UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
---
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
X TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
---
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-483
______________________________
MALLINCKRODT INC.
(Exact name of registrant as specified in its charter)
New York 36-1263901
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
675 McDonnell Boulevard
St. Louis, Missouri 63134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-654-2000
______________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X. No .
Applicable Only To Issuers Involved In Bankruptcy
Proceedings During The Preceding Five Years:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes .
No .
Applicable Only To Corporate Issuers:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
71,341,966 shares excluding 15,774,323 treasury shares as of
October 31, 1998.
<PAGE>
(*) Indicates registered trademark
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
The accompanying interim condensed consolidated financial statements
of Mallinckrodt Inc. (the Company or Mallinckrodt) do not include all
disclosures normally provided in annual financial statements. These
financial statements, which should be read in conjunction with the
consolidated financial statements contained in Mallinckrodt's 1998
Annual Report to Shareholders, are unaudited but include all
adjustments which Mallinckrodt's management considers necessary for a
fair presentation. These adjustments consist of normal recurring
accruals except as discussed in Notes 1, 2 and 3 of the Notes to
Condensed Consolidated Financial Statements. Interim results are not
necessarily indicative of the results for the fiscal year. All
references to years are to fiscal years ended June 30 unless
otherwise stated.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
Three Months Ended
September 30,
------------------------
1998 1997
--------- ---------
Net sales $ 591.2 $ 454.6
Operating costs and expenses:
Cost of goods sold 318.3 275.8
Selling, administrative and
general expenses 171.7 118.8
Purchased research and development 396.3
Research and development expenses 33.9 27.7
Other operating income, net (1.5)
--------- ---------
Total operating costs and expenses 523.9 817.1
--------- ---------
Operating earnings (loss) 67.3 (362.5)
Interest and other nonoperating
income, net .9 9.2
Interest expense (20.6) (18.3)
--------- ---------
Earnings (loss) from continuing
operations before income taxes 47.6 (371.6)
Income tax provision 15.2 9.1
--------- ---------
Earnings (loss) from continuing
operations 32.4 (380.7)
Discontinued operations 22.6
--------- ---------
Earnings (loss) before cumulative
effect of accounting change 55.0 (380.7)
Cumulative effect of accounting change (8.4)
--------- ---------
Net earnings (loss) 55.0 (389.1)
Preferred stock dividends (.1) (.1)
--------- ---------
Available for common shareholders $ 54.9 $(389.2)
========= =========
Basic earnings per common share:
Earnings (loss) from continuing
operations $ .44 $ (5.26)
Discontinued operations .31
Cumulative effect of accounting
change (.11)
--------- ---------
Net earnings (loss) $ .75 $ (5.37)
========= =========
Diluted earnings per common share:
Earnings (loss) from continuing
operations $ .44 $ (5.26)
Discontinued operations .31
Cumulative effect of accounting
change (.11)
--------- ---------
Net earnings (loss) $ .75 $ (5.37)
========= =========
(See Notes to Condensed Consolidated Financial Statements on pages 4
through 7.)
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts)
September 30, June 30,
1998 1998
------------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 58.1 $ 55.5
Trade receivables, less allowances
of $18.3 at September 30 and
$16.7 at June 30 452.1 486.3
Inventories 505.6 470.0
Deferred income taxes 108.9 95.2
Other current assets 69.3 61.5
Net current assets of discontinued
operations 4.8
--------- ---------
Total current assets 1,194.0 1,173.3
Investments and other noncurrent
assets, less allowances of
$6.2 at September 30 and
$5.8 at June 30 154.7 154.5
Property, plant and equipment, net 903.3 894.9
Goodwill, net 893.5 899.5
Technology, net 351.1 364.3
Other intangible assets, net 284.5 282.1
Net noncurrent assets of discontinued
operations 12.4
Deferred income taxes 4.8 4.6
--------- ---------
Total assets $3,785.9 $3,785.6
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 373.1 $ 311.4
Accounts payable 181.1 215.0
Accrued liabilities 468.9 532.0
Income taxes payable 114.5 122.3
Deferred income taxes 4.0 1.4
--------- ---------
Total current liabilities 1,141.6 1,182.1
Long-term debt, less current maturities 944.4 944.5
Deferred income taxes 401.8 396.2
Postretirement benefits 170.8 169.2
Other noncurrent liabilities and
deferred credits 183.2 175.2
--------- ---------
Total liabilities 2,841.8 2,867.2
--------- ---------
Shareholders' equity:
4 Percent cumulative preferred stock 11.0 11.0
Common stock, par value $1, authorized
300,000,000 shares; issued 87,116,289
shares 87.1 87.1
Capital in excess of par value 314.9 315.2
Reinvested earnings 995.2 952.2
Accumulated other comprehensive expense (53.7) (72.6)
Treasury stock, at cost (410.4) (374.5)
--------- ---------
Total shareholders' equity 944.1 918.4
--------- ---------
Total liabilities and shareholders'
equity $3,785.9 $3,785.6
========= =========
(See Notes to Condensed Consolidated Financial Statements on pages 4
through 7.)
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Three Months Ended
September 30,
------------------------
1998 1997
--------- ---------
CASH FLOWS - OPERATING ACTIVITIES
Net earnings (loss) $ 55.0 $ (389.1)
Adjustments to reconcile net earnings
(loss) to net cash provided (used)
by operating activities:
Depreciation 28.8 25.5
Amortization 20.2 12.4
Postretirement benefits 1.7 3.3
(Gains)/losses on asset disposals (37.4) .1
Deferred income taxes (7.4) (8.7)
Write-off of purchased research and
development 398.3
Sale of inventory stepped up to fair
value at acquisition 18.8
Write-off of pre-operating costs 12.5
--------- ---------
60.9 73.1
Changes in operating assets and
liabilities:
Trade receivables 41.5 33.8
Inventories (33.5) (17.4)
Other current assets (.8) 43.0
Accounts payable, accrued
liabilities and income taxes
payable, net (112.1) (152.9)
Other noncurrent liabilities and
deferred credits 6.0 18.4
Other, net 6.7 2.0
--------- ---------
Net cash provided (used) by operating
activities (31.3) .0
--------- ---------
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures (27.3) (30.3)
Acquisition spending (1,734.6)
Proceeds from asset disposals 55.1 1.3
--------- ---------
Net cash provided (used) by investing
activities 27.8 (1,763.6)
--------- ---------
CASH FLOWS - FINANCING ACTIVITIES
Increase in short-term debt 60.5 1,091.8
Proceeds from long-term debt .2 .4
Payments on long-term debt (.4)
Issuance of Mallinckrodt common stock .3 10.0
Acquisition of treasury stock (42.5) (9.7)
Dividends paid (12.0) (12.1)
--------- ---------
Net cash provided by financing
activities 6.1 1,080.4
--------- ---------
Increase (decrease) in cash and
cash equivalents 2.6 (683.2)
Cash and cash equivalents at
beginning of period 55.5 808.3
--------- ---------
Cash and cash equivalents at end
of period $ 58.1 $ 125.1
========= =========
(See Notes to Condensed Consolidated Financial Statements on pages 4
through 7.)
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. On August 28, 1997, the Company acquired Nellcor Puritan
Bennett Incorporated (Nellcor) through an agreement to purchase
for cash all the outstanding shares of common stock of Nellcor.
The aggregate purchase price of the Nellcor acquisition was
approximately $1.9 billion. The acquisition was accounted for
under the purchase method of accounting and, accordingly, the
results of operations of Nellcor have been included in the
Company's consolidated financial statements since September 1,
1997. The purchase price of the acquisition was allocated to the
assets acquired and liabilities assumed based upon estimated fair
values at the date of acquisition.
Included in earnings for the quarter ended September 30, 1997 are
one-time noncash acquisition-related costs of $398.3 million for
the write-off of purchased research and development, an
identifiable intangible asset of the Nellcor acquisition, which
had no tax benefit. Of this amount, $396.3 million related to
ongoing operations and $2.0 million related to operations
classified as discontinued operations.
The sale of Nellcor inventories, which were stepped up to fair
value in connection with the allocation of purchase price,
resulted in charges of $18.8 million, $11.7 million net of taxes
for the quarter ended September 30, 1997. Of this pretax amount,
$18.6 million related to ongoing operations and $.2 million
related to operations classified as discontinued operations.
In connection with the Company's filing of a shelf registration
statement for debt securities, Mallinckrodt is engaged in
discussions with the staff of the Securities and Exchange
Commission (SEC) regarding the purchase price allocation related
to its acquisition of Nellcor. The Company and its auditors,
Ernst & Young LLP, believe that the allocation and related
amortization charges are in accordance with generally accepted
accounting principles. Ernst & Young LLP has expressed their
opinion that the Company's 1998 annual consolidated financial
statements are fairly presented, in all material respects, in
conformity with generally accepted accounting principles.
Nevertheless, if there are any significant changes as a result of
these discussions with the SEC to the amounts allocated to
purchased research and development or other intangible assets or
changes in the lives over which such amounts are amortized, these
changes could have a material impact on the related noncash
charges reflected in the 1998 and 1999 results of operations and
could materially affect future results of operations as a result
of increased amortization expense.
During 1998, in connection with management's plan to integrate
Mallinckrodt and Nellcor into one successful company, the Company
recorded additional purchase liabilities of $50.1 million, $30.8
million net of related tax benefit, which were included in the
acquisition cost allocation and related goodwill. The principal
actions of the plan included Nellcor employee severance of $37.2
million, Nellcor employee relocation costs of $3.8 million and
the elimination of contractual obligations of Nellcor, which had
no future economic benefit, of $9.1 million. Approximately $32.1
million of cash expenditures have been incurred through September
30, 1998 and liabilities of $18.0 million related to the Nellcor
integration plan remained in accrued liabilities at September 30,
1998. The majority of the remaining cash expenditures will occur
in 1999 and, although none are expected, reductions in the
estimated liability for these integration activities will be
offset against the related goodwill.
During 1998, the Company recorded a pretax charge of $19.1
million associated with exiting certain activities related to
Mallinckrodt operations that were identified in the Nellcor
integration plan. The charge included $17.1 million related to
Mallinckrodt employee severance costs and facility exit costs of
$2.0 million. Approximately $6.0 million of cash expenditures
have been incurred through September 30, 1998. The majority of
the remaining cash expenditures will occur in 1999 and no
material adjustments to the original reserve are anticipated.
2. The Company sold certain chemical additive product lines in the
second quarter of 1998. In the fourth quarter of 1998, the
Company sold its catalyst business and Aero Systems division. In
June 1998, the Company committed to the sale of the remaining
chemical additives business of the catalysts and chemical
additives division, and closing of the sale occurred on July 31,
1998. The transaction resulted in a $37.0 million gain on sale,
$22.6 million net of taxes, which was included in discontinued
operations for the quarter ended September 30, 1998. Earnings
from operations were zero for the one month of operations.
Included in prior year first quarter discontinued operations are
the earnings from operations of the catalysts and chemical
additives and Aero Systems divisions, which included $2.2 million
of after-tax earnings from operations and a $2.2 million after-
tax acquisition accounting charge.
3. The Company elected to early adopt the provisions of the American
Institute of Certified Public Accountants SOP 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5), in its financial
statements for the year ended June 30, 1998. The effect of
adoption of SOP 98-5 was to record a charge of $8.4 million, net
of taxes, for the cumulative effect of an accounting change to
expense costs that had previously been capitalized prior to
July 1, 1997.
4. On October 6, 1994, Augustine Medical, Inc. (Augustine) commenced
a patent infringement litigation against Mallinckrodt Inc. and
its wholly owned subsidiary, Mallinckrodt Medical, Inc.
(collectively, the Company) in the U.S. District Court for the
District of Minnesota. Specifically, Augustine alleged that the
Company's sale of all five models of its convective warming
blankets infringes certain claims of one or more of Augustine's
patents. The Company filed counterclaims against Augustine in
connection with the above actions alleging unfair competition,
antitrust violations, and invalidity of the asserted patents,
among other things.
The liability phase of the case was tried to a jury in August
1997 and the verdict was that the Company's blankets infringe
certain Augustine patents under the doctrine of equivalents, but
do not literally infringe the patents. There was also a finding
of no willful infringement. On September 22, 1997, the jury
awarded damages in the amount of $16.8 million for the period
ended September 30, 1997 and the judge put in place an injunction
which stopped the Company from manufacturing and selling blankets
in the United States. The Company appealed the jury verdicts of
liability and damages to the Court of Appeals for the Federal
Circuit (a special court for patent appeals that does not involve
a jury). The Court of Appeals has stayed the injunction pending
the outcome of the Company's appeal, and the Company continues to
sell and manufacture blankets in the United States. With the
advice of outside counsel, the Company believes there was
insufficient evidence of equivalents presented and, consequently,
for this and other reasons the verdicts were in error. The
Company is working vigorously in the Appeals Court to overturn
the verdicts and believes that it has strong arguments that its
blankets do not infringe Augustine's patents. Based on all the
facts available to management, the Company believes that it is
reasonably possible but not probable that the jury verdict and
the trial court injunction will be upheld on appeal. If damages
were assessed in the same manner as determined by the jury for
sales subsequent to September 30, 1997 plus interest on the
estimated total, the total liability would approximate $25.1
million at September 30, 1998. The Company has not recorded an
accrual for payment of the damages, because an unfavorable
outcome in this litigation is, in management's opinion,
reasonably possible but not probable. See Part II, Item 1 "Legal
Proceedings" for additional information about this and related
claims by Augustine against the Company.
5. The Company is subject to various investigations, claims and
legal proceedings covering a wide range of matters that arise in
the ordinary course of its business activities. In addition, the
Company is in varying stages of active investigation or
remediation of alleged or acknowledged contamination at 23
currently or previously owned or operated sites and at 15 off-
site locations where its waste was taken for treatment or
disposal. See Part II, Item 1 "Legal Proceedings" for additional
information about legal proceedings involving the Company.
Once the Company becomes aware of its potential environmental
liability at a particular site, the measurement of the related
environmental liabilities to be recorded is based on an
evaluation of currently available facts such as the extent and
types of hazardous substances at a site, the range of
technologies that can be used for remediation, evolving standards
of what constitutes acceptable remediation, presently enacted
laws and regulations, engineers and environmental specialists'
estimates of the range of expected clean-up costs that may be
incurred, prior experience in remediation of contaminated sites,
and the progress to date on remediation in process. While the
current law potentially imposes joint and several liability upon
each party at a Superfund site, the Company's contribution to
clean up these sites is expected to be limited, given the number
of other companies which have also been named as potentially
responsible parties and the volumes of waste involved. A
reasonable basis for apportionment of costs among responsible
parties is determined and the likelihood of contribution by other
parties is established. If it is considered probable that the
Company will only have to pay its expected share of the total
clean-up, the recorded liability reflects the Company's expected
share. In determining the probability of contribution, the
Company considers the solvency of the parties, whether
responsibility is disputed, existence of an allocation agreement,
status of current action, and experience to date regarding
similar matters. Current information and developments are
regularly assessed by the Company, and accruals are adjusted on a
quarterly basis, as required, to provide for the expected impact
of these environmental matters.
The Company has established accruals only for those matters that
are in its view probable and estimable. Based upon information
currently available, management believes that existing accruals
are sufficient to satisfy any known environmental liabilities,
and that it is not reasonably possible at this time that any
additional liabilities will result from the resolution of these
matters that would have a material adverse effect on the
Company's consolidated results of operations or financial
position.
6. The following table sets forth the computation of basic and
diluted earnings (loss) from continuing operations per common
share (in millions, except shares and per share amounts).
Three Months Ended
September 30,
------------------------
1998 1997
--------- ---------
Numerator:
Earnings (loss) from continuing
operations $ 32.4 $(380.7)
Preferred stock dividends (.1) (.1)
--------- ---------
Numerator for basic and diluted
earnings (loss) per share--
income (loss) available to common
shareholders $ 32.3 $(380.8)
========= =========
Denominator:
Denominator for basic earnings
(loss) per share--
weighted-average shares 72,917,133 72,475,530
Potential dilutive common
shares--employee stock options 86,766
---------- ----------
Denominator for diluted earnings
(loss) per share--adjusted
weighted-average shares 73,003,899 72,475,530
========== ==========
Basic earnings (loss) from
continuing operations per
common share $ .44 $ (5.26)
====== ========
Diluted earnings (loss) from
continuing operations per
common share $ .44 $ (5.26)
====== ========
The diluted share base for the three months ended September 30, 1997
excluded incremental shares of 681,423 related to employee stock
options. These shares were excluded due to their antidilutive effect
as a result of the Company's loss from continuing operations during
this period.
7. The components of inventory included the following as of
September 30, 1998:
(In millions)
Raw materials and supplies $ 206.6
Work in process 47.2
Finished goods 251.8
-------
$ 505.6
=======
8. The Company has authorized and issued 100,000 shares, 98,330
outstanding at September 30, 1998, of par value $100,
4 percent cumulative preferred stock. The Company has authorized
1,400,000 shares, par value $1, of series preferred stock, none
of which was outstanding during 1999 and 1998.
Shares included in treasury
stock were:
September 30, June 30,
1998 1998
------------- ----------
Common stock 15,597,215 13,941,638
4 Percent cumulative
preferred stock 1,670 1,670
9. Common shares reserved at September 30, 1998 consisted of the
following:
Exercise of common stock purchase rights 82,360,270
Exercise of stock options and granting
of stock awards 10,841,196
----------
93,201,466
==========
10. Supplemental cash flow information for the three months ended
September 30 included:
(In millions)
1998 1997
--------- ---------
Interest paid $27.7 $12.7
Income taxes paid 43.3 4.8
Noncash investing and financing
activities:
Assumption of liabilities related
to an acquisition 488.5
Issuance of stock for investment
plan match 6.0 9.7
Restricted stock award 10.0
11. Effective July 1, 1998, the Company adopted Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive
Income" (SFAS 130). SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components.
Comprehensive income includes net income and other comprehensive
income/(expense). Other comprehensive income/(expense) includes
foreign currency translation adjustments and unrealized gains and
losses on investments which prior to adoption were reported
separately in shareholders' equity. Total comprehensive income
for the three months ended September 30 was as follows:
(In millions)
1998 1997
--------- ---------
Net earnings (loss) $55.0 $(389.1)
Other comprehensive income/(expense):
Currency translation adjustment 21.2 (7.0)
Net unrealized gain (loss) on
investment securities (3.7) 3.4
Tax benefit related to items of
other comprehensive income 1.4
--------- ---------
Other comprehensive income (expense),
net of tax 18.9 (3.6)
--------- ---------
Total comprehensive income (loss) $73.9 $(392.7)
========= =========
As of September 30, 1998, the cumulative balances for currency
translation adjustment loss and the unrealized loss on investment
securities were $49.9 million and $3.8 million, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. [1]
All references to years are to fiscal years ended June 30 unless
otherwise stated. Certain amounts in the prior year have been
reclassified to conform to the current year presentation. All
earnings per share amounts are calculated on a diluted basis unless
otherwise stated.
RESULTS OF OPERATIONS
General
- -------
The Company recorded earnings from continuing operations of $32.4
million, or 44 cents per share for the quarter ended
September 30, 1998. Earnings from continuing operations for the same
quarter last year, before including $407.8 million of noncash charges
related to the acquisition of Nellcor, were $27.1 million, or 37
cents per share.
- --------------------
[1] CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995: Our discussion and analysis in this quarterly
report contain some forward-looking statements. Forward-looking
statements do not relate strictly to historical or current facts, but
rather give our current expectations or forecasts of future events.
Forward-looking statements may be identified by their use of words
such as "plans," "expects," "will," "anticipates," "believes," and
other words of similar meaning. Such statements may address, among
other things, the Company's strategy for growth, product development,
regulatory approvals, the outcome of contingencies such as legal
proceedings, market position, expenditures, and financial results.
Forward-looking statements are based on current expectations of
future events. Such statements involve risks and uncertainties and
actual results could differ materially from those discussed. Among
the factors that could cause actual results to differ materially from
those projected in any such forward-looking statements are as
follows: the effect of business and economic conditions; the impact
of competitive products and continued pressure on prices realized by
the Company for its products; constraints on supplies of raw
materials used in manufacturing certain of the Company's products;
capacity constraints limiting the production of certain products;
difficulties or delays in the development, production, testing, and
marketing of products; difficulties or delays in receiving required
governmental or regulatory approvals; market acceptance issues,
including the failure of products to generate anticipated sales
levels; difficulties in rationalizing acquired businesses and in
realizing related cost savings and other benefits; the effects of and
changes in trade, monetary, and fiscal policies, laws, and
regulations; foreign exchange rates and fluctuations in those rates;
the costs and effects of legal and administrative proceedings,
including environmental proceedings and patent disputes involving the
Company; difficulties or delays in addressing "Year 2000" problems
(as discussed in Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations); and the risk factors
reported from time to time in the Company's SEC reports. The Company
undertakes no obligation to update any forward-looking statements as
a result of future events or developments.
<PAGE>
The acquisition of Nellcor was accounted for under the purchase
method of accounting and, accordingly, the results of operations of
Nellcor have been included in the Company's consolidated financial
statements since September 1, 1997.
In connection with the Company's filing of a shelf registration
statement for debt securities, Mallinckrodt is engaged in discussions
with the staff of the Securities and Exchange Commission (SEC)
regarding the purchase price allocation related to its acquisition of
Nellcor. The Company and its auditors, Ernst & Young LLP, believe
that the allocation and related amortization charges are in
accordance with generally accepted accounting principles. Ernst &
Young LLP has expressed their opinion that the Company's 1998 annual
consolidated financial statements are fairly presented, in all
material respects, in conformity with generally accepted accounting
principles. Nevertheless, if there are any significant changes as a
result of these discussions with the SEC to the amounts allocated to
purchased research and development or other intangible assets or
changes in the lives over which such amounts are amortized, these
changes could have a material impact on the related noncash charges
reflected in the 1998 and 1999 results of operations and could
materially affect future results of operations as a result of
increased amortization expense.
Net earnings for the first quarter of 1999 were $55.0 million, or 75
cents per share as compared to a net loss of $389.1 million, or $5.37
loss per share for the same period last year. Net earnings for the
first quarter of 1999 included a gain of $22.6 million, or 31 cents
per share on the sale of a chemical additives business, which related
to a division reclassified to discontinued operations in 1998. The
net loss for the same quarter of 1998 included a charge of $8.4
million, or 11 cents per share related to the cumulative effect of an
accounting change discussed in Note 3 of the condensed consolidated
financial statements.
Net sales for the quarter were $591.2 million, up 30 percent from the
$454.6 million in the same period last year. Sales to customers
outside the United States were $181 million or 31 percent of total
sales for the first quarter of 1999.
A comparison of sales and operating earnings follows:
(In millions)
Three Months Ended
September 30,
------------------------
1998 1997
--------- ---------
Net sales
Respiratory $ 256.2 $ 141.9
Imaging 182.9 177.3
Pharmaceuticals 152.1 135.4
--------- ---------
$ 591.2 $ 454.6
========= =========
Operating earnings (loss)
Respiratory $ 23.1 $ 22.4
Imaging 30.7 23.1
Pharmaceuticals 20.5 12.4
--------- ---------
74.3 57.9
Corporate expense (7.0) (5.5)
--------- ---------
67.3 52.4
Acquisition charges (414.9)
--------- ---------
$ 67.3 $(362.5)
========= =========
Operating earnings for the quarter ended September 30, 1998 were
$67.3 million, which is a 28 percent improvement over the same period
of fiscal 1998 before acquisition-related charges. In the first
quarter of last year, the Company recorded an operating loss of
$362.5 million, which included noncash charges of $396.3 million for
the write-off of purchased research and development and $18.6 million
related to the sale of Nellcor inventories which were stepped up to
fair value in connection with the Nellcor acquisition.
The Respiratory Group, of which Nellcor is now a part, had sales of
$256.2 million or 81 percent greater than the sales recorded for the
same period last year. The prior year results included only one
month of Nellcor sales and operating results. The Group's sales
increase of $114.3 million was primarily attributable to volume
growth (85 percent) due to the inclusion of only one month of Nellcor
revenue in 1998, which was offset by price declines primarily
involving anesthesia and respiratory devices. Operating earnings for
the Group for the quarter were $23.1 million or 3 percent above the
prior year. In spite of the benefits of the increased sales, the
earnings comparison with prior year was negatively impacted by two
months of additional expenses, which included additional amortization
of intangibles and goodwill of $7.9 million.
The Imaging Group had sales of $182.9 million or 3 percent above the
prior year period of $177.3 million. The sales improvement was
attributable to a $7.8 million increase in nuclear medicine product
volume which offset the $2.2 million decline in the other product
lines comprising the Group. Operating earnings for the Group were
$30.7 million or 33 percent above the $23.1 million recorded for the
same period last year. The operating earnings improvement was
attributable to volume growth, lower rebates, expense control and
increased manufacturing efficiencies. Although price declines in the
x-ray contrast media portion of the business were not a major factor
in the year to year comparison of results for the first quarter, it
is probable that this will be a factor impacting subsequent quarters
of this fiscal year. The demand for price discounts is expected to
increase and reduce profitability in 1999, but at a lower rate of
decline than was experienced in 1998 and 1997.
The Pharmaceuticals Group sales for the quarter ended September 30,
1998 were $152.1 million or 12 percent greater than in the same
period last year. The sales increase of $16.7 million was primarily
attributable to volume increases in narcotics and drug chemicals of
$15 million and $4 million, respectively, offset by volume declines
in acetaminophen and lab and microelectronics. Price increases
generated 3 percent of the year over year sales increase. Operating
earnings for the Group were $20.5 million or 65 percent greater than
the $12.4 million recorded in the comparable period last year. The
operating earnings improvement was primarily attributable to
increased sales of higher margin bulk and dosage narcotics and to
improved operating rates at manufacturing facilities.
CORPORATE MATTERS
Corporate expenses were $7.0 million, or 27 percent above the level
reported for the same period last year. Interest and other
nonoperating income, net was $.9 million for the quarter as compared
with $9.2 million for the same period last year. In 1998, the
Company generated interest income on cash proceeds from 1997
divestitures invested in interest bearing securities. These cash
equivalents were utilized to acquire Nellcor at the end of August
1997.
The Company's effective tax rate was 31.9 percent for the quarter
ended September 30, 1998. The tax rate for the same period last
year, after excluding the one-time noncash write-off of purchased
research and development of $396.3 million which had no tax benefit,
was 36.8 percent. The improvement in 1999 was primarily attributable
to changes in earnings mix between higher tax rate and lower tax rate
entities associated with the acquisition of Nellcor.
FINANCIAL CONDITION
The Company's financial resources are expected to continue to be
adequate to support existing businesses. Since June 30, 1998, cash
and cash equivalents increased $2.6 million. Operations utilized
$31.3 million of cash, while capital spending totaled $27.3 million.
The Company received $55.1 million in proceeds from asset disposals.
The Company's current ratio at September 30, 1998 was 1.0:1. Debt as
a percentage of invested capital was 58.3 percent.
In December 1997, the Company filed a $500 million shelf debt
registration statement which has not, as yet, been declared
effective.
At September 30, 1998, the Company has a $1.0 billion private
placement commercial paper program. The program is backed by a $1.0
billion revolving credit facility expiring September 12, 2002. The
revolving credit facility was reduced from $1.6 billion to $1.0
billion in September 1998. There was no borrowing outstanding under
the revolving credit facility at September 30, 1998. Commercial
paper borrowings under this program were $345.0 million as of
September 30, 1998. Non-U.S. lines of credit totaling $127.8 million
were also available, and borrowings under these lines amounted to
$19.2 million at September 30, 1998. The non-U.S. lines are
cancelable at any time.
The Company's Board of Directors previously authorized repurchase of
47 million shares of common stock and additional repurchases not to
exceed cash outlays of $250 million. Share repurchases under these
authorizations have totaled 38.7 million shares, including 1.9
million shares during the three months ended September 30, 1998.
Estimated capital spending for the year ending June 30, 1999 is
approximately $140 million.
Year 2000 Update
- ----------------
The Year 2000 issue is the result of date-sensitive devices, systems
and computer programs that were deployed using two digits rather than
four to define the applicable year. Any such technologies may
recognize a year containing "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations
causing disruptions of operations including, among other things, a
temporary inability to process transactions or engage in similar
normal business activities.
The Company has completed its assessment of its information systems
which support business applications and is in the late stages of
modifying or replacing those portions of the software that are
required. The assessment of products sold to customers has also been
completed and necessary remediation is being accomplished.
Assessment and remediation of research and development, manufacturing
processes and facility management systems are underway. The Company
is also assessing the readiness of its key suppliers and business
partners to be Year 2000 compliant. Information requests have been
distributed and replies are being evaluated. If the risk is deemed
material, the Company is prepared to perform on-site visits to those
businesses to verify the adequacy of the information received. All
of these modification, replacement or conversion efforts should be
substantially complete during the first quarter of calendar 1999,
which is prior to any anticipated significant impact on
Mallinckrodt's operations.
Based upon the accomplishments to date, no modification or conversion
contingency plans are expected to be needed and therefore none have
been developed. Because of substantial progress to date and plans
that contemplate being substantially complete in the first quarter of
calendar 1999, we believe adequate time will be available to insure
modification alternatives could be developed, assessed and
implemented prior to a Year 2000 issue having a material negative
impact on the operations of the Company. To further recognize
potential adverse impact, the Company is developing operating
contingency plans to address unanticipated interruptions that could
occur in processes, systems and devices that have been assessed,
remediated and considered Year 2000 ready by Mallinckrodt and its key
suppliers and business partners. Such operating contingency plans
are expected to be substantially complete before June 30, 1999.
Both internal and external resources are being used to reprogram or
replace non-compliant technologies, and to appropriately test Year
2000 modifications. Such modifications are being funded through
operating cash flows. The project to address Year 2000 has been
underway since February 1997. The pretax costs incurred for this
effort were approximately $7 million and $1 million in 1998 and 1997,
respectively. The Company anticipates expenses of approximately $13
million will be incurred in 1999 to substantially complete the
effort.
The cost of the project and the date on which the Company believes it
will substantially complete Year 2000 modifications are based on
management's best estimates. Such estimates were derived using
software surveys and programs to evaluate calendar date exposures and
numerous assumptions of future events, including the continued
availability of certain resources and other factors. Because none of
these estimates can be guaranteed, actual results could differ
materially from those anticipated. Specific factors that might cause
such differences include, but are not limited to, the availability
and cost of personnel trained in this area, the ability to locate and
correct all relevant computer codes, and similar uncertainties.
If the modifications and conversions are not made or are not
completed timely and operating contingency plans developed do not
work as anticipated, the result could be an interruption, or a
failure, of certain normal business activities or operations. Such
failures could materially impact and adversely affect the Company's
results of operations, liquidity and financial condition.
Readers are cautioned that forward looking statements contained in
this Year 2000 Update should be read in conjunction with the
Company's disclosures under the heading "CAUTIONARY STATEMENT UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995" on page 7.
European Monetary Union (EMU)
- -----------------------------
The euro is scheduled to be introduced on January 1, 1999, at which
time the eleven participating EMU member countries will establish
fixed conversion rates between their existing currencies (legacy
currencies) and the euro. The legacy currencies will continue to be
valid as legal tender through June 30, 2002; thereafter, the legacy
currencies will be canceled and euro bills and coins will be used for
cash transactions in the participating countries.
The Company's European sales offices and various manufacturing and
distribution facilities affected by the euro conversion have
established plans to address the systems issues raised by the euro
currency conversion and are cognizant of the potential business
implications of converting to a common currency. The Company is
unable to determine the ultimate financial impact of the conversion
on its operations, if any, given that the impact will be dependent
upon the competitive situations which exist in the various regional
markets in which the Company participates and the potential actions
which may or may not be taken by the Company's competitors and
suppliers.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company has determined that its market risk exposures, which
arise primarily from exposures to fluctuations in interest rates and
foreign currency rates, are not material to its future earnings, fair
value and cash flows.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is subject to various investigations, claims and legal
proceedings covering a wide range of matters that arise in the
ordinary course of its business activities. In addition, in
connection with laws and regulations pertaining to the protection of
the environment, the Company is a party to several environmental
remediation investigations and clean-ups and, along with other
companies, has been named a "potentially responsible party" for
certain waste disposal sites. Each of these matters is subject to
various uncertainties, and it is possible that some of these matters
will be decided unfavorably against the Company.
Environmental Matters
- ---------------------
The Company is actively involved in the investigation or remediation
of alleged contamination of 23 currently or previously owned or
operated sites and at 15 off-site locations where its waste was taken
for treatment or disposal. These actions are in various stages of
development and generally include demands for reimbursement of
previously incurred costs, or costs for future investigation and/or
for remedial actions. In many instances, the dollar amount of the
claim is not specified. For some sites, other potentially
responsible parties may be jointly and severally responsible, along
with the Company, to pay for any past remediation and other related
expenses. For other sites, the Company may be solely responsible for
remediation and related costs. The Company anticipates that a
portion of these costs will be covered by insurance or third party
indemnities. A number of the currently pending matters relate to
historic and formerly owned operations of the Company.
Previously Reported Matters
- ---------------------------
The following is a brief discussion of material developments in
environmental proceedings previously reported in the Company's annual
report on Form 10-K for its fiscal year ended June 30, 1998.
Orrington, ME - The Company has completed additional supplemental
work which was required before submitting the final Site
Investigation Plan to the EPA and the State of Maine. The Company
anticipates it will submit the supplemental Site Investigation Plan
in December 1998.
St. Louis, MO/CT Decommissioning - The Company is developing the
Phase II Decommissioning and Decontamination Plan (Phase II Plan) to
submit to the Nuclear Regulatory Commission. This plan is due in
December 1998. The Company, however, intends to request an extension
of time for submittal of the Phase II Plan.
Raleigh, NC - The Company has worked with federal and state
agencies to complete the Resource Conservation Recovery Act Facility
Investigation (RFI) and identified certain Solid Waste Management
Units (SWMUs). Final approval of the RFI was granted and field work
has been completed. The Company is preparing a report to submit to
the North Carolina Department of Environment, Health and Natural
Resources.
Springville, UT - The parties at this site have hired an allocation
consultant to assist in identifying historic practices in order to
develop a final allocation. Meetings with the allocation consultant
are scheduled to be held in November 1998.
In October 1996, a resident with property bordering the Springville
site filed suit against Ensign Bickford Industries (EBI) in the U.S.
District Court for the District of Utah (Don Henrichsen, et al v. The
----------------------------
Ensign-Bickford Company, et al) alleging nuisance and trespass for
- ------------------------------
contamination that allegedly migrated onto the resident's property.
On January 31, 1997, the Company was added as a defendant.
Depositions are being completed and expert reports have been
generated. Plaintiffs have made settlement overtures, but the
Company has rejected such proposals.
The Company and EBI have entered into a confidential settlement of
the Kent Gordon Stephens, et al v. Trojan Corporation, et al case.
--------------------------------------------------------
Additional Environmental Matters
- --------------------------------
Animal Health Business Properties - The Company sold its animal
health business in June 1997 to Schering-Plough Corporation (S-P) and
provided an environmental indemnity to S-P. This indemnity covered
both U.S. facilities and international facilities. The indemnity
lasts for a term of fifteen years and is limited to claims arising
from activities and uses of the property prior to closing. The
Company is working with S-P and the Indiana Department of
Environmental Management (IDEM) to resolve certain issues regarding
the Resource Conservation and Recovery Act requirements at the Terre
Haute, Indiana facility. The facility had begun the RCRA Corrective
Action process, but decided to allow the RCRA Part B permit to
expire. However, there were continuing negotiations with the IDEM
and U.S. Environmental Protection Agency Region V to discuss
voluntary remediation activities to obtain a No Further Action
letter. The Company and S-P have worked together and submitted
reports to IDEM to resolve these issues. The Company and S-P will
evaluate IDEM's response and determine the appropriate course of
action for this facility.
Under the terms of the indemnity, S-P had the option to conduct
baseline environmental assessments at all of the properties
transferred. S-P has completed initial baseline assessments and has
made certain claims against the Company under the indemnity. Several
of the properties located outside of the United States are in
countries that have no specific environmental laws; therefore, the
Company and S-P must determine the appropriate activities. The
Company is working closely with S-P to discuss and resolve these
claims. The Company has accruals to address potential indemnity
claims. The Company intends to vigorously defend its position in
connection with the environmental matters in connection with the
formerly owned animal health business.
Erie, PA (Calsicat) - The Company sold its facility located in Erie,
Pennsylvania to Engelhard Corporation (Engelhard) in May 1998. This
facility manufactures a variety of specialty catalysts. As part of
the transaction, the Company provided an environmental indemnity to
Engelhard. This indemnity distinguishes between on-site and off-site
liabilities. On-site liabilities are limited to a term of five
years. The Company has an obligation to jointly manage any on-site
liabilities covered by the indemnity which require remediation. Off-
site liabilities for activities arising from pre-closing activities
are indemnified without a time limit. The Company and Engelhard are
working together to address an ongoing groundwater collection and
soil remediation project at the site. This project is being managed
under the oversight of the Pennsylvania Department of Environmental
Protection. The Company and Engelhard are evaluating including these
remediation activities under Pennsylvania's voluntary remediation
program. The Company has accruals to address the ongoing remediation
projects and potential environmental claims under the indemnity.
Allentown, PA (Trimet) - The Company sold its operations in
Allentown, Pennsylvania to Geo Specialty Chemicals, Inc. (Geo) in
July 1998. This facility currently manufactures formaldehyde and a
limited number of specialty chemicals. The facility was historically
operated as an explosives manufacturing plant. The Company provided
an environmental indemnity to Geo for certain environmental
activities which may be required by governmental agencies and a more
limited indemnity for potential environmental claims arising from the
actions of Geo.
In addition to the indemnity, the Company has retained responsibility
for completion of two ongoing remediation projects on-site including
demolition of certain buildings and closure of a wastewater lagoon,
as well as other environmental issues. The Company has established a
reserve to address the ongoing remediation projects, potential
environmental claims under the indemnity, and other environmental
issues.
St. Louis, MO/RCRA Corrective Action - The Company's St. Louis
plant has a Resource Conservation Recovery Act (RCRA) Part B permit
which requires the facility to undergo corrective action. The
Company worked with the state agency to complete the RCRA Facility
Assessment and identified certain Solid Waste Management Units
(SWMUs) and Areas of Concern (AOCs). The Company received its permit
and appealed certain provisions. The Company has negotiated a
resolution of its appeal. The Missouri Department of Natural
Resources has conditionally approved the RCRA Facility Investigation
Final Work Plan submitted by the Company, which describes additional
investigation of certain SWMUs and AOCs. The Company will be
commencing field work in accordance with the Work Plan.
Other Litigation
- ----------------
The following is a brief discussion of material developments in other
pending legal matters previously reported in the Company's annual
report on Form 10-K for its fiscal year ended June 30, 1998.
OPTISON(*) Patent Litigation - Discovery in the Mallinckrodt/MBI
action has been stayed until the court rules on the Company and MBI's
motion for summary judgement of invalidity of Nycomed's patent. The
motion for summary judgement will be filed shortly.
A motion to stay discovery in the Sonus action is pending before the
court in the state of Washington. The motion was filed by Sonus.
Sonus is asking the court to stay discovery until reexamination
proceedings in the Patent Office are concluded.
Augustine Medical, Inc. - A hearing before the Court of Appeals in
this previously reported proceeding has been set for December 9,
1998. A decision by the Court of Appeals is expected in early
calendar year 1999.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
- ------- --------------------------------------------------------
10.29 Executive Incentive Compensation Plan for Fiscal 1999
(filed with this electronic submission) (1)
27 Financial data schedule for the quarter ended September 30,
1998 (filed with this electronic submission)
- -----------------
(1) Management contract or compensatory plan required to be filed
pursuant to Item 601 of Regulation S-K.
(b) Reports on Form 8-K.
During the quarter and through the date of this report, the
following report on Form 8-K was filed.
- - Report dated July 6, 1998 under Item 5 regarding the closure
of Nellcor Puritan Bennett Incorporated facilities in Lenexa,
Kansas.
* * * * * * * * * * * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Mallinckrodt Inc.
- ---------------------------
Registrant
By: MICHAEL A. ROCCA By: DOUGLAS A. MCKINNEY
------------------------ ---------------------
Michael A. Rocca Douglas A. McKinney
Senior Vice President and Vice President and
Chief Financial Officer Controller
DATE: November 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated balance sheets and consolidated statements
of operations of the Company's Form 10-Q, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 58
<SECURITIES> 0
<RECEIVABLES> 470
<ALLOWANCES> 18
<INVENTORY> 506
<CURRENT-ASSETS> 1194
<PP&E> 1450
<DEPRECIATION> 547
<TOTAL-ASSETS> 3786
<CURRENT-LIABILITIES> 1142
<BONDS> 944
0
11
<COMMON> 87
<OTHER-SE> 846
<TOTAL-LIABILITY-AND-EQUITY> 3786
<SALES> 591
<TOTAL-REVENUES> 591
<CGS> 318
<TOTAL-COSTS> 524
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 47
<INCOME-TAX> 15
<INCOME-CONTINUING> 32
<DISCONTINUED> 23
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
</TABLE>
Exhibit 10.29
EXECUTIVE INCENTIVE COMPENSATION PLAN FOR FISCAL 1999
1. Purpose. The purpose of the Executive Incentive Compensation
-------
Plan (the "Plan") is to further the growth and success of
Mallinckrodt Inc. (the "Company") and its subsidiaries by
providing key employees of the Company with additional incentives
to contribute to the growth and success of the Company as
measured by achievement against the objectives set forth in this
Plan.
2. Administration. The Plan shall be administered by the
--------------
Organization and Compensation Committee of the Board of Directors
of the Company (the "Committee"). The Committee is authorized,
subject to the provisions of the Plan, to establish from time-to-
time 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 such rules,
regulations, interpretations and determinations shall be binding
upon all participants in the Plan.
3. Participation. Within three (3) months after the beginning of
-------------
the Company's fiscal year beginning July 1, 1998 ("Fiscal 1999"),
the Committee shall designate those key employees who are to
become participants in the Plan. Notwithstanding the foregoing,
the Committee shall have the discretion to designate additional
participants in the Plan after such three (3) month period if and
to the extent they are key employees whose employment with the
Company (or any subsidiary thereof) commences more than three (3)
months after the beginning of Fiscal 1999. Each such designation
shall be in writing and shall be filed with the Vice President,
Human Resources of the Company.
4. Target Incentive Awards. The Target Incentive Award ("Target
-----------------------
Award") for a participant in the Plan for Fiscal 1999 shall be
the amount (as approved by the Committee) communicated to such
participant in writing by the Committee on or before the end of
the third month of Fiscal 1999. Such Target Award shall be
payable in whole or in part (and if at all) only in accordance
with the provisions set forth in this Plan. Notwithstanding the
foregoing or any other provision hereof, all Target Awards
hereunder shall be indexed against changes in the Company's
common stock price from the beginning to the end of Fiscal 1999
as determined in the following manner: the amount of any Target
Award to be used in determining the amount payable to a
participant hereunder shall be increased or reduced, as
appropriate, by the percentage change in the Company's common
stock price calculated by comparing the average of the high and
low price of the Company's common stock, as reflected on the New
York Stock Exchange Composite transactions tape ("NYSE Tape"),
during the last fifteen (15) New York Stock Exchange trading
dates of Fiscal 1999 against the average of the high and low
price of the Company's common stock, as reflected on the NYSE
Tape, during the first fifteen (15) New York Stock Exchange
trading days prior to the date of approval by the Company of this
Plan (August 11, 1998). Unless and to the extent otherwise
specifically set forth herein, any and all references to a Target
Award in this Plan shall mean and refer to a Target Award as
indexed pursuant to the immediately preceding sentence.
5. Performance Objectives.
----------------------
(a) Not later than the end of the second month of Fiscal 1999,
the Committee, after consultation with the Chief
Executive Officer ("CEO") of the Company, shall establish
financial performance objectives for the Plan for Fiscal
1999 (the "Performance Objectives").
(b) Notwithstanding the provisions of paragraph (a) immediately
above, the Committee may, after consultation with the CEO,
cause adjustments to be made to the Performance Objectives
as a consequence of income or loss attributable to any
business acquired or divested during Fiscal 1999 or any
other transaction or any adjustment on the books of account
of the Company occurring during Fiscal 1999 identified by
the Committee as being of an unusual and nonrecurring
nature, provided that the Committee shall not so exclude any
such item unless it shall be satisfied that it was not taken
into account in arriving at the Performance Objectives for
Fiscal 1999.
(c) Not more than three (3) months after the beginning of Fiscal
1999, all participants shall be notified of the Performance
Objectives. Such Performance Objectives shall not be
changed unless approved by the Committee upon the
recommendation of the Chief Executive Officer of the Company
("CEO").
6. Threshold Percentage; Maximum Percentage.
----------------------------------------
(a) No later than the end of the third month of Fiscal 1999, the
Committee, after consultation with the CEO, shall establish
for the participants hereunder a minimum percentage of
achievement (the "Threshold Percentage") with respect to the
Performance Objectives. If the Threshold Percentage is not
achieved, there will be no payment of incentive awards
hereunder except as provided in Section 6(c) below.
(b) No later than the end of the third month of Fiscal 1999, the
Committee, after consultation with the CEO, shall establish
for the participants hereunder a schedule of incentive
awards to be paid hereunder expressed as a percentage of the
Target Award for each participant based on the percentage of
achievement of the Performance Objectives in excess of the
Threshold Percentage; provided that, in no event will any
participant be entitled to receive an amount in excess of
two hundred percent (200%) of his or her Target Award
("Maximum Percentage"), except as provided in Section 6(c)
or Section 8(d) below.
(c) If the Threshold Percentage is not met or the Maximum
Percentage is exceeded, the Board of Directors may, in
either case and upon the Committee's recommendation,
establish a special award pool for distribution to the
participants in a manner in which the Board of Directors
shall determine and in an amount which is reasonably related
to the actual performance of the Company and the
participants. The special award pool shall be combined with
any payment of incentive awards based on achievement of the
Maximum Percentage as specified in Section 6(b) above.
7. Payment and Vesting of Incentive Awards.
---------------------------------------
(a) Except as otherwise provided in Section 8 hereof following a
Change in Control (as hereinafter defined), promptly after
the end of Fiscal 1999, the Chief Financial Officer ("CFO")
of the Company shall report to the CEO and the Committee the
percentage of achievement of the Performance Objectives with
respect to the Plan and the stock price indexing of Target
Awards as calculated pursuant to Section 4 above. If the
Threshold Percentage has been exceeded but the Maximum
Percentage has not been exceeded, the Committee shall
empower the Vice President, Human Resources and other
appropriate officers and employees of the Company to make
payment of incentive awards to the participants in
accordance with the requirements hereof, including but not
limited to the provisions of Section 7(c) below. If either
the Threshold Percentage has not been attained or the
Maximum Percentage has been exceeded, the Committee, if it
determines that it is appropriate to do so, will establish a
special award pool in accordance with Section 6(c) above to
be allocated for payment to each individual participant in
the same proportion as such participant's Target Award bears
to the total of all Target Awards established hereunder,
with such adjustments as the Committee deems necessary to
account for participants who are employed by the Company for
less than all of Fiscal 1999. Regardless of when payment of
any awards is to be made to participants hereunder, any
award to which a participant is entitled hereunder shall,
absent a Change in Control, become vested to the account of
the participant as follows: 50% on the last day of Fiscal
1999 and 100% on the last day of fiscal year 2000 ("Fiscal
2000").
(b) A participant who is otherwise eligible to receive an
incentive award pursuant to the terms of this Plan must be
actively employed by the Company (or a subsidiary thereof)
on the last day of Fiscal 1999 to be eligible to receive any
portion of an incentive award hereunder and must be actively
employed by the Company (or a subsidiary thereof) on the
last day of Fiscal 2000 to be eligible to receive the entire
amount of any award for which such participant is otherwise
eligible in accordance with the terms hereof. However, if a
participant's employment is terminated prior to the last day
of Fiscal 1999 by reason of the participant's death,
disability or Qualified Retirement (as defined below), the
participant (or the 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 one-half of the incentive award
which would otherwise have been payable pursuant to this
Plan had the participant remained an employee through the
last day of Fiscal 2000 by a fraction, the numerator of
which is the number of days during Fiscal 1999 that the
participant was employed by the Company (or a subsidiary
thereof) and the denominator of which is 365. Further, if a
participant's employment is terminated prior to the last day
of Fiscal 2000 but after the end of Fiscal 1999 by reason of
the participant's death, disability or retirement, the
participant (or the participant's designated beneficiary in
the event of his or her death), shall be entitled to receive
(i) an amount equal to one-half of the incentive award which
would otherwise have been payable pursuant to this Plan had
the participant remained an employee through the last day of
Fiscal 2000 and, (ii) at the sole discretion of the
Committee, an additional amount determined by multiplying
one-half of the incentive award which otherwise would have
been payable pursuant to this Plan had the participant
remained an employee through the last day of Fiscal 2000 by
a fraction, the numerator of which is the number of days
during Fiscal 2000 that the participant was employed by the
Company (or a subsidiary thereof) and the denominator of
which is 365. For purposes of this Plan, "retirement" means
retirement at or after age 55, but shall not include any
termination of a participant for Cause (as defined in
Section 8(c) hereof). If a participant hereunder begins
employment after the first day of Fiscal 1999, the
participant's incentive award for Fiscal 1999 shall be
determined by an appropriate proration consistent with the
intent set forth in this paragraph (b).
(c) Unless the participant elects otherwise pursuant to
paragraph (d) of Section 7 or unless required otherwise
pursuant to the provisions of paragraph (e) of Section 7,
payment of incentive awards to participants under the Plan
with respect to Fiscal 1999 shall be made in cash in a lump
sum (net of any required withholding taxes) within seventy
five (75) days after the close of Fiscal 2000.
(d) A participant (other than participants that are not either
United States citizens or permanently resident in the United
States) may elect to defer payment of his or her actual
incentive award for Fiscal 1999 by written notice submitted
to the Committee not later than thirty (30) days after the
date on which a participant has been provided notice of his
or her Target Award and the Plan Performance Objectives. A
participant electing to defer may have his or her award paid
in one of the following ways:
(i) with the consent of the Committee, in a lump sum
payment or in a series of not less than five (5) nor
more than ten (10) installments commencing no earlier
that seventy five (75) days after the end of Fiscal
2000 and not later than sixty (60) days after the end
of the calendar year in which the participant
terminates his employment, whether by death,
disability, normal or early retirement, pursuant to the
Company's retirement plan, or any other reason; it
being understood that the Committee may, upon request
by a participant prior to his or her termination of
employment, in the Committee's sole discretion, deem
that any period of consultancy with the Company which
is commenced immediately upon a participant's
termination of employment is a continuation of
employment for purposes of this subparagraph (i) only;
or
(ii) with the consent of the Committee, in a lump sum
payment on any other date or in a series of not less
than five (5) nor more than ten (10) installments
commencing on any other date as may be agreed upon by
the participant and the Committee; provided however,
should a participant terminate employment prior to such
agreed upon date, the Committee may, in its sole
discretion, pay all such participant's awards deferred
pursuant to this subparagraph (ii), plus interest
accrued thereon, to such participant no later than
sixty (60) days after the date of termination of
employment.
All incentive awards hereunder, whether deferred or not, shall be
payable in cash (net of any required withholding of taxes).
Notwithstanding the election to defer made by the participant
pursuant to the foregoing, the Committee in its sole discretion
may, upon the death or disability of a participant during Fiscal
1999 or Fiscal 2000 and who was still employed at the time of
such death or disability, pay such participant's deferred awards
under this Plan plus accrued interest thereon to the participant
or to such participant's designated beneficiary (as applicable)
in a lump sum no later than sixty (60) days after the end of the
calendar year in which the participant's death or disability
occurs.
A participant's deferred compensation account shall not be
trusted, nor will such account represent any obligation on the
part of the Company other than the contractual obligations
specified in the applicable award deferral agreement. The
Company agrees to accrue interest on the participant's deferred
compensation account at the end of each month at a rate equal to
the prime rate being charged or quoted by Citibank on and as of
the first day of the particular calendar quarter in which such
month occurs.
(e) Notwithstanding any other provision of this Plan that may be
interpreted to the contrary, the Committee, in its sole
judgment and discretion, may determine, because of the
adverse impact of any tax or other laws, rules or
regulations upon the Company or for the advancement of any
other corporate purpose, interest or objective, that it is
necessary or desirable that all or some portion of the
incentive award otherwise payable to all or any similarly
situated group of participants in accordance with this Plan
be deferred until such time or times as payment of all or
some of such deferred amounts to the participant would not
subject the Company to any such adverse impact. Further, it
is understood that, with respect to a participant who is a
"covered employee" within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended, payments of
incentive awards shall be automatically deferred to the
extent necessary until such time as either (i) payment of
all or a portion of any such deferred incentive awards can
be made to such an employee in a manner that will ensure
full tax deductibility therefor to the Company or (ii) such
employee ceases to be a "covered employee". It is
understood that no participant in this Plan shall be
entitled to receive payment of any incentive award hereunder
or to be a participant in this Plan unless such participant
shall execute such documents as the Company shall provide
specifying that participation in the Plan is conditional
upon the participant's understanding and acceptance of the
discretionary authority granted to the Committee pursuant to
this Section 7(e) and Section 9 hereof. In the event of an
automatic deferral of all or any portion of a participant's
incentive award pursuant to this Section 7(e), any such
deferred amounts shall accrue interest until paid at the
rate set forth in the last sentence of Section 7(d).
8. Change in Control.
-----------------
(a) For purposes of the Plan, "Change in Control" means 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
subparagraph (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 subparagraph (iii) below), (E) with respect to any
specific participant, pursuant to any acquisition by
the participant or any group of persons including the
participant, or (F) except as provided in subparagraph
(iii) below, in which Company Voting Securities are
acquired from the Company, if a majority of the Board
approves a resolution providing expressly that such
acquisition does not constitute a Change in Control
under this subparagraph (i);
(ii) individuals who, on the date of adoption of this
Executive Incentive Compensation Plan, 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 the date of adoption of this Executive Incentive
Compensation Plan, 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)the consummation 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 the consummation of the
direct or indirect sale or other disposition of all or
substantially all of the assets, of the 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 is 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 is 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")) 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 Company 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
approval of the Board of Directors of the execution of
the initial agreement providing for such Business
Combination (any transaction satisfying (A), (B) and
(C) immediately above 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 or 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 of the Company shall occur.
(b) For purposes of the Plan, "Good Reason" with respect to a
participant means, without such participant's express
written consent, the occurrence of any of the following
events after a Change in Control:
(i) (1) the assignment to such participant of any duties
or responsibilities (including reporting
responsibilities) inconsistent in any material and
adverse respect with the participant's duties and
responsibilities with the Company immediately prior to
such Change in Control (including any material and
adverse diminution of such duties or responsibilities),
it being understood that Good Reason shall not be
deemed to occur upon a change in duties or
responsibilities that is solely and directly a result
of the Company no longer being a publicly traded
entity, and does not involve any other event set forth
in this paragraph (b) or (2) a material and adverse
change in such participant's titles or offices with the
Company as in effect immediately prior to such Change
in Control;
(ii) a reduction by the Company in such participant's rate
of annual base salary or target annual bonus or other
incentive compensation opportunity as in effect
immediately prior to such Change in Control or as the
same may be increased from time to time thereafter;
(iii)any requirement of the Company that such participant
(1) notwithstanding his or her objection, be based
anywhere more than fifty (50) miles from the location
where the participant's employment is located at the
time of the Change in Control or (2) travel on Company
business to an extent substantially greater than the
travel obligations of the participant immediately prior
to such Change in Control; or
(iv) the failure of the Company to (1) continue in effect
any employee benefit plan or compensation plan in which
such participant is participating immediately prior to
such Change in Control (including the taking of any
action by the Company which would adversely affect the
participant's participation in or materially reduce the
participant benefits under any such plan), unless the
participant is permitted to participate in other plans
providing the participant with substantially comparable
benefits, (2) provide such participant and the
participant's dependents with welfare benefits in
accordance with the most favorable plans, practices,
programs and policies of the Company and its affiliated
companies in effect for the participant immediately
prior to such Change in Control or provide
substantially comparable benefits at a substantially
comparable cost to the participant, (3) provide fringe
benefits in accordance with the most favorable plans,
practices, programs and policies of the Company and its
affiliated companies in effect for such participant
immediately prior to such Change in Control, or provide
substantially comparable fringe benefits, or (4)
provide such participant with paid vacation in
accordance with the most favorable plans, policies,
programs and practices of the Company and its
affiliated companies as in effect for the participant
immediately prior to such Change in Control (including
crediting the participant with all service credited to
him or her for such purpose prior to the Change in
Control), unless the failure to provide such paid
vacation is a result of a policy uniformly applied by
the entity acquiring the Company to its employees.
Notwithstanding the foregoing portions of this paragraph
(b), an isolated and inadvertent action taken in good faith
and which is remedied by the Company within ten (10) days
after receipt of notice thereof given by the participant
shall not constitute Good Reason. The participant must
notify the Company of an event constituting Good Reason
within ninety (90) days following his or her knowledge of
its existence or such event shall not constitute Good Reason
under the Plan.
(c) For purposes of the Plan, "Cause" means with respect to a
participant (i) the willful and continued failure of such
participant substantially to perform his or her duties with
the Company (other than any failure due to physical or
mental incapacity) after a demand for substantial
performance is delivered to him or her by the Committee
which specifically identifies the manner in which the
Committee believes he has not substantially performed his or
her duties or (ii) willful misconduct materially and
demonstrably injurious to the Company. No act or failure to
act by a participant shall be considered "willful" unless
done or omitted to be done by him or her not in good faith
and without reasonable belief that his or her action or
omission was in the best interest of the Company. The
unwillingness of a participant to accept any condition or
event which would constitute Good Reason under paragraph (b)
of this Section 8 may not be considered by the Committee to
be a failure to perform or misconduct by a participant. The
Company must notify the participant of an event constituting
Cause within ninety (90) days following its knowledge of the
event's existence or such event shall not constitute Cause
under the Plan.
(d) If a Change in Control of the Company occurs at any time
during Fiscal 1999 or Fiscal 2000, and a participant's
employment with the Company and its subsidiaries is
terminated at any time after such Change of Control but on
or prior to the last day of Fiscal 2000 and such
termination is effected (i) by the Company (other than for
Cause, disability (within the meaning of the Company's long-
term disability plan) or mandatory retirement) or (ii) by
the participant for Good Reason, then (in event of the
foregoing) such participant shall be paid, within thirty
(30) days following such termination of employment, a lump
sum cash amount (net of any required withholding taxes)
equal to such participants Target Award for Fiscal 1999.
Further, with respect to a situation in which an incentive
award under this Plan has been deferred (whether voluntarily
by a participant, by action of the Committee or by operation
of the terms of this Plan), if a Change in Control of the
Company occurs after the end of Fiscal 2000 but prior to the
payment or distribution to a participant of any such
incentive award, and a participant's employment with the
Company and its subsidiaries is terminated after the end of
the Fiscal 2000 and after such Change of Control occurs and
such termination is effected (i) by the Company (other than
for cause, disability (within the meaning of the Company's
long-term disability plan) or mandatory retirement) or (ii)
by the participant for Good Reason, then (in the event of
all of the foregoing) such participant shall be paid, within
thirty (30) days following such termination of employment, a
lump sum cash amount (net of any required withholding taxes)
equal to such participant's Target Award for Fiscal 1999
notwithstanding any such deferral.
(e) In the event a Change in Control of the Company occurs at
any time during Fiscal 1999 or Fiscal 2000, each participant
who thereafter remains employed by the Company as of the end
of Fiscal 2000 shall receive, in lieu of any other amounts
payable hereunder, an annual incentive award under this Plan
with respect to Fiscal 1999 equal to two (2) times his or
her Target Award for Fiscal 1999.
(f) Notwithstanding anything in this Plan to the contrary, this
Section 8 may not be amended, modified or terminated in a
manner adverse to the participants during a period of one
year and two (2) months immediately following a Change in
Control of the Company.
(g) Notwithstanding anything in paragraph (c) of Section 5 to
the contrary, in the event a Change in Control of the
Company occurs during Fiscal 1999 or Fiscal 2000 then, at
any time during or with respect to the remainder of Fiscal
1999 or Fiscal 2000, the Committee may not adjust
Performance Objectives or Target Awards hereunder in any
manner adverse to any one or more of the participants.
(h) Anything in this Plan to the contrary notwithstanding, in
the event it shall be determined that any payment or
distribution by the Company of an incentive award pursuant
to this Section 8 (any such award referred to herein as a
"Change of Control Payment") to or for the benefit of a
participant (determined without regard to any additional
payments required under this paragraph (h)) would be subject
to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended, or any interest or
penalties are incurred by a participant with respect to such
excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then the participant shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an
amount such that, after payment by the participant of all
taxes, including any interest or penalties imposed with
respect to such taxes (including, without limitation, any
income and employment taxes, and any interest and penalties
imposed with respect thereto, and Excise Tax imposed upon
the Gross-Up Payment), the participant retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon
the Change of Control Payment made to the participant
pursuant to this Plan. For purposes of determining the
amount of the Gross-Up Payment, a participant shall be
deemed to pay federal income taxes at the highest marginal
rates of federal income taxation for the calendar year in
which the Gross-Up Payment is to be made and applicable
state and local income taxes at the highest marginal rate of
taxation for the calendar year in which the Gross-Up Payment
is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such
state and local taxes. All determinations required to be
made under this paragraph (h), including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at
such determination, shall be made by the public accounting
firm that is retained by the Company as of the date
immediately prior to the Change in Control (the "Accounting
Firm"), which Accounting Firm shall provide detailed
supporting calculations both to the Company and the
participant within fifteen (15) business days of the receipt
of notice from the Company or the participant that there has
been a Change of Control Payment, or such earlier time as is
requested by the Company (collectively, the
"Determination"). In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, the participant
may appoint another nationally recognized public accounting
firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company and the Company
shall enter into any reasonable agreement requested by the
Accounting Firm in connection with the performance of the
services hereunder. The Gross-Up Payment under this
paragraph (h) should be made within thirty (30) days of any
Change of Control Payment. If the Accounting Firm
determines that no Excise Tax is payable by the participant,
it shall furnish the participant with a written opinion that
failure to report the Excise Tax on the participant's
applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. The
Determination by the Accounting Firm shall be binding upon
the Company and the participant. As a result of the
uncertainty in the application of Section 4999 of the Code
at the time of the Determination, it is possible that Gross-
Up Payments will be made by the Company which should not
have been made ("Overpayment"), consistent with the
calculations required to be made hereunder. In the event
that the participant thereafter is required to make payment
of any additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred
and any such Underpayment (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code) shall be
promptly paid by the Company to or for the benefit of the
participant. In the event the amount of the Gross-Up
Payment exceeds the amount necessary to reimburse the
participant for his Excise Tax, the Accounting Firm shall
determine the amount of the Overpayment that has been made
and any such Overpayment (together with interest at the rate
provided in Section 1274(b)(2) of the Code) shall be
promptly paid by the participant to or for the benefit of
the Company. The participant shall cooperate, to the extent
his expenses are reimbursed by the Company, with any
reasonable requests by the Company in connection with any
contests or disputes with the Internal Revenue Service in
connection with the Excise Tax. The provisions of this
paragraph (h) shall be coordinated with any substantially
similar provisions contained in any plan or agreement
covering the participant and calling for payment by the
Company (under appropriate circumstances) of any bonus,
award, benefit or other compensation, with the intent and
effect that the participant shall be made whole for the
effect of all Excise Taxes levied on the participant as a
consequence of payments made under such plans or agreements
but shall not receive any windfall or double payment.
(i) Any payments made by the Company to a participant
pursuant to either Sections 8(d) or 8(e) above shall be
deemed to be in lieu of and not in addition to any
amounts a participant might otherwise be entitled to
receive pursuant to the provisions of Section 7 hereof.
9. Forfeiture of Awards. The Committee may, in its sole discretion,
--------------------
in the event of a serious breach of conduct by a participant
(including, without limitation, any conduct prejudicial to or in
conflict with the Company or its subsidiaries) or any activity of
a participant in competition with the business of the Company or
any subsidiary, (i) cancel any incentive award, in whole or in
part, whether or not vested or deferred, and/or (ii) if such
conduct or activity occurs within one (1) year following the
payment of any incentive award, require the participant to repay
to the Company some or all of the amount of any incentive award.
Such cancellation or repayment obligation shall be effective as
of the date specified by the Committee, and the Committee may
provide for an offset to any future payments owed by the Company
or any subsidiary to the participant under this Plan if necessary
to satisfy the repayment obligation. The determination of
whether a participant 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.
10. Miscellaneous.
-------------
(a) By action of the Board of Directors, the Plan may be amended
at any time and from time to time, or terminated at any
time, provided, however, that no such amendment shall divest
any participant of rights which have been accrued under the
Plan.
(b) The rights of a participant under the Plan are personal to
the participant and to any person or persons who may become
entitled to distributions or payments under the Plan by
reason of the death of the participant, and the rights of
the participant or any such person under the Plan shall not
be subject to voluntary or involuntary alienation,
assignment or transfer by the participant or any such person
or persons.
(c) The obligations of the Company 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 Company and the term "Company" wherever used
in this Plan shall mean and include any such corporation or
organization after such succession.
(d) No participant shall have any right to be retained in the
employ of the Company by virtue of participation in the
Plan.
(e) If, at any time prior to the payment or delivery of any
incentive awards under this Plan, mandatory wage controls
are in effect which, in the opinion of counsel to the
Company, are applicable to this Plan and would make such
incentive awards or the payments or delivery thereof in
accordance with the Plan illegal, the Committee shall reduce
the amount of such incentive awards, payments or deliveries
in such manner and to such extent (including elimination of
such incentive awards) as, in its sole judgment, are
necessary or advisable in order to comply with such
applicable law. If, at any time prior to such payment or
delivery under the Plan, voluntary wage controls are in
effect under any federal policy with respect to wage
controls and if any such incentive awards or the payments or
delivery thereof as provided for in the Plan would, in the
opinion of counsel to the Company, exceed applicable
guidelines established under such voluntary controls, the
Committee may, in its absolute discretion and if it deems it
to be in the interest of the Company, reduce or eliminate
the amount of such incentive awards, payments or deliveries
in such manner and to such extent as it deems advisable.
(f) This Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. Nothing contained in
this Plan shall give the participants any rights with
respect to any incentive award that are greater than those
of a general creditor of the Company.
(g) This Plan sets forth all of the terms and conditions
applicable to its subject matter and no other prior or
future plan, agreement or understanding, whether written or
oral, shall have any effect on the interpretation, validity
or enforceability hereof.
(h) Unless the context otherwise requires, words in the singular
include the plural and words in the plural include the
singular.
(i) The Plan shall be governed by and construed in accordance
with the laws of the State of New York, regardless of the
effect of such state's conflict of laws principles.
IN WITNESS WHEREOF, Mallinckrodt Inc. has caused this instrument
to be executed, effective as of August 11, 1998.
Mallinckrodt Inc.
By: C. RAY HOLMAN
----------------------------
Its: Chairman and Chief Executive
Officer
(Corporate Seal)
ATTEST:
By: ROGER A. KELLER
-------------------------
Its: Vice President, Secretary
and General Counsel
