<PAGE>
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 [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Mallinckrodt Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
MALLINCKRODT INC.
Notice of 1997
Annual Meeting of Stockholders
and Proxy Statement
LOGO
<PAGE>
LOGO
MALLINCKRODT INC.
September 12, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Mallinckrodt Inc. to be held on Wednesday, October 15, 1997. We will meet at
The Westin South Coast Plaza Hotel, 686 Anton Boulevard, Costa Mesa,
California 92626, continuing our practice of holding our meetings near
significant Mallinckrodt operations. In addition to the formal items of
business to be brought before the meeting, members of management will report
on the Company's operations and answer stockholders' questions.
This booklet includes the Notice of the Annual Meeting and the Proxy
Statement. The Proxy Statement describes the formal business that will be
transacted at the Annual Meeting and provides information about the Company
and the items to be voted upon.
Your vote is very important. Whether or not you expect to attend the Annual
Meeting, please ensure that your shares will be represented by promptly
completing, signing, and returning your proxy card in the envelope provided.
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.
Thank you for your continued support.
Sincerely,
LOGO
C. Ray Holman
Chairman and
Chief Executive Officer
7733 FORSYTH BLVD., ST. LOUIS, MISSOURI 63105 TELEPHONE (314) 854-5200
<PAGE>
LOGO
MALLINCKRODT INC.
HEADQUARTERS OFFICE: 7733 FORSYTH BLVD., ST. LOUIS, MISSOURI 63105
----------------
NOTICE OF EIGHTY-EIGHTH ANNUAL MEETING OF STOCKHOLDERS
----------------
To our Stockholders:
The Eighty-Eighth Annual Meeting of Stockholders of Mallinckrodt Inc. will
be held on Wednesday, October 15, 1997 at 10:00 a.m. local time, at The Westin
South Coast Plaza Hotel, 686 Anton Boulevard, Costa Mesa, California 92626 to:
1. Elect three directors for terms expiring in 2000, as recommended by the
Board of Directors;
2. Ratify the appointment of independent auditors to examine and report on
the financial statements of the Company for fiscal 1998, as recommended
by the Board of Directors;
3. Consider and act upon a proposal to approve the Directors' Stock Award
Plan, which provides for annual stock grants to the Company's non-
employee directors, as recommended by the Board of Directors (if
approved, the Directors' Retirement Plan will be discontinued in the
manner described in the accompanying Proxy Statement);
4. Consider and act upon a proposal to approve the Equity Incentive Plan,
a new stock-based incentive plan for eligible employees of the Company,
as recommended by the Board of Directors;
5. Consider and act upon the material terms of the performance goals
established under the Company's Long-Term Incentive Compensation Plan
for key employees for the three-year period commencing July 1, 1997 and
ending June 30, 2000, as recommended by the Board of Directors;
6. Consider and act upon a stockholder proposal, if properly presented for
action at the meeting, to recommend that the Board of Directors redeem
or submit to a binding shareholder vote the Company's Shareholder
Rights Plan; and
7. Transact 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 26, 1997 are entitled to notice of and to vote at the
meeting.
Admission to the meeting will be by ticket only. If you are a stockholder of
record and plan to attend, please mark the appropriate box on the enclosed
proxy card so we can mail a ticket to you in advance of the meeting. If your
shares are held through an intermediary such as a bank or brokerage firm,
please request a ticket by writing to the Corporate Secretary, Mallinckrodt
Inc., 7733 Forsyth Boulevard, St. Louis, Missouri 63105, enclosing evidence of
your stock ownership with your letter.
Dated: September 12, 1997
By Order of the Board of Directors
LOGO
Roger A. Keller
Vice President, Secretary and
General Counsel
Your vote is important. Please complete and return your proxy in the enclosed
envelope.
<PAGE>
PROXY STATEMENT
MALLINCKRODT 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 Inc. for the Annual Meeting
of Stockholders to be held on October 15, 1997, notice of which, to all
stockholders of record entitled to vote as of August 26, 1997, accompanies
this statement. Only Common and 4% Cumulative Preferred stockholders of record
at the close of business on August 26, 1997, are entitled to vote at this
meeting. At that time, the number of outstanding shares of capital stock of
the Company 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, 72,111,451 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.
Under the laws of the State of New York, the Company's state of
incorporation, votes cast at a meeting of stockholders are determinative of
the outcome of each matter submitted for shareholder action. "Votes cast"
means the votes actually cast "for" or "against" a proposal, whether in person
or by proxy. Directors are elected by a plurality of the votes cast at the
meeting. The affirmative vote of a majority of the votes cast at the meeting
is required to approve the ratification of auditors and the shareholder
proposal. The remaining items on the agenda require the affirmative vote of a
majority of the outstanding shares of stock of the Company. The shares
represented by abstentions and broker non-votes will be considered present at
the meeting for quorum purposes; however, they (i) will not be counted as
either "for" or "against" a director nominee or any other matter on the
agenda, (ii) will not have any effect upon the election of directors, the
ratification of auditors or the shareholder proposal, and (iii) will have the
effect of a vote "against" the Directors' Stock Award Plan, the Equity
Incentive Plan and the Long-Term Incentive Plan proposal.
The Annual Report of the Company for the fiscal year ended June 30, 1997,
this Proxy Statement, and the proxy card are first being mailed to
stockholders commencing on or about September 12, 1997.
AGENDA ITEM 1
ELECTION OF DIRECTORS
At the outset of fiscal 1997, the Board of Directors consisted of fourteen
members. Effective on the date of the annual meeting in October 1996, Alec
Flamm, a director of the Company since 1986, and Herve M. Pinet, a director
since 1973, retired as directors in accordance with the Board's retirement
policy. Effective on the date of this meeting, Morton Moskin, a director since
1973, will retire as a director in accordance with the Board's retirement
policy. Accordingly, the Board will reduce its size to eleven members at that
time.
Of the twelve current directors, C. Ray Holman, the Company's Chairman and
CEO, and Mack G. Nichols, the Company's President and COO, are the only ones
who are employees of the Company. Raymond F. Bentele was President and CEO of
Mallinckrodt, Inc., then a subsidiary of the Company, and Executive Vice
President of the Company, until his retirement as an officer in December 1992.
None of the other directors have ever been officers or employees of the
Company.
As provided in the Company's 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 class must have a minimum of three directors. The
class of 1997 has consisted of four directors: Mr. Holman, Ms. Malone, Mr.
Viscusi, and the retiring
1
<PAGE>
director, Mr. Moskin. Upon recommendation of the Corporate Governance
Committee, the Board has nominated Mr. Holman, Ms. Malone and Mr. Viscusi for
re-election by the stockholders for three-year terms.
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. Each of the nominees is
willing to so serve. Biographical information, current as of July 1, 1997
concerning each of the nominees and the directors continuing in office
follows. There are no family relationships among any of the nominees or any of
the incumbents or any executive officer of the Company or any of its
subsidiaries. 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 THREE
NOMINEES FOR THREE-YEAR TERMS ENDING IN OCTOBER 2000 (ITEM NO. 1 ON THE PROXY
CARD).
C. RAY HOLMAN, 54, Chairman of the Board of the Company since
October 1994; CEO of the Company since December 1992; and
President of the Company from December 1992 to December 1995.
Mr. Holman joined Mallinckrodt, Inc., as Assistant Controller in
1976, and held increasingly more responsible positions
thereafter. He became President and CEO of Mallinckrodt Medical
Inc., a wholly-owned subsidiary of the Company, in 1989, and a
Corporate Vice President in 1990. He is a director of Laclede
Gas Company and NationsBank Corporation. Mallinckrodt director
since 1992. Member, Executive Committee.
LOGO
CLAUDINE B. MALONE, 61, President of Financial & Management
LOGO Consulting, Inc., McLean, VA. She currently serves as Chairman,
Federal Reserve Bank, Richmond, Virginia, and as a Trustee of
the Massachusetts Institute of Technology. Ms. Malone sits on
the boards of Dell Computer Corporation; Hannaford Bros. Co.;
Hasbro, Inc.; Houghton Mifflin Company; Lafarge Corporation; The
Limited Inc.; Lowe's Companies, Inc.; Science Applications
International Corporation; and Union Pacific Resources Group
Inc. Mallinckrodt director since 1994. Chair, Social
Responsibility Committee and member, Organization and
Compensation Committee.
ANTHONY VISCUSI, 64, President, CEO and director of
LOGO Vasomedical, Inc., Westbury, NY, since June 1994. Mr. Viscusi
was Senior Vice President, Worldwide Marketing for the AgVet
division of Merck & Co., Inc. from 1987 to 1993. Mallinckrodt
director since 1995. Member, Audit Committee and Corporate
Governance Committee.
The following information is provided concerning directors continuing in
office.
RAYMOND F. BENTELE, 60. President and CEO of Mallinckrodt,
Inc. from 1981 until his retirement in December 1992. He joined
the Company as Senior Vice President when it acquired the
corporation then named Mallinckrodt, Inc. in 1986, and was
Executive Vice President of the Company from 1989 until
retirement. He is a director of Kellwood Company, Leggett &
Platt, Incorporated, and IMC Global Inc. Mallinckrodt director
since 1990. Chair, Audit Committee and member, Executive
Committee and Social Responsibility Committee. Term expires in
1999.
LOGO
2
<PAGE>
GARETH C. C. CHANG, 54, Corporate Senior Vice President,
Marketing, of Hughes Electronics and President, Hughes
International, Los Angeles, CA, since 1993. Mr. Chang was
Corporate Vice President and Head, Asia/Pacific, of McDonnell
Douglas Corporation from 1988 to 1993. He is a director of Apple
Computer Inc. Mallinckrodt director since April 1996. Member,
Social Responsibility Committee and Organization and
Compensation Committee. Term expires in 1999.
LOGO
WILLIAM L. DAVIS, III, 53, Chairman and CEO of R. R. Donnelley
and Sons Company, Chicago, IL, since March 1997. Mr. Davis was a
Senior Executive Vice President of Emerson Electric Co., St.
Louis, MO, from 1993 to 1997, and was an Executive Vice
President of that company from 1988 to 1993. Mallinckrodt
director since 1995. Member, Audit Committee and Organization
and Compensation Committee. Term expires in 1998.
LOGO
RONALD G. EVENS, M.D., 57, Director of the Mallinckrodt
Institute of Radiology at Washington University, St. Louis, MO,
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 is also
a director of RightCHOICE Managed Care, Inc., a for-profit
subsidiary of Blue Cross and Blue Shield of Missouri.
Mallinckrodt director since 1990. Member, Social Responsibility
Committee and Corporate Governance Committee. Term expires in
1999.
LOGO
ROBERTA S. KARMEL, 60, Professor of Law and Co-Director,
Center for the Study of International Business Law, Brooklyn Law
School since 1985; of counsel, Kelley Drye & Warren since
January 1, 1995, where she was a partner from 1987 to 1994. She
serves as a director of Kemper Insurance Companies. Mrs. Karmel
served as a Commissioner of the U.S. Securities and Exchange
Commission from 1977 until 1980 and as a director of the New
York Stock Exchange from 1983 until June 1989. Mallinckrodt
director since 1980. Chair, Organization and Compensation
Committee and member, Corporate Governance Committee. Term
expires in 1998.
LOGO
MACK G. NICHOLS, 59, President and COO of the Company since
December 1995; Senior Vice President of the Company since
October 1993; Vice President of the Company from October 1990 to
October 1993; President and CEO of Mallinckrodt Chemical, Inc.,
a wholly-owned subsidiary of the Company, from January 1989 to
December 1995. He is also a director of A.P. Green Industries,
Inc. Mallinckrodt director since December 1995. Term expires in
1999.
LOGO
BRIAN M. RUSHTON, Ph.D., 63, Past President of the American
Chemical Society. Dr. Rushton served as Senior Vice President,
Research and Development, for Air Products and Chemicals, Inc.,
from 1992 to 1993. He joined Air Products in 1981 as Vice
President of Research and Development. Mallinckrodt director
since 1994. Member, Audit Committee and Social Responsibility
Committee. Term expires in 1998.
LOGO
3
<PAGE>
DANIEL R. TOLL, 69, corporate and civic director. He serves as
a director of Brown Group, Inc., A.P. Green Industries, Inc.,
Kemper Insurance Companies, Lincoln National Convertible
Securities Fund, Inc., Lincoln National Income Fund, Inc., and
NICOR, Inc. He was formerly President of Walter E. Heller
International Corporation, a financial services firm, from 1980
to 1985. Mallinckrodt director since 1985. Chair, Executive
Committee and member, Corporate Governance Committee and
Organization and Compensation Committee. Term expires in 1998.
LOGO
INFORMATION ABOUT THE BOARD OF DIRECTORS
In accordance with New York law, the Board of Directors is responsible for
supervising the overall affairs of the Company. Five committees of the Board,
as described below, assist the Board in carrying out its duties.
The Board held six regular meetings and three special meetings during the
1997 fiscal year. Overall attendance of directors at Board and Committee
meetings was approximately 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 Mr. Chang, who was unable to attend a number of meetings
because of unanticipated scheduling conflicts resulting from his position with
Hughes Electronics and whose attendance was approximately 56%.
COMMITTEES OF THE BOARD
The Board of Directors has established five standing committees: Executive;
Audit; Corporate Governance; Organization and Compensation; and Social
Responsibility. The committees held a total of twenty meetings during fiscal
1997. The Executive Committee consists of three non-employee directors and Mr.
Holman. The other standing committees consist of non-employee directors
(although Mr. Bentele, who is Chair of the Audit Committee and a member of the
Social Responsibility Committee and the Executive Committee, is a former
officer and employee of the Company). The current members of these committees
are identified in the personal information about 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
Company. The Executive Committee met once during the last fiscal year.
AUDIT COMMITTEE. The Audit Committee, which met four times during the past
fiscal year, evaluates the performance of the Company'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
Company'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 reviews the Company's internal accounting
control systems with the independent auditors.
CORPORATE GOVERNANCE COMMITTEE. The Corporate Governance Committee met four
times during the last fiscal year. Its functions include recommending to the
Board persons to be nominated for election as directors of the Company. 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 Company. 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 hereinafter described under "Miscellaneous
Information") in writing to the Secretary of the Company, 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.
4
<PAGE>
ORGANIZATION AND COMPENSATION COMMITTEE. The Organization and Compensation
Committee met six times during the last fiscal year. The responsibilities of
this Committee include oversight of the Company'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 25-30 for the report of, and
additional information about, this Committee.
SOCIAL RESPONSIBILITY COMMITTEE. The Social Responsibility Committee met
five times during the last fiscal year. Its functions are to review: the
Company'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); the aspects of the Company's research and development activities
relevant to the Committee's purpose; and political and social developments as
they may affect the Company and its constituencies.
BOARD INTERMEDIARY
When the positions of Chairman and CEO are combined, as they currently are,
the Board selects from its non-employee directors a person to serve as Board
intermediary. The responsibilities of the intermediary include presiding at
all executive sessions of the Board from which the CEO is excused or otherwise
absent, interacting with the Board and the CEO in setting agendas and
assessing objectives, and coordinating the Board's formal CEO performance
appraisal.
The intermediary is selected by the Board annually at the time of the
regular stockholders' meeting. Unless the Board finds reason for exception,
the intermediary serves at least one full year but no more than three
consecutive one year terms. The Board will reevaluate the intermediary concept
from time to time to be certain that it facilitates interaction between the
Board and management for the ultimate benefit of the Company's stockholders.
In October 1996, the Board selected Mr. Toll to serve as Board intermediary
for a one-year term. The Board, acting on the recommendation of the Corporate
Governance Committee, intends to re-appoint Mr. Toll to this position for an
additional one-year term expiring in October 1998.
DIRECTORS' COMPENSATION
Messrs. Holman and Nichols are currently the only employee directors of the
Company. Employee directors receive no fees or remuneration, as such, for
service on the Board or on any committee of the Board.
During the 1997 fiscal year, non-employee directors received a retainer of
$30,000. The Company's Board meetings typically extend over a two-day period
and non-employee directors are paid $2,000 for each Board meeting attended
($750 for telephone Board meetings). They also receive $1,000 for each
committee meeting attended ($500 for telephone committee meetings) and an
annual retainer of $3,600 for chairing a committee (other than the Executive
Committee). The Board intermediary, who also chairs the Executive Committee,
is paid an additional retainer equal to the annual retainer paid to non-
employee directors for service on the Board, as adjusted from time to time.
Non-employee directors may defer the receipt of all or part of their fees
and retainers under the Deferral Election Plan for Non-Employee Directors.
Amounts so deferred may be allocated to a cash deferral account, which earns
interest at a fluctuating rate determined by reference to the prime rate
charged by Bankers Trust Company of New York, or to a stock deferral account,
which is credited with share equivalents of Company common stock, or they may
divide their deferred payments between the two accounts.
5
<PAGE>
Under the Directors' Stock Option Plan, each non-employee director
continuing in office after an annual meeting of stockholders receives a non-
qualified option to purchase 1,500 shares of Mallinckrodt common stock at 100%
of the fair market value of such stock on the date of grant. Each option has a
term of ten years, unless the period is shortened under provisions taking
effect upon death or retirement. Fifty percent of the total number of shares
covered by each option grant become exercisable on and after the first
anniversary of the grant, and the remaining fifty percent become exercisable
on and after the second anniversary.
Non-employee directors are also provided with accident coverage while on
Company business and may participate in the Company's matching gifts program
for gifts to eligible non-profit organizations up to $2,000 per year.
Pursuant to the Directors' Retirement Service Plan, as amended, which was
adopted by the Company's shareholders in 1984 (the "Retirement Plan") 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, upon attainment of age 70 and after
retirement from the Board, receive an annual nonqualified pension from the
Company. The annual pension is 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 Company accrued
$352,000 in fiscal 1997 against future liabilities under the Retirement Plan.
Subject to shareholder approval of the Directors' Stock Award Plan (Item 3
on the agenda), the Board has approved discontinuing the Retirement Plan for
all non-employee directors who continue in office or first join the Board
after the 1997 Annual Meeting, other than Mr. Toll, who is scheduled to retire
from the Board in October 1998 under the Board's mandatory retirement policy
discussed below. The Company will establish a book account for each of its
current non-employee directors who continues in office after this meeting
(other than Mr. Toll), which will reflect the present value of the retirement
benefit of such director under the Retirement Plan and will accrue interest at
the prime rate until pay-out. When any such director leaves the Board, he or
she will be paid out either in a lump sum or (except as otherwise provided in
the event of a director's death) in substantially equal payments over up to a
fifteen year period at the director's election made during his or her tenure
as a director. In the event of a director's death before receiving full
account value, the balance in such account would be payable in a lump sum to
the designated beneficiary or, if none, to the director's estate.
In accordance with Board policy, all directors retire from the Board at the
annual meeting next following their reaching age 70, except that directors who
are officers retire at the annual meeting next following the earlier end of
their service as an officer unless then nominated for re-election to the Board
as a non-employee director.
COMPENSATION FOR NON-DIRECTOR SERVICES
Dr. Evens has for many years, beginning before his joining the Company's
Board in 1990, rendered consulting services to the Company's imaging division.
During fiscal 1997, 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 1997, this totaled about
$903,800.
The firm of White & Case, of which Mr. Moskin is a former partner, performed
legal services for the Company during fiscal 1997 for which that firm was paid
its usual and customary charges.
Herve M. Pinet, who retired from the Board in October 1996, rendered
international consulting services for the Company in fiscal 1997 for which he
received $120,000.
6
<PAGE>
OWNERSHIP OF THE COMPANY'S SECURITIES
SECURITIES OWNED BY DIRECTORS AND OFFICERS
The following table shows the number of shares of the Company's Common Stock
held beneficially as of August 20, 1997, by each director and nominee for
director, each of the named executive officers in the Summary Compensation
Table, and all directors and executive officers as a group. The named
individuals have sole voting and investment power over all stock reflected in
the table.
<TABLE>
<CAPTION>
NUMBER OF COMMON
SHARES OWNED
BENEFICIALLY
AS OF PERCENT OF CLASS
NAME 8/20/97 (1) (2) OUTSTANDING
---- ---------------- ----------------
<S> <C> <C>
Raymond F. Bentele 44,077 *
Gareth C. C. Chang 1,250 *
Paul D. Cottone (3) 53,451 *
William L. Davis 2,750 *
Ronald G. Evens 12,700(4) *
C. Ray Holman 336,298 *
Roberta S. Karmel 12,250 *
Claudine B. Malone 4,900 *
Morton Moskin 9,787 *
Robert G. Moussa (5) 103,743 *
Mack G. Nichols 206,466 *
Michael A. Rocca 55,467 *
Brian M. Rushton 4,528 *
Daniel R. Toll 11,250 *
Anthony Viscusi 4,250 *
All directors and executive officers as
a group (32 individuals) 1,606,573 2.23%
</TABLE>
- ---------------------
(1) The Securities and Exchange Commission ("SEC") 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.
(2) Included are 1,153,440 shares which are subject to stock options held by
all directors and executive officers of the Company as a group which may
be exercised within sixty days of August 20, 1997. The table does not
include share equivalents credited to Dr. Evens (4,691 share equivalents)
and Mr. Moskin (3,014 share equivalents) under the Deferral Election Plan
for Non-Employee Directors as described on page 5, as to which no voting
or investment power exists prior to share issuance.
(3) Mr. Cottone terminated employment with the Company on June 30, 1997,
concurrent with the sale by the Company of its animal health division, of
which Mr. Cottone was president.
(4) This does not include 1,300 shares for which Dr. Evens disclaims
beneficial ownership.
(5) Mr. Moussa terminated employment with the Company on June 30, 1997.
*Less than 1.0% of the Common Stock outstanding.
DIRECTOR AND SENIOR MANAGEMENT SHARE OWNERSHIP REQUIREMENTS
BOARD. The Board adopted in 1995 a policy on director share ownership to
underscore the importance of better aligning the interests of the directors
with those of the Company's stockholders. Ownership targets are tied to the
amount of the annual retainer paid to non-employee directors. Neither
unexercised stock options granted under the Directors' Stock Option Plan nor
share equivalents credited under the Deferral Election Plan for Non-Employee
Directors, are to be included for purposes of satisfying a director's minimum
share ownership requirement. Each new director must, within three years after
joining the Board, own shares of Mallinckrodt Common Stock with a market value
at the time of acquisition of at least one times the annual retainer; and must
within two years thereafter (and for so long as service on the Board
continues), own shares of Mallinckrodt Common Stock with a value when acquired
of at least two times the annual retainer or 1,000 shares, whichever
7
<PAGE>
is greater. Directors serving when the policy was adopted must meet similar
ownership requirements within three years and five years, respectively, after
adoption. Subject to shareholder approval of the Directors' Stock Award Plan
(Item 3 on the agenda), the Board has voted to increase the minimum share
ownership requirement within five years to the greater of four times the
annual retainer or 1,000 shares. In addition to the foregoing, any future
candidate for nomination as a non-employee director must beneficially own
Common Stock of the Company at the time share ownership is reported in the
Proxy Statement in which such nomination is first submitted for stockholder
approval.
SENIOR MANAGEMENT. In December 1996, the Company established a stock
ownership program with guidelines for senior management to own shares equal in
value to targeted multiples of their base salary. The program is designed to
help insure that management will share gains and risks with all other
stockholders investing in the Company and more directly aligns the interests
of the Company's managers with those of the stockholders. The guidelines for
stock ownership range from two times base salary to five times base salary for
the Company's Chief Executive Officer. The target level of stock ownership
increases with each increase in an executive's level of compensation.
Executives have four years from adoption of the policy to achieve the
recommended ownership levels.
OWNERSHIP OF VOTING STOCK BY OTHERS
On the basis of filings with the SEC and other information deemed reliable
by the Company (but excluding holdings of Cede & Co. and Kray & Co., nominees
for depositories of the New York and Chicago Stock Exchanges, respectively),
the Company believes that as of on or about August 20, 1997 the following
named institutions owned of record more than 5% of the Company's Common Stock.
No changes in these holdings have come to the Company's attention since then.
To the Company's knowledge, no person or concern beneficially owns more than
5% of its Preferred Stock.
<TABLE>
<CAPTION>
SHARES OF COMMON PERCENT OF
NAME AND ADDRESS STOCK BENEFICIALLY OWNED CLASS
---------------- ------------------------ ----------
<S> <C> <C>
Trimark Financial Corporation (1)... 8,832,000 12.25%
One First Canadian Place
Suite 5600, P.O. Box 487
Toronto, Ontario M5X 1E5
College Retirement Equities Fund.... 5,562,050 7.71
730 Third Avenue
New York, NY 10017-3206
The Capital Group Companies, Inc.
(2)................................ 4,712,500 6.54
333 South Hope St., 52nd Floor
Los Angeles, CA 90071-1447
</TABLE>
- ---------------------
(1) Trimark Financial Corporation is a parent holding company for Trimark
Investment Management Inc., an investment adviser to certain Trimark
mutual funds which are the record holders of the Company's stock.
(2) Information regarding the beneficial ownership of The Capital Group
Companies, Inc. ("CGC") has been derived from its Form 13F, dated June 30,
1997, filed on its behalf and on behalf of various investment management
subsidiaries over which CGC is deemed to exercise investment discretion.
8
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
AGREEMENTS WITH MR. COTTONE. In connection with the Company's decision in
1996 to divest its animal health division, the Company entered into two
agreements (an Executive Incentive Compensation Agreement and a Severance and
Separation Agreement) with Mr. Cottone, the division's chief executive
officer, which were intended to retain and incentivize Mr. Cottone during the
divestiture process. Under the Executive Incentive Compensation Agreement,
dated October 24, 1996, Mr. Cottone agreed to remain an employee of the
Company and to devote best efforts in performing his duties in exchange for
the Company's agreement to, among other things, (i) continue Mr. Cottone's
then current base salary, (ii) allow Mr. Cottone continued participation in
the Company's benefit plans, (iii) pay Mr. Cottone an incentive equal to one
times his annual base salary in effect on the closing date, a sales incentive
based upon the value received by the Company for the divestiture, and (iv) if
the animal health division met certain financial targets for fiscal 1997, pay
Mr. Cottone 200% of the payment he otherwise would have been entitled to
receive under the Company's annual management incentive compensation program
for fiscal 1997, plus any amounts due him under the Company's Long-Term
Incentive Compensation Program for the three-year period ended June 30, 1997.
Under the Severance and Separation Agreement, the Company agreed that if Mr.
Cottone's employment with the Company terminated before the divestiture of the
animal health division, or if Mr. Cottone was not thereafter offered
comparable employment by the Company or the acquiror of such business, the
Company would pay or provide to him (i) an amount equal to one year of his
base salary plus the cost of continued medical coverage for one year, (ii)
improvements in benefits payable to him under the Company's retirement plan
including immediate vesting, two additional years of credited service, and
possible eligibility for early retirement, (iii) an amount for unvested
options at the rate of $6.84 per share for options awarded before 1996 and
$3.42 per share for options awarded after August 1996, and (iv) executive out
placement services. Mr. Cottone's employment with the Company terminated on
June 30, 1997, concurrent with the Company's sale of its animal health
business. Mr. Cottone has not been employed by the acquiror of such business.
AGREEMENT WITH MR. MOUSSA. Effective June 30, 1997, Mr. Moussa, who served
in various capacities with the Company for over 19 years, and most recently
served as Senior Vice President and President, International, resigned from
his positions with the Company. In connection with his resignation, the
Company and Mr. Moussa entered into an agreement under which the Company
agreed to (i) pay Mr. Moussa the current value of his accrued retirement plan
benefits in the sum of $1.4 million, (ii) provide executive out placement
services for a twenty month period, (iii) pay Mr. Moussa his annual management
compensation award for fiscal 1997, plus any amounts due him under the
Company's Long-Term Incentive Compensation Program for the three-year period
ended June 30, 1997, (iv) extend the exercise period for vested options held
by Mr. Moussa through the earlier of their stated original expiration date or
February 28, 1999, (v) with respect to unvested stock options held by Mr.
Moussa, provide an additional payment equal to the difference between the
exercise price and the market price on a date to be designated by Mr. Moussa
on or before February 29, 1999, and (vi) pay Mr. Moussa $100,000 to cover the
cost of his relocation to Europe if he decides to relocate during the
consultancy period described below. In consideration of the foregoing
benefits, Mr. Moussa agreed, among other things, to release the Company from
any and all claims he may have against it. The Company and Mr. Moussa have
also entered into a Consulting Agreement for a period of twenty months from
June 30, 1997. For his consulting services, the Company will pay Mr. Moussa
approximately $30,667 per month and will continue to provide him with all
benefits to which he was entitled as an employee of the Company, other than
the Company's retirement plans.
CHANGE IN CONTROL ARRANGEMENTS. Change in control severance agreements with
the named executive officers are intended to assure the Company of the
continued services of those executives. In general, all provide that, in the
event there is a change in control of the Company (as defined in the
agreements), and the executive is either terminated by the Company without
cause or terminates
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<PAGE>
employment for good reason (as defined in the severance agreements) during the
3-year period immediately following a change in control (or such a termination
of employment occurs at the request of a third party who ultimately
effectuates a change in control), then the executive shall receive certain
severance benefits including a pro rata target bonus for the year of
termination, a lump-sum cash amount equal to 2 1/2 times the sum of (i) the
executive's base salary plus (ii) the executive's target bonus for the year in
which the change in control occurs, 2 1/2 years' credited service for the
Company's SERP and continued participation in welfare insurance benefits for a
30 month period. In the event change in control related payments to any
executive under a severance agreement or otherwise are subject to the 20%
parachute payment excise tax under Section 4999 of the Internal Revenue Code,
the Company shall reimburse the executive in an amount sufficient to enable
the executive to retain his change in control benefits as if the excise tax
had not applied. Pursuant to the severance agreements, the executives agree to
remain employed by the Company for a 90-day period following a change in
control.
Under the severance agreements, a "change in control" is defined generally
to mean: (i) a person becomes the beneficial owner of 20% or more of the
voting power of the Company; (ii) a change in a majority of the Board (or
their approved successors); (iii) the consummation of a reorganization,
merger, consolidation or sale of substantially all of the assets of the
Company (unless the Company's stockholders receive 50% or more of the voting
stock of the surviving or purchasing company, no person acquires more than 20%
of such voting stock, and the Company's Board of Directors remains a majority
of the continuing board of directors of the surviving or purchasing company);
or (iv) a liquidation or dissolution of the Company.
In 1988, the Company 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 severance as
described above. Under the Program, which is periodically reviewed and updated
by the Board, a trust has been established (subject to the rights of creditors
of the Company) so that the Company's commitments, grants and awards to such
personnel would be honored, including deferred compensation and supplemental
retirement plans. The cost of this Program was $24,386 in fiscal 1997.
Additional benefit plans of the Company which could be impacted by a change in
control of the Company include: (i) the Supplemental Executive Retirement Plan
(acceleration of vesting if a participant's employment is terminated within
three years following a change in control); (ii) the Long Term Incentive
Compensation Plan (following a change in control, awards may not be adversely
amended or adjusted and participants who are terminated without cause or
terminated for good reason will receive payments at the end of any pending
performance cycle as if employment had continued); (iii) the Management
Incentive Compensation Program (provides minimum payment of target award for
year of change in control and pro rata target payment if employment is
terminated without cause or for good reason during the 1-year period following
a change in control); and (iv) the Company's pension plans (unvested benefits
vest upon a change in control). The amount of funding under the trust and
related letter-of-credit arrangements that would occur if the Board of
Directors determined funding was appropriate would depend upon the Company's
outstanding compensation commitments subject to the Program at the time and
the extent the Board then determined to fund them.
SECTION 16(A) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires directors and
certain officers and beneficial owners of the Company's equity securities to
file with the SEC reports about such ownership and changes in ownership. The
Company is required to conduct a review and to identify in its proxy statement
each director or officer who failed to file any required report under Section
16 on a timely basis. Based upon that review, the Company has determined that
all required reports were filed on a
10
<PAGE>
timely basis for the 1997 fiscal year, except that two transactions by Mr.
Thomas R. Trotter, a corporate vice president and president of the Company's
Critical Care Division, involving Mr. Trotter's investment in Company stock
through the Company's 401(k) Investment Plan, and which should have been
reported on filings for the months of April and May 1997, respectively, were
reported on Mr. Trotter's filing on Form 5 made after the end of the fiscal
year.
AGENDA ITEM 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Since 1913 the firm of Ernst & Young LLP, independent auditors, has examined
and reported on the consolidated financial statements of the Company. The
Board of Directors, upon recommendation of the Audit Committee, has appointed
Ernst & Young LLP as independent auditors to examine and report on the
financial statements of the Company for the year ending June 30, 1998, subject
to stockholder approval.
During the year ended June 30, 1996, Ernst & Young LLP provided the Company
with audit services, including examinations of and reporting on the Company'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 SEC and
the annual report to shareholders. Ernst & Young LLP's fees for such services
during fiscal 1996, including travel and related expenses, totaled $1,791,600.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will have the opportunity to make any statements they may
desire. They will also be available to respond to appropriate questions of the
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THIS APPOINTMENT (ITEM NO. 2 ON THE PROXY CARD). Ratification
of the appointment of Ernst & Young LLP as independent auditors requires the
affirmative vote of a majority of the votes cast at the meeting by holders of
the Company's 4% Cumulative Preferred Stock and Common Stock, voting without
regard to class.
AGENDA ITEM 3
APPROVAL OF THE DIRECTORS' STOCK AWARD PLAN
On August 20, 1997, the Board of Directors adopted the Directors' Stock
Award Plan (the "Directors' Stock Plan"). The Directors' Stock Plan will
become effective on the date of the Company's 1997 Annual Meeting if it is
approved by the holders of a majority of all outstanding shares entitled to
vote thereon.
The purpose of the Directors' Stock Plan is to promote the interests of the
Company by increasing the proprietary interest in the Company of non-employee
members of the Board. If this new plan receives shareholder approval, the
Company's Directors' Retirement Plan will not be available in the future to
new directors of the Company and will be discontinued for all current non-
employee directors continuing in office after the 1997 Annual Meeting, except
Mr. Toll who is scheduled to retire from the Board in October 1998. See
"Directors' Compensation--Compensation for Directors' Services". In addition,
subject to shareholder approval of the Directors' Stock Plan, the Board has
voted to increase the director minimum share ownership requirement (as
discussed on pages 7-8) within five years to the greater of four times the
annual retainer or 1,000 shares.
The primary features of the Directors' Stock Plan are summarized below. This
summary is qualified by reference to the complete text of the Directors' Stock
Plan, which is attached to this Proxy Statement as Appendix A.
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<PAGE>
PRIMARY FEATURES OF THE DIRECTORS' STOCK PLAN
The Corporate Governance Committee of the Board (the "Governance Committee")
will administer the Directors' Stock Plan. Subject to the limitations of the
Directors' Stock Plan, the Governance Committee will have authority to:
interpret the Directors' Stock Plan; adopt, amend and rescind administrative
guidelines and other rules and regulations relating to the Directors' Stock
Plan; and make all other determinations and take all other actions necessary
or advisable for the implementation and administration of the Directors' Stock
Plan.
Under the Directors' Stock Plan, on each "Date of Award," each non-employee
director of the Company (excluding Mr. Toll, who will retire from the Board in
October 1998) will be eligible to receive that number of whole shares of
Common Stock having a "Fair Market Value" on the "Date of Award" equal to
fifteen thousand dollars ($15,000). The first "Date of Award" will be October
16, 1997, at which date it is anticipated that eight non-employee directors
will be eligible to receive awards. An otherwise eligible director will cease
to be eligible to receive an award under the Directors' Stock Plan on the date
he or she ceases to be a member of the Board for any reason. The Company will
be authorized to issue up to 75,000 shares of Common Stock under the
Directors' Stock Plan.
Distribution of shares of Common Stock awarded under the Directors' Stock
Plan will be made as soon as practicable after the "Date of Award." Any
fractional share of Common Stock that a director would otherwise be entitled
to receive will be paid in cash.
If, in its sole discretion, the Board determines that a director has become
an employee, consultant or director of a competitor of the Company or any of
its subsidiaries and has declined to withdraw therefrom after notice that the
Board believes a conflict of interest is involved, such director will
immediately and automatically forfeit all entitlement to further awards of
Common Stock under the Directors' Stock Plan.
For purposes of the Directors' Stock Plan, (a) "Common Stock" means shares
of the authorized common stock of the Company (par value $1 per share); (b)
"Date of Award" means the first business day immediately following the date of
each annual meeting of the stockholders of the Company, or such other annual
date as the Governance Committee shall decide; and (c) "Fair Market Value" as
of any date means (i) the closing price for sales of Common 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 (ii) in the absence of a reported sale for such date, the average
of the reported closing bid and asked prices for a share of Common Stock on
such Exchange, on such date.
If the Company shall at any time increase or decrease the number of its
outstanding shares of Common 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 Common Stock, or through a
stock split, subdivision, consolidation, combination, reclassification, or
recapitalization involving the Common Stock, then the number, rights and
privileges of the shares of Common Stock issuable under the Plan shall be
increased, decreased or changed in a like manner as determined by the
Governance Committee.
The Board may amend, modify, suspend or terminate the Directors' Stock Plan
at any time for any purpose; provided, however, that following the approval of
the Directors' Stock Plan by the Company's stockholders, the Company will seek
stockholder approval for any change to the extent any applicable law,
regulation or rule requires (or otherwise makes it a condition for the
availability of exemptive relief). No amendment of the Directors' Stock Plan
that materially and adversely affects any right of a director with respect to
any award previously granted can be made without such director's written
consent.
FEDERAL INCOME TAX CONSEQUENCES
A non-employee director who receives an award under the Directors' Stock
Plan will recognize ordinary income, and the Company will be entitled to a
corresponding tax deduction equal to the Fair Market Value of the Common Stock
at the time of transfer of the shares to the director.
12
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE DIRECTORS'
STOCK AWARD PLAN (ITEM NO. 3 ON THE PROXY CARD). The affirmative vote of the
holders of a majority of the outstanding shares of the Company's 4% Cumulative
Preferred Stock and Common Stock entitled to vote at the meeting, voting
without regard to class, is required to approve the Directors' Stock Plan.
AGENDA ITEM 4
APPROVAL OF THE EQUITY INCENTIVE PLAN
(FOR COMPANY EMPLOYEES)
The Board of Directors adopted the Equity Incentive Plan (the "Equity Plan")
on April 16, 1997, subject to approval by the Company's stockholders at the
Annual Meeting. The purpose of the Equity Plan is to promote the long-term
financial interests of the Company, including its growth and performance, by
encouraging eligible employees of the Company to acquire an ownership position
in the Company, enhancing the ability of the Company to attract and retain
employees of outstanding ability, and by providing such employees with an
interest in the Company parallel to that of the Company's stockholders. For
these reasons, the Board concluded that the Equity Plan should be recommended
to the stockholders for approval at the Annual Meeting. If stockholder
approval is not obtained, the Equity Plan will not become effective, and no
grants will be made thereunder. The material terms of the Equity Plan are
summarized below, but the summary is qualified in its entirety by reference to
the text of the Equity Plan, which is attached hereto as Appendix B. The
Company currently intends to continue its practice of minimizing the dilutive
effect of its equity-based incentive plans (including the Equity Plan) through
the acquisition of its shares in the open market.
The Equity Plan is intended to provide the Company with flexibility in the
design of future equity-based compensation programs. The Equity Plan permits
the grant of (i) nonqualified stock options ("NQSOs"), (ii) incentive stock
options ("ISOs"), (iii) stock appreciation rights ("SARs"), (iv) performance
shares, (v) restricted stock awards, (vi) deferred awards and (vii) other
stock based awards (each an "Award" and collectively, the "Awards"). In the
short-term, it is likely that awards under the Equity Plan will be limited to
grants of stock options, consistent with the Company's current stock option
program.
Because the eligibility for Awards, and the amount of any Award, is
determined by the Organization and Compensation Committee of the Board (the
"Committee"), future benefits under the Plan are not currently determinable.
LIMIT ON AWARDS UNDER THE EQUITY PLAN
The total number of shares of common stock of the Company ("Common Stock")
available for the grant of Awards (as defined above) under the Equity Plan is
2.8 million. Available shares will consist in whole or in part of authorized
and unissued shares or treasury stock. If any shares subject to a stock option
cease to be subject to option because the option shall have terminated,
expired or lapsed without having been fully exercised, or if any other Awards
are forfeited, the remaining shares subject to such option or other Award will
again be available for stock options or other Awards. No person may be granted
options or SARs relating to more than 200,000 shares in any one calendar year.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger,
consolidation, spinoff, combination or exchange of shares or other similar
corporate change, or any distribution to stockholders other than regular cash
dividends, the Committee may make such substitution or adjustment, if any, as
it deems to be equitable, as to the number or kind of shares or other
securities reserved for issuance pursuant to the Equity Plan or subject to
outstanding Awards, and to any other terms of such Awards.
ELIGIBILITY
Employees of the Company and its subsidiaries who meet such standards as the
Committee may from time to time determine are eligible to be granted Awards.
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ADMINISTRATION
The Equity Plan shall be administered by the Committee. The Committee shall
have the authority to select the employees to whom Awards are to be granted,
to determine the number of shares to be covered by each Award and the type
thereof, to determine the terms and conditions (not inconsistent with the
provisions of the Equity Plan) of any Awards so granted thereunder, to
determine whether an Award will be settled in cash, to certify the attainment
of performance goals, if applicable, as required by Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), to interpret the
Equity Plan, to establish, amend, and rescind any rules and regulations
relating to the Equity Plan, to determine the terms and provisions of any
agreements entered into thereunder, and to make all other determinations
necessary or advisable for the administration of the Equity Plan. All
decisions made by the Committee shall be final, conclusive, and binding on all
parties. To the extent permitted by law, the Committee may appoint officers of
the Company as its agents with respect to its administrative duties and
obligations, including granting Awards under the Plan (up to a maximum of
3,000 shares of Common Stock or share units per grant and an aggregate of
25,000 shares of Common Stock or share units per fiscal year).
STOCK OPTIONS
The purchase price per share of Common Stock purchasable under a stock
option shall be determined by the Committee, but may not be less than 100% of
the fair market value of the stock on the date of grant of such option. The
term of each option will be fixed by the Committee, but no ISO will be
exercisable after the expiration of ten years from the date of grant. Unless
otherwise determined by the Committee, options will vest and become
exercisable at a rate of 33 1/3% of the shares subject to the option on each
of the first three anniversaries of the grant date. Payment of the option
purchase price may be made in cash or by certified or bank check, by tender of
shares owned by the participant, or, at the discretion of the Committee,
through cashless exercise procedures or by a combination of any such
procedures. Except as otherwise authorized by the Committee in the case of
transfers to immediate family members (and/or trusts or partnerships
established exclusively for such immediate family members), no option granted
under the Equity Plan shall be transferable by the participant, other than by
will or by the laws of descent and distribution, and during the lifetime of
the participant, such option shall be exercisable only by such participant.
Stock options may be granted either alone or in addition to other Awards under
the Equity Plan.
Except as otherwise determined by the Committee, any stock options held by a
participant upon termination of employment will remain exercisable as follows:
(a) in the case of the termination of employment after attaining age 55 with 5
years of service with the Company and/or any of its subsidiaries
("Retirement") or permanent disability of the participant, options will
continue to vest and become exercisable (and will vest and become exercisable
immediately, in the event of the participant's death following such
termination of employment) and, to the extent exercisable, will be exercisable
for five years following such termination of employment (but in no event
beyond the term of the option); (b) in the case of the death of the
participant, options, to the extent exercisable as of the date of death, shall
be exercisable for one year after the date of death (but in no event beyond
the term of the option); and (c) in the case of termination of employment for
any other reason, options, to the extent exercisable as of the date of
termination, will be exercisable for a period of ninety days following such
termination (but in no event beyond the term of the option).
STOCK APPRECIATION RIGHTS
Stock appreciation rights may be granted unrelated to an option
("Freestanding SARs") or in tandem with options granted under the Equity Plan
("Tandem SARs"). A Tandem SAR may be granted at any time a related option is
granted or at any time during the term of such option; provided that in the
case of Tandem SARs related to an ISO, such SAR shall be granted at the time
such option is granted. A Freestanding SAR shall be exercisable at such time
and in such manner as the Committee determines, provided that upon termination
of employment, a Freestanding SAR shall be exercisable to the same extent as
options would be exercisable, as described above. A Tandem SAR
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<PAGE>
shall be exercisable to the same extent as its related option. Upon exercise
of a SAR, the holder is entitled to receive the excess of the fair market
value of the shares for which the SAR is exercised over, in the case of a
Tandem SAR, the option price of the related option or, in the case of a
Freestanding SAR, the fair market value of Common Stock on the date of grant.
At the time of grant of a SAR, the Committee may limit the manner and the
amount payable with respect to such SAR. Payments of SARs will be made in
shares of Common Stock or, in the sole discretion of the Committee, in cash or
in a combination thereof.
PERFORMANCE SHARES
Performance shares may be granted in such form as the Committee may approve.
Performance shares may be granted in the form of actual shares of Common Stock
or share units having a value equal to the identical number of shares of
Common Stock. In the sole discretion of the Committee, performance shares
granted in the form of share units may be paid in cash, stock or a combination
of both. A participant must be employed at the end of the performance period
to be entitled to a payment, unless otherwise determined by the Committee.
The performance conditions and length of the performance period shall be
determined by the Committee; provided, however, that the performance period
will not be less than twelve months, except upon a "change in control" (as
defined in the Plan) of the Company.
RESTRICTED STOCK AWARDS
Shares of restricted stock may be granted either alone or in addition to
other Awards under the Equity Plan. During a period set by the Committee
commencing upon the date of grant (the "restriction period"), the recipient of
restricted stock will not be permitted to sell, transfer, pledge, or assign
shares of restricted stock awarded under the Equity Plan. Unless otherwise
determined by the Committee, the restriction period will remain in effect
during the twelve-month period ending on the day before the first anniversary
date of the grant of restricted stock, except upon a change in control of the
Company. Except as provided by the restrictions, participants who receive
restricted stock will have, with respect to the shares of restricted stock,
all of the rights of a stockholder of the Company, including the right to vote
the shares, and the right to receive any cash dividends. The Committee may
permit or require the payment of cash dividends to be deferred and, if the
Committee so determines, reinvested in additional restricted stock or
otherwise reinvested. Subject to the next sentence, upon termination of
employment for any reason during the restriction period, all shares still
subject to restriction will be forfeited by the recipient and reacquired by
the Company. In the event of a recipient's Retirement, permanent disability or
death, or in special circumstances, the Committee may, upon finding that a
waiver would be in the best interest of the Company, waive in whole or in part
any remaining restrictions with respect to such recipient's shares of
restricted stock.
Restricted stock may also be granted in the form of restricted stock units
having a value equal to an identical number of shares of Common Stock. In the
sole discretion of the Committee, restricted stock granted in the form of
restricted stock units may be paid in cash, Common Stock or a combination
thereof.
DEFERRED AWARDS
The Committee may award the right to receive Common Stock that is not to be
distributed to the recipient until after a specified deferral period
("deferred stock") and the recipient may elect further deferral, subject to
Committee approval. Such deferred stock Awards may be issued either alone or
in addition to other Awards under the Equity Plan. In the sole discretion of
the Committee, deferred stock Awards may be paid in cash, stock or a
combination thereof.
OTHER STOCK-BASED AWARDS
The Committee may grant, either alone or in addition to other Awards under
the Equity Plan, other awards that are valued in whole or in part by reference
to, or are otherwise based on Common Stock, including without limitation,
dividend equivalents and convertible debentures. These Awards
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<PAGE>
will be subject to such forfeiture provisions as are set forth in the Award
agreement, as determined by the Committee.
AMENDMENT
The Board may amend, suspend or terminate the Equity Plan or any portion
thereof, at any time; provided, however, that no amendment will be made (i)
which would adversely affect the rights of a participant under an Award
theretofore granted without the participant's written consent, or (ii) without
the approval of the stockholders, if such approval is required under
applicable stock exchange rules or in order for the Plan to continue to comply
with Section 162(m) of the Code.
CHANGE IN CONTROL
Upon a change in control of the Company (i) all options shall vest and
become exercisable in full, (ii) all Tandem and Freestanding SARs shall vest
and become exercisable in full, (iii) the restrictions applicable to all
shares of restricted stock shall lapse, (iv) all restricted stock granted in
the form of share units shall be paid in shares of Common Stock, (v) all
performance shares shall be deemed to be earned in full and shall be paid in
shares of stock, and all performance shares granted in the form of share units
shall be deemed to be earned in full and shall be paid in shares of Common
Stock, and (vi) all deferred Awards shall be paid in shares of stock.
FORFEITURE OF AWARDS
The Committee may, in its sole discretion, in the event of a serious breach
of conduct by an employee or former employee (including, without limitation,
any conduct prejudicial to or in conflict with the Company or its
subsidiaries), or any activity of any employee or former employee in
competition with the business of the Company or any subsidiary, (i) cancel any
outstanding Award granted to such employee or former employee, in whole or in
part, whether or not vested or deferred, and/or (ii) if such conduct or
activity occurs within one year following the exercise or payment of an Award,
require such employee or former employee to repay to the Company any gain
realized or payment received upon the exercise or payment of such Award (with
such gain or payment valued as of the date of exercise or payment). Such
cancellation or repayment obligation will be effective as of the date
specified by the Committee. Any repayment obligation may be satisfied in
shares, cash or a combination thereof, and the Committee may provide for an
offset to any future payments owed by the Company or any subsidiary to the
employee or former employee if necessary to satisfy the repayment obligation.
The determination of whether an employee or former employee has engaged in a
serious breach of conduct or any activity in competition with the business of
the Company or any subsidiary will be determined by the Committee, in good
faith and in its sole discretion. This forfeiture provision will have no
application following a change in control of the Company.
FEDERAL INCOME TAX ASPECTS OF STOCK OPTIONS
UNDER THE U.S. INTERNAL REVENUE CODE
The following is a general summary of the U.S. Federal income tax
consequences of the grant and exercise of stock options to the optionee and
the Company. This summary is not intended to provide tax advice to optionees.
Incentive Stock Options. In general, there is no income tax upon grant of an
ISO. If shares of Common Stock are issued to an optionee pursuant to an ISO
granted as described above, and if no disqualifying disposition of such shares
is made by such optionee within one year after the transfer of such shares to
such optionee, or within two years after the date of grant, (a) no income,
will be realized by the optionee at the date of exercise, (b) upon sale of
such shares, any amount realized in excess of the option price will be taxed
to the optionee as a long-term capital gain and any loss sustained will be a
long-term capital loss, and (c) no deduction will be allowed to the Company
for Federal income tax purposes. However, if a disqualifying disposition takes
place, then, generally, the optionee will realize
16
<PAGE>
ordinary income in the year of such disposition in an amount equal to the
excess, if any, of the fair market value of the shares at the time of exercise
(or, if less, the amount realized on the disposition of the option shares)
over the exercise price thereof, and the Company will be entitled to deduct an
amount equal to such income. Upon exercise of an ISO, the optionee may be
subject to alternative minimum tax.
Nonqualified Stock Options. With respect to NQSOs granted to optionees under
the Equity Plan, (a) no income will be realized by the optionee at the time
the option is granted, (b) at exercise, ordinary income is realized by the
optionee in an amount equal to the excess of the fair market value of the
shares on the date of exercise over the option price, and the Company will
generally receive a tax deduction for the same amount, and (c) on subsequent
disposition of the shares received upon exercise, appreciation or depreciation
after the date of exercise is treated as either short-term or long-term
capital gain or loss, as the case may be.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE EQUITY
INCENTIVE PLAN DESCRIBED ABOVE (ITEM NO. 4 ON THE PROXY CARD). The affirmative
vote of the holders of a majority of the outstanding shares of the Company's
4% Cumulative Preferred Stock and Common Stock entitled to vote at the
meeting, voting without regard to class, is required to approve the Equity
Plan.
AGENDA ITEM 5
APPROVAL OF THE MATERIAL TERMS OF THE
PERFORMANCE GOALS FOR THE LONG-TERM
INCENTIVE COMPENSATION PLAN
FOR KEY EMPLOYEES
In 1994, the Board adopted the Long-Term Incentive Compensation Plan (the
"Plan"), and the stockholders of the Company approved the Plan and the
material terms of the performance goals under the Plan for the performance
cycle for the three-year period ended June 30, 1997. THE PLAN IS DESIGNED TO
PROVIDE AWARDS TO CERTAIN KEY EMPLOYEES OF THE COMPANY AND ITS SUBSIDIARIES
BASED ON THE ATTAINMENT OF CERTAIN LONG-TERM FINANCIAL OBJECTIVES, AND IS
INTENDED TO INCREASE SHAREHOLDER VALUE BY REWARDING PARTICIPANTS BASED ON
INCREASES IN THE LONG-TERM GROWTH AND PROFITABILITY OF THE COMPANY. The
stockholders are now asked to approve the material terms of the performance
goals established for the Plan for the three-year period commencing July 1,
1997 and ending June 30, 2000 (the "1997-2000 Performance Cycle").
For the 1997-2000 Performance Cycle, the material terms of the performance
goals under the Plan are summarized below, but the summary is qualified in its
entirety by reference to the text of the Plan, as amended, which is attached
hereto as Appendix C. If these performance goals are not approved by the
Company's stockholders, awards under the Plan will not be made pursuant to
such goals, and the Board will take such alternative action(s) with respect to
long-term compensation as it deems to be in the best interests of the
Company's stockholders, consistent with the Company's policies regarding
executive compensation.
Under the Plan, officers and other key management employees of the Company
who, in the opinion of the Organization and Compensation Committee of the
Board (the "Committee"), have significant potential for making substantial
contributions to the success of the Company are eligible to receive long-term
incentive awards. The total potential dollar value of a participant's award
under the Plan will be converted into "stock units" at the beginning of the
1997-2000 Performance Cycle. Each stock unit will represent one share of the
Common Stock of the Company, and the value of each unit will be determined by
the fair market value of a share of Common Stock at the end of the cycle,
thereby enabling the value of the award to increase or decrease with the stock
price; this change more directly aligns the financial interests of senior
management with the interests of shareholders. Awards payable under the Plan
will be paid 50% in cash and 50% in shares of Common Stock. One million
(1,000,000) shares of Common Stock were originally reserved for issuance under
the Plan. As of
June 30, 1997, approximately 720,000 shares remain available for future grant.
17
<PAGE>
The Committee will administer the Plan and will approve the participants and
establish the objective performance goals applicable to each participant or
class of participants within 90 days immediately following the beginning of
each performance cycle. All amounts paid as compensation pursuant to the Plan
must be payable as the result of the achievement of objectively measured
performance goals from the following list of quantifiable, measurable business
criteria. The performance goals for the 1997-2000 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 Committee must certify, in writing, that the goals have been met before
any payments to participants may be made under the Plan. The Committee will
have no discretion to increase the awards payable to any participant or to
otherwise alter the performance goals after the beginning of the 1997-2000
Performance Cycle but, to the extent permitted under Section 162(m) of the
Code, 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 Company) and groups referred to therein for the 1997-2000
Performance Cycle if the minimum, target and maximum levels of performance for
the business criteria established by the Committee are satisfied. In all
cases, pay-outs are based strictly upon actual performance results relative to
the performance criteria. The long-term incentive thresholds, targets and
maximums are amounts applicable only to the 1997-2000 Performance Cycle.
PLAN BENEFITS
LONG-TERM INCENTIVE COMPENSATION PLAN
(1997-2000 PERFORMANCE CYCLE) (1)
<TABLE>
<CAPTION>
THRESHOLD TARGET MAXIMUM
NAME AND POSITION (2) UNITS UNITS UNITS
- --------------------- --------- ------- -------
<S> <C> <C> <C>
C. R. Holman......................................... 40,528 101,318 182,372
Chairman and CEO
M. G. Nichols........................................ 20,666 51,666 92,998
President and COO
M. A. Rocca.......................................... 10,100 25,250 45,450
Senior Vice President and CFO
Executive Officers as a Group (18 persons including
the named officers, other than Messrs. Cottone and
Moussa)............................................. 175,061 437,642 787,762
Non-Executive Officer Employees as a Group (23
persons)............................................ 71,964 179,914 323,822
</TABLE>
- ---------------------
(1) Each Unit represents one share of the Company's Common Stock. The
aggregate value of the earned Units shall be based upon the price of the
stock at the end of the 1997-2000 Performance Cycle, not to exceed $71.10
per Unit.
(2) Two of the Company's named executive officers (as shown in the Summary
Compensation Table on page 21), Messrs. Cottone and Moussa, terminated
employment with the Company on June 30, 1997. Accordingly, these former
officers did not receive awards under the Plan for the 1997-2000
Performance Cycle.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
MATERIAL TERMS OF THE PERFORMANCE GOALS ESTABLISHED FOR THE PLAN FOR THE 1997-
2000 PERFORMANCE CYCLE (ITEM NO. 5 ON THE PROXY CARD). The affirmative vote of
the holders of a majority of the outstanding shares of the Company's 4%
Cumulative Preferred Stock and Common Stock entitled to vote at the meeting,
voting without regard to class, is required for approval of this item.
18
<PAGE>
AGENDA ITEM 6
STOCKHOLDER PROPOSAL
Mr. Kenneth Steiner, 14 Stoner Avenue, Suite 2-M, Great Neck, N.Y. 11021,
who is the beneficial owner of 175 shares of Common Stock of the Company, has
notified the Company that he intends to introduce at the annual meeting a
resolution which, together with his statement in support thereof, is set forth
verbatim below.
RESOLVED, that the shareholders recommend that our Board of Directors, at
the earliest practical date, redeem or submit to a binding shareholder vote
the corporation's "poison pill" share purchase rights plan.
Supporting Statement
The board of directors, unilaterally and without shareholder participation
or approval, adopted a share purchase rights plan, more commonly known as a
"poison pill." After carefully studying this issue, I have come to the
conclusion that this Plan is detrimental to shareholders and should either be
dismantled or put to a binding shareholder vote on its continued use.
From my homework on this issue, I've learned that poison pills may serve to
harm shareholder value and entrench current management by deterring stock
acquisition offers that are not favored by the board of directors. In my view
management's failure to seek the input and approval of the company's owners on
an action of such critical importance indicates that management is placing its
interests above those of the shareholders.
The Securities and Exchange Commission has stated: "Tender offers can
benefit shareholders by offering them an opportunity to sell their shares at a
premium and by guarding against management entrenchment. However, because
poison pills are intended to deter non-negotiated tender offers, and because
they have this potential effect without shareholder consent, poison pill plans
can effectively prevent shareholders from even considering the merits of a
takeover that is opposed by the board." (SEC Release No. 34-23486 [July 31,
1986].)
Beyond the effect of poison pills on specific acquisition offers, however, I
am convinced that the company's adoption of the Plan significantly reduces
management's accountability to shareholders. Acquisition offers aside, the
poison pill may simply relieve management from the task of striving for
maximum shareholder value.
Again, I strongly feel that adoption of the Plan without shareholder consent
was contrary to the long-term interests of all shareholders and offensive to
the concepts of management accountability and corporate democracy. I urge you
to vote for this proposal which recommends that the board redeem the Plan or
submit it for shareholder approval.
STATEMENT BY THE COMPANY IN OPPOSITION TO THE PROPOSAL.
THE BOARD OF DIRECTORS OPPOSES THE PROPOSED RESOLUTION AND RECOMMENDS A VOTE
AGAINST IT (ITEM NO. 6 ON THE PROXY CARD) FOR THE FOLLOWING REASONS:
The Board of Directors adopted the shareholder rights plan to ensure that
you, the Company's shareholders, would receive fair value in the event of a
change in control or takeover, and so that you could realize the long-term
value of your investment in the Company. Experience has shown that boards with
rights plans in place have been able to get higher value for their
shareholders. In a June 1996 article appearing in Institutional Investor, the
author, Lyn Perlmuth, noted as follows:
A recent study by J. P. Morgan of the 245 $500 million-plus majority-
stake acquisitions from 1988 to 1995 found that the median acquisition
premium (the price paid over the stock price five days before the offer)
was 16 percent higher when a company had a poison pill in place. The
19
<PAGE>
premium on the 139 deals in which the target company had a poison pill was
51.4 percent, versus 35.5 percent on the 106 deals without pills. The
differential was significant whether or not the deals were hostile or
friendly, whether or not the financing was all stock, all cash or a mixture
and whether or not the deal was for more or less than $1 billion.
This conclusion is consistent with a 1988 study by Georgeson & Company, a
nationally recognized proxy solicitation and investor relations firm retained
by the Company, which concluded that companies adopting rights plans (i) do
not lessen the value of their stock, and (ii) received significantly higher
takeover premiums than those companies without rights plans.
In February 1996, the Company's Board of Directors extended for ten years
the Company's Shareholder Rights Plan, which has been in effect since March
1986. An explanation of the Rights Plan was provided to all shareholders at
that time. The Rights Plan was renewed at the initiative of the Board of
Directors--not management--in what the Board (acting within the authority
delegated to it by shareholders) believed to be in the best interests of the
Company's shareholders. The Rights Plan was renewed to protect the Company's
shareholders against attempts to acquire control of the Company by means of
"creeping" acquisitions in the open market, hostile tender offers made at less
than a full and fair price, and other takeover tactics that can be used to
deprive shareholders of the ability to get a full and fair price for all of
their shares in the context of a change-in-control. It is not intended to, and
will not, prevent an acquisition of the Company for a full and fair price in a
transaction that is in the best interests of the Company and its shareholders.
The Rights Plan is similar to those adopted by over 1,600 United States
corporations. It is a matter of public record that many companies with rights
plans have become the subject of takeover bids. When appropriate, boards of
these companies have redeemed rights after becoming satisfied that the offer
adequately reflects the underlying value of the company and provides such
value fairly and equitably to all shareholders.
Rights plans have proven they can be effective in providing the board of
directors of a target company with more time to develop and pursue alternative
means for enhancing shareholder value, when such a course of action is
believed to be in the best interests of the Company and its shareholders. Such
alternatives would include locating other potential bidders, conducting an
orderly auction or developing a corporate restructuring alternative. In
addition, the ability of the Board of Directors to redeem the rights
encourages a potential acquiror to negotiate directly with the Board to ensure
that it pays shareholders a premium reflecting the full value of the Company.
The Board believes it is in a stronger position than individual shareholders
to negotiate a price that maximizes the value realized by all of the Company's
shareholders.
New York law imposes upon the Board of Directors a fiduciary obligation to
act in the best interests of the Company's stockholders and grants to the
Board the right to exercise its business judgment in fulfilling its fiduciary
duties. The Company's directors are fully committed to their responsibility in
respect of maximizing long-term shareholder value and monitoring management's
performance to that end. It is important to note that ten of the Company's
twelve current directors are neither employees nor officers of the Company.
They possess a broad range of experience in business, finance and law and are
well aware of their fiduciary duties and responsibilities to the Company's
shareholders when evaluating the merits of any acquisition proposal. Courts
have upheld rights plans, similar to the Company's, as a valid exercise of a
Board's business judgment and as a means to allow the Board to fulfill its
fiduciary responsibilities when confronted with a potential acquisition. The
presence of the Rights Plan does not lessen the obligation of the Board of
Directors, if it believes such action will be in the best interests of the
Company and its shareholders, to consider in good faith any tender offer or
other bona fide proposal for acquiring the Company and to decide whether or
not to redeem the rights in order to facilitate such a proposal.
THE BOARD RECOMMENDS A VOTE "AGAINST" THIS PROPOSAL (ITEM NO. 6 ON THE PROXY
CARD) FOR THE REASONS SET FORTH ABOVE. Approval of this resolution requires
the affirmative vote of a majority of the votes cast at the meeting by the
holders of the Company's 4% Cumulative Preferred Stock and Common Stock,
voting without regard to class.
20
<PAGE>
EXECUTIVE COMPENSATION
The following table shows compensation information for Mr. Holman and the
four other most highly compensated executive officers of the Company in fiscal
1997. Executive officers are the corporate officers of the Company elected by
the Board of Directors.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- ---------
OTHER ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION RESTRICTED OPTIONS/SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) (1) STOCK (#) (2) ($) (3) ($) (4)
- ------------------ ---- ------ ----- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. R. Holman
Chairman and CEO 1997 726,000 410,000 55,211 0 41,250 3,155,468 8,730
Chairman and CEO 1996 684,840 450,000 59,593 0 41,250 9,450
Chairman, President and 1995 617,520 470,000 0 41,250 9,450
CEO
M. G. Nichols
President and COO 1997 515,000 230,000 0 27,000 1,609,096 8,730
President and COO 1996 451,530 200,000 0 20,000 9,450
Senior Vice President; 1995 376,200 192,000 50,759 0 20,000 9,450
President, Mallinc-
krodt Chemical
R. G. Moussa(/5/)
Senior Vice President; 1997 368,000 170,800 74,695 0 12,400 1,384,739 1,408,730
President, Int'l
Senior Vice President; 1996 368,000 135,900 74,494 0 16,500 9,450
President, Int'l
Senior Vice President; 1995 343,200 179,100 0 16,500 9,450
President, Mallinc-
krodt Medical
P. D. Cottone(/6/)
Senior Vice President; 1997 337,100 110,000 0 16,500 1,149,382 1,651,310
President, Mallinckrodt 1996 321,000 152,700 0 16,500 9,450
Veterinary (all three 1995 225,000 143,700 152,829 0 30,000 9,450
years)
M. A. Rocca
Senior Vice President 1997 310,700 115,100 0 14,000 787,420 8,730
and CFO
Senior Vice President 1996 285,000 93,300 41,897 0 13,600 9,450
and CFO
Senior Vice President, 1995 265,320 122,700 333,588 0 13,600 8,358
CFO and Treasurer
</TABLE>
- ---------------------
(1) Consistent with applicable regulations, this column does not include
perquisites that, when aggregated, did not exceed the lesser of $50,000 or
10% of compensation for any of the named executives. The amounts shown in
this column include: (a) for Mr. Holman in fiscal 1996, club dues and
expenses ($15,211) and tax payments ($16,901) made on behalf of Mr. Holman
relating to perquisites received by him and in fiscal 1997, club dues and
expenses ($18,543) and tax payments ($18,361) made on behalf of Mr. Holman
relating to perquisites received by him; (b) for Mr. Nichols in fiscal
1995, spousal travel expenses ($17,230) and club dues and expenses
($12,818); (c) for Mr. Moussa in fiscal 1996, club dues and expenses
($44,504) and in fiscal 1997, tax payments ($44,073) made on behalf of Mr.
Moussa relating to perquisites received by him; (d) for Mr. Rocca in
fiscal 1995, reimbursement for relocation expenses (grossed-up for tax
payments) in connection with Mr. Rocca's employment by the Company
($288,316) and in fiscal 1996, additional reimbursement for relocation
expenses ($13,824) and tax payments ($13,048) made on behalf of Mr. Rocca
relating to perquisites received by him; and (e) for Mr. Cottone in fiscal
1995, reimbursement for relocation expenses (grossed-up for tax payments)
in connection with Mr. Cottone's employment by the Company ($78,692).
(2) The Company did not grant stock appreciation rights during the last three
fiscal years.
(3) Amounts reflect payments under the Company's Long-Term Incentive
Compensation Plan for the three-year period commencing July 1, 1994 and
ending June 30, 1997. Awards were paid 50% in cash and 50% in the
Company's Common Stock.
(4) For Mr. Moussa, the amount reflected for 1997 includes $1.4 million,
representing the estimated current value of accrued retirement and pension
plan benefits, paid in connection with his termination of employment with
the Company and $ 8,730 reflecting the Company's contribution under the
Investment Plan, as described on page 25. For Mr. Cottone, the amount
reflected for 1997 includes (a) $1,190,000 paid in connection with the
sale by the Company of its animal health division effective June 30, 1997,
(b) $452,580 in severance payments, consisting of $339,720 of severance
pay and $112,860 for unvested stock options, and (c) $8,730 reflecting the
Company's contributions under the Investment Plan. All other amounts in
this column reflect the Company's contributions under the Investment Plan.
(5) Effective June 30, 1997, Mr. Moussa terminated his employment with the
Company. See "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements" for a discussion of the terms and
conditions of Mr. Moussa's resignation.
(6) Effective June 30, 1997, Mr. Cottone terminated his employment with the
Company concurrent with the sale by the Company of its animal health
division. See "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements" for a discussion of the terms and
conditions of Mr. Cottone's severance from the Company.
21
<PAGE>
STOCK OPTIONS
The Company has three stock option plans: the Directors' Plan described at
page 6 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. Since 1990, all employees of the Company worldwide are
eligible for grants under the 1973 Plan, and the Company has made grants
periodically to virtually all of its then current regular employees.
The Board of Directors has adopted, subject to shareholder approval at this
meeting (Agenda Item 4) an Equity Incentive Plan. This new plan would replace
the 1973 Plan, which terminates in October 1997.
The following tables provide certain information concerning stock options
previously granted to the persons named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(3)
---------------------------------------- ----------------------------------
PERCENT
OF TOTAL
OPTIONS
NUMBER OF GRANTED
SECURITIES TO ALL EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION 0% ($)
NAME GRANTED(1) YEAR(2) ($/SH) DATE (4) 5% ($) 10% ($)
- ---- ---------- --------- -------- ---------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
C.R. Holman............. 41,250 3.7 38.59 08/20/06 0 1,001,138 2,536,875
M.G. Nichols............ 27,000 2.5 38.59 08/20/06 0 655,290 1,660,500
R.G. Moussa(5).......... 12,400 1.1 38.43 08/19/06 0 299,708 759,500
P.D. Cottone(6)......... 16,500 1.5 38.43 08/19/06 0 398,805 1,010,625
M.A. Rocca.............. 14,000 1.3 38.43 08/19/06 0 338,380 857,500
Gain for all Shareholders at Assumed Rates of Appreciation(7).... 0 1,751,162,239 4,438,253,120
</TABLE>
- ---------------------
(1) These awards were made pursuant to the 1973 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
preceding 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. The Company did
not grant stock appreciation rights during fiscal 1997.
(2) The Company granted options to purchase a total of 1,103,170 shares of its
Common Stock to employees in fiscal 1997 including the options granted to
the named executive officers as stated in this table. Options granted to
employees at various times during fiscal 1997 have an average exercise
price of $38.49 per share and expire at various times, 10 years from their
respective grant dates.
(3) Total dollar gains based on indicated rates of appreciation over a 10 year
term.
(4) Because the exercise price of each option is equal to the fair market
value of Mallinckrodt's common stock as of the date of grant, no gain to
the optionees is possible without an increase in the stock price, which
will benefit all stockholders commensurately. A zero percent stock price
appreciation will result in zero dollars for the optionees.
(5) Mr. Moussa terminated his employment with the Company effective June 30,
1997. For a discussion regarding the vesting and exercisability of his
stock options, see "Employment Contracts and Termination of Employment
and Change-in-Control Arrangements."
(6) Mr. Cottone terminated his employment with the Company effective June 30,
1997. For a discussion regarding the vesting and exercisability of his
stock options, see "Employment Contracts and Termination of Employment and
Change-in- Control Arrangements."
(7) Hypothetical dollar gains based on the 72,272,482 common shares
outstanding (less shares held in treasury) at June 30, 1997 for comparison
with assumed appreciation in shares subject to options granted in fiscal
1997 to the named executive officers.
22
<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 resulting from
the assumed rates of growth, 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 EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR-END ($)
YEAR-END (1) (2)
------------------------- -------------------------
SHARES VALUE
ACQUIRED ON REALIZED
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
C. R. Holman............ 0 0 198,175 61,875 $1,598,631 $66,206
M. G. Nichols........... 0 0 149,800 37,000 1,879,609 32,100
R. G. Moussa(3)......... 0 0 78,050 20,650 596,711 26,482
P. D. Cottone(4)........ 0 0 38,250 24,750 248,078 26,482
M. A. Rocca............. 0 0 32,400 20,800 197,636 21,828
</TABLE>
- ---------------------
(1) Options granted in fiscal 1993 to officers of the Company who file reports
pursuant to Section 16(a) of the Securities Exchange Act of 1934 have
limited stock appreciation rights attached. A limited stock appreciation
right is exercisable only if attached to an exercisable option and only in
the event of a change in control of the Company. The Company has not
granted stock appreciation rights in tandem with any of the options
reflected in this table.
(2) Values are based on the June 30, 1997 closing market price of $38.00 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) Mr. Moussa terminated his employment with the Company effective June 30,
1997. For a discussion regarding the vesting and exercisability of his
stock options, see "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements."
(4) Mr. Cottone terminated his employment with the Company effective June 30,
1997. For a discussion regarding the vesting and exercisability of his
stock options, see "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements."
23
<PAGE>
PENSION PLANS
The Company maintains a non-contributory qualified pension plan that covers
virtually all salaried employees, including officers, and most non-union
hourly employees. The Company also has a Supplemental Executive Retirement
Plan that provides 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 are generally
limited to key managers of the Company 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 that would be payable to participants in
both plans at age 65 for various compensation and years-of-service
combinations, based upon a straight-life annuity form of benefit. 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.
<TABLE>
<CAPTION>
ANNUAL AVERAGE OF HIGHEST
FIVE YEARS COVERED
REMUNERATION FOR PENSION
PURPOSES IN TEN YEARS ANNUAL BENEFITS FOR YEARS
PRECEDING OF SERVICE INDICATED
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
300,000 120,000 150,000 180,000 180,000 180,000 180,000
500,000 200,000 250,000 300,000 300,000 300,000 300,000
700,000 280,000 350,000 420,000 420,000 420,000 420,000
900,000 360,000 450,000 540,000 540,000 540,000 540,000
1,100,000 440,000 550,000 660,000 660,000 660,000 660,000
1,300,000 520,000 650,000 780,000 780,000 780,000 780,000
1,500,000 600,000 750,000 900,000 900,000 900,000 900,000
</TABLE>
A former subsidiary of the Company, 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 Company's
SERP and now applies only to four current executives of the Company (including
two of the named executive officers, Messrs. Holman and Nichols), each of whom
has been employed by the Company for at least 15 years. The following table
shows the additional amount of retirement benefit payable to these four
executives at age 65 for various compensation and years-of-service
combinations based upon a life only form of annuity:
<TABLE>
<CAPTION>
ANNUAL AVERAGE OF HIGHEST
THREE YEARS COVERED
REMUNERATION FOR PENSION NET ADDITIONAL ANNUAL BENEFITS FOR YEARS OF
PURPOSES IN TEN YEARS SERVICE INDICATED
PRECEDING NORMAL RETIREMENT --------------------------------------------
DATE 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- --------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 5,750 $ 1,330 $ 6,900 $ 6,900 $ 6,900
300,000 17,250 3,990 20,700 20,700 20,700
500,000 28,750 6,650 34,500 34,500 34,500
700,000 40,250 9,310 48,300 48,300 48,300
900,000 51,750 11,970 62,100 62,100 62,100
1,100,000 63,250 14,630 75,900 75,900 75,900
1,300,000 74,750 17,290 89,700 89,700 89,700
1,500,000 86,250 19,950 103,500 103,500 103,500
</TABLE>
Compensation covered by the pension plans will generally be equal to the
dollar amounts in the salary and bonus columns of the Summary Compensation
Table. Social security benefits, qualified plan limitations on eligible
compensation, and applicable integration adjustments are not reflected in the
24
<PAGE>
above tables. The current credited years of service for the individuals named
in the Summary Compensation Table (excluding Messrs. Cottone and Moussa) are
as follows: Mr. Holman, 20 yrs., 10 mos.; Mr. Nichols, 17 yrs., 11 mos.; and
Mr. Rocca, 3 yrs., 3 mos. At the time of their respective terminations of
employment with the Company as of June 30, 1997, Mr. Moussa had 19 yrs., 5
mos. credited years of service and Mr. Cottone had 2 yrs., 9 mos. credited
years of service. See "Employment Contracts and Termination of Employment and
Change in Control Arrangements."
INVESTMENT PLAN AND OTHER BENEFITS
The Company has an Investment Plan under which salaried and most non-union
hourly employees of the Company, including officers, who elect to participate
in the Plan may make regular contributions by salary reduction and/or by
payroll deduction of from 1% to a maximum of 15% of their annual base
salaries. Under the Plan and subject to certain statutory limitations, the
Company contributes an amount equal to 20%, or such greater amount as may be
approved by the Board of Directors, of a participant's contributions up to 6%
of his or her annual base salary. For fiscal 1997, the Company's contribution
in excess of 20% (the Supermatch) depended and was based upon the Company's
return on invested capital, and was an additional 77% for a total of 97%. All
employee contributions and the initial 20% Company match are invested as
directed by the participant, in one or more investment funds, including a
Mallinckrodt Inc. stock fund. Beginning with the Supermatch for fiscal 1997,
the Supermatch will be made in Mallinckrodt common stock. To encourage Company
employees to own Mallinckrodt stock, the Plan will require all participants to
maintain at least 15% of their total account balance in Company stock obtained
through Supermatch contributions. The Company's contributions to the Plan for
fiscal 1997 on behalf of the named executive officers are reflected in the
Summary Compensation Table.
The Company maintains a supplemental death benefit program for officers and
key employees that provides individual pre-tax death benefits equal to four
times annual salary grossed up for income taxes. This program is provided at
corporate expense and continues in effect post-retirement for participants who
retire while employed by the Company. Each of the named executive officers is
a participant.
The Company maintains a comprehensive employee benefit program that 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.
ORGANIZATION AND COMPENSATION COMMITTEE REPORT
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. A primary function of the Organization and Compensation Committee
(the "Compensation Committee") is to develop and administer total compensation
policies that are consistent with the Company's strategic business objectives.
The Compensation Committee reviews the Company's compensation philosophy from
time to time and recommends appropriate changes to the Board. The Compensation
Committee recommends for Board approval compensation actions for the Chief
Executive Officer and the Chief Operating Officer, including the establishment
of performance objectives and the evaluation of performance against those
objectives, salary adjustments, annual and long-term incentive awards, stock
option and restricted stock awards, and perquisites and other benefits. On
authority delegated by the Board, the Compensation Committee approves
compensation actions for all other executive officers. The Committee is
comprised entirely of independent outside directors.
25
<PAGE>
PRINCIPLES OF COMPENSATION PHILOSOPHY
The Company adheres to a number of guiding principles that provide the
philosophical foundation for its executive compensation programs. These
principles, as adopted by the Compensation Committee in February 1997, are as
follows:
. ASSURE THAT EXECUTIVE COMPENSATION IS TIED TO SHAREHOLDER VALUE AND
CAPITAL FORMATION THROUGH COMPENSATION PLANS WHICH REWARD ACHIEVEMENT OF
STRATEGIC AND FINANCIAL OBJECTIVES, AND THROUGH STOCK-BASED COMPENSATION
PROGRAMS.
Awards under Mallinckrodt's incentive compensation plans are made
pursuant to the achievement of Mallinckrodt's short and long-term
financial objectives. The objectives in the Company's current plans
include earnings per share growth, return on equity, growth in operating
earnings, return on invested capital and controlled working capital as a
percentage of sales. Plan objectives are designed with reference to the
performance of a comparator group. Earnings per share growth has been the
primary financial measurement of the Company and the primary award
criterion for both the annual and long-term plans. The attainment of our
earnings per share growth targets, over the long-term, should effectively
increase the value of Mallinckrodt stock to the benefit of our
shareholders. However, other measurements may be selected for future
plans if it is determined that new measurements will improve management's
focus on shareholder value.
Mallinckrodt's long-term incentive and stock option plans are designed to
link executive compensation with shareholder value over time. Stock
options provide significant incentives for executives to focus on share
price, because they have value only if performance results in
appreciation in share price. Awards under the long-term plan are
denominated in both stock (50%) and cash (50%). Our philosophy is to
encourage stock retention as a result of compensation earned through
these plans. It is intended that the potential value of stock-based
compensation be significant when compared with base compensation. The
Company has established stock ownership guidelines for upper level
managers.
. COMPENSATE COMPETITIVELY, INCLUDING EXCEPTIONAL COMPENSATION FOR
EXCEPTIONAL PERFORMANCE.
A fundamental principle which underlies Mallinckrodt's compensation plans
is that executives should be compensated competitively. Without a
competitive compensation program, we would be unable to attract and
retain outstanding executive talent.
Mallinckrodt's incentive plans are designed to motivate management by
containing significant leverage for the achievement of exceptional
performance. Financial performance above market should be rewarded with
compensation above market, so long as the impact of compensation for
performance over plan does not result in a disproportionate share of
profits being distributed to management rather than to shareholders. If
Mallinckrodt's performance is not on a par with our comparator group,
employees should receive less than average total compensation.
. PUT SIGNIFICANT AMOUNTS OF COMPENSATION AT RISK.
Of the four components of total compensation (base salary, annual
incentive, long-term incentive and stock options), all pay is at risk
except base salary. Executive compensation is "at risk" because financial
and other objectives must be achieved for incentive compensation to be
awarded. In the case of stock options, no compensation is derived unless
financial performance contributes to appreciation in stock price. "Pay at
risk" is consistent with compensation practices in most large
corporations and with the principle of aligning executive compensation
with value received by shareholders.
. PROVIDE COMPENSATION THAT IS APPROPRIATE FROM A FIDUCIARY AND SHAREHOLDER
PERSPECTIVE AND EQUITABLE INTERNALLY.
The process used by the Mallinckrodt Board to establish and carefully
monitor executive compensation is based on a thorough analysis intended
to ensure that such pay is fair and equitable relative to companies of
similar size and in similar industries. The Organization and
26
<PAGE>
Compensation Committee has primary responsibility for the review process.
The Committee is comprised of rotating, outside Board members who have no
business interest with Mallinckrodt except for compensation received
uniformly by all Board members. Compensation for Mallinckrodt executives
consists of both cash and stock which are fully disclosed in the proxy
pursuant to standing legal requirements. The process of determining the
compensation of Mallinckrodt's Chairman and Chief Executive Officer is
rigorous and involves an assessment of competitive compensation,
financial and personal performance as well as the achievement of long-
term strategic objectives. The Board makes a final determination of the
Chairman and CEO's compensation based, in part, upon a recommendation by
the Committee. The requirements of market competitiveness are balanced
against internal equity. Internal equity is effected through a
consistently applied job evaluation and salary administration system
across and within various businesses.
Total compensation paid to a Mallinckrodt executive reflects both the
competitive pay environment for comparable positions in the marketplace
and, in the case of incentive awards, the achievement of business
objectives which warrant payment of such awards. Incentive programs
designed to achieve outstanding shareholder value while providing
management with outstanding compensation opportunities are consistent
with sound business practice.
. PROVIDE COMPENSATION OPPORTUNITIES WHICH WILL ATTRACT, MOTIVATE, AND
RETAIN OUTSTANDING EXECUTIVE TALENT.
Mallinckrodt attempts to attract and motivate world-class executives by
paying competitively for market performance, and providing a reasonable
opportunity to achieve superior awards for superior results. Compensation
is based on competence and contribution to the Company, rather than on
position and entitlement. Compensation programs are designed to be
flexible so as to be responsive to market considerations and
international issues.
COMPONENTS OF EXECUTIVE COMPENSATION
The four elements of executive compensation are:
. BASE SALARY
. ANNUAL INCENTIVES
. LONG-TERM INCENTIVES
. STOCK OPTIONS
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 is significantly better than 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 with a group of companies (the
"comparator group") that tend to have similar sales volumes, similar lines of
business, and established records 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 31 below.
The Committee periodically revises the mix of the various components of
total compensation. Currently, base salary comprises about 35%, annual
incentives approximately 15%, and long-term incentives and stock options about
50% of total compensation. The total compensation program is considered in
setting the individual components.
BASE SALARY. Base salary increases are provided to executives consistent
with 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
27
<PAGE>
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. As a result of the Committee's review of salaries
in fiscal 1997, base salaries for the named executive officers increased in
September 1996 by an average of 4.9%. For fiscal 1998, the Company's
executives will forego merit increases and will instead have the opportunity
to earn an additional five percent in their target awards under the Company's
annual incentive plan (as described below). The Committee believes that
implementation of this change is consistent with the interests of the
Company's stockholders because participants will receive annual incentive
awards at higher levels only if the Company's financial results warrant such
payments.
ANNUAL INCENTIVES. A target annual incentive is established for each
eligible executive in the form of a percentage of base salary. Actual
incentives can range from 0% to 175% of the target incentive. Incentives
earned are based on the achievement of financial and individual objectives and
vary depending upon the executive's position in the Company. In fiscal 1997,
for the Chief Executive Officer and other corporate staff executives,
incentives earned were based on Company earnings per share, asset management
objectives, and individual performance against pre-established objectives. For
division presidents and other participants in the annual incentive plan,
incentives earned were based upon the Company's earnings per share,
performance of the executive's division or other operating unit as measured by
operating earnings and asset management objectives, contribution to
implementation of the Company's strategic plan, achievement of non-financial
goals such as employee safety and environmental compliance, and individual
performance against pre-established objectives.
Based on fiscal 1997 financial results as compared with the pre-established
targets, and the Committee's evaluation of each participant's achievement of
non-financial goals and personal objectives, the annual bonus represented
approximately 56% of base salary for Mr. Holman and averaged 41% of base
salary for the other named executive officers.
LONG-TERM INCENTIVES. Long-term incentives comprise about half of the total
compensation for key executives, including the five named executive officers.
Each of the long-term incentive programs is discussed below.
. LONG-TERM INCENTIVE PLAN. At the 1994 Annual Meeting, the Company's
stockholders approved a new Long-Term Incentive Compensation Plan (the
LTIP) for approximately 50 of the Company's senior executives. The LTIP
is designed to provide awards based on the attainment of long-term
financial objectives as measured over three-year performance cycles. The
initial performance cycle was the three-year period that ended June 30,
1997. Awards under the LTIP are paid 50% in cash and 50% in shares of the
Company's Common Stock. Target levels of incentive compensation
established under the LTIP for each participant are competitive with
levels for similar positions within the Company's comparator group.
Target levels of compensation are achieved, however, only if a
combination of rigorous financial goals have been achieved at the end of
the three-year performance cycle. Such goals 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 performance goals vary among
business groups within the Company and are 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). Compensation for corporate staff
participants is based entirely on performance of the Company against
established goals. Compensation for all other participants is based both
on performance of the Company and the performance of their business unit
against the established goals.
For the three-year cycle ended June 30, 1997, the Company's overall
financial results were somewhat below the pre-established performance
goals, resulting in long-term incentive payments for such three-year
period to Mr. Holman and the other named executive officers at an overall
average of 88% of target. Incentive payments varied depending on the
achievement
28
<PAGE>
by each participant's respective business unit of operating earnings and
return on invested capital targets.
The Company has submitted for shareholder approval at this meeting the
material terms of the performance goals under the LTIP for a new three-
year performance cycle commencing July 1, 1997 and ending June 30, 2000
(Item No. 5 on the proxy card).
. STOCK OPTIONS. Non-qualified stock options are granted to provide key
executives with the opportunity to acquire an equity interest in the
Company, align their interests with that of the Company's stockholders,
and base their compensation on the appreciation of the value in the
Company's 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. THE COMPANY HAS NEVER RE-
PRICED ANY STOCK OPTION GRANT. As part of the stock option program,
grants are also made annually to virtually all of the Company's employees
worldwide on the same date and at the same option price as for
executives.
As part of their total compensation, executives are also provided with
various benefits. In addition to the benefits offered to the general employee
population, executives are provided with higher levels of life insurance and
disability coverage, as well as benefits such as tax planning, annual
physical, and luncheon club memberships for business purposes. 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 24-25.
The executive compensation programs of the Company cannot anticipate all
situations that 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.
DISCUSSION OF COMPENSATION FOR THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mr. Holman's compensation for fiscal 1997 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 merit increase of 7% effective July 1, 1996, which
brought his annual base salary to $726,000. Mr. Holman was granted an annual
incentive award of $410,000 for fiscal 1997 based predominantly on
Mallinckrodt's achievement of its financial targets for such fiscal year which
measured earnings per share of stock and working capital. Sixty-five percent
of Mr. Holman's award was based on earnings per share, fifteen percent on
controlling working capital, and twenty percent on achievement of personal
objectives. For fiscal 1997, Mr. Holman's total cash compensation was at the
fiftieth percentile for CEO compensation of companies within the comparator
group.
Mr. Holman received an award of $ 3,155,468, paid 50% in cash and 50% in
Mallinckrodt common stock, upon completion of the initial three-year
performance cycle under the Company's Long-Term Incentive Compensation Plan.
On August 21, 1996, the Committee approved a stock option grant for Mr. Holman
of 41,250 shares. The Committee believed that this was an appropriate award
relative to competitive practice and Mr. Holman's leadership and contributions
to the Company's performance.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
annual tax deduction to $1 million per person for compensation paid to the
five named executive officers, unless certain requirements are met. 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 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
29
<PAGE>
covered employees under the annual incentive program may not be exempt from
the deduction limit. In order to preserve tax deductibility, the Committee
may, but will not be obligated to, award compensation under the annual
incentive program on a deferred basis.
It is presently expected that any compensation paid under the Company's
Long-Term Incentive Compensation Plan will qualify as performance based and
will not be counted towards the deduction limit. The Committee's present
intention is to comply with the requirements of Section 162(m) unless the
Committee feels that such compliance would not be in the best interests of the
Company and its stockholders. In view of the compensation levels of the
covered employees in fiscal 1997, the Committee expects the impact, if any, on
the Company of any loss of deductions resulting from the application of
Section 162(m) would be immaterial.
ORGANIZATION AND
COMPENSATION COMMITTEE:
Roberta S. Karmel, Chair
Gareth C. C. Chang
William L. Davis
Claudine B. Malone
Daniel R. Toll
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Organization and Compensation Committee during
any part of fiscal 1997 was at any time in the past an officer or employee of
the Company or any subsidiary. There are no executive officer interlocks with
another company.
30
<PAGE>
PERFORMANCE GRAPH
The following graph compares the total return (assuming an investment of
$100 on June 30, 1992 and the reinvestment of dividends) of Mallinckrodt
common stock with those of the S&P 500, S&P Health Care Composite, and S&P
Specialty Chemicals Group indices:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
MALLINCKRODT INC., S&P 500,
S&P HEALTH CARE COMPOSITE, AND S&P SPECIALTY CHEMICALS
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period S&P SPECIALTY
(Fiscal Year Covered) MALLINCKRODT S&P 500 S&P HEALTH CARE CHEMICALS
- --------------------- ------------ ------- --------------- -------------
<S> <C> <C> <C> <C>
Measurement Pt-
6/30/92 $100 $100 $100 $100
FYE 6/30/93 $ 95.44 $113.57 $ 87.88 $118.29
FYE 6/30/94 $104.94 $115.2 $ 87.91 $106.06
FYE 6/30/95 $116.55 $145.14 $127.6 $136.03
FYE 6/30/96 $129.67 $182.78 $178.02 $153.21
FYE 6/30/97 $128.77 $246.08 $261.36 $164.15
</TABLE>
*Total return assumes reinvestment of dividends on a quarterly basis.
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.
Pursuant to the by-laws of the Company, 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 Company 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 6, 1997.
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 SEC, 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.
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 15, 1998. The deadline for receipt of
31
<PAGE>
proposals subject to the Company's by-law advance notice requirement will be
August 12, 1998, on the assumption the Board will fix the date of next year's
meeting on the third Wednesday in 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 Company, 7733
Forsyth Blvd., St. Louis, Missouri 63105.
If any matter properly comes before the meeting the persons named in the
accompanying proxy 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 Company. 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 Company may reimburse them for reasonable
out-of-pocket expenses incurred by them in connection therewith. In addition,
the Company has retained Georgeson & Co. to aid in the solicitation, at an
estimated cost of $12,000 plus expenses. The cost of all proxy solicitation,
including payments to Georgeson & Co., will be borne by the Company.
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 Company obtained, effective June 1, 1995, directors
and officers indemnification insurance under a three-year policy at an annual
cost of $620,000. The Company has exercised an option to extend the policy for
a fourth year at a cost of $496,305. The insurance carriers are National Union
Fire Insurance Co., CNA, Aetna Casualty and Surety Co., Reliance Insurance
Co., Federal (Chubb), and Zurich American in various and successive layers of
coverage that total $110,000,000 (subject to retention and co-insurance). All
directors and corporate and staff officers of the Company and of its wholly-
owned subsidiary corporations are insured thereunder.
By Order of the Board of Directors
LOGO
Roger A. Keller
Vice President, Secretary and
General Counsel
Dated: September 12, 1997
32
<PAGE>
APPENDIX A
DIRECTORS' STOCK AWARD PLAN
OF
MALLINCKRODT INC.
1. Purpose. The Directors' Stock Award Plan of Mallinckrodt Inc. (the
"Plan") is designed to promote the interests of Mallinckrodt Inc. (the
"Company") and its subsidiaries by increasing the proprietary interest in the
Company of non-employee members of the Company's Board of Directors (the
"Board") whose eligibility is described in Section 3.
2. 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
award 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.
3. Eligibility. Subject to the terms and conditions of the Plan, each member
of the Board on each Date of Award (as defined in Section 6) who (i) is not an
employee of the Company or any corporation of 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, and (ii) is not accruing a benefit
under the Company's Directors' Retirement Service Plan (a "Director"), shall
be eligible to receive an award under the Plan in accordance with Section 6. A
Director shall cease to be eligible to receive an award under the Plan on the
date he ceases to be a member of the Board for any reason.
4. Shares Covered by the Plan. The stock to be awarded under the Plan shall
be shares of the authorized common stock of the Company (par value $1 per
share) ("Common Stock") and may be unissued shares or reacquired shares
(including shares purchased in the open market), or a combination of the two,
as the Committee may from time to time determine; provided, however, that
subject to the provisions of Section 5, the aggregate number of shares of
Common Stock which may be awarded under the Plan shall not exceed seventy-
fifty thousand (75,000).
5. Adjustment in the Event of Change in Common Stock. If the Company shall
at any time increase or decrease the number of its outstanding shares of
Common 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 Common Stock, or through a stock split, subdivision,
consolidation, combination, reclassification, or recapitalization involving
the Common Stock, then the number, rights and privileges of the shares of
Common Stock issuable under the Plan shall be increased, decreased or changed
in a like manner as determined by the Committee.
6. Plan Awards. Annually, on each Date of Award, each Director will be
entitled to receive that number of whole shares of Common Stock having a Fair
Market Value on the Date of Award equal to fifteen thousand dollars ($15,000).
Distribution of shares of Common Stock awarded under the Plan shall be made as
soon as administratively practicable after the Date of Award. For purposes of
the Plan, (a) "Date of Award" means the first business day immediately
following the date of each annual meeting of the shareholders of the Company,
or such other annual date as the Committee shall decide; and (b) "Fair Market
Value" as of any date means (i) the closing price for sales of Common 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 (ii) in the absence of a reported sale for such date,
the average of the reported closing bid and asked prices for a share of Common
Stock on such Exchange, on such date. Any fractional share of Common Stock
which a Director would otherwise be entitled to receive under the Plan shall
be distributed to such Director in cash. The first "Date of Award" shall be
October 16, 1997.
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7. Forfeiture. If, in its sole discretion, the Board determines that a
Director has become an employee, consultant or director of a competitor of the
Company or any of its subsidiaries, and has declined to withdraw therefrom
after notice that the Board believes a conflict of interest is involved, such
Director shall immediately and automatically forfeit all entitlement to
further awards of Common Stock under the Plan.
8. Amendment and Termination. The Board shall have the right to amend,
modify, suspend or terminate the Plan at any time for any purpose; provided,
however, that following the approval of the Plan by the Company's
shareholders, the Company will seek shareholder approval for any change to the
extent required by applicable law, regulation or rule. Except as permitted by
Section 15, no amendment of the Plan which materially and adversely affects
any right of a Director with respect to any award previously made under the
Plan shall be made without such Director's written consent.
9. Liability. No member of the Board or the Committee or any officer or
employee of the Company or its subsidiaries shall be personally liable for any
action, omission or determination made in good faith in connection with the
Plan.
10. Effective Date. This Plan will become effective on the date of the
Company's 1997 Annual Meeting of Stockholders if the Plan is authorized and
adopted by the vote of the holders of a majority of all outstanding shares
entitled to vote thereon. Subject to Section 8, and the availability of shares
under Section 4, the Plan shall be unlimited in duration.
11. Tax Withholding. The Company may withhold from any awards under the Plan
all applicable taxes which it may be required to withhold.
12. Director Status. The Plan will not give any Director the right to
continue as a member of the Board.
13. Compliance with Applicable Laws. Common Stock shall not be issued under
the Plan unless and until counsel for the Company shall be satisfied that any
conditions necessary for such issuance to comply with applicable tax,
securities or other laws or rules or applicable securities exchange
requirements have been fulfilled. In particular, the Company shall not be
required to deliver any shares of Common Stock under the Plan prior to (i) the
admission of such shares to listing on any stock exchange on which Common
Stock may then be listed, (ii) the completion of such registration or other
qualification of such shares under applicable laws, rules or regulations as
the Company shall determine to be necessary or advisable, and/or (iii) to the
extent the shares are not so registered or qualified under the law of any
applicable jurisdiction, the receipt by the Company of such representations of
the investment intent of the Director as the Company shall require to comply
with applicable securities laws.
14. Nonassignability. The right to receive shares of Common Stock under the
Plan shall not be assignable or transferable by a Director other than by will
or the laws of descent and distribution.
15. Securities Law Compliance. Participation in the Plan will be governed
by, in addition to general corporate law, the rules and regulations
promulgated by the Securities and Exchange Commission and, in particular,
Section 16 of the Securities Exchange Act of 1934, as amended (the "Act"). 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 under the
Act, so that Directors will be entitled to the benefits of such Rule 16b-3, or
other exemption rules under Section 16 of the Act, 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 15,
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.
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16. Unfunded Status. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the issuance of shares of Common Stock upon
the making of an award under the Plan and the issuance of shares of Common
Stock upon the making of an award shall be subordinate to the claims of the
Company's general creditors.
17. Shareholder Rights. The shares of Common Stock awarded to a Director
under the Plan shall be issued in the name of the Director, and from and after
the date of such issuance the Director shall be entitled to all rights of a
shareholder with respect to such Common Stock, including the right to vote the
shares, and the Director shall receive all dividends and other distributions
paid or made with respect thereto.
18. Controlling Laws. The Plan shall be construed and administered in
accordance with the laws of the State of New York.
19. Severability. In the event any provisions of the Plan shall be held to
be illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
endorsed as if such illegal or invalid provisions had never been contained in
the Plan.
20. Effect of Headings. The descriptive headings of the sections of the Plan
are inserted for convenience of reference and identification only and do not
constitute a part of the Plan for purposes of interpretation.
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APPENDIX B
THE MALLINCKRODT INC.
EQUITY INCENTIVE PLAN
1. PURPOSE. The purpose of the Mallinckrodt Inc. Equity Incentive Plan (the
"Plan") is to promote the long-term financial interests of Mallinckrodt Inc.
(the "Company"), including its growth and performance, by encouraging
employees of the Company and its subsidiaries to acquire an ownership position
in the Company, enhancing the ability of the Company and its subsidiaries to
attract and retain employees of outstanding ability, and providing such
employees with an interest in the Company parallel to that of the Company's
stockholders.
2. DEFINITIONS. Unless otherwise required by the context, the terms used in
the Plan shall have the meanings set forth below:
(a) "Award" shall mean an award determined in accordance with the terms
of the Plan.
(b) "Board of Directors" shall mean the Board of Directors of the
Company.
(c) "Change in Control" shall mean the occurrence of any one of the
following events:
(i) any "person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 20%
or more of the combined voting power of the Company's then outstanding
securities eligible to vote for the election of the Board of Directors
(the "Company Voting Securities"); provided, however, that the event
described in this paragraph (i) shall not be deemed to be a Change in
Control by virtue of any of the following acquisitions: (A) by the
Company or any Subsidiary of the Company, (B) by any employee benefit
plan sponsored or maintained by the Company or any Subsidiary of the
Company, (C) by any underwriter temporarily holding securities pursuant
to an offering of such securities, (D) pursuant to a Non-Control
Transaction (as defined in paragraph (iii)), (E) with respect to a
Participant, pursuant to any acquisition by the Participant or any
group of persons including the Participant; or (F) except as provided
in (iii) below, in which Company Voting Securities are acquired from
the Company, if a resolution providing expressly that the acquisition
pursuant to this clause (F) does not constitute a Change in Control
under this paragraph (i) is approved by a vote of at least a majority
of the directors comprising the Incumbent Board (as hereinafter
defined);
(ii) individuals who, on April 16, 1997, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to April 16, 1997, whose election, or nomination for
election, by the Company's stockholders was approved by a vote of at
least a majority of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director,
without objection to such nomination) shall be, for purposes of this
paragraph (ii), considered as though such person were a member of the
Incumbent Board; provided, however, that no individual initially
elected or nominated as a director of the Company as a result of an
actual or threatened election contest with respect to directors or any
other actual or threatened solicitation of proxies or consents by or on
behalf of any person other than the Board of Directors shall be deemed
to be a member of the Incumbent Board;
(iii) shareholder approval of a merger, consolidation, share exchange
or similar form of corporate reorganization of the Company or any such
type of transaction requiring the approval of the Company's
stockholders (whether for such transaction or the issuance of
securities in the transaction or otherwise), or shareholder approval of
the consummation of the direct or indirect sale or other disposition of
all or substantially all of the assets, of the
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Company (a "Business Combination"), unless immediately following such
Business Combination: (A) more than 50% of the total voting power of
the publicly traded corporation resulting from such Business
Combination (including, without limitation, any corporation which
directly or indirectly has beneficial ownership of 100% of the Company
Voting Securities or all or substantially all of the Company's assets)
eligible to elect directors of such corporation would be represented by
shares that were Company Voting Securities immediately prior to such
Business Combination (either by remaining outstanding or being
converted), and such voting power would be in substantially the same
proportion as the voting power of such Company Voting Securities
immediately prior to the Business Combination, (B) no person (other
than any publicly traded holding company resulting from such Business
Combination, any employee benefit plan sponsored or maintained by the
Company (or the corporation resulting from such Business Combination),
or any person which beneficially owned, immediately prior to such
Business Combination, directly or indirectly, 20% or more of the
Company Voting Securities (a "Company 20% Stockholder")) would become
the beneficial owner, directly or indirectly, of 20% or more of the
total voting power of the outstanding voting securities eligible to
elect directors of the corporation resulting from such Business
Combination and no Company 20% Stockholder would increase its
percentage of such total voting power, and (C) at least a majority of
the members of the board of directors of the corporation resulting from
such Business Combination will have been members of the Incumbent Board
at the time of the approval of the Board of the execution of the
initial agreement providing for such Business Combination (a "Non-
Control Transaction"); or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control of the Company shall not be
deemed to occur solely because any person acquires beneficial ownership of
more than 20% of the Company Voting Securities as a result of the acquisition
of Company Voting Securities by the Company which, by reducing the number of
Company Voting Securities outstanding, increases the percentage of shares
beneficially owned by such person; provided, that if a Change in Control of
the Company would occur as a result of such an acquisition by the Company (if
not for the operation of this sentence), and after the Company's acquisition
such person becomes the beneficial owner of additional Company Voting
Securities that increases the percentage of outstanding Company Voting
Securities beneficially owned by such person, then a Change in Control of the
Company shall occur. Notwithstanding anything in this Plan to the contrary, if
a Participant's employment is terminated prior to a Change in Control, and the
Participant reasonably demonstrates that such termination was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third Party") and who effectuates
a Change in Control, then for all purposes of this Plan with respect to such
Participant, the date of a Change in Control shall mean the date immediately
prior to the date of such termination of employment.
(d) "Committee" shall mean the Organization and Compensation Committee of
the Board of Directors.
(e) "Common Stock" shall mean the common stock of the Company.
(f) "Effective Date" shall mean April 16, 1997.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Fair Market Value" shall mean on any given date the average of the
high and low sales prices of Common Stock on such date as reported on the
New York Stock Exchange Composite Transactions Tape or, if the New York
Stock Exchange is closed on that date, on the last preceding date on which
the New York Stock Exchange was open for trading.
(i) "Participant" shall mean an employee of the Company or its
subsidiaries who is selected to participate in the Plan in accordance with
Section 4.
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(j) "Retirement" shall mean termination of employment after attaining age
fifty-five with five years of service with the Company and/or any of its
subsidiaries.
3. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in Section
17, the number of shares of Common Stock which shall be available for the
grant of Awards under the Plan shall not exceed 2,800,000 shares. The shares
of Common Stock issued under the Plan may be authorized and unissued shares or
treasury shares, as the Company may from time to time determine. If any stock
option shall have terminated, expired, or lapsed, in whole or in part, while
the Plan is in effect, the shares covered by such stock option to the extent
the stock option had not been exercised shall again become available for stock
options and other Awards under the Plan, except as provided in Section 8(g) in
connection with the reduction in shares covered by stock options upon the
exercise of stock appreciation rights. Upon the forfeiture of other Awards in
accordance with the provisions of the Plan, and the terms and conditions of an
Award, except as provided in Section 7(g) in connection with the cancellation
of stock appreciation rights upon the exercise of stock options, such shares
shall no longer be counted in any determination of the number of shares
awarded under the Plan and shall be available for subsequent Awards and
options.
Subject to adjustment as provided in Section 17, notwithstanding anything
contained herein to the contrary, in no event shall more than 200,000 shares
of Common Stock be granted pursuant to stock options or stock appreciation
rights under the Plan to any Participant in any calendar year.
4. ADMINISTRATION. (a) The Plan shall be administered by the Committee. A
majority of the Committee shall constitute a quorum, and the acts of a
majority of a quorum shall be the acts of the Committee. To the extent
permitted by law, the Committee may appoint officers of the Company to act as
its agents with respect to its duties and obligations hereunder, including but
not limited to granting Awards hereunder (up to a maximum of 3,000 shares of
Common Stock or share units per grant and an aggregate of 25,000 shares of
Common Stock or share units per fiscal year). The officer of the Company
making any such Award grant shall advise the Committee in writing of such
grant.
(b) Subject to the provisions of the Plan, the Committee shall (i) approve
the selection of Participants (after such consultation with and consideration
of the recommendations of management as the Committee considers desirable),
(ii) determine the type of Awards to be made to Participants, (iii) determine
the number of shares of Common Stock or share units subject to Awards, (iv)
determine the terms and conditions, not inconsistent with the terms of the
Plan, of any Award granted hereunder (including, but not limited to, any
restriction and forfeiture conditions on such Award), (v) determine whether,
to what extent and under what circumstances, Awards may be settled in cash,
(vi) to the extent appropriate, establish and certify attainment of
performance goals as required by Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), and (vii) have the authority to interpret
the Plan, to establish, amend, and rescind any rules and regulations relating
to the Plan (which shall not be inconsistent with the terms of the Plan), to
determine the terms and provisions of any agreements entered into hereunder,
and to make all other determinations necessary or advisable for the
administration of the Plan. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or in any Award in the
manner and to the extent it shall deem desirable to carry it into effect. The
determinations of the Committee in the administration of the Plan, as
described herein, shall be final, conclusive and binding on all persons,
including the Company, its stockholders, employees and Participants granted
Awards under the Plan.
(c) No members of the Committee, administrators of the Plan or officers of
the Company shall be personally liable for any action, determination, or
interpretation made in good faith with respect to the Plan or any Award and
all members of the Committee, administrators of the Plan and officers of the
Company shall be fully indemnified by the Company with respect to any such
action, determination, or interpretation to the fullest extent provided by the
certificate of incorporation and by-laws of the Company and applicable state
law.
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5. ELIGIBILITY. Employees of the Company and its subsidiaries who meet such
standards as the Committee may from time to time determine are eligible to be
granted Awards under the Plan.
For purposes of the Plan, a subsidiary of the Company shall be any
corporation which at the time qualifies as a "subsidiary corporation" under
Section 424(f) of the Code.
6. AWARDS. Awards under the Plan may consist of stock options (either
incentive stock options within the meaning of Section 422 of the Code or
nonstatutory stock options), stock appreciation rights, performance shares,
restricted stock grants, deferred Common Stock grants and other stock-based
Awards. Awards of performance shares, restricted stock units and other stock-
based Awards may provide the Participant with dividend equivalents prior to
vesting of such Awards. Awards shall be subject to the terms and conditions of
the Plan and shall be evidenced by an agreement containing such additional
terms and conditions, not inconsistent with the provisions of the Plan, as the
Committee shall deem desirable.
7. STOCK OPTIONS. Stock options may be granted under the Plan in such form
as the Committee may from time to time approve pursuant to terms set forth in
a stock option agreement.
(a) Types of Stock Options. Each stock option agreement shall state whether
or not the stock option will be treated as an incentive stock option or a non-
qualified stock option.
(b) Option Price. The purchase price per share of the Common Stock
purchasable under a stock option shall be determined by the Committee, but
will be not less than 100% of the Fair Market Value of the Common Stock on the
date of the grant of the option.
(c) Option Period. The term of each stock option shall be fixed by the
Committee, but no incentive stock option shall be exercisable after the
expiration of 10 years from the date the option is granted.
(d) Exercisability. Each stock option shall vest and become exercisable at a
rate of 33 1/3% of the shares subject to such stock option on each of the
first three anniversaries of the date of grant unless otherwise determined by
the Committee at or subsequent to grant.
(e) Method of Exercise. Stock options may be exercised, in whole or in part,
by giving written notice of exercise to the Company specifying the number of
shares to be purchased. Such notice shall be accompanied by the payment in
full of the option purchase price. Such payment shall be made through the
following methods or procedures: in cash or by certified or bank check, by
tender of shares of Common Stock owned by the Participant (valued at Fair
Market Value determined as of the day immediately prior to exercise) or, at
the discretion of the Committee and upon such terms and conditions as the
Committee may approve, through cashless exercise procedures, with other
consideration or through other procedures, or by a combination of any such
procedures. The Committee may determine that previously owned shares of Common
Stock be held for a specified period of time prior to being used to exercise
stock options.
(f) Termination of Employment. Except as otherwise determined by the
Committee at or subsequent to grant, any stock options held by a Participant
upon termination of employment shall remain exercisable as follows:
(i) If the Participant's termination of employment is due to death, the
stock option (to the extent exercisable as of the date of termination)
shall be exercisable for one (1) year following such termination of
employment (but in no event beyond the term of the stock option), and shall
thereafter terminate; and
(ii) If the Participant's termination of employment is due to Retirement
or permanent disability, the stock option shall, except as set forth in the
following proviso, continue to vest and become exercisable pursuant to
Section 7(d) and, to the extent exercisable, shall be exercisable for the
term of the stock option, and shall thereafter terminate; provided, that in
the event of the
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Participant's death following termination of employment due to Retirement
or permanent disability (A) any stock option that is not vested as of the
date of the Participant's death shall terminate and (B) any stock option
that is exercisable as of the date of the Participant's death shall remain
exercisable for the following one (1) year period (but in no event beyond
the term of the stock option), and shall thereafter terminate; and
(iii) If the Participant's termination of employment is for any other
reason, the stock option (to the extent exercisable as of the date of
termination) shall be exercisable for a period of ninety (90) days
following such termination of employment (but in no event beyond the term
of the option), and shall thereafter terminate.
In the event the Committee determines that a stock option may be exercised
after the periods provided for in this paragraph (f), such longer exercise
period may not extend beyond the term of the option.
(g) Effect of Exercise Upon Tandem Stock Appreciation Right. Upon exercise
of a stock option with respect to which a tandem stock appreciation right (as
described in Section 8) has been granted, the number of shares of Common Stock
with respect to which the tandem stock appreciation right shall be exercisable
shall be reduced by the number of shares with respect to which the stock
option has been exercised.
8. STOCK APPRECIATION RIGHTS. Stock appreciation rights may be granted under
the Plan in such form as the Committee may from time to time approve pursuant
to terms set forth in a stock appreciation rights agreement.
(a) Types of Stock Appreciation Rights. Stock appreciation rights may be
granted in tandem with a related stock option (a "tandem stock appreciation
right") or may be granted unrelated to any stock option (a "freestanding stock
appreciation right"). A tandem stock appreciation right may be granted at the
time of the related stock option grant or at any time during the term of such
stock option; provided, however, that tandem stock appreciation rights related
to an incentive stock option may only be granted at the time of the grant of
such stock option and may be exercised only when the fair market value of
Common Stock subject to such incentive stock option exceeds the exercise price
of such stock option.
(b) Purchase Price. The purchase price of a stock appreciation right shall
be determined by the Committee at or subsequent to the time of grant of the
stock appreciation right.
(c) Payment. A stock appreciation right shall entitle the holder thereof,
upon exercise of the stock appreciation right or any portion thereof, to
receive payment of an amount determined by multiplying (i) the excess of the
Fair Market Value per share of Common Stock on the date of exercise over the
per share purchase price of the stock appreciation right, by (ii) the number
of shares of Common Stock as to which such stock appreciation right is being
exercised. Notwithstanding the foregoing, the Committee may limit in any
manner the amount payable with respect to a stock appreciation right by
including such a limit at the time of grant.
(d) Exercise. Freestanding stock appreciation rights shall be exercisable at
such time or times, and under such conditions, as shall be determined by the
Committee in its discretion at or subsequent to the time of grant and, except
as otherwise determined by the Committee at or subsequent to grant,
freestanding stock appreciation rights held by a Participant upon termination
of employment shall be exercisable on the same terms as set forth for stock
options in Section 7(f); provided, however, that no freestanding stock
appreciation right shall be exercisable after the expiration of ten (10) years
from the date the stock appreciation right is granted. A tandem stock
appreciation right shall be exercisable at such time or times and only to the
extent that the related stock option is exercisable.
(e) Method of Exercise. Stock appreciation rights may be exercised, in whole
or in part, by giving written notice to the Company specifying the number of
shares with respect to which the stock
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appreciation right is being exercised. If requested by the Committee, the
holder of a stock appreciation right shall deliver the agreement evidencing
the stock appreciation right being exercised and, with respect to a tandem
stock appreciation right, the agreement evidencing the related stock option to
the Secretary of the Company who shall endorse thereon a notation of such
exercise and return the agreement to the holder.
(f) Form of Payment. Payment of the amount determined under this Section 8
shall be made solely in shares of Common Stock or, at the sole discretion of
the Committee, solely in cash, or in a combination of cash and shares of
Common Stock (based upon the Fair Market Value of the Common Stock as of the
date of exercise of the stock appreciation right).
(g) Effect of Exercise of Tandem Stock Appreciation Right on Related Stock
Option. Upon exercise of a tandem stock appreciation right, the number of
shares of Common Stock covered by the related stock option shall be reduced by
the number of shares with respect to which the stock appreciation right has
been exercised.
9. PERFORMANCE SHARES. Performance shares may be granted under the Plan in
such form as the Committee may from time to time approve pursuant to the terms
set forth in a performance share agreement.
(a) Types of Performance Shares. Performance shares may be granted in the
form of actual shares of Common Stock or share units having a value equal to
an identical number of shares of Common Stock.
(b) Performance Conditions and Duration. The performance conditions and the
length of the performance period shall be determined by the Committee, but in
no event may a performance period be less than twelve months, except upon a
Change in Control.
(c) Form of Payment. The Committee shall determine in its sole discretion
whether performance shares granted in the form of share units shall be paid in
cash, Common Stock, or a combination of cash and Common Stock (based upon Fair
Market Value of the Common Stock as of the date of exercise or the end of the
performance period, as the case may be).
(d) Termination of Employment. Except as otherwise determined by the
Committee at or subsequent to grant, a Participant must be employed as of the
end of the relevant performance period to be entitled to receive payment with
respect to a performance share award.
10. RESTRICTED STOCK. Shares of restricted stock may be issued either alone
or in addition to stock options, deferred stock or other stock-based Awards
granted under the Plan, as determined by the Committee pursuant to terms set
forth in a restricted stock agreement.
(a) Awards of Restricted Stock. Unless such requirement is waived by the
Committee, the prospective recipient of an Award of shares of restricted stock
shall not be deemed to have any rights with respect to such Award, until and
unless such recipient shall have executed an agreement or other instrument
evidencing the Award and delivered a fully executed copy thereof to the
Company, and otherwise complied with the then applicable terms and conditions.
(b) Stock Certificates. Each Participant granted restricted stock under the
Plan shall be issued a stock certificate in respect of shares of restricted
stock awarded under the Plan. Such certificate shall be registered in the name
of the holder, and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award. The Committee shall
require that the stock certificates evidencing such shares be held in custody
by the Company until the restrictions thereon shall have lapsed, and shall
require, as a condition of any restricted stock Award, that the holder shall
have delivered a stock power, endorsed in blank, relating to the stock covered
by such Award.
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(c) Restrictions and Conditions. Subject to the provisions of this Plan,
during a period set by the Committee commencing with the date of such Award
(the "restriction period"), the holder of shares of restricted stock shall not
be permitted to sell, transfer, pledge, or assign such shares of restricted
stock awarded under the Plan. Within these limits, the Committee may provide
for the lapse of such restrictions in installments where deemed appropriate.
Unless otherwise determined by the Committee at or subsequent to grant, the
restriction period shall remain in effect during the twelve-month period
ending on the day before the first anniversary date of the grant of the shares
of restricted stock, except upon a Change in Control. Subject to the
provisions of the immediately following sentence, upon termination of
employment for any reason during the restriction period, all shares still
subject to restriction shall be forfeited by the Participant and reacquired by
the Company. In the event of a Participant's retirement, permanent disability,
or death, or in cases of special circumstances, the Committee may, in its sole
discretion, when it finds that a waiver would be in the best interests of the
Company, waive in whole or in part any or all remaining restrictions with
respect to such Participant's shares of restricted stock.
(d) Rights of Holder of Restricted Stock. Except as provided in paragraph
(c) of this Section 10, a Participant shall have, with respect to the shares
of restricted stock, all the rights of a shareholder of the Company, including
the right to vote the restricted stock, and the right to receive any cash
dividends. The Committee, in its sole discretion, may permit or require the
payment of cash dividends to be deferred and, if the Committee so determines,
reinvested in additional restricted stock or otherwise reinvested.
(e) Restricted Stock Units. Restricted stock may also be granted in the form
of restricted stock units having a value equal to an identical number of
shares of Common Stock. The Committee shall determine in its sole discretion
whether restricted stock granted in the form of units shall be paid in cash,
Common Stock or a combination of cash and Common Stock.
11. DEFERRED AWARDS. The Committee shall have the discretion to grant Awards
of the right to receive Common Stock that are not to be distributed until
after a specified deferral period. Such Awards may be made either alone or in
addition to other Awards granted under the Plan. If the attainment of
performance goals are specified, the Committee shall certify attainment of
such performance goals prior to any delivery of deferred Common Stock. Prior
to completion of the deferral period, a participant may elect to further defer
receipt of an Award for a specified period or until a specified event, subject
in each case to the approval of the Committee and under such terms as are
determined by the Committee in its sole discretion. The Committee shall
determine in its sole discretion whether such deferred Awards shall be paid in
cash, Common Stock or a combination of cash and Common Stock.
12. OTHER STOCK-BASED AWARDS. Other Awards of Common Stock and other Awards
that are valued in whole or in part by reference to, or are otherwise based on
Common Stock, including (without limitation) dividend equivalents and
convertible debentures, may be granted either alone or in addition to other
Awards granted under the Plan. Any Awards under this Section 12 and any Common
Stock covered by any such Award may be forfeited to the extent so provided in
the Award agreement, as determined by the Committee.
13. CHANGE IN CONTROL. Upon the occurrence of a Change in Control, (i) all
stock options shall become vested and exercisable in full, (ii) all stock
appreciation rights which have not been granted in tandem with stock options
shall become vested and exercisable in full, (iii) the restrictions applicable
to all shares of restricted stock shall lapse, (iv) all restricted stock
granted in the form of share units shall be paid in shares of Common Stock,
(v) all performance shares shall be deemed to be earned in full and shall be
paid in shares of Common Stock, and all performance shares granted in the form
of share units shall be deemed to be earned in full and shall be paid in
shares of Common Stock, and (vi) all deferred Awards shall be paid in shares
of Common Stock. The Committee may, in its discretion, include such further
provisions and limitations in any agreement documenting such Awards
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as it may deem equitable and in the best interests of the Company, and may
make payments with respect to restricted stock units, performance share units
and deferred Awards in cash in an amount equal to the Fair Market Value of the
Award as of the Change in Control.
14. WITHHOLDING. The Company shall have the right to deduct from any payment
to be made pursuant to the Plan the amount of any taxes required by law to be
withheld therefrom, or to require a Participant to pay to the Company in cash
such amount required to be withheld prior to the issuance or delivery of any
shares of Common Stock or the payment of cash under the Plan. The Committee
may, in its discretion, permit a Participant to elect to satisfy such
withholding obligation by (i) delivering previously owned shares of Common
Stock or (ii) having the Company retain shares of Common Stock which would
otherwise be delivered upon exercise or payment of Awards or (iii) any
combination of a cash payment or the methods set forth in (i) and (ii) above.
For purposes of (i) and (ii) above, shares of Common Stock shall be valued at
Fair Market Value determined as of the day immediately prior to exercise or
payment.
15. NONTRANSFERABILITY; BENEFICIARIES. Unless otherwise determined by the
Committee with respect to the transferability of stock options by a
Participant to his immediate family members (or to trusts or partnerships
established for such family members), no Award shall be assignable or
transferable by the Participant, otherwise than by will or the laws of descent
and distribution or pursuant to a beneficiary designation, and stock options
and stock appreciation rights shall be exercisable, during the Participant's
lifetime, only by the Participant (or by the Participant's legal
representatives in the event of the Participant's incapacity). Each
Participant may designate a beneficiary to exercise any stock option or stock
appreciation right held by the Participant at the time of the Participant's
death or to be assigned any other Award outstanding at the time of the
Participant's death. If no beneficiary has been named by a deceased
Participant, any Award held by the Participant at the time of death shall be
transferred as provided in his will or by the laws of descent and
distribution.
16. NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company or its
subsidiaries. Further, the Company and its subsidiaries expressly reserve the
right at any time to terminate the employment of a Participant free from any
liability, or any claim under the Plan, except as provided herein or in any
Award agreement entered into hereunder.
17. ADJUSTMENT OF AND CHANGES IN COMMON STOCK. In the event of any change in
the outstanding shares of Common Stock by reason of any stock dividend or
split, recapitalization, merger, consolidation, spinoff, combination or
exchange of shares or other similar corporate change, or any distributions to
common stockholders other than regular cash dividends, the Committee may make
such substitution or adjustment, if any, as it deems to be equitable, as to
the number or kind of shares of Common Stock or other securities reserved for
issuance pursuant to the Plan (including the annual limit on stock option
grants) or subject to outstanding Awards, and to any other terms and
conditions of outstanding Awards including the stock option or stock
appreciation right purchase price or performance criteria.
18. EMPLOYMENT BY SUBSIDIARY. For purposes of the Plan, a transfer of an
employee to the employ of a subsidiary of the Company shall not be deemed to
be a termination of employment and the employment by a subsidiary shall be
deemed to be employment by the Company.
19. AMENDMENT. The Board of Directors may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that (i) no amendment shall
be made without stockholder approval if such approval is necessary under any
applicable stock exchange rule or in order for the Plan to continue to comply
with Section 162(m) under the Code and (ii) no amendment shall be made that
would adversely affect the rights of a Participant under an Award theretofore
granted, without such Participant's written consent.
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20. EMPLOYMENT OUTSIDE THE UNITED STATES. In the event that an Award is
granted to an employee who is employed outside the United States and who is
not compensated from a payroll maintained in the United States, the Committee
may, in its sole discretion, revise the provisions of the Plan as they pertain
to such an employee so as to permit the employee to benefit from the laws of
the country in which the employee is employed at the time the Award is
granted. Such revisions may include, but are not limited to, changes to the
definition of Fair Market Value under Section 2(h) or in the timing of stock
option exercises under Section 7.
21. FORFEITURE OF AWARDS. Notwithstanding anything in the Plan to the
contrary, the Committee may, in its sole discretion, in the event of a serious
breach of conduct by an employee or former employee (including, without
limitation, any conduct prejudicial to or in conflict with the Company or its
subsidiaries), or any activity of an employee or former employee in
competition with the business of the Company or any subsidiary, (a) cancel any
outstanding Award granted to such employee or former employee, in whole or in
part, whether or not vested or deferred, and/or (b) if such conduct or
activity occurs within one year following the exercise or payment of an Award,
require such employee or former employee to repay to the Company any gain
realized or payment received upon the exercise or payment of such Award (with
such gain or payment valued as of the date of exercise or payment). Such
cancellation or repayment obligation shall be effective as of the date
specified by the Committee. Any repayment obligation may be satisfied in
Common Stock or cash or a combination thereof (based upon the Fair Market
Value of Common Stock on the day prior to the date of payment), and the
Committee may provide for an offset to any future payments owed by the Company
or any subsidiary to the employee or former employee if necessary to satisfy
the repayment obligation. The determination of whether an employee or former
employee has engaged in a serious breach of conduct or any activity in
competition with the business of the Company or any subsidiary shall be
determined by the Committee in good faith and in its sole discretion. This
Section 21 shall have no application following a Change in Control.
22. GENERAL PROVISIONS.
(a) The Committee may require each Participant purchasing or acquiring
shares pursuant to an Award under the Plan to represent to and agree with the
Company in writing that such Participant is acquiring the shares for
investment and without a view to distribution thereof.
(b) All certificates for shares of Common Stock delivered under the Plan
pursuant to any Award shall be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Common Stock is then listed, and any applicable
Federal or state securities law, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to
such restrictions. If the Committee determines that the issuance of shares of
Common Stock hereunder is not in compliance with, or subject to an exemption
from, any applicable Federal or state securities laws, such shares shall not
be issued until such time as the Committee determines that the issuance is
permissible.
(c) 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 Exchange Act so that Participants will be entitled to the benefit
of Rule 16b-3, or any other rule under Section 16 of the Exchange Act, and
will not be subject to short-swing liability under Section 16. Accordingly, if
the operation of any provision of the Plan would conflict with the intent
expressed in this Section 22(c), such provision to the extent possible shall
be interpreted and/or deemed amended so as to avoid such conflict.
(d) The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. Nothing contained herein shall give any Participant any
rights that are greater than those of a general creditor of the Company. In
its sole discretion, the Committee may authorize the creation of trusts or
other arrangements to meet the obligations created under the Plan to deliver
Common Stock or
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payments in lieu of or with respect to Awards hereunder, provided, however,
that the existence of such trusts or other arrangements is consistent with the
unfunded status of the Plan.
(e) Except as otherwise provided by the Committee in the applicable Award
agreement, a Participant shall have no rights as a shareholder with respect to
any shares of Common Stock subject to stock options, stock appreciation
rights, performance share awards, restricted stock units, or deferred awards
until a certificate or certificates evidencing shares of Common Stock shall
have been issued to the Participant and, subject to Section 17, no adjustment
shall be made for dividends or distributions or other rights in respect of any
share for which the record date is prior to the date on which Participant
shall become the holder of record thereof.
(f) The law of the State of New York shall apply to all Awards and
interpretations under the Plan regardless of the effect of such state's
conflict of laws principles.
(g) Where the context requires, words in any gender shall include any other
gender.
(h) All expenses of the Plan (including administrative expenses) shall be
paid by the Company.
23. EFFECTIVE DATE; TERM OF PLAN. The Plan shall be effective as of April
16, 1997. Subject to earlier termination pursuant to Section 19, the Plan
shall have a term of ten (10) years from its Effective Date.
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APPENDIX C
MALLINCKRODT INC.
LONG-TERM INCENTIVE COMPENSATION PLAN
(AS AMENDED ON APRIL 16, 1997)
Section 1. Purpose. The purpose of the Mallinckrodt Inc. Long-Term Incentive
Compensation Plan (the "Plan") is to further the long-term growth and
profitability of Mallinckrodt 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, 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
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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. Within the 90-day
period immediately following 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 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.
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
means the occurrences of any one of the following events:
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(i) any "person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing
20% or more of the combined voting power of the Corporation's then
outstanding securities eligible to vote for the election of the Board
(the "Corporation Voting Securities"); provided, however, that the
event described in this paragraph (i) shall not be deemed to be a
Change in Control by virtue of any of the following acquisitions: (A)
by the Corporation or any Subsidiary of the Corporation, (B) by any
employee benefit plan sponsored or maintained by the Corporation or any
Subsidiary of the Corporation, (C) by any underwriter temporarily
holding securities pursuant to an offering of such securities, (D)
pursuant to a Non-Control Transaction (as defined in paragraph (iii)),
(E) with respect to a Participant pursuant to any acquisition by the
Participant or any group of persons including the Participant; or (F)
except as provided in (iii) below, in which Corporation Voting
Securities are acquired from the Corporation, if a resolution providing
expressly that the acquisition pursuant to this clause (F) does not
constitute a Change in Control under this paragraph (i) is approved by
a vote of at least a majority of the directors comprising the Incumbent
Board (as hereinafter defined);
(ii) individuals who, on April 16, 1997, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director
subsequent to April 16, 1997, whose election, or nomination for
election, by the Corporation's stockholders was approved by a vote of
at least a majority 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 (ii), considered as though such person were a member of the
Incumbent Board; provided, however, that no individual initially
elected or nominated as a director of the Corporation as a result of an
actual or threatened election contest with respect to directors or any
other actual or threatened solicitation of proxies or consents by or on
behalf of any person other than the Board shall be deemed to be a
member of the Incumbent Board;
(iii) the consummation of a merger, consolidation, share exchange or
similar form of corporate reorganization of the Corporation or any such
type of transaction requiring the approval of the Corporation's
stockholders (whether for such transaction or the issuance of
securities in the transaction or otherwise), or the consummation of the
direct or indirect sale or other disposition of all or substantially
all of the assets, of the Corporation (a "Business Combination"),
unless immediately following such Business Combination: (A) more than
50% of the total voting power of the publicly-traded corporation
resulting from such Business Combination (including, without
limitation, any corporation which directly or indirectly has beneficial
ownership of 100% of the Corporation Voting Securities or all or
substantially all of the Corporation's assets) eligible to elect
directors of such corporation is represented by shares that were
Corporation Voting Securities immediately prior to such Business
Combination (either by remaining outstanding or being converted), and
such voting power is in substantially the same proportion as the voting
power of such Corporation Voting Securities immediately prior to the
Business Combination, (B) no person (other than any publicly-traded
holding company resulting from such Business Combination, any employee
benefit plan sponsored or maintained by the Corporation (or the
corporation resulting from such Business Combination), or any person
which beneficially owned, immediately prior to such Business
Combination, directly or indirectly, 20% or more of the Corporation
Voting Securities (a "Corporation 20% Stockholder")) becomes the
beneficial owner, directly or indirectly, of 20% or more of the total
voting power of the outstanding voting securities eligible to elect
directors of the corporation resulting from such Business Combination
and no Corporation 20% Stockholder increases its percentage of such
total voting power, and (C) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
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approval of the Board of the execution of the initial agreement
providing for such Business Combination (a "Non-Control Transaction");
or
(iv) the stockholders of the Corporation approve a plan of complete
liquidation or dissolution of the Corporation.
Notwithstanding the foregoing, a Change in Control of the Corporation shall
not be deemed to occur solely because any person acquires beneficial
ownership of more than 20% of the Corporation Voting Securities as a result
of the acquisition of Corporation Voting Securities by the Corporation
which, by reducing the number of Corporation Voting Securities outstanding,
increases the percentage of shares beneficially owned by such person;
provided, that if a Change in Control of the Corporation would occur as a
result of such an acquisition by the Corporation (if not for the operation
of this sentence), and after the Corporation's acquisition such person
becomes the beneficial owner of additional Corporation Voting Securities
that increases the percentage of outstanding Corporation Voting Securities
beneficially owned by such person, then a Change in Control of the
Corporation shall occur. Notwithstanding anything in this Plan to the
contrary, if a Participant's employment is terminated prior to a Change in
Control, and the Participant reasonably demonstrates that such termination
was at the request of a third party who has indicated an intention or taken
steps reasonably calculated to effect a Change in Control and who
effectuates a Change in Control, then for all purposes of this Plan with
respect to such Participant, the date of a Change in Control shall mean the
date immediately prior to the date of such termination of employment.
(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 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;
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(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 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.
(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
C-5
<PAGE>
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.
C-6
<PAGE>
LOGO
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING OF STOCKHOLDERS, OCTOBER 15, 1997
The undersigned appoints Raymond F. Bentele, Roberta S. Karmel, and Morton
Moskin, 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 Annual Meeting of Stockholders of Mallinckrodt Inc. to be held on October
15, 1997, at The Westin South Coast Plaza Hotel, 686 Anton Boulevard, Costa Me-
sa, California 92626, at 10 a.m., local time, and any adjournments therof,
hereby revoking any proxy heretofore given.
------------------------
Election of Three Directors. Nominees: C. Ray Holman, Claudine B. Malone, and
Anthony Viscusi for terms expiring in 2000.
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 SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
P R O X Y
SEE REVERSE
SIDE
^ FOLD AND DETACH PROXY CARD HERE ^^
LOGO
To: Mallinckrodt Stockholders
If you plan to attend the Annual Meeting of Stockholders, please check the
appropriate box on the proxy card so we can mail a ticket to you in advance of
the meeting.
Please mark, sign, and date the proxy card and return it promptly to ensure
your representation at the meeting.
YOUR VOTE IS IMPORTANT.
Thank you.
MALLINCKRODT INC.
<PAGE>
2599
----
Please mark your votes as in this example.
X
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, 4 and 5 and AGAINST
proposal 6. 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, 4 AND 5.
FOR
WITHHELD AS TO ALL NOMINEES
FOR
AGAINST
ABSTAIN
FOR
AGAINST
ABSTAIN
1. Election of Directors.
2. Appointment of independent auditors.
4. Approval of Equity Incentive Plan.
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.
- --------------------------------------------------------------------------------
5. Approval of Material Terms of Performance Goals under the Long-Term
Incentive Compensation Plan.
3. Approval of Directors' Stock Award Plan.
The Board of Directors recommends a vote AGAINST proposal 6.
6. Recommend that the Board of Directors redeem Shareholder Rights Plan or
submit to binding shareholder vote.
7. In the discretion of the proxies, upon such other business as may properly
come before the meeting.
Please check this box to request a ticket to the Annual Meeting.
SIGNATURE(S) ___________________________________________DATE _________ , 1997.
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.
^ FOLD AND DETACH PROXY CARD HERE ^^
LOGO
YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY BY TEARING OFF THE TOP PORTION OF
THIS SHEET AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
2205
----
Please mark your votes as in this example.
X
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, 4 and 5 and AGAINST
proposal 6. 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, 4 AND 5.
FOR
WITHHELD AS TO ALL NOMINEES
FOR
AGAINST
ABSTAIN
FOR
AGAINST
ABSTAIN
1. Election of Directors.
2. Appointment of independent auditors.
4. Approval of Equity Incentive Plan.
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.
- --------------------------------------------------------------------------------
3. Approval of Directors' Stock Award Plan.
5. Approval of Material Terms of Performance Goals under the Long-Term
Incentive Compensation Plan.
The Board of Directors recommends a vote AGAINST proposal 6.
6. Recommend that the Board of Directors redeem Shareholder Rights Plan or
submit to binding shareholder vote.
7. In the discretion of the proxies, upon such other business as may properly
come before the meeting.
Please check this box to request a ticket to the Annual Meeting.
SIGNATURE(S) ___________________________________________DATE _________ , 1997.
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.
^ FOLD AND DETACH PROXY CARD HERE ^^
LOGO
YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY BY TEARING OFF THE TOP PORTION OF
THIS SHEET AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
6334
----
Please mark your votes as in this example.
X
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, 4 and 5 and AGAINST
proposal 6. 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, 4 AND 5.
FOR
WITHHELD AS TO ALL NOMINEES
FOR
AGAINST
ABSTAIN
FOR
AGAINST
ABSTAIN
1. Election of Directors.
2. Appointment of independent auditors.
4. Approval of Equity Incentive Plan.
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.
- --------------------------------------------------------------------------------
3. Approval of Directors' Stock Award Plan.
5. Approval of Material Terms of Performance Goals under the Long-Term
Incentive Compensation Plan.
The Board of Directors recommends a vote AGAINST proposal 6.
6. Recommend that the Board of Directors redeem Shareholder Rights Plan or
submit to binding shareholder vote.
7. In the discretion of the proxies, upon such other business as may properly
come before the meeting.
Please check this box to request a ticket to the Annual Meeting.
SIGNATURE(S) ___________________________________________DATE _________ , 1997.
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.
^ FOLD AND DETACH PROXY CARD HERE ^^
LOGO
YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY BY TEARING OFF THE TOP PORTION OF
THIS SHEET AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
