long-term performance based
compensation that could be earned by the individuals (based on their current
positions with the Corporation) and groups referred to therein for the period
shown if the minimum, target and maximum levels of performance for the business
criteria established by the Organization and Compensation Committee for the
period shown are satisfied. A minimum performance threshold was established
relative to the business criteria approved by the Organization and Compensation
Committee which minimum threshold must be met before any incentive payments will
be made. Actual results would need to significantly exceed current levels before
any amounts would be payable under the Plan for the period shown. In addition, a
maximum performance level was established which set the performance level at
which the maximum awards will be earned. In all cases, payouts are based
strictly on actual performance results relative to the performance criteria. The
long-term incentive thresholds, targets and maximums are amounts applicable only
to the first three-year cycle in the Plan.
17
<PAGE>
NEW PLAN BENEFITS
LONG-TERM INCENTIVE COMPENSATION PLAN
(Initial Performance Cycle 1994-1997)
<TABLE>
<CAPTION>
NAME, POSITION THRESHOLD TARGET MAXIMUM
- - ------------------------------------------------------ ------------- -------------- --------------
<S> <C> <C> <C>
C. R. Holman
Chief Executive Officer $ 1,308,000 $ 3,270,000 $ 5,886,000
R.G. Moussa
Company President 574,000 1,435,000 2,583,000
M.G. Nichols
Company President 574,000 1,435,000 2,583,000
Company President (1) 574,000 1,435,000 2,583,000
Beverley L. Hayes
Corporate Officer 222,000 555,000 999,000
Executive Officers as a Group (10 persons including
the Named Officers) 4,459,200 11,148,000 20,066,400
Non-Executive Officer Employees as a Group (41 persons
excluding the Executive Officers) 5,612,400 14,031,000 25,255,800
<FN>
- - ------------------------
(1) Mr. Holman is also currently serving as President of MVI on an interim
basis, but would be eligible under the Plan only in his capacity as Chief
Executive Officer of the Corporation. Upon the naming of a new President of
MVI, such individual will become eligible for a prorated incentive award
under the Plan.
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, a participant generally does not incur any
tax liability upon the receipt of an incentive award under the Plan. However, a
participant will realize compensation income upon the receipt of any cash
payments under the Plan in the amount of the cash portion of the participant's
award, and will realize compensation income upon receipt of shares under the
Plan in an amount equal to the fair market value of the shares at the time of
receipt. Upon payment of any cash or the delivery of shares under the Plan, the
Corporation will be required to withhold and deposit federal, state, and/or
local taxes.
The affirmative vote of the holders of a majority of the outstanding shares
of the Corporation's 4% Cumulative Preferred Stock and Common Stock entitled to
vote at the meeting, voting without regard to class, is required to approve the
Plan and the material terms of the performance goals established for the Plan.
18
<PAGE>
AGENDA ITEM 4
APPROVAL OF DEFERRAL ELECTION PLAN FOR NON-EMPLOYEE DIRECTORS
On April 20, 1994, the Board of Directors adopted the Deferral Election Plan
for Non-Employee Directors (the "Deferral Plan"). Subject to approval by the
Corporation's stockholders at this Annual Meeting, the Deferral Plan will be
effective as of June 30, 1994. The purpose of the Deferral Plan is to encourage
and enable the non-employee members of the Board of Directors to increase their
holdings in the stock of the Corporation and to provide such directors with a
degree of financial flexibility respecting the receipt of income. Participation
in the Deferral Plan is voluntary. The Deferral Plan changes the manner in which
fees and retainers may be paid, but does not alter the level of compensation of
directors.
The primary features of the Deferral Plan are summarized below. The summary
is qualified by reference to the complete text of the Deferral Plan, which is
attached to this Proxy Statement as APPENDIX B.
The Deferral Plan provides directors (other than directors who are employees
of the Corporation or any of its subsidiaries), with the option of receiving in
the form of cash or Common Stock of the Corporation all or part of their
directors' compensation (whether retainers, meeting fees, or cash dividends on
Common Stock previously deferred under the Deferral Plan) on a deferred basis. A
director must indicate at the time an election is made whether and to what
extent, but only in multiples of 50%, the deferral is to be in the form of cash
or Common Stock of the Corporation. A director electing to participate in the
Deferral Plan must file an election with the Corporation prior to the first day
of any calendar year for which the election is to apply (except that with
respect to the six month period beginning July 1, 1994, the deadline for filing
elections was June 30, 1994, and three of the eligible directors filed
elections). Once filed, an election is irrevocable for the calendar year (or
initial six month period) to which it relates.
To the extent a participant elects to defer for the purpose of purchasing
stock, the amounts so deferred during each six month period beginning July 1 and
January 1 (a "Plan Period"), as the case may be, and interest accrued thereon
during such Plan Period (as described below), will be used to purchase stock of
the Corporation on the next following January 2 or July 1, if a business day or,
if not, the first business day thereafter (the "Date of Purchase"). For example,
amounts elected by June 30, 1994 to be deferred during the initial six-month
Plan Period beginning July 1, 1994, will be applied to purchase stock of the
Corporation on January 3, 1995. Shares will be purchased at their then "fair
market value." For purposes of the Plan, the fair market value of the
Corporation's Common Stock as of any date means (a) the closing price (or, if
not less than 31 days before a Date of Purchase under the Plan the Organization
and Compensation Committee so determines, the average of all closing prices
during the 30 days preceding such purchase date) of Common Stock on the
Composite Transaction Reporting System on the New York Stock
19
<PAGE>
Exchange on such date or (b) in the absence of a reported sale for such date (or
dates), the average of the reported closing bid and asked prices for a share of
Common Stock on such Exchange.
Amounts deferred under the Deferral Plan (and which have not previously been
applied to the purchase of stock) accrue interest during each Plan Period from
the date such amounts would otherwise be payable at a rate equal to the average
prime rates charged by Bankers Trust Company of New York on the first day of
each month of the Plan Period.
The Deferral Plan also allows participants in the Directors' 1990 Deferred
Compensation Plan (the "Prior Plan") to make a one-time election to roll over
cash deferrals under the Prior Plan into the Deferral Plan in the form of cash
or Common Stock of the Corporation (which would be purchased for his account
under the Deferral Plan on January 3, 1995) for the remainder of the previously
elected deferral period under such plan. If a participant in the Prior Plan does
not make the one-time election or elects to continue to defer in the form of
cash, all amounts not deferred in the form of stock would constitute a cash
deferral under the Deferral Plan as of the close of this Annual Meeting.
The Deferral Plan is unfunded and directors have only an unsecured
contractual right to receive cash and/or Common Stock, except that shares of
Common Stock purchased for the account of a director under the Deferral Plan
should not be subject to the claims of the Corporation's creditors. The rights
of non-employee directors under the Deferral Plan are not assignable and are not
subject to the debts or obligations of the non-employee directors. The amount of
shares subject to the Deferral Plan shall not exceed 50,000 shares of the
Corporation's authorized but unissued Common Stock.
The Corporate Governance Committee will administer the Deferral Plan.
Subject to the limitations of the Deferral Plan, the Committee will have
authority to: interpret the Deferral Plan; adopt rules relating to the Plan; and
make all other determinations and take all other actions necessary or advisable
for the implementation and administration of the Plan.
The Board reserves the right to amend, suspend, or terminate the Deferral
Plan; provided, the Board may not, without stockholder approval, materially
increase the number of shares that are subject to the Deferral Plan, materially
modify the requirements for eligibility, or materially increase the benefits
accruing to participants under the Deferral Plan. The Board may, however, acting
alone, amend the Deferral Plan if in the opinion of counsel to the Corporation
stockholder approval of such amendment is not required under the Securities
Exchange Act of 1934 (including the rules and regulations thereunder) to
continue to satisfy the applicable requirements for exemption from the operation
of Section 16(b) of the Securities Exchange Act of 1934.
The affirmative vote of the holders of a majority of the outstanding shares
of the Corporation's 4% Cumulative Preferred Stock and Common Stock entitled to
vote at the meeting, voting without regard to class, is required to approve the
Deferral Plan. THE
20
<PAGE>
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE DEFERRAL PLAN (ITEM 4
ON THE PROXY CARD). Should the Deferral Plan not be approved by the
Corporation's stockholders, the features of the Deferral Plan relating to the
purchase of Common Stock of the Corporation would not be implemented and
previously elected deferrals for application to the purchase of Common Stock
would be nullified and treated as cash deferrals.
EXECUTIVE COMPENSATION
The following Summary Compensation Table shows compensation information for
Mr. Holman and the four other executive officers most highly compensated in
fiscal 1994. Executive officers are the corporate officers of the Corporation
elected by the Board of Directors.
21
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION
----------------------------------- AWARDS
OTHER --------------------- PAYOUTS ALL OTHER
ANNUAL OPTIONS/ ----------- COMPEN-
SALARY COMPEN- RESTRICTED SARS LTIP SATION
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) SATION ($) STOCK (6) (#)(7) PAYOUTS ($) ($)(8)
- - ------------------------------------ ---- --------- --------- ----------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. R. Holman (1)
President and Chief Executive 1994 $ 525,060 $ 470,000 (4) $ 846,973 31,300 $ 0 $13,634
Officer
President and Chief Executive 1993 433,013 220,000 945,638 30,000 0 15,543
Officer
Vice President, President, MMI 1992 322,860 220,000 209,022 12,000 0 10,746
M. G. Nichols
Vice President, President, MCI 1994 341,940 220,000 (4) 196,763 13,500 0 7,095
(all three years) 1993 322,560 140,000 228,600 18,000 0 6,084
1992 278,600 160,000 190,020 10,000 0 9,764
R. G. Moussa (2)
Vice President, President, MMI 1994 312,000 175,000 (4) 196,763 13,500 0 12,948
Vice President, President, MMI 1993 265,937 130,000 217,290 12,000 0 8,920
Senior Vice President and Group 1992 210,540 107,000 86,459 5,300 0 7,369
Executive, MMI
W. J. Mercer (2)
Vice President, President, MVI 1994 312,000 169,300 $ 62,459(5) 196,763 13,500 0 88,391(9)
Vice President, President, MVI 1993 259,585 130,000 133,329(5) 217,290 12,000 0 85,269(9)
Senior Vice President and Group 1992 190,260 102,800 86,459 5,300 0 7,991
Executive, MMI
B. L. Hayes (3)
Vice President, Organization & 1994 207,600 125,000 (4) 89,438 6,500 0 10,338
Human Resources 1993 192,000 89,000 95,250 6,000 0 4,570
(all three years) 1992 179,040 85,000 95,010 6,000 0 7,676
<FN>
- - ----------------------------------
(1) Became President and Chief Executive Officer of the Company on December 10,
1992. Was Vice President and President MMI until then.
(2) Became executive officers of the Company on December 10, 1992; were Senior
Vice Presidents of MMI until then. Effective July 20, 1994, W. J. Mercer
resigned as an officer and employee of both the Company and MVI.
(3) Since January 1, 1993, Mrs. Hayes has also served as Vice President, Human
Resources of MVI.
(4) Value of non-cash personal benefits (perquisites) is omitted because the
aggregate amount of such benefits does not exceed the lesser of $50,000 or
10% of salary plus bonus of such officer.
(5) For fiscal 1993, includes $65,000 for business and business-related
affiliations provided by the Company incident to his new position and
$55,264 as tax payment reimbursements in connection with Mr. Mercer's
promotion and relocation. For fiscal 1994, includes $38,988 as tax payment
reimbursements in connection with Mr. Mercer's relocation.
(6) Under the Long-Term Incentive Plan for Senior Management, a three-year Plan
which ended June 30, 1994, awards of 156,339 restricted shares of the
Company's common stock were made in July 1991 for the first year of the
Plan to 47 individuals, including Mr. Holman, 6,600 shares, Mr. Nichols,
6,000 shares; Mr. Moussa, 2,730 shares; Mr. Mercer, 2,730 shares; and Mrs.
Hayes, 3,000 shares. On July 1, 1992, awards totaling 141,500 restricted
shares were made to 45 individuals, including Mr. Holman, 6,600 shares; Mr.
Nichols, 7,200 shares; Mr. Moussa, 2,730 shares; Mr. Mercer, 2,730 shares;
and Mrs. Hayes, 3,000 shares. In December, 1992, additional awards of
21,810, 3,870, and 3,870 restricted shares were made to Messrs. Holman,
Moussa and Mercer, respectively, concurrent with their promotions. During
fiscal 1994, awards totaling 132,832 restricted shares were made to 41
individuals, including Mr. Holman, 28,410 shares; Mr. Nichols, 6,600
shares; Mr. Moussa, 6,600 shares; Mr. Mercer, 6,600 shares; and Mrs. Hayes,
3,000 shares. Valuation in the Table is based on the market price of the
stock at the time of grant. At June 30, 1994, the total number and market
value of restricted stock holdings for the named executive officers were:
Mr. Holman, 63,420 shares ($2,061,150); Mr. Nichols, 19,800 shares
($643,500); Mr. Moussa, 15,930 shares ($517,725), Mr. Mercer, 15,930 shares
($517,725); and Mrs. Hayes, 9,000 shares ($292,500). All restricted shares
have now vested in accordance with the terms of the Plan. Each named
officer elected to have shares withheld to satisfy income tax withholding
requirements when the shares vested. Dividends were paid on the restricted
shares at the same rate as paid to all share owners.
(7) Stock option grants in fiscal years 1992 and 1993 include limited stock
appreciation rights that apply only in the event of a change in control of
the Company. Stock option grants do not include SARs.
(8) The amount of the Company's contributions under the Investment Plan, which
is described on page 29 below.
(9) For fiscal 1993, includes an allowance upon relocation of $75,000. For
fiscal 1994, includes $80,000 for the balance of a special relocation
allowance and reimbursement by the Company of a loss realized by Mr. Mercer
on the sale of his residence upon relocation.
</TABLE>
22
<PAGE>
STOCK OPTIONS
The Corporation has three stock option plans: the Directors Plan described
at pages 8-9 above, which is limited to non-employee directors, the 1973 Stock
Option and Award Plan (the 1973 Plan) and the 1981 Stock Option Plan (the 1981
Plan). Non-employee directors are not eligible for grants under the latter two
plans. The 1981 Plan expired in accordance with its terms on December 16, 1991,
except as to then outstanding grants and awards. The terms of options thereunder
are substantially the same as the terms of options under the 1973 Plan. The 1973
Plan is a non-qualified plan under Section 401(a) of the Internal Revenue Code.
Until fiscal 1990, grants of Common Stock under the Plan were largely limited to
officers and key managers. In 1990, pursuant to amendments approved by the
stockholders that enlarged eligibility for grants, all employees of the
Corporation worldwide are now eligible for grants, and the Corporation has made
grants periodically to virtually all of its then current regular employees. The
following two tables are summaries of all employee stock options granted in
fiscal 1994 and all employee stock options exercised in fiscal 1994 and
remaining outstanding at the close of fiscal 1994 for each named officer.
23
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS GRANTED
UNDERLYING TO ALL
OPTIONS/ EMPLOYEES IN EXERCISE OR
SARS GRANTED FISCAL YEAR BASE PRICE EXPIRATION
NAME (#)(1) (2) ($/SH) DATE
- - ----------------------------------------------------------------- ------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
C. R. Holman..................................................... 31,300 2.3% $ 35.01 11/29/03
M. G. Nichols.................................................... 13,500 1.0 35.01 11/29/03
R. G. Moussa..................................................... 13,500 1.0 35.01 11/29/03
W. J. Mercer (4)................................................. 13,500 1.0 35.01 11/29/03
B. L. Hayes...................................................... 6,500 0.5 35.01 11/29/03
Gain for all Shareholders at Assumed Rates of Appreciation (5)................................................................
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM (3)
-----------------------------------------------
0% ($) 5% ($) 10% ($)
NAME ($35.01) ($57.03) ($90.81)
- - ----------------------------------------------------------------- ----------- -------------- --------------
<S> <C> <C> <C>
C. R. Holman..................................................... $ 0 $ 689,226 $ 1,746,540
M. G. Nichols.................................................... 0 297,270 753,300
R. G. Moussa..................................................... 0 297,270 753,300
W. J. Mercer (4)................................................. 0 297,270 753,300
B. L. Hayes...................................................... 0 143,130 362,700
Gain for all Shareholders at Assumed Rates of Appreciation (5)... 0 $1,695,677,251 $4,296,947,801
<FN>
- - ------------------------------
(1) These awards were made pursuant to the 1973 Stock Option and Award Plan.
Under this Plan, the option price must not be less than 100% of the fair
market value of the stock at the time the option is granted. "Fair market
value" is defined in the Plan to be the average of the means between the
highest and lowest prices at which the stock is traded for each of the
fifteen business days preceeding the date of grant as reflected on the
composite tape of New York Stock Exchange issues. An employee is obligated
to remain in the employ of the Company or its subsidiaries for at least one
year from the date of grant before he or she may exercise any such option
and not more than 50% of the shares granted may be exercised within the
twelve months after that year. The option becomes fully exercisable two
years after the grant date. The exercise price and tax withholding
obligations related to exercise may be paid by delivery of already owned
shares of Common Stock or by offset of the underlying shares, subject to
certain conditions.
(2) The Company granted options to purchase a total of 1,348,680 shares of its
Common Stock to employees in fiscal 1994, including the options granted to
the named executive officers as stated in this table. Options granted to
employees in fiscal 1994 have an average exercise price of $34.72 per share
and expire at various times, 10 years from the respective grant dates.
(3) Total dollar gains based on indicated rates of appreciation over a 10 year
term. Assumed future stock prices are shown in parentheses.
(4) The options granted in fiscal 1994 to Mr. Mercer have expired as a result
of his resignation, which occurred in July 1994. The information in this
table is as of June 30, 1994 and, therefore, does not reflect the
expiration of these options.
(5) Hypothetical dollar gains based on the 77,006,233 common shares outstanding
(less shares held in treasury) at June 30, 1994, for comparison with
assumed appreciation in shares subject to options granted in fiscal 1994 to
each of the named executive officers.
</TABLE>
24
<PAGE>
The potential realizable value of each grant of employee stock options,
assuming that the market price of the underlying security appreciates in value
from the date of grant to the end of the option term at the rates of 5% and 10%,
are shown above. Hypothetical future values, based on the difference between the
option price at date of grant and the stock prices shown in parentheses,
indicate what gain would be realized if such options were exercised immediately
prior to their expiration date. The actual future gain, if any, of the stock
options will depend upon the future appreciation in the market price of the
Company's Common Stock. There is no assurance that the assumed future values
reflected in the preceding table will actually be attained. Use of this model
should not be viewed in any way as a forecast of the future performance of the
Company's stock, which will be determined by future events and unknown factors.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS AT THE-MONEY OPTIONS/SARS
FY-END (#)(1) AT FY-END ($)
SHARES ACQUIRED VALUE REALIZED -------------------------------- --------------------------------------------
NAME ON EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE (2) UNEXERCISABLE (3)
- - ------------------ --------------- -------------- ------------- ----------------- ----------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
C. R. Holman...... 0 $ 0 90,000 46,300 $ 751,020 $ 0
M. G. Nichols..... 0 0 101,800 22,500 1,277,964 0
R. G. Moussa...... 0 0 33,800 19,500 265,050 0
W. J. Mercer (4).. 0 0 33,800 19,500 265,050 0
B. L. Hayes....... 4,500 72,878 16,500 9,500 81,570 0
<FN>
- - ------------------------------
(1) All outstanding options, except those granted in fiscal 1994, have limited
stock appreciation rights attached. LSARs have been granted only with
options to officers of the Company subject to the requirements of Section
16(a) of the Securities Exchange Act of 1934. An LSAR is exercisable only
if attached to an exercisable option and only during a 90-day period
following a Board determination that a tender offer has been made.
(2) Exercisable column is based on June 30, 1994 market price of $32.50 per
share less option exercise at base price. These values are presented
pursuant to SEC rules and the actual amount, if any, realizable upon
exercise will depend upon the market price of the common stock relative to
the exercise price per share of common stock at the time the stock options
are exercised. There is no assurance that the values of unexercised
in-the-money options reflected in the table will be realized.
(3) Zero amounts are shown in the unexercisable column because none were
in-the-money options.
(4) All unexercisable options held by Mr. Mercer have expired as a result of
his resignation, which occurred in July 1994. The information in this table
is as of June 30, 1994 and, therefore, does not reflect the expiration of
his unexercisable options.
</TABLE>
25
<PAGE>
LONG-TERM PERFORMANCE INCENTIVE PLANS
The Company had two long-term incentive plans, both of which ended June 30,
1994. The Long-Term Incentive Plan for Senior Management applied to officers of
the Company and senior management of the Company's operating subsidiaries who
had the potential to make substantial contributions to the success of the
Company. Awards to the named officers for the three fiscal years of the Plan are
shown in the Summary Compensation Table. All awards of restricted common stock
vested in accordance with the terms of the Plan. The second three-year plan, the
Long-Term Incentive Plan for Key Middle Managers, involved awards of
non-qualified stock options over and above the normal stock option program for
key managers, on the basis of individual performance objectives for the 39
participants.
On July 1, 1994 the Company implemented (subject to stockholder approval) a
new three-year Long-Term Incentive Compensation Plan for approximately 50 of its
key executives. The Plan is designed to provide competitive compensation based
on the attainment of certain long-term financial objectives which have been
approved by the Organization and Compensation Committee of the Board of
Directors. The Plan is described in greater detail on pages 15-18 and is set
forth in full in APPENDIX A.
PENSION PLANS
The Corporation maintains a non-contributory qualified pension plan, the
Mallinckrodt Retirement Plan, which covers virtually all salaried employees,
including officers, and most non-union hourly employees. The Corporation also
has the Supplemental Executive Retirement Plan which is to provide a
supplemental pension benefit for managers above a specified salary grade who
have been approved for participation by the Chief Executive Officer.
Participants include the named officers and generally are limited to key
managers of the Corporation and its subsidiaries.
Based on certain assumptions, including continuance of the qualified pension
plan and the Supplemental Executive Retirement Plan, the following table shows
the estimated annual pension benefits which would be payable to participants in
both plans who are in specified compensation and years-of-service
classifications, at normal retirement age (65), based upon a straight-life
annuity form of benefit. Social Security benefits and applicable integration
adjustments are not reflected. If elected, any of several optional forms of
pension (apart from the lump sum option) would, on an actuarial basis, reduce
benefits to the participant but provide benefits to a surviving beneficiary.
26
<PAGE>
<TABLE>
<CAPTION>
ANNUAL AVERAGE OF HIGHEST
FIVE YEARS COVERED
REMUNERATION FOR PENSION ANNUAL BENEFITS FOR YEARS
PURPOSES IN TEN YEARS OF SERVICE INDICATED
PRECEDING NORMAL ----------------------------------------------------------------------------
RETIREMENT DATE 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- - -------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 40,000 $ 50,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000
125,000 50,000 62,500 75,000 75,000 75,000 75,000
150,000 60,000 75,000 90,000 90,000 90,000 90,000
175,000 70,000 87,500 105,000 105,000 105,000 105,000
200,000 80,000 100,000 120,000 120,000 120,000 120,000
300,000 120,000 150,000 180,000 180,000 180,000 180,000
400,000 160,000 200,000 240,000 240,000 240,000 240,000
500,000 200,000 250,000 300,000 300,000 300,000 300,000
600,000 240,000 300,000 360,000 360,000 360,000 360,000
700,000 280,000 350,000 420,000 420,000 420,000 420,000
800,000 320,000 400,000 480,000 480,000 480,000 480,000
900,000 360,000 450,000 540,000 540,000 540,000 540,000
1,000,000 400,000 500,000 600,000 600,000 600,000 600,000
1,100,000 440,000 550,000 660,000 660,000 660,000 660,000
</TABLE>
A subsidiary of the Corporation, Mallinckrodt, Inc., had a separate
Supplemental Executive Retirement Plan, a non-contributory, non-qualified
pension plan to provide upon retirement an additional pension benefit for its
key executives. As amended, the Plan has been incorporated into the
Corporation's SERP and the terms thereof now apply only to four current
executives of the Corporation (including two of the named executive officers,
Messrs. Holman and Nichols). The following table shows the additional amount of
retirement benefit payable to those executives based upon a life only form of
annuity commencing at age 65:
<TABLE>
<CAPTION>
ANNUAL AVERAGE OF HIGHEST
THREE YEARS COVERED
REMUNERATION FOR PENSION NET ADDITIONAL ANNUAL BENEFITS
PURPOSES IN TEN YEARS FOR YEARS OF SERVICE INDICATED
PRECEDING NORMAL ----------------------------------------------------------------
RETIREMENT DATE 10 YRS. 15 YRS. 20 YRS. 25 YRS. 30 YRS. 35 YRS.
- - -------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 4,600 $ 5,750 $ 1,330 $ 6,900 $ 6,900 $ 6,900
125,000 5,750 7,188 1,663 8,625 8,625 8,625
150,000 6,900 8,625 1,995 10,350 10,350 10,350
175,000 8,050 10,063 2,328 12,075 12,075 12,075
200,000 9,200 11,500 2,660 13,800 13,800 13,800
300,000 13,800 17,250 3,990 20,700 20,700 20,700
400,000 18,400 23,000 5,320 27,600 27,600 27,600
500,000 23,000 28,750 6,650 34,500 34,500 34,500
600,000 27,600 34,500 7,980 41,400 41,400 41,400
700,000 32,200 40,250 9,310 48,300 48,300 48,300
800,000 36,800 46,000 10,640 55,200 55,200 55,200
900,000 41,400 51,750 11,970 62,100 62,100 62,100
1,000,000 46,000 57,500 13,300 69,000 69,000 69,000
1,100,000 50,600 63,250 14,630 75,900 75,900 75,900
</TABLE>
27
<PAGE>
Covered compensation includes salary, annual bonus, overtime, and salary
reduction contributions to 401(k) plans, to which deferred compensation and
amounts in excess of ERISA limitations are added by the SERP; covered
compensation is reflected in the Summary Compensation Table, exclusive of
long-term compensation and perks. The current covered remuneration and credited
years of service for the individuals named in the Summary Compensation Table
(excluding Mr. Mercer) are as follows:
<TABLE>
<CAPTION>
REMUNERATION CREDITED YEARS OF
COVERED BY SERVICE AT
PENSION PLANS 6/30/94
--------------- -------------------
<S> <C> <C>
Mr. Holman........................................... 1,050,020 17 yrs., 10 mos.
Mr. Nichols.......................................... 596,200 14 yrs., 11 mos.
Mr. Moussa........................................... 518,200 16 yrs., 5 mos.
Mrs. Hayes........................................... 345,200 15 yrs., 9 mos.
</TABLE>
EMPLOYMENT CONTRACTS AND OTHER ARRANGEMENTS
See pages 13-14 above regarding contracts with officers and key managers. In
April 1988 the Corporation adopted the Management Compensation and Benefit
Assurance Program to ensure that persons who were then or thereafter became
officers and other key managers would receive the compensation and benefits that
have been committed to or are reasonably expected by them under the terms of
certain unfunded compensation and benefit plans, including reasonable severance
in the event of involuntary termination without cause following a change in
control. Under the Program trusts have been established (subject to the rights
of creditors of the Corporation) and letters of credit have been obtained so
that the Corporation's commitments, grants and awards to such personnel will be
honored, including deferred compensation, annual bonus, long term incentive
compensation, supplemental retirement provisions, contingent employment and
gross-up agreements (described at pages 13-14 above), and stock options and
related LSAR's. The annual cost to the Corporation to maintain the Program in
fiscal 1994 was $364,000. The amount of funding under the letter-of-credit
arrangements that would occur if the Board of Directors determined funding was
appropriate would depend upon the Corporation's outstanding compensation
commitments subject to the Program at the time and the extent the Board then
determined to fund them.
Also in April 1988, and for the same reasons, the Corporation adopted a
severance and benefit assurance policy for all full-time salaried employees
assigned to corporate staff functions, exclusive of those having contingent
employment agreements referred to above (approximately 57 employees in all).
Only such employees who are involuntarily terminated without cause within three
years after a change in control of the Corporation would participate. The amount
of severance paid would depend upon length of service and salary grade and
amount.
"Change in control" of the Corporation is defined to occur when any of the
following occurs: (a) a report under the securities laws is required that a
change in control has
28
<PAGE>
occurred; (b) a person becomes the beneficial owner of 20% or more of the voting
power of the Corporation; (c) the present and their successor directors cease to
be a majority of the Board of Directors; (d) a merger of the Corporation in
which less than 50% of the voting power is retained by the pre-merger
shareholders; and (e) the sale of all or substantially all of the assets of the
Corporation. "Absolute Change in Control" means either the occurrence of the
event in clause (c) above or a person becomes the owner of 50% or more of the
voting power.
INVESTMENT PLAN AND OTHER BENEFITS
The Corporation has an Investment Plan under which salaried and most
non-union hourly employees of the Corporation, including officers, who elect to
participate in the Plan may make regular contributions by salary reduction
and/or by payroll deduction of from one percent to a maximum of fifteen percent
of their annual base salaries. Under the Plan and subject to certain statutory
limitations, the Corporation contributes an amount equal to 20 percent, or such
greater amount as may be approved by the Board of Directors, of a participant's
contributions up to 6 percent of his or her annual base salary. For fiscal 1994,
the Corporation's contribution in excess of 20 percent depended and was based
upon Mallinckrodt's return on invested capital, and was an additional 67% for a
total of 87%. All contributions are invested, as selected by the participant, in
a Fixed Income Fund (composed primarily of contracts with two insurance
companies), a Mallinckrodt Group Inc. Stock Fund, an S&P 500 Index Fund, and a
Balanced Fund. The Corporation's contributions to the Plan on behalf of the
named officers are reflected in the Summary Compensation Table.
The Corporation provides life insurance coverage for officers and key
employees. Coverage equals up to four times annual salary and is provided at
corporate expense, one-half by means of individual permanent insurance (which is
to continue in effect after retirement) and the other half by individual term
insurance (which will be discontinued at retirement unless the cost is assumed
by the executive). The Corporation also maintains a supplemental death benefit
program which provides individual pre-tax death benefits up to $2,000,000,
depending on a participant's position in the organization, for certain current
and former Mallinckrodt employees, including Messrs. Holman and Nichols.
The fiscal 1994 cost to the Corporation for present and retired executives
in the above life insurance programs was $507,902, of which $43,990 was for
officers. The imputed cost of coverage for the named officers is included under
Other Annual Compensation in the Summary Compensation Table.
The Corporation maintains a comprehensive employee benefit program which
provides medical, dental, death, disability and similar benefits in the context
of a cafeteria benefit plan as defined in Section 125 of the Internal Revenue
Code. Employees may pay for certain benefits by means of salary reduction
contributions pursuant to the plan, known as the Flexsecurity Plan.
29
<PAGE>
REPORT OF ORGANIZATION AND COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Company's primary financial objective is to maximize shareholder value
over time. To this end, the Company has created a comprehensive business
strategy. The overall goal of the Organization and Compensation Committee of the
Board of Directors (the "Committee") is to develop and administer total
compensation policies which are aligned with the Company's strategic business
objectives. The Committee recommends compensation actions for the President and
Chief Executive Officer and for all other corporate officers to the Board for
approval. The Committee approves the compensation for all other key executives.
The Committee is composed entirely of independent outside directors.
There are certain guiding principles to which the Committee adheres in
structuring the compensation packages of key executives including the five named
executive officers. These are:
GUIDING PRINCIPLES
- PAY AT RISK. At least half of TOTAL compensation for executives is
composed of short-term and long-term performance-based variable pay. The
Committee believes in placing a high percentage of executives'
compensation at risk to join their interests with the interests of the
Company's stockholders.
- MANAGEMENT CONTINUITY. Compensation programs are structured to attract,
motivate and retain LONG-TERM, those individuals who can contribute to the
creation of shareholder value.
- EQUITY-BASED COMPENSATION. Equity-based plans comprise a major part of the
variable portion of total compensation to link compensation to Company
performance and shareholder interests.
- COMPETITIVENESS. The total compensation programs are designed to provide
executives with an OPPORTUNITY to earn at a level well above the median
practices of other Fortune 500 companies, IF COMPANY PERFORMANCE IS
SUBSTANTIALLY HIGHER THAN THAT ACHIEVED BY OTHER COMPANIES IN THE
COMPANY'S "COMPARATOR GROUP" (AS DEFINED BELOW). The Company's ability to
significantly challenge and motivate its management team is enhanced by
providing executives the opportunity to earn at this level of
compensation.
30
<PAGE>
COMPONENTS OF EXECUTIVE COMPENSATION
The four elements of executive compensation are:
- Base Salary
- Annual Incentives
- Long-Term Incentives
- Other Benefits
These elements are structured to recognize meaningful differences in
individual performance and cumulatively to provide executives with the
OPPORTUNITY to significantly exceed competitive levels of total compensation if
the Company's performance significantly exceeds that of its competitors. In
structuring compensation, the Committee reviews competitive data provided by
independent compensation consultants. These data compare the Company's
compensation levels and practices to a group of companies (the "comparator
group") that tend to have similar sales volumes, similar lines of business, and
an established record of successful performance against financial measures
deemed important by the Company. Competitive data for compensation programs
includes that from many of the companies in the S&P indices shown in the
performance graph on page 36 below.
The Committee periodically revises the mix of the various components of
total compensation. Currently, base salary comprises about 35%, annual incentive
approximately 15%, and long-term incentives about 50% of the total compensation
package. The entire pay package is considered in setting the individual
components.
BASE SALARY. Base salary increases are provided to executives based on an
evaluation of each executive's performance, salary levels within the comparator
group, as well as the performance of the Company as a whole. In addition to
measuring performance in financial terms, the Committee also evaluates the
success of the executive in areas that cannot be measured by traditional
accounting criteria, including the development and execution of strategic plans,
the growth and development of management and employees, and the exercise of
leadership within the industry and in the communities that the Company serves.
Salary reviews normally occur at twelve-month intervals.
ANNUAL INCENTIVES. A target annual incentive is established for each
executive in the form of percentage of salary range midpoint. Incentives earned
are based primarily on: performance of the executive's operating unit
(specifically, achievement of pre-established profit, return on invested
capital, revenue, and cash flow objectives); contribution of the relevant
operating unit to implementation of the Company's strategic plan; achievement by
the executive's operating unit of non-financial goals, such as employee safety
and environmental compliance; and individual performance against pre-established
objectives. Actual incentives paid can range from 0% to 175% of target. For the
Chief Executive Officer and staff executives, incentives earned are based on
Mallinckrodt Group Inc. earnings per
31
<PAGE>
share performance and individual performance. In fiscal 1994, for each of the
three company presidents, seventy-five percent of the annual incentive was based
on the performance of their respective business unit and twenty-five percent was
based on Mallinckrodt Group Inc. performance. For the Company's fiscal year
beginning July 1, 1994, the annual incentives for the company presidents will be
based fifty percent on performance of the respective business unit and fifty
percent on Mallinckrodt Group Inc. performance.
LONG-TERM INCENTIVES. Long-term incentives comprise about half of the total
compensation for key executives, including the five named executive officers.
Each form of the long-term incentives is discussed below.
- LONG-TERM INCENTIVE PLAN. For the three fiscal years ended June 30, 1994,
the Company had a three-year plan that applied to officers of the Company
and senior management of the Company's operating subsidiaries who had the
potential to make substantial contributions to the success of the Company.
Awards of restricted shares were made under the Plan on July 1, 1991, July
1, 1992, and July 1, 1993 based both on Company and individual performance
against specific objectives approved by the Committee and the Board.
Objectives were both short-term and long-term and included objectives
directly relating to improvements in the Company's financial performance
over the three-year plan and beyond (such as objectives regarding
operating earnings, return on invested capital, and asset management), as
well as qualitative factors that were designed to further the Company's
strategic business plan, such as product and market development,
demonstrated leadership, and management development.
Restricted stock awards were intended to be a mechanism for aligning
management and stockholders' interests. The Company's long-term performance
ultimately determined the compensation derived from restricted stock, since
the value was dependent on the long-term growth of the Company's stock
price. All awards vested June 30, 1994. Dividends were paid on the
restricted shares. There were 48 participants in this Plan.
Effective July 1, 1994, the Company implemented (subject to stockholder
approval) a new three-year Long-Term Incentive Compensation Plan (the
"Plan") for approximately 50 of its key executives. Target levels of
incentive compensation established for each participant are competitive
with levels for similar compensation prevailing within the Company's
comparator group. These levels of compensation, however, will be achieved
ONLY if a combination of vigorous financial goals have been achieved at the
end of the three-year performance cycle. Such goals will include any or all
of the following: net after-tax income; net after-tax income per share;
earnings from continuing operations; earnings from continuing operations
per share; operating earnings; operating earnings per share; return on
assets; return on equity; return on invested capital; debt ratings;
revenues; and revenue growth. The specific
32
<PAGE>
performance goals vary among business groups within the Company and were
determined, in part, by reference to the projected performance of other
companies in the Company's comparator group (based on published analysts'
consensus expectations for such other companies as of Plan inception).
Compensation for corporate officers will be based entirely on performance
of the Company against established goals. Compensation for all other
participants will be based both on performance of the Company and the
performance of their organization against the established goals. A further
discussion of this Plan appears on pages 15-18 and a copy of the Plan is
attached to this Proxy Statement as APPENDIX A.
- STOCK OPTIONS. Non-qualified stock options are granted to provide key
executives with the opportunity to acquire an equity interest in the
Company and to share in the appreciation of the value of the stock. Again,
grant size and potential compensation value are based on option programs
utilized by companies in the comparator group. Normally stock options are
granted annually to key executives. THE COMPANY HAS NEVER RE-PRICED ANY
STOCK OPTION GRANT.
As part of the same program, stock option grants are made annually, on
the same date and at the same option price as for executives, to virtually
all of the employees on the grant date of the Company worldwide.
BENEFITS. In addition to the executive compensation programs, executives are
provided with various benefits. Generally the benefits offered to executives are
largely those offered to the general employee population. Additionally,
executives are provided with a higher level of life insurance and disability
coverage, as well as other benefits such as tax planning, annual physical, and
luncheon club memberships for business purposes. The executive officers along
with certain other executives are also covered by a Supplemental Executive
Retirement Plan (SERP). One of the primary purposes of this Plan is to attract
and retain high caliber mid-career talent. Further information on this Plan is
provided on pages 26-28.
DISCUSSION OF COMPENSATION FOR THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mr. Holman's compensation for fiscal 1994 was determined in accordance with
the executive compensation policies as described above. In addition, the
Committee considered the compensation of chief executive officers of other
companies in the comparator group.
Mr. Holman received a promotional increase of 43% upon becoming Chief
Executive Officer in December 1992. Taking account of a merit increase of 5%
granted to Mr. Holman on July 1, 1993, his resultant base salary placed him at
about 72% of the median level of the comparator group, which given his short
time in the position, the Committee deemed appropriate.
Mr. Holman was granted an annual incentive of $470,000 for fiscal 1994 based
on Mallinckrodt Group Inc. per share earnings performance which was slightly
above target.
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Mr. Holman received a final award of 28,460 restricted shares on July 1,
1993 under the Long-Term Incentive Plan for Senior Management.
On November 30, 1993, the Committee approved a stock option grant for Mr.
Holman of 31,300 shares.
The numbers of restricted shares and stock options granted to Mr. Holman are
consistent with the targeted levels established for the Chief Executive Officer
based on practices within the comparator group.
The executive compensation programs of the Company cannot anticipate all
situations which may occur from time to time. When unusual circumstances occur,
the Committee reserves the right to take appropriate actions which, in its best
judgment, are in the best long-term interests of the Company and its
shareholders.
IMPACT OF RECENT TAX LEGISLATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, denies a
tax deduction to any publicly held corporation such as Mallinckrodt Group Inc.
for compensation in excess of $1 million paid to the chief executive officer or
any of its four other most highly-compensated officers ("covered employees").
Certain performance-based compensation, however, is specifically exempt from the
deduction limit. The determination of whether compensation is performance-based
depends on several factors including: whether the compensation is payable solely
on account of the attainment of one or more nondiscretionary objective
performance goals established by an independent compensation committee of the
board of directors; whether there has been disclosure to and approval by the
stockholders of performance standards to be used in determining awards under the
plan; whether the corporation's compensation committee is composed solely of
"outside" directors; and whether prior to the payment of such compensation, the
compensation committee has certified that applicable performance standards have
been satisfied. Section 162(m) became effective January 1, 1994, and is
applicable to the Company's fiscal year that commenced July 1, 1994.
The Committee wishes to maximize the deductibility of compensation payments
to the covered employees and, to that end, is seeking stockholder approval of
the new Long-Term Incentive Compensation Plan as presented on pages 15-18. With
stockholder approval, the Committee expects that compensation paid under the
Long-Term Incentive Compensation Plan will qualify as performance-based
compensation. In addition, under transition rules proposed by the Internal
Revenue Service under Section 162(m), the Committee anticipates that
compensation attributable to stock options under the 1973 Stock Option and Award
Plan will similarly qualify as performance-based compensation in fiscal 1995.
It is the Committee's policy to maximize the effectiveness, as well as the
tax deductibility, of the Company's executive compensation programs. Therefore,
the Committee considers it to be in the best interests of the Company's
stockholders to retain discretion in the
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Company's annual incentive program to reward executives based on a full range of
performance criteria important to the Company's success. As a result of such
discretion, compensation paid to covered employees under the annual incentive
program will not be exempt from the deduction limit. If compensation paid to a
covered employee under the annual incentive program, plus all other compensation
paid to such employee during the fiscal year that is not exempt from the
deduction limit, exceeds $1 million, the amount of such excess will not be
deductible. In view of the anticipated compensation levels of the covered
employees in fiscal 1995, the Committee expects the impact, if any, on the
Company of any loss of deductions resulting from Section 162(m) will be
immaterial.
ORGANIZATION AND
COMPENSATION COMMITTEE:
Louis Fernandez, Chairman
Alec Flamm
Roberta S. Karmel
Claudine Malone
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Except for Keith D. Bunnel, who retired as a director in October 1993, none
of the members of the Organization and Compensation Committee during any part of
the 1994 fiscal year have been at any time in the past an officer or employee of
the Company or any subsidiary. For almost 16 years until 1962, but not since,
Mr. Bunnel was employed by the Company, last as Administrative Manager of the
then Industrial Minerals Division. There are no executive officer interlocks
with another company. Mr. Pinet, a member of the Organization and Compensation
Committee during part of the last fiscal year, has rendered (and continues to
render) international consulting services for the Company and its subsidiaries
for which he received $120,000 in fiscal 1994.
PERFORMANCE GRAPH
The following graph compares the total return (assuming reinvestment of
dividends and $100 invested on June 30, 1989) of Mallinckrodt common stock with
those of the S&P 500, S&P Health Care Composite, and S&P Specialty Chemicals
Group indices:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Mallinckrodt Group S&P Health Care S&P 500 S&P Chemicals
<S> <C> <C> <C> <C>
6/89 100 100 100 100
6/90 140.68 139.24 116.39 105.56
6/91 227.00 172.47 124.99 113.79
6/92 234.02 186.18 141.69 128.27
6/93 223.35 163.62 160.92 151.72
6/94 245.58 163.67 163.22 136.04
</TABLE>
MISCELLANEOUS INFORMATION
The Board of Directors and management know of no matters that will be
presented for consideration at the meeting other than those stated in the Notice
of Meeting and described in this Proxy Statement.
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Pursuant to the by-laws of the Corporation, and apart from matters included
in the proxy statement, for a matter to be properly brought before the annual
meeting for consideration a shareholder must, not less than seventy days and not
more than ninety-five days before the date of the meeting, deliver or cause to
be delivered a written notice to the Secretary of the Corporation specifying
certain details concerning the nature of the proposed business, including the
reasons why it is sought to be raised and submitted for a vote of the
stockholders, and otherwise meeting certain requirements of the by-laws. Full
details regarding the requirements of the by-laws are available upon request to
the Secretary. Pursuant thereto, the last day for receipt of such a notice to be
effective for this meeting was August 10, 1994. Notwithstanding satisfaction of
the notice and other requirements, the proposed business described in the notice
may still be deemed not to be properly brought before the meeting if, pursuant
to state law or to any rule or regulation of the Securities and Exchange
Commission, it was offered as a stockholder proposal and was omitted, or had it
been so offered, it could have been omitted, from the notice of, and proxy
materials for, the meeting (or any supplement thereto) authorized by the Board
of Directors.
If any matter properly comes before the meeting the persons named in the
accompanying proxy form will vote such proxy in accordance with their judgment
regarding such matter, including without limitation the election of a director
or directors other than those nominated herein should an emergency or unexpected
occurrence make the use of discretionary authority necessary, and also regarding
matters incident to the conduct of the meeting.
Proxies will be solicited to assure that stockholders who are unable to
attend the meeting have the opportunity nonetheless to cast a vote on the issues
to come before the meeting. In addition to the use of the mails, proxies may be
solicited by personal interview, telephone, and telegrams by directors,
officers, and employees of the Corporation. Arrangements may also be made with
brokerage houses and other custodians, nominees, and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of
record by such persons, and the Corporation may reimburse them for reasonable
out-of-pocket expenses incurred by them in connection therewith. In addition,
the Corporation has retained Georgeson & Co. to aid in the solicitation, at an
estimated cost of $10,000, plus expenses. The cost of all proxy solicitation,
including payments to Georgeson & Co., will be borne by the Corporation.
For stockholders who may be interested in submitting a resolution for
consideration at the next annual stockholders' meeting, the deadline pursuant to
SEC rules for submitting such proposals for consideration for inclusion in the
proxy statement will be May 16, 1995. The deadline for receipt of proposals
subject to the above by-law will be August 9, 1995, on the assumption the Board
will fix the date of next year's meeting on the third Wednesday in
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October, as has been customary, or if the Board fixes another date, the tenth
day following public disclosure of the meeting date. Proposals should be sent to
the Secretary of the Corporation, 7733 Forsyth Blvd., St. Louis, Missouri 63105.
Pursuant to Section 726(d) of the New York Business Corporation Law,
shareholders of record entitled to vote for the election of directors are hereby
informed that the Corporation has renewed its directors and officers
indemnification insurance for one year effective June 1, 1994. The insurance
carriers are National Union Fire Insurance Co., Aetna Casualty and Surety Co.,
Reliance Insurance Co., Federal (Chubb), and A.C.E. Insurance Co. Ltd. in
various and successive layers of coverage that total $105,000,000 (subject to
retention and co-insurance). The cost is $964,292. All directors and corporate
and staff officers of the Corporation and of its wholly-owned subsidiary
corporations are insured thereunder.
By order of the Board of Directors
[SIGNATURE]
Roger A. Keller
VICE PRESIDENT, SECRETARY AND
GENERAL COUNSEL
Dated: September 13, 1994
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<PAGE>
APPENDIX A
MALLINCKRODT GROUP INC.
LONG-TERM INCENTIVE COMPENSATION PLAN
(EFFECTIVE JULY 1, 1994)
Section 1. PURPOSE. The purpose of the Mallinckrodt Group Inc. Long-Term
Incentive Compensation Plan (the "Plan") is to further the long-term growth and
profitability of Mallinckrodt Group Inc. (the "Corporation") by offering
long-term incentives in addition to current compensation to officers and other
key management of the Corporation and its subsidiaries (each, a "Subsidiary"),
and to provide such participating employees with an equity position in the
Corporation to further align their interests with those of the shareholders of
the Corporation. The Plan is intended to provide an incentive compensation
opportunity to participating employees of the Corporation and its Subsidiaries
which is not subject to the limitation on deductions for federal income tax
purposes contained in Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), and should be construed to the extent possible as
providing for remuneration which is "performance-based compensation" within the
meaning of Section 162(m) of the Code and Treasury Regulations thereunder.
Section 2. ADMINISTRATION; SHAREHOLDER RATIFICATION.
(a) The Plan shall be administered by the Organization and Compensation
Committee (the "Committee") of the Board of Directors of the Corporation (the
"Board"). The Committee is authorized, subject to the provisions of the Plan,
from time to time to establish such rules and regulations and make such
interpretations and determinations as it may deem necessary or advisable for the
proper administration of the Plan, and all rules, regulations, interpretations
and determinations shall be binding on all participants (as defined below).
(b) With respect to each Performance Cycle, the class of eligible
participants pursuant to Section 3, the objective performance goals specified
pursuant to Section 5, and the maximum award payable to any participant under
Section 4, must be disclosed to and approved by the Corporation's shareholders.
Section 3. PARTICIPATION. Employees eligible to participate in the Plan
shall consist of officers and other key management employees of the Corporation
and its Subsidiaries who, in the opinion of the Committee, have significant
potential for making substantial contributions to the success of the Corporation
and its Subsidiaries. The Committee shall, at the beginning of each Performance
Cycle (as defined below), determine, except as otherwise contemplated by the
last sentence of Section 4, which of such officers and other key management
employees shall participate in the Plan ("Participants") and the terms and
conditions of such participation. The Committee shall report to the Board the
names,
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classes (grades), or titles of the eligible Participants and, in general, the
terms and conditions applicable to their participation with respect to a
Performance Cycle. All employees designated as Participants shall be promptly
advised of their participation.
Section 4. LONG-TERM INCENTIVE AWARDS. Each designated Participant who is
actively employed by the Corporation or a Subsidiary on the last day of a
Performance Cycle is eligible to receive a long-term incentive award under this
Plan based upon the attainment of objective performance goals established by the
Committee for the Performance Cycle under Section 5 hereof. A Participant must
be actively employed by the Corporation or a Subsidiary thereof on the last day
of a Performance Cycle to receive an incentive award for such Performance Cycle.
However, if a Participant's employment is terminated prior to the last day of a
Performance Cycle by reason of the Participant's death, disability or Qualified
Retirement, the Participant (or Participant's designated beneficiary in the
event of his or her death), at the sole discretion of the Committee, shall be
entitled to receive an amount determined by multiplying the incentive award
which would have been payable had the Participant remained an employee through
the last day of the Performance Cycle by a fraction, the numerator of which is
the number of days during the Performance Cycle the Participant was employed by
the Corporation or one of its Subsidiaries, and the denominator of which is
1,080. For purposes of this Plan, Qualified Retirement means retirement at or
after age 55 except that Qualified Retirement shall not include a termination of
the Participant's employment by the Corporation for Cause. If a Participant's
employment with the Corporation or one of its Subsidiaries begins after the
first day of a Performance Cycle, the Participant's incentive award for such
Performance Cycle shall automatically be pro-rated utilizing the formula set
forth in the preceding sentence.
Section 5. PERFORMANCE CYCLE; PERFORMANCE GOALS.
(a) For purposes of this Plan, a Performance Cycle shall be a period of
three (3) consecutive fiscal years of the Corporation. Prior to the beginning of
each Performance Cycle, the Committee will establish, in writing, the objective
performance goals applicable to each Participant or class of Participants for
the Performance Cycle. The objective performance goals established by the
Committee may be expressed in terms of financial, operating or other criteria,
or any combination thereof, and may involve comparisons with respect to
historical results of the Corporation and its Subsidiaries and operating groups
or segments thereof, all as the Committee deems appropriate to achieve the
purposes of the Plan as set forth in Section 1 hereof. However, each objective
performance goal must be based upon or measured by criteria which would permit a
third party, having knowledge of the relevant facts, to determine whether the
objective performance goal was satisfied and calculate the amount of the award
payable to a Participant.
(b) The objective performance goals established by the Committee must
preclude the discretion to increase the amount of any award payable to a
Participant. However, to the extent permitted under Code Section 162(m) and the
Treasury Regulations thereunder, the
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Committee retains the discretion to eliminate or decrease the amount of any
award otherwise payable to a Participant. Notwithstanding any other provision in
this Plan, neither any discretion given to the Committee with respect to
Participants' incentive awards, or the amount payable thereunder, nor any rights
given to the Committee, if any, to adjust criteria or goals relating to an
incentive award, may be exercised after a Change in Control which in any way
adversely affects the amount of an incentive award for the Performance Cycle in
which the Change in Control occurred (or for the immediately preceding
Performance Cycle, if payment with respect thereto has not been made before the
Change in Control occurs), or any Participant's rights with respect to either
such Performance Cycle.
Section 6. PAYMENTS. Amounts payable under the Plan shall be paid to
Participants as soon as practicable after the end of each Performance Cycle.
Amounts payable under this Plan shall be paid by the Corporation as follows: 50%
of a Participant's incentive award shall be paid in cash, and 50% of a
Participant's incentive award shall be paid by the delivery of that number of
shares of the Corporation's common stock, par value $1.00 per share, determined
by dividing (i) 50% of the Participant's incentive award by (ii) the average of
the means between the highest and lowest prices of the Corporation's common
stock for each of the fifteen business days preceding the last day of the
Performance Cycle, as reflected in the Composite Tape for New York Stock
Exchange issues. Notwithstanding any other provision of this Plan to the
contrary, any shares of common stock to be delivered under this Section 6 to any
Section 16 reporting persons shall by their terms not be transferable for a
period of six (6) months from the date of issuance thereof; provided however,
that the six (6) month limitation on transferability shall not extend to any
shares delivered to any Participant following a Change in Control of the
Corporation.
Section 7. CHANGE IN CONTROL.
(a) Notwithstanding Section 4 hereof, in the event a Participant's
employment with the Corporation is terminated following a Change in Control of
the Corporation by reason of (i) a termination by the Corporation without Cause
or (ii) a termination by the Participant with Good Reason, then the Participant
shall receive the amount which the Participant would have received had the
Participant remained an employee of the Corporation or one of its Subsidiaries
through the last day of the Performance Cycle in which the Change in Control
occurred, with such incentive award to be based on the actual results at the end
of the Performance Cycle.
(b) For purposes of this Plan, a "Change in Control" of the Corporation
shall mean, and be deemed to have occurred, on the date of the first to occur of
any of the following:
(i) there occurs a Change in Control of the Corporation of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A or
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Item 1 of Form 8-K, promulgated under the Securities Exchange Act of 1934
(the "Act") as in effect as of the first day of a Performance Cycle or, if
neither item remains in effect, any regulations issued under the Act which
serve similar purposes;
(ii) any "person" (as such term is under in Sections 13(d) and 14(d)(2)
of the Act) is or becomes a beneficial owner, directly or indirectly, of
securities of the Corporation owning 20% or more of the combined voting
power of the Corporation's then outstanding securities, provided however
that the event described in this Section 7(b)(ii) shall not be deemed to
have occurred by virtue of ownership of any securities of the Corporation by
the Corporation or by any employee benefit plan sponsored or maintained by
the Corporation;
(iii) individuals who, as of the first day of a Performance Cycle,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, PROVIDED HOWEVER that (1) any person
becoming a director subsequent to the first day of a Performance Cycle whose
election, or nomination for election, by the Corporation's shareholders, was
approved by a vote of at least 70% of the directors comprising the Incumbent
Board (either by a specific vote or by approval of the proxy statement of
the Corporation in which such person is named as a nominee for director,
without objection to such nomination) shall be, for purposes of this
paragraph (iii), considered as though such person were a member of the
Incumbent Board, and (2) in the event that after the first day of a
Performance Cycle, the Board by a vote of at least 70% of the directors
comprising the Incumbent Board shall have reduced or enlarged the size of
the Board of Directors or recommended to shareholders such a reduction or
enlargement, upon such reduction or enlargement having occurred, the Board
of Directors as so reduced or enlarged shall thereupon constitute the
Incumbent Board for all purposes including, without limitation, for the
purpose of determining what thereafter constitutes the majority or 70%
specified above;
(iv) the Corporation shall have merged into or consolidated with another
corporation, or merged another corporation into the Corporation, on a basis
whereby less than 50% of the total voting power of the surviving corporation
is represented by shares held by shareholders of the Corporation prior to
such merger or consolidation; or
(v) the Corporation shall have sold all, or as determined by the Board,
substantially all of its assets to another corporation or other entity or
person.
(c) For purposes of this Section 7 and Section 4, the term "Cause" means (i)
the willful and continued failure of a Participant to perform his or her duties
with the Corporation (other than any failure due to physical or mental
incapacity) after a demand for substantial performance is delivered to the
Participant by the Board which specifically identifies the manner in which the
Board believes the Participant has not substantially
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performed his or her duties, or (ii) willful misconduct materially and
demonstrably injurious to the Corporation. No act or failure to act by the
Participant shall be considered "willful" unless done or omitted to be done by
the Participant not in good faith and without reasonable belief that such action
or omission was in the best interest of the Corporation. The unwillingness of
the Participant to accept any or all of a change in nature or scope of his or
her position, authorities or duties, a reduction in his or her total
compensation or benefits, a relocation that the Participant deems unreasonable
in light of his or her personal circumstances, or other action by or request of
the Corporation in respect of his or her position, authority, or responsibility
that the Participant reasonably deems to be contrary to this Plan, may not be
considered by the Board to be a failure to perform or misconduct by the
Participant. Notwithstanding the foregoing, no Participant shall be treated as
having been terminated for Cause for purposes of this Plan unless and until
there shall have been delivered to the Participant a copy of a resolution, duly
adopted by a vote of 70% of the entire Board of Directors of the Corporation at
a meeting of the Board called and held (after reasonable notice to the
Participant and an opportunity for the Participant and his or her counsel to be
heard before the Board) for the purpose of considering whether the Participant
has been guilty of such a willful failure to perform or such willful misconduct
as justifies termination for Cause hereunder, finding that in the good faith
opinion of the Board the Participant has been guilty thereof and specifying the
particulars thereof.
(d) For purposes of this Section 7, a termination by the Participant will be
with "Good Reason" if the resignation of the Participant is for any one or more
of the following:
(i) the Participant's resignation or retirement is requested by the
Corporation other than for Cause;
(ii) any significant change in the nature or scope of the Participant's
position, authorities or duties from those existing as of the first day of
the Performance Cycle;
(iii) any reduction in the Participant's total compensation or benefits
from those existing as of the first day of the Performance Cycle;
(iv) the breach by the Corporation of any provision of this Plan or any
other agreement between the Corporation and the Participant; or
(v) the reasonable determination by the Participant that, as a result of
a Change in Control of the Corporation and a change in circumstances
thereafter significantly affecting his or her position, the Participant is
unable to exercise the authorities and responsibilities attached to his or
her position as such authorities and responsibilities exist as of the first
day of the Performance Cycle.
Section 8. MISCELLANEOUS.
(a) DESIGNATED BENEFICIARY. If a Participant shall die before receipt of
all distributions or payments to which he or she is entitled under the Plan,
distribution or payment of
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the amount to which he or she is entitled shall be made to such beneficiary as
the Participant shall have designated by an instrument in writing filed with the
Vice President-Human Resources of the Corporation or, in the absence of such
designation, to the Participant's personal representative.
(b) ASSETS. No assets shall be segregated or earmarked in respect of this
Plan and no Participant shall have any right to assign, transfer, pledge or
hypothecate his or her interest in the Plan. All amounts payable pursuant to the
terms of this Plan shall be paid from the general assets of the Corporation.
(c) SHARES RESERVED UNDER THE PLAN. There is hereby reserved for issuance
under the Plan an aggregate of one million (1,000,000) shares of Common Stock,
which may be authorized but unissued or treasury shares.
(d) LIABILITY. No member of the Board shall be liable for any act or
action hereunder, whether of omission or commission, by any other member or
employee or by any agent to whom duties in connection with the administration of
the Plan have been delegated or, except in circumstances involving such member's
bad faith, gross negligence or fraud, for anything done or omitted to be done by
such member. The Corporation will fully indemnify and hold each member of the
Board harmless from any liability hereunder, except in circumstances involving
such member's bad faith, gross negligence or fraud. The Corporation or the Board
may consult with legal counsel, who may be counsel for the Corporation, with
respect to its obligations or duties hereunder, or with respect to any action or
proceeding or any question of law, and shall not be liable with respect to any
action taken or omitted by it in good faith pursuant to the advice of such
counsel.
(e) AMENDMENT OR TERMINATION. Notwithstanding any other provision of this
Plan, the Board may at any time, and from time to time, amend, in whole or in
part, any or all of the provisions of the Plan, or suspend or terminate it
entirely, retroactively or otherwise; provided, however that any such amendment,
suspension or termination may not, without the Participant's consent, adversely
affect any incentive awards previously made prior to the effective date of such
amendment, suspension or termination. Notwithstanding the preceding sentence, no
amendment of the Plan shall, without approval of the stockholders of the
Corporation, result in the Plan losing its status as a protected plan under
Securities and Exchange Commission Rule 16b-3 to the extent applicable.
(f) EXPENSES. The Corporation will bear all expenses incurred by it in
administering this Plan.
(g) WITHHOLDING. The Corporation shall have the right to deduct from any
payment to be made pursuant to this Plan or to otherwise require prior to the
payment of any amount hereunder or the delivery of shares hereunder, payment by
the Participant of any Federal, state or local taxes required by law to be
withheld.
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(h) NO OBLIGATION. Subject to Section 8(e) hereof, neither this Plan nor
any awards made hereunder shall create any obligation on the part of the
Corporation or any Subsidiary to continue this Plan, or any other existing award
plans or policies or to establish or continue any other programs, plans or
policies of any kind. Neither this Plan nor any award made pursuant to this Plan
shall give any Participant or other employee any right with respect to
continuance of employment by the Corporation or any of its Subsidiaries or
affiliates or of any specific aggregate amount of compensation, nor shall there
be a limitation in any way on the right of the Corporation or any of its
Subsidiaries or affiliates by which an employee is employed to terminate such
employee at any time for any reason whatsoever, nor shall this Plan nor any
award made hereunder create a contract of employment.
(i) NO ASSIGNMENT; RESOLUTION OF DISPUTES. Except as otherwise permitted
under Section 8(a), no right or interest of any Participant in this Plan shall
be assignable or transferable, and no right or interest of any Participant
hereunder shall be subject to any lien, obligation or liability of such
Participant. In the event any conflicting demands are made upon the Corporation
with respect to any payments due as a result of this Plan, provided that the
Corporation shall not have received prior written notice that said conflicting
demands have been finally settled by court adjudication, arbitration, joint
order or otherwise, the Corporation may pay to the Participant any and all
amounts due hereunder, and thereupon the Corporation shall stand fully relieved
and discharged of any further duties or liabilities under this Plan.
(j) SUCCESSORS. The obligations of the Corporation under the Plan shall be
binding upon any successor corporation or organization which shall succeed to
substantially all of the assets and business of the Corporation and the term
"Corporation," wherever used in this Plan, shall include any such corporation or
organization after such succession.
(k) GOVERNING LAW. This Plan and all actions taken in connection herewith
shall be governed and construed in accordance with the laws of the State of New
York (regardless of the law that might otherwise govern under applicable New
York principles of conflict of laws).
(l) SHAREHOLDER APPROVAL. The Plan was adopted by the Board on June 15,
1994. The Plan and any incentive awards granted hereunder shall be null and void
if stockholder approval of the Plan is not obtained within twelve (12) months of
the adoption of the Plan by the Board.
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APPENDIX B
MALLINCKRODT GROUP INC.
DEFERRAL ELECTION PLAN FOR NON-EMPLOYEE DIRECTORS
Section 1. INTRODUCTION
1.1 PURPOSE. The Mallinckrodt Group Inc. Deferral Election Plan for
Non-Employee Directors (the "Plan") has been established by Mallinckrodt Group
Inc. (the "Company") to encourage and enable non-employee members of the Board
of Directors of the Company who have heretofore elected or hereafter elect to
defer receipt of some or all of their Retainer and/or Attendance Fees to provide
a degree of financial flexibility with respect to the receipt of income and,
should they elect a deferral in the form of shares of common stock of the
Company, to increase their holdings of such stock.
1.2 EFFECTIVE DATE. Subject to approval of the Plan by the shareholders of
the Company at the Annual Meeting of Shareholders in calendar year 1994, as the
same may be adjourned, the Plan shall be effective on June 30, 1994. The Plan
shall be unlimited in duration.
1.3 SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in
Section 3.5, the amount of Stock which may be made subject to the Plan shall not
exceed [50,000] shares of the Company's authorized but unissued Stock.
1.4 ADMINISTRATION. The authority to manage and control the operation and
administration of the Plan shall be vested in the Corporate Governance Committee
of the Board (the "Committee"). Subject to the limitations of the Plan, the
Committee shall have the sole and complete authority: (a) to interpret the Plan
and to adopt, amend and rescind administrative guidelines and other rules and
regulations relating to the Plan; (b) to correct any defect or omission or to
reconcile any inconsistency in the Plan or in any payment made hereunder; and
(c) to make all other determinations and to take all other actions necessary or
advisable for the implementation and administration of the Plan. The Committee's
determinations on matters within its authority shall be conclusive and binding
upon the Company and all other persons. All expenses associated with the Plan
shall be borne by the Company.
1.5 DEFINITIONS. The definitions applicable to the Plan include the
following:
(a) "Attendance Fee" means the fee payable to a non-employee director of
the Company for attendance at a Board meeting or meeting of a Board
committee (whether for in person attendance or attendance by conference
telephone) and interest accrued on any deferral thereof as provided in
Section 2.2 and, in respect of a Prior Plan
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Participant, also includes any attendance fee the payment of which has been
duly deferred pursuant to the Directors' 1990 Deferred Compensation Plan and
interest accrued thereon pursuant to that plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Date of Purchase" shall mean January 2 or July 1, if a business day
on which the New York Stock Exchange is open for trading (or, if not, the
first such business day thereafter), as the terms of the Plan require.
(d) "Directors' 1990 Deferred Compensation Plan" means the plan adopted
by the Board on June 20, 1990, permitting any non-employee director of the
Company irrevocably to elect to defer receipt of all or part of his or her
future Retainer and/or Attendance Fees to a date certain following the time
when such director ceases to serve as such or to some other specific future
date selected by such director, at which date the director (or, in the event
of death, a designated beneficiary) is entitled to receive in cash such
deferred compensation together with interest thereon during the period of
deferral in an amount equal to the prime rate quoted at the beginning of
each calendar quarter by Bankers Trust Company of New York.
(e) "Participant" means, as of any date, any director of the Company or
Prior Plan Participant who is not, on that date (and any Prior Plan
Participant who has never been), an employee of the Company or any
corporation in which more than 50% of the total combined voting power of all
classes of stock entitled to vote is owned, directly or indirectly, by the
Company. For purposes of Section 2, a Prior Plan Participant shall be deemed
to be a Participant in respect of amounts deferred under the Directors' 1990
Deferred Compensation Plan only if he or she shall have elected under
Section 2.3 hereof to include such amounts in the Plan and for only so long
as his or her irrevocable election under the Directors' 1990 Deferred
Compensation Plan requires that such amounts not be delivered to the
director (or a designated beneficiary).
(f) "Prior Plan Participant" means any director of the Company on the
effective date of the Plan and any retired member of the Board who were he
or she still on the Board at the effective date would otherwise qualify as a
Participant hereunder, and who in either case has heretofore elected
pursuant to the Directors' 1990 Deferred Compensation Plan to defer some or
all of his or her Board compensation eligible for deferral thereunder and
who will not be entitled to receive (and whose designated beneficiary will
not be entitled to receive) any sums (including interest thereon) deferred
under the Directors' 1990 Deferred Compensation Plan until a date later than
April 30, 1995.
(g) "Retainer" means the annual fee payable in installments to a
non-employee director of the Company for service as a director, a
chairperson of a Board committee, or a member of the Executive Committee of
the Board, and in respect of a Prior Plan
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Participant includes any such fee the payment of which has been duly
deferred pursuant to the Directors' 1990 Deferred Compensation Plan and
interest accrued thereon pursuant to that plan.
(h) "Stock" means the $1.00 par value common stock of the Company.
1.6 COMPLIANCE WITH APPLICABLE LAWS. Notwithstanding any other provision
of the Plan, the Company shall have no obligation to deliver any shares of Stock
under the Plan unless such delivery would comply with all applicable laws and
the applicable requirements of any securities exchange or similar entity on
which such class of Stock is admitted to trading or otherwise has trading
privileges. Prior to the delivery of any shares of Stock under the Plan, the
Company may require a written statement that the recipient is acquiring such
shares for investment and not for the purpose or with the intention of
distributing the shares. If the redistribution of shares of Stock is restricted
pursuant to this Section, the certificates representing such shares, when
issued, may bear a legend referring to such restriction.
Section 2. RECEIPT OF STOCK OR CASH; DEFERRAL
2.1 RIGHT TO RECEIVE STOCK OR CASH. Subject to the availability of shares
of Stock under the Plan, a member of the Board who is a Participant during any
part of a fiscal year of the Company (and any present or former member of the
Board who is a Prior Plan Participant) may elect pursuant to Section 2.3 to
defer the receipt of some or all of the Retainer (in multiples of 25%) and/or
100% of Attendance Fees and, in respect of an election to receive shares of
Stock, dividends paid on the Stock previously allocated to the Participant under
this Plan as provided in Section 2.2, plus (whether in respect of an election to
defer in the form of Stock or cash) accrued interest on cash deposited to his or
her account as calculated under said Section 2.2. To the extent an election is
made to defer for the purpose of purchase of Stock, the amounts deferred for
such purpose in each six month period beginning July 1 and January 1, as the
case may be (each six month period is hereafter referred to as a "Period"), and
interest accrued thereon during such Period, shall be used for the purchase of
Stock by the Company for the account of the Participant on the Date of Purchase
next succeeding the end of the Period in respect of which such deferrals were
made. In addition, a Prior Plan Participant may make a one-time election as
provided in Section 2.3 to continue to defer in the form of cash and/or Stock,
for the remainder of the previously elected period of deferral in respect of the
amounts deferred pursuant to the Directors' 1990 Deferred Compensation Plan
(including interest accrued thereon). In the event a Prior Plan Participant
makes an election pursuant to Section 2.3 to defer in the form of Stock, then
sums deferred under the Directors' 1990 Deferred Compensation Plan and elected
to be rolled into the Plan for such purpose shall be used for the purchase of
Stock on January 3, 1995. Should a Prior Plan Participant not make the one-time
election permitted hereunder or elect to continue to defer hereunder in the form
of cash some or all of the amounts deferred under the Directors' 1990 Deferred
Compensation Plan, all
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amounts not deferred in the form of Stock hereunder shall constitute a cash
deferral under the Plan as of the close of business on the date the vote of
shareholders at the 1994 Annual Meeting shall be certified by the inspectors of
election.
2.2 EQUIVALENT AMOUNT OF STOCK. The number of shares of Stock to be
allocated for a Period to any Participant, calculated as of the Date of Purchase
next succeeding the end of such Period utilizing sums accrued to the account of
such Participant in respect of such Period by reason of the Participant's
election under Section 2.3 to defer in the form of Stock, shall be equal to:
(a) the aggregate amount of the Retainer, Attendance Fees and dividends
paid on the Stock in respect of the Period to the extent the Participant
elected to defer receipt of such amounts for such Period, plus interest
accrued on the Retainer, Attendance Fees and dividends from and after the
date when, but for the deferral hereunder, such amounts would be otherwise
payable to the director (I.E., the last business day of each month in
respect of the Retainer, the last business day of the month when the meeting
or meetings in respect of which the Attendance Fee is payable was held and
the payment date for any dividend declared on the Stock previously allocated
to the Participant under the Plan receipt of which remains deferred pursuant
to the Participant's election under Section 2.3) at a rate equal to the
average of the prime rates charged by Bankers Trust Company of New York on
the first day of each month of the Period (in respect of any Prior Plan
Participant who shall have made the one-time election permitted under
Section 2.3 (as contemplated by Section 2.1) the amount under this clause
(a) shall also include the amount rolled into the Plan from the Directors'
1990 Deferred Compensation Plan);
DIVIDED BY
(b) the Fair Market Value of a share of Stock at the close of business
on the day preceding the Date of Purchase.
For this purpose, "Fair Market Value" as of any date means (i) the closing price
(or, if not less than 31 days before a Date of Purchase the Committee so
determines, the average of all closing prices during the 30 days preceding such
Date of Purchase) for sales of Stock as reported on the Composite Transaction
Reporting System on the New York Stock Exchange, which includes other
participating exchanges and over the counter markets, on such date (or dates);
or (ii) in the absence of a reported sale for such date (or dates), the average
of the reported closing bid and asked prices for a share of Stock on such
Exchange. Any fractional share of Stock remaining at the time of actual delivery
of the Stock to the Participant in accordance with the terms of the Plan shall
be distributed to the Participant in cash.
2.3 DEFERRAL ELECTION. (a) In lieu of receiving cash on the date the
Retainer, Attendance Fee or dividend would otherwise have been received (and in
respect of Prior Plan
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Participants when cash amounts previously irrevocably deferred under the
Directors' 1990 Deferred Compensation Plan would otherwise be delivered to him
or her), the Participant can elect to receive Stock, and the dividends paid on
such Stock, if any, or cash, on a deferred basis for any period of such
Participant's election, subject in respect of elections by Prior Plan
Participants in respect of amounts deferred under the Directors' 1990
Compensation Plan to the last sentence of clause (a) of this Section 2.3. An
election under this Section 2.3 shall be valid only if it is in a writing on a
notice of election that complies with the requirements of clause (b) of this
Section 2.3, is signed by the Participant, and, subject to and except as
provided in the last sentence of this clause (a), is filed with the Company
prior to the first day of any calendar year in respect of which the election is
to apply (except that in respect of any election to defer amounts payable during
the six months period beginning July 1, 1994, the notice of election shall be
filed not later than June 30, 1994). Any such election shall be irrevocable with
respect to the calendar year (or initial Plan Period) to which it relates and
cannot be changed on and after the date of such election with respect to such
calendar year (or initial Plan Period). Once effective, such election (except
for the one-time irrevocable election permitted hereunder in respect of amounts
deferred under the Directors' 1990 Compensation Plan) shall remain in effect for
successive calendar years until it is revised or revoked. Any changes to such
election applicable to a succeeding calendar year must be filed with the Company
prior to the first day of the calendar year for which it is to apply. The
election shall be subject to such other terms and conditions established from
time to time by the Committee. The first permitted election hereunder for
non-employee directors then serving as members of the Board, and the only
permitted election hereunder by Prior Plan Participants in respect of amounts
deferred under the Directors' 1990 Deferred Compensation Plan, subject in every
case to shareholder approval of the Plan, shall be made not later than June 30,
1994.
(b) In accordance with the terms of the Plan, the Participant (and, in the
case of clause (v) below, the Prior Plan Participant) shall indicate on the
notice of election whether and to what extent, but only in multiples of 50%, the
deferral is to be in the form of cash or Stock and:
(i) whether the Participant wishes to defer 100% of Attendance Fees (or
no Attendance Fees) and the percentages of the Retainer (in multiples of
25%) and/or (in respect of Stock) dividends thereon he or she wishes to
defer, if any;
(ii) the date to which the deferral shall extend;
(iii) whether (subject to the extent, if any, the Committee permits)
distributions are to be in a single lump sum or in multiple (but not
exceeding 10) installments;
(iv) the Participant's designated beneficiary or beneficiaries in the
event of his or her death; and
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(v) the extent to which any part of the cash deferred under the
Directors' 1990 Deferred Compensation Plan shall be used to purchase Stock.
(c) If a Participant dies before receiving all payments to which he or she
is entitled under the Plan, payment shall be made on January 15 (or the next
succeeding business day if January 15 is not a business day) of the calendar
year following the date of death in accordance with the Participant's
designation of a beneficiary on a form provided for that purpose and delivered
to and accepted by the Committee or, in the absence of a valid designation or if
the designated beneficiary does not survive the Participant, to such
Participant's estate.
2.4 DIVIDENDS; VOTING. If the Participant elects not to defer receipt of
dividends on Stock previously allocated, dividends on such Stock will be paid
directly to the Participant as, if and when paid by the Company. If the
Participant elects to defer receipt of the Stock, the Participant shall
nevertheless have the right to vote the Stock purchased for the account of the
Participant on any matters on which all other shareholders are otherwise
entitled to vote.
2.5 SECURITIES LAW COMPLIANCE. Participation in the Plan in respect of
deferrals in the form of Stock will be governed by, in addition to general
corporate law (which shall apply irrespective of the form of the deferral), the
rules and regulations promulgated by the Securities and Exchange Commission, in
particular, Section 16 of the Securities Exchange Act of 1934. It is the intent
of the Company that the Plan satisfy, and be interpreted in a manner that
satisfies the applicable requirements of Rule 16b-3 of the Securities Exchange
Act of 1934, so that Participants will be entitled to the benefits of Rule
16b-3, or other exemptive rules under Section 16 of the Securities Exchange Act
of 1934, and will not be subjected to avoidable liability thereunder. If any
provision of the Plan would otherwise frustrate or conflict with the intent
expressed in this Section 2.5, that provision to the extent possible shall be
interpreted and deemed amended so as to avoid such conflict. To the extent of
any remaining irreconcilable conflict with such intent, such provisions shall be
deemed void.
Section 3. MISCELLANEOUS
3.1 AMENDMENT AND TERMINATION OF PLAN. While the Company expects and
intends to continue the Plan, the Board reserves the right at any time and in
any way to amend, suspend or terminate the Plan, PROVIDED, HOWEVER, that the
Board may not, without further approval by the shareholders of the Company,
materially increase the number of shares of Stock which are subject to the Plan,
materially modify the requirements for eligibility as a Participant under the
Plan or materially increase the benefits accruing to Participants under the
Plan. Notwithstanding the immediately preceding sentence, to the extent that, in
the opinion of counsel to the Company, stockholder approval of an amendment to
the Plan is not required under the Securities Exchange Act of 1934 (including
the rules and
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<PAGE>
regulations promulgated thereunder) in order for the Plan to continue to satisfy
the applicable requirements for exemption from the operation of Section 16(b) of
the Securities Exchange Act of 1934, such amendment may be made by the Board
acting alone. No amendment of the Plan shall without such Participant's written
consent, except as permitted by Section 2.5, materially and adversely affect any
right of any Participant with respect to any deferral election theretofore made
under the Plan or any right of a Prior Plan Participant in respect of amounts
deferred thereunder.
3.2 APPLICABLE LAW. The Plan shall be construed and administered in
accordance with the laws of the State of New York.
3.3 DIRECTOR STATUS. The Plan will not give any Participant the right to
continue as a director of the Company, or any right or claim to any benefit
under the Plan unless such right or claim has specifically accrued under the
terms of the Plan.
3.4 GENDER AND NUMBER. Where the context requires, words in any gender
shall include any other gender, words in the singular shall include the plural
and words in the plural shall include the singular.
3.5 ADJUSTMENTS FOR CERTAIN CHANGES IN CAPITALIZATION. If the Company
shall at any time increase or decrease the number of its outstanding shares of
Stock or change in any way the rights and privileges of such shares by means of
the payment of a stock dividend or any other distribution upon such shares
payable in Stock, or through a stock split, subdivision, consolidation,
combination, reclassification, or recapitalization involving the Stock, then the
numbers, rights, and privileges of the shares issuable under the Plan shall be
increased, decreased, or changed in like manner as if such shares had been
issued and outstanding, fully paid, and nonassessable at the time of such
occurrence.
3.6 NONASSIGNABILITY. No right to receive payments under the Plan nor any
shares of Stock allocated to a Participant shall be assignable or transferable
by a Participant other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code of 1986, as amended, Title I of the Employee Retirement Income
Security Act of 1974, as amended, or rules thereunder. The designation of a
beneficiary by a Participant pursuant to Section 2.3(b) does not constitute a
transfer.
3.7 UNSECURED OBLIGATION. Amounts deferred under this Plan, unless and
until used to purchase Stock, shall be an unsecured obligation of the Company.
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[MAP]
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P
R
O
X
Y
[MALLINCKRODT GROUP LOGO]
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING OF STOCKHOLDERS, OCTOBER 19, 1994
The undersigned appoints Alec Flamm, Roberta S. Karmel, and Herve M. Pinet, or
any of them, with full power of substitution, proxies to vote the shares which
the undersigned would be entitled to vote if personally present at the
Eighty-Fifth Annual Meeting of Stockholders of Mallinckrodt Group Inc. to be
held on October 19, 1994, at the headquarters of the Company's subsidiary,
Mallinckrodt Veterinary, Inc., at 421 East Hawley Street, Mundelein, Illinois
60060, at 10 a.m., local time, and any adjournments thereof, hereby revoking
any proxy heretofore given.
------------------------------
Election of Four Directors. Nominees: C. Ray Holman, Claudine B. Malone, and
Morton Moskin, for terms expiring in 1997, and Brian M. Rushton for a term
expiring in 1995.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXY COMMITTEE CANNOT VOTE
YOUR SHARE UNLESS YOU SIGN AND RETURN THIS CARD.
SEE REVERSE SIDE
<PAGE>
X PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE. 3022
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1,2,3 AND 4, AND
AS TO ALL OTHER MATTERS ARISING AT THE MEETING, THIS PROXY WILL BE VOTED IN THE
DISCRETION OF THE NAMED PROXIES, ALL IN ACCORDANCE WITH THE NOTICE AND
PROXY STATEMENT FOR THE MEETING, RECEIPT OF WHICH IS ACKNOWLEDGED.
- - --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1,2,3 AND 4.
- - --------------------------------------------------------------------------------
FOR WITHHELD AS TO ALL NOMINEES
1. Election of Directors / / / /
To withhold authority to vote for any nominee(s), mark the "FOR" box and write
the name of each such nominee on the line provided below.
- - ------------------------------
FOR / / AGAINST / / ABSTAIN / /
2. Appointment of independent auditors.
3. Approval of Long-Term Incentive Compensation Plan and material terms of
performance goals.
4. Approval of Deferral Election Plan for Non-Employee Directors.
5. In the discretion of the proxies, upon such other business as may properly
come before the meeting.
/ / Please check this box if you plan to attend the Annual Meeting. A map to
help you locate the site of the meeting is in the Proxy Statement.
SIGNATURE(s) DATE , 1994.
----------------------------- -------------
Note: Please date and sign exactly as name appears hereon. If shares are held
jointly or by two or more persons, each stockholder named should sign.
Executors, administrators, trustees, etc. should so indicate when
signing. If the signer is a corporation, please sign full corporate name
by duly authorized officer. If a partnership, please sign in partnership
name by authorized person.
