SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
FILED BY THE REGISTRANT [ X ]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] PRELIMINARY PROXY STATEMENT
[ X ] DEFINITIVE PROXY STATEMENT
[ ] DEFINITIVE ADDITIONAL MATERIALS
[ ] SOLICITING MATERIAL PURSUANT TO RULE 14A-11(C) OR RULE 14A-12
MEDTRONIC, INC
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CAROL E. MALKINSON
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(NAME OF PERSON(S) FILING PROXY STATEMENT)
PAYMENT OF FILING FEE (CHECK THE
APPROPRIATE BOX):
[ X ] $125 PER EXCHANGE ACT RULES 0-11(C) (1)(II), 14A-6(I)
(1), OR 14A- 6(J) (2).
[ ] $500 PER EACH PARTY TO THE CONTROVERSY PURSUANT TO EXCHANGE ACT RULE
14A-6(I) (3).
[ ] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES
14A-6(I) (4) and 0-11.
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: _/
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[ ] Check box if any part of the fee is offset as provided by
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NOTICE OF 1994
ANNUAL MEETING AND
PROXY STATEMENT
Medtronic, Inc.
7000 Central Avenue N.E.
Minneapolis, MN 55432
[LOGO]
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
Telephone: 612/574-4000
July 28, 1994
Dear Shareholder:
You are cordially invited to join us for our Annual Meeting of Shareholders
to be held this year on Wednesday, August 31, 1994, at 10:00 a.m. (CDT) at
Medtronic's Corporate Center at its Rice Creek facility, 7000 Central Avenue
N.E., Minneapolis (Fridley), Minnesota.
The Notice of Annual Meeting of Shareholders and the Proxy Statement that
follow describe the business to be conducted at the meeting. We will also
report on matters of current interest to our shareholders.
Whether you own a few or many shares of stock, it is important that your
shares be represented. If you cannot personally attend, we encourage you to
make certain that you are represented at the Meeting by signing the
accompanying Proxy card and promptly returning it in the enclosed envelope.
Sincerely,
/s/ Winston R. Wallin
Winston R. Wallin
Chairman of the Board
/s/ William W. George
William W. George
President and Chief Executive Officer
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
WEDNESDAY, AUGUST 31, 1994
To Our Shareholders:
The 1994 Annual Meeting of Shareholders of Medtronic, Inc. will be held
Wednesday, August 31, 1994, at the Medtronic, Inc. Corporate Center at its
Rice Creek facility, 7000 Central Avenue N.E., Minneapolis (Fridley),
Minnesota, at 10:00 a.m. (CDT) for the following purposes:
1. To elect five Class II directors for three-year terms.
2. To act upon a proposal to approve the Company's 1994 Stock Award Plan.
3. To act upon a proposal to approve the Company's Management Incentive Plan.
4. To approve appointment of Price Waterhouse as the Company's independent
auditors.
5. To take action on any other business that may properly be considered at
the Meeting or any adjournment thereof.
These items are more fully described in the following pages of the Proxy
Statement.
Shareholders of record at the close of business on July 8, 1994 will be
entitled to vote at the Meeting and any adjournments of the Meeting.
By Order of the Board of Directors,
/s/ Ronald E. Lund
Ronald E. Lund
Secretary
Approximate Date of Mailing
Proxy Material: July 28, 1994
YOUR VOTE IS IMPORTANT.
PLEASE DATE AND SIGN THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
MEDTRONIC, INC.
7000 CENTRAL AVENUE N.E.
MINNEAPOLIS, MINNESOTA 55432
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
AUGUST 31, 1994
The Board of Directors of Medtronic, Inc. ("Medtronic" or the "Company") is
soliciting the accompanying proxy for the Annual Meeting of Shareholders of
Medtronic to be held on August 31, 1994.
A proxy card is enclosed. In order to register your vote, complete, date and
sign the proxy card and return it in the envelope supplied.
When stock is registered in the name of more than one person, each such
person should sign the proxy. If the shareholder is a corporation, the proxy
should be signed in its corporate name by an executive or other authorized
officer. If signed as attorney, executor, administrator, trustee, guardian,
custodian or in any other representative capacity, the signer's full title
should be given.
Shareholders are entitled to one vote for each share of Medtronic Common
Stock, $.10 par value, they hold of record as of the close of business on
July 8, 1994. On that date, 57,559,109 shares of Medtronic Common Stock were
outstanding. A quorum (a majority of the outstanding shares) must be
represented at the Meeting in person or by proxy to transact business.
Shares represented by a properly executed proxy received by Medtronic prior
to the Meeting and not revoked will be voted in accordance with the
instructions of the shareholder or, if no instructions are indicated, in
accordance with the recommendations of the Board of Directors. A proxy may be
revoked at any time before it is exercised by written revocation to the
Corporate Secretary of Medtronic or by filing with the Corporate Secretary a
new written proxy.
ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES
The Board of Directors is divided into three classes. The members of each
class are elected to serve three-year terms with the terms of office of each
class ending in successive years. William W. George, Bernadine P. Healy,
M.D., Richard L. Schall, Gordon M. Sprenger and Richard A. Swalin, Ph.D. are
the nominees for election to the Board as Class II directors to serve until
the 1997 annual meeting and until their successors are elected and qualified.
All of the nominees are currently directors and were elected to the Board of
Directors by the shareholders, except for Bernadine P. Healy, M.D., who was
elected by the Board on July 15, 1993.
All of the nominees have indicated a willingness to serve if elected.
However, if any nominee becomes unable to serve before the election, the
shares represented by the proxy cards may be voted for a substitute
designated by the Board, unless an instruction to the contrary is indicated
on the proxy card.
THE BOARD RECOMMENDS A VOTE FOR ELECTING THE NOMINEES.
DIRECTOR NOMINEES -- CLASS II
(TERM ENDING 1997)
<TABLE>
<S> <C>
Medtronic's President and Chief Executive Officer since
May 1991; President and Chief Operating Officer from
March 1989 to April 1991. President, Honeywell Space and
Aviation Systems (products for commercial and military
aviation markets and space and satellite applications),
from December 1987 to March 1989; President, Honeywell
[photo] Industrial Automation and Control, from May 1987 to
WILLIAM W. GEORGE, age 51 December 1987 and Executive Vice President of that
DIRECTOR SINCE 1989 business from January 1983 to May 1987. Also a director
Class II Director of Dayton Hudson Corporation, Valspar Corporation, The
Term expires 1994 Toro Company and HealthSpan Health Systems Corporation;
a trustee of Abbott-Northwestern Hospital; and a
director of the Health Industry Manufacturers
Association.
Physician affiliated with The Cleveland Clinic
Foundation (nonprofit medical research organization)
since July 1993; Director of the National Institutes of
Health from April 1991 to June 1993; Chairman of the
[photo] Research Institute of The Cleveland Clinic Foundation
BERNADINE P. HEALY, M.D., age 49 from November 1985 to April 1991; President, the
DIRECTOR SINCE 1993 American Heart Association, National Center, from 1988
(AND 1987-1991) to 1989; Deputy Director of Office of Science and
Class II Director Technology Policy, Executive Office of the United States
Term expires 1994 President, from 1984 to 1985; Professor of Medicine, The
Johns Hopkins University School of Medicine, from 1977
to 1984; a trustee of Battelle Memorial Institute.
Consultant since February 1985; Vice Chairman of Dayton
Hudson Corporation (retailing) from December 1977 to
[photo] retirement in February 1985. Also a director of EcoLab
RICHARD L. SCHALL, age 64 Inc., First Bank System, Inc., CTL Credit, Inc. and
DIRECTOR SINCE 1971 Space Center Company; a trustee of Santa Barbara City
Class II Director College Foundation and a director of the Santa Barbara
Term expires 1994 Foundation Finance Committee.
Chief Executive Officer and a director of HealthSpan
Health Systems Corporation (health care delivery) since
September 1992; President and Chief Executive Officer of
[photo] LifeSpan, Inc. (health care delivery) from 1982 to
GORDON M. SPRENGER, age 57 September 1992; Chief Executive Officer of
DIRECTOR SINCE 1991 Abbott-Northwestern Hospital from 1982 to September
Class II Director 1992; President of Abbott-Northwestern Hospital from
Term expires 1994 1982 to 1988. Member of Board of Regents, St. Olaf
College.
Professor of Materials Science and Technology Management
at The University of Arizona since August 1984;
consultant in technology management since November 1987;
[photo] President and Chief Executive Officer of Arizona
RICHARD A. SWALIN, PH.D., age 65 Technology Development Corp. from February 1987 to
DIRECTOR SINCE 1980 November 1987; Dean of the College of Engineering and
(AND 1973-1977) Mines at The University of Arizona from September 1984
Class II Director to July 1987; Vice President of Research and Development
Term expires 1994 at Allied-Signal Corp. from 1977 to 1984. Also a
director of BMC Corp.
BOARD MEMBERS CONTINUING IN OFFICE -- CLASS I
(TERM ENDING 1996)
Consultant since February 1994. Chairman of Rosemount
Inc. (measurement and control instruments) from 1986
until retirement in February 1994, and President and
[photo] Chief Executive Officer from July 1968 until retirement
VERNON H. HEATH, age 65 in October 1991. Also a director of Tennant Company and
DIRECTOR SINCE 1983 Supervalu Inc., a Life Director of Sister Kenny
Class I Director Institute, a trustee of the University of Minnesota
Term expires 1996 Foundation and a director of the Courage Center.
Vice President and Chief Information Officer of
International Telecommunications Satellite Organization
(INTELSAT) (operates global satellite system for
domestic and international information services) since
July 1992; Vice President, High Technology Center, The
Boeing Company, October 1984 to June 1992; Deputy
Undersecretary of Defense for Research and Advanced
Technology, 1982 to 1984; Executive Director, Government
[photo] Systems Division, Control Data Corporation, 1980 to
EDITH W. MARTIN, PH.D., age 49 1982; and Director, Computer Science and Technology
DIRECTOR SINCE 1993 Laboratory, Georgia Institute of Technology, 1976 to
Class I Director 1980. Also a director of Immunex Corporation and
Term expires 1996 Information Resources, Inc., a member of the Steering
Committee of the Scottish Collaborative Initiative on
Optoelectronic Sciences and the External Advisory
Committee of Mechanical and Electronic Engineering
Division of Los Alamos National Laboratory, and a fellow
of the Institute of Electrical and Electronic Engineers.
Vice Chairman of Medtronic since July 1988 and Executive
Vice President from September 1986 to July 1988;
Chairman and Chief Executive Officer of American
MedCenters, Inc. (HMO management) from July 1984 to
[photo] August 1986; President and Chairman of the Board of
GLEN D. NELSON, M.D., age 57 Trustees of Park Nicollet Medical Center (medical
DIRECTOR SINCE 1980 services) from 1975 to 1986; Surgeon at Park Nicollet
Class I Director Medical Center from 1969 to 1986. Also a director of
Term expires 1996 Northwestern National Life Insurance Company, The NWNL
Companies, Inc., The St. Paul Companies, Inc., and
Carlson Holdings, Inc.
Chairman of the Board of Stericycle, Inc. (medical waste
treatment and recycling business) since 1990; President
and Chief Operating Officer of Abbott Laboratories
[photo] (health care products company) from January 1987 to
JACK W. SCHULER age 53 August 1989; a director of that company from April 1985
DIRECTOR SINCE 1990 to August 1989 and Executive Vice President from January
Class I Director 1985 to January 1987. Also a director of Somatogen, Inc.
Term expires 1996 and Chiron Corp.
Private venture capital investor since June 1978;
President and Chief Executive Officer of Omnetics
Connector Corporation (microminiature connectors) since
March 1991; President and Chief Executive Officer of
[photo] Unisource Corporation (general partner of real estate
GERALD W. SIMONSON, age 64 limited partnerships and equity investments) since
DIRECTOR SINCE 1962 January 1980. Also a director of Unisource Corporation,
Class I Director Northwest Teleproductions, Inc., The Chromaline
Term expires 1996 Corporation and Winthrop Resources Corporation, and
Chairman of the Board of Fairview Hospital and
Healthcare Services.
BOARD MEMBERS CONTINUING IN OFFICE -- CLASS III
(TERM ENDING 1995)
Medtronic's Founder and consultant to the Company since
retirement in April 1989; Senior Chairman from January
1986 to May 1989, and Chairman of the Board of Directors
for more than five years before January 1986. Also a
[photo] director of Medical Graphics Corp. and North Hawaii
EARL E. BAKKEN, age 70 Community Hospital. Mr. Bakken Will Retire From The
DIRECTOR SINCE 1957 Board on August 31, 1994 in accordance with the Board's
Class III Director mandatory retirement policy. He will continue his
Retires August 1994 contributions to the Company as Founder and Director
Emeritus.
Consultant since May 1992. Vice Chairman of General
Mills, Inc. (consumer foods and restaurants) from
January 1981 to May 1992 and Chief Financial and
[photo] Administrative Officer of such company from November
F. CALEB BLODGETT, age 67 1985 to May 1992, when he retired. Also a director of
DIRECTOR SINCE 1976 Northwestern National Life Insurance Company, The NWNL
Class III Director Companies, Inc. and HealthSpan Health Systems
Term expires 1995 Corporation, and a trustee of Abbott-Northwestern
Hospital and Beloit College.
Chairman and Professor of the Department of Medicine
since 1977 and J. S. Abercrombie Chair, Atherosclerosis
[photo] and Lipoprotein Research, since 1976 at Baylor College
ANTONIO M. GOTTO, JR., M.D., age 58 of Medicine and Methodist Hospital. Director and
DIRECTOR SINCE 1992 principal investigator, Specialized Center of Research
Class III Director in Arteriosclerosis, National Heart, Lung and Blood
Term expires 1995 Institute; and president, International Atherosclerosis
Society.
Professor, Graduate School of Business, University of
St. Thomas, St. Paul, Minnesota since June 1985;
Chairman, Minneapolis-St. Paul Metropolitan Airports
Commission, from February 1989 to January 1991; Chairman
of the Board of Directors and Chief Executive Officer of
Inter-Regional Financial Group, Inc. (holding company
[photo] for various financial enterprises) from 1976 to June
THOMAS E. HOLLORAN, age 64 1985. Also a director of Flexsteel Industries, Inc., MTS
DIRECTOR SINCE 1960 Systems Corp., ADC Telecommunications Inc., National
Class III Director City Bank of Minneapolis, National City Bancorporation
Term expires 1995 and Space Center Company; chairman and a director of
Malt-O-Meal Company and the Bush Foundation; and a
director of the Minnesota Center for Corporate
Responsibility.
Medtronic's Chairman of the Board since January 1986 and
Chief Executive Officer from June 1985 to April 1991;
President of the Company from June 1985 to March 1989;
[photo] Vice Chairman of The Pillsbury Company (international
WINSTON R. WALLIN, age 68 food company) from March 1984 to June 1985; President
DIRECTOR SINCE 1978 and Chief Operating Officer of that company from 1977 to
Class II Director 1984. Also a director of Bemis Company, Inc., Supervalu,
Term expires 1995 Inc., and Cargill, Inc., and Chairman of the Board of
Trustees of Carlton College.
</TABLE>
The affirmative vote of a majority of the shares of Common Stock present or
represented and entitled to vote at the Meeting is necessary to elect each
director nominee. For this purpose, a shareholder voting through a proxy who
abstains with respect to the election of directors is considered to be
present and entitled to vote on the election of directors at the Meeting, and
is in effect a negative vote; but a shareholder (including a broker) who does
not give authority to a proxy to vote, or withholds authority to vote, on the
election of directors, shall not be considered present and entitled to vote
on the election of directors.
BOARD AND BOARD COMMITTEE MEETINGS
During fiscal 1994, Medtronic's Board of Directors held a total of nine Board
meetings. Each director attended 75% or more of the total meetings of the
Board of Directors and Board committees on which the director served (held
during the period he or she served as a director), except for Bernadine P.
Healy, M.D. and Edith W. Martin, Ph.D. The standing committees of the Board
of Directors include the Audit Committee, the Compensation Committee, the
Finance Committee, the Nominating and Organization Committee and the
Technology and Quality Committee.
AUDIT COMMITTEE.
The Audit Committee held four meetings in fiscal 1994. Committee members
are Blodgett, Heath, Holloran, Schall (Chair), Simonson, Swalin and
Wallin. The committee reviews Medtronic's annual financial statements;
makes recommendations regarding Medtronic's independent auditors and scope
of auditor services; reviews the adequacy of accounting and audit
policies, compliance assurance procedures and internal controls; reviews
nonaudit services performed by auditors to maintain auditors'
independence; and reports to the Board of Directors on disclosure adequacy
and adherence to accounting principles.
COMPENSATION COMMITTEE.
The Compensation Committee held four meetings in fiscal 1994. Committee
members are Blodgett, Holloran (Chair), Martin, Schall, Simonson and
Swalin. The committee reviews compensation philosophy and major
compensation and benefits programs for employees; administers certain
stock and benefit plans; and reviews executive officers' and directors'
compensation.
FINANCE COMMITTEE.
The Finance Committee held four meetings in fiscal 1994. Committee members
are Blodgett (Chair), Heath, Holloran, Schall, Schuler, Simonson, Sprenger
and Wallin. The committee reviews and makes recommendations regarding
financial policies and performance objectives as developed by management,
including review of Medtronic's annual and long-range operating plans;
assists management in evaluation of major acquisitions and divestitures
from a financial perspective; reviews changes in capital structure; and
reviews banking relationships, insurance coverage on assets, tax
strategies and financial performance and related matters pertaining to
Medtronic's employee pension and profit sharing plans.
NOMINATING AND ORGANIZATION COMMITTEE.
The Nominating and Organization Committee held four meetings in fiscal
1994. Committee members are Bakken, Blodgett, Gotto, Healy, Heath (Chair),
Holloran, Martin, Schall, Schuler, Simonson, Sprenger, Swalin and Wallin.
The committee evaluates qualifications and candidates for positions on the
Board; recommends Board committee composition; evaluates the performance
of the chief executive officer; and reviews major organization changes and
senior management performance.
The Nominating and Organization Committee will consider nominees for Board
membership submitted by shareholders. Nominations by shareholders must be
made pursuant to timely notice in writing to the Corporate Secretary at
7000 Central Avenue N.E., Minneapolis, Minnesota 55432. Candidates for
director should be persons with broad training and experience in their
chosen fields and who have earned distinction in their activities. Notice
by the shareholder to be timely must be received not less than 50 nor more
than 90 days prior to the meeting or, if less than 60 days' disclosure of
the meeting date is given, not later than the close of business on the
10th day following the day on which notice of the meeting date is mailed
or public disclosure of such date is made. The notice shall set forth
certain information concerning such shareholder and the nominees,
including their names and addresses, their principal occupation or
employment, the capital stock of the Company which they beneficially own,
such other information as would be required in a proxy statement
soliciting proxies for the election of the nominees and the consent of
each nominee to serve as a director if so elected. The chairman of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
TECHNOLOGY AND QUALITY COMMITTEE.
The Technology and Quality Committee held three meetings in fiscal 1994.
Committee members are Bakken, Gotto, Healy, Heath, Martin, Schuler
(Chair), Sprenger, Swalin and Wallin. The committee reviews policies,
practices, processes and quality programs concerning technological and
product research; reviews efforts and investments in developing new
products and businesses; evaluates Medtronic's technological education and
recognition programs; and reviews quality process matters with Medtronic's
chief quality officer.
DIRECTOR COMPENSATION
Directors who are not employees of Medtronic receive an annual retainer of
$19,000, $900 per Board meeting, $700 per Board committee meeting, and
reimbursement for reasonable expenses of attending meetings. Each committee
chair receives an annual retainer of $3,000 in addition to the committee
meeting fee, and the Chairman of the Board receives an annual retainer of
$36,000.
The Company's restricted stock plan for non-employee directors allows these
directors to elect to take part or all of their annual retainer in restricted
stock. Restrictions on the stock lapse upon termination as a director due to
death, disability, retirement, or a material change in full-time position or
responsibilities, or upon the occurrence of a "change in control" of the
Company as described under "Executive Compensation -- Employment and Change
in Control Arrangements" below. The 1994 Stock Award Plan, which has been
proposed for approval by the Company's shareholders at the Annual Meeting,
contains provisions permitting directors to receive their retainer and
chairmanship fees in restricted stock which are similar to those in the
Company's current restricted stock plan for non-employee directors. If
approved, the 1994 Stock Award Plan will replace the existing plan. See
"Approval of the Company's 1994 Stock Award Plan -- Non-Employee Director
Awards."
Under the Company's nonqualified stock option plan, each non-employee
director automatically receives an initial stock option grant for Common
Stock on the date he or she becomes a director and an additional automatic
annual stock option grant on the date of the Annual Meeting of Shareholders.
The number of shares subject to the initial stock option is determined by
dividing an amount, initially equal to $100,000 and increased each year after
August 1988 proportionately with the increase in annual retainer (which
increase is currently 52%), by the per share closing price of the Company's
Common Stock on the New York Stock Exchange on the date of grant. The number
of shares subject to the annual stock option grant is determined by a formula
based on directors' fees. Each grant includes a related grant of limited
stock appreciation rights which are exercisable upon a "change in control" of
the Company, as described under "Executive Compensation -- Employment and
Change in Control Arrangements" below. The stock options become fully
exercisable one year after the date of grant, except that the option granted
to a director upon being elected or appointed to the Board will not become
exercisable until the director has also been elected to the Board by the
shareholders. The proposed 1994 Stock Award Plan contains provisions for
grants to non-employee directors similar to the current nonqualified stock
option plan. In addition, the proposed plan provides that non-employee
directors who were formerly employees of the Company will receive annual, but
not initial, option grants. If approved, the 1994 Stock Award Plan will
replace the existing nonqualified stock option plan. See "Approval of the
Company's 1994 Stock Award Plan -- Non-Employee Director Awards."
In fiscal 1994, each non-employee director received an annual grant of 597
shares with an exercise price of $62.13 and options for 6,567 shares of the
Company's Common Stock, and related limited stock appreciation rights
("Limited Rights"), were granted to non-employee directors as a group at an
average exercise price per share of $62.13.
Under the Company's retirement plan for directors, each director will receive
an annual benefit, equal to the director's annual retainer in effect when
leaving the Board, following retirement or other cessation of service as a
director of the Company. The annual benefit is payable for a period equal to
the years of service as a director up to a maximum of twenty years. No credit
is given for years of service as a director while an employee of the Company.
Each non-employee director also has been provided with group term life
insurance in $100,000 policy amount.
As part of its overall program to promote charitable giving, the Company's
Foundation matches gifts by directors to qualified educational institutions
up to $4,000 per fiscal year. The Company has also established a charitable
contribution plan for directors. Under the plan, a director who has served
for at least five years may recommend one or more qualifying charitable
organizations to the Compensation Committee of the Board. Upon the director's
death, the Company will donate $1 million to the qualifying charitable
organizations which have been approved by the Compensation Committee.
Individual directors derive no financial benefit from this program since all
charitable deductions accrue solely to the Company.
Winston R. Wallin, Chairman of the Board of Directors of the Company and its
former chief executive officer, was paid $100,000 for consulting services
rendered to the Company under an agreement through December 1993. The
consulting agreement was terminated in December 1993, and an annual retainer
of $36,000 for the Chairman of the Board was adopted effective January 1994.
Mr. Wallin's duties include meeting with government officials and
administrators on health care policies and practices affecting Medtronic's
business, and consulting with management on business and policy matters. Earl
E. Bakken, Founder and a director of the Company, was paid $100,000 for
consulting services rendered to the Company during fiscal 1994. Mr. Bakken's
duties as a consultant include representing the Company at major medical
conferences, maintaining relationships with key opinion leaders in the
cardiovascular field, and conducting speaking engagements including employee
meetings and new employee orientation. In addition to the services indicated,
certain other non-cash compensation and benefits were made available to
Messrs. Wallin and Bakken. Mr. Bakken will continue his duties as a
consultant in the capacity of Founder and Director Emeritus after his
retirement from the Board in August 1994 (see "Election of Directors,"
above). He will receive $100,000 annually for these services, plus support
services, reimbursement for expenses and certain non-cash benefits. This
arrangement will be renewable annually by the Company.
SHAREHOLDINGS OF CERTAIN OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS.
To the best of Medtronic's knowledge, no shareholder beneficially owned
more than 5% of Medtronic's Common Stock as of July 8, 1994.
MANAGEMENT SHAREHOLDINGS.
The following table shows the number of shares of Medtronic Common Stock
beneficially owned by Medtronic's directors, executive officers identified
in the Summary Compensation Table below and all directors and executive
officers as a group as of July 8, 1994.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2)
- - ------------------------- -------------------------
<S> <C>
Earl E. Bakken 824,536(3)
F. Caleb Blodgett 21,645
Arthur D. Collins, Jr. 48,328
William W. George 182,482(4)
Antonio M. Gotto, Jr., M.D. 2,915
Bobby I. Griffin 54,221
Bernadine P. Healy, M.D. 1,597
Vernon H. Heath 12,295(5)
Thomas E. Holloran 22,645
Edith W. Martin, Ph.D. 2,210
Glen D. Nelson, M.D. 117,293
Robert L. Ryan 2,703
Richard L. Schall 34,753
Jack W. Schuler 5,979
Gerald W. Simonson 8,895
Gordon M. Sprenger 3,503
Richard A. Swalin, Ph.D. 9,175
Winston R. Wallin 189,884(6)
Directors and executive officers 1,675,936
as a group (23 persons)(2)
</TABLE>
- - --------------
(1) Except for E.E. Bakken, who beneficially owns 1.4% of the shares
outstanding, no director or executive officer beneficially owns more than 1%
of the shares outstanding. Medtronic's directors and executive officers as a
group beneficially own approximately 2.9% of the shares outstanding.
(2) Includes the following shares not currently outstanding but deemed
beneficially owned because of the right to acquire them pursuant to options
exercisable within 60 days (on or before September 6, 1994) as follows: 6,645
shares by each of V.H. Heath, T.E. Holloran, R.L. Schall, and R.A. Swalin;
F.C. Blodgett, 1,525 shares; A.M. Gotto, 2,639 shares; B.P. Healy, 597
shares; E.W. Martin, 2,210 shares; J.W. Schuler, 4,521 shares; G.W. Simonson,
1,525 shares; G.M. Sprenger, 2,905 shares; W.R. Wallin, 49,004 shares; W.W.
George, 125,892 shares; G.D. Nelson, 23,368 shares; A.D. Collins, 29,585
shares; R.L. Ryan, 2,703 shares; B.I. Griffin, 4,255 shares; and all
directors and executive officers as a group, 318,554 shares.
(3) E.E. Bakken holds sole voting and investment power over 464,728 shares,
sole voting power only over 356,308 shares. He disclaims beneficial ownership
as to an additional 3,500 shares owned by an irrevocable trust over which he
has no voting or investment power but is entitled to receive a fixed
percentage of the assets.
(4) W.W. George disclaims beneficial ownership of 4,043 shares included in
the above table, which are held by the George Family Foundation, a charitable
trust of which he is one of the trustees.
(5) V.H. Heath disclaims beneficial ownership of 500 shares included in the
above table, which are held by the Heath Foundation, a charitable trust of
which he is the trustee.
(6) W.R. Wallin disclaims beneficial ownership of 814 shares included in the
above table, which are held by The Wallin Foundation, a charitable trust of
which he is one of the trustees.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers to file reports of ownership and changes in
ownership of the Company's Common Stock with the Securities and Exchange
Commission and the New York Stock Exchange, and the Company is required to
identify any of those individuals who failed to file such reports on a timely
basis. To the best of the Company's knowledge, based upon a review of such
reports furnished to the Company and written representations that no other
reports were required, there were no late filings by the Company's directors
or executive officers in fiscal 1994.
REPORT OF THE COMPENSATION COMMITTEE ON
FISCAL 1994 EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Board of Directors is
responsible for establishing compensation policy and administering the
compensation programs of the Company's executive officers. The Committee is
comprised of six independent outside directors. The Committee meets at least
three times a year to review executive compensation policies, design of
compensation programs and individual salaries and awards for the executive
officers. The purpose of this report is to inform shareholders of the
Company's compensation policies for executive officers and the rationale for
the compensation paid to executive officers in fiscal 1994.
COMPENSATION PHILOSOPHY
The Company's compensation program is designed to motivate and reward
executives responsible for attaining the financial and strategic objectives
essential for the Company's long-term success and continued growth in
shareholder value. The compensation program has been designed to provide a
competitive level of total compensation and offers incentive and equity
ownership opportunities directly linked to the Company's performance and
shareholder return. The Committee believes it is in the best interests of the
shareholders to reward executives when the Company's performance objectives
are achieved and to provide significantly less compensation when these
objectives are not met. Therefore, a significant portion of executive
compensation is comprised of "at risk" performance- and stock-based
incentives.
Key objectives of the compensation program are to:
* Provide a strong, direct link between the Company's short- and long-term
financial and strategic goals and executive compensation.
* Motivate executives to achieve corporate business unit and geographic
operating goals through an emphasis on performance-based compensation.
* Align the interests of executives with those of the Company's shareholders
by providing a significant portion of compensation in Company Common Stock.
* Provide competitive total compensation in order to attract and retain high
caliber key executives critical to the long-term success of the Company.
To maintain a competitive level of total executive compensation, the
Committee annually evaluates the compensation packages of certain competitor
companies. This group consists of competitors of the Company that derive at
least 25% of their revenues from medical devices or equipment. This analysis
provides the Committee with competitive data on the mix of compensation
elements, the balance of short- and long-term incentives, and overall
compensation levels. Differences in company size are adjusted through
statistical analysis. Most of the surveyed companies are included in the
industry group presented in the performance graph on page 13 of this Proxy
Statement. The Committee also uses annual cross-industry compensation data
from a survey of more than 300 U.S. manufacturing companies, including many
Fortune 500 companies and industry competitors. The Committee's goal is to
position the target total compensation for executive officers at the median
of the marketplace and the actual total compensation in excess of the median
when the Company outperforms the target performance goals. In fiscal 1994,
the actual total compensation of executive officers and of the chief
executive officer was judged by the Committee to generally be above the
median of the above-described peer and cross-industry groups due to strong
corporate operating performance and stock appreciation.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The key components of the Company's executive officer compensation program
are base salary, annual incentives and long-term incentives. These elements
are described below. In determining compensation, the Committee considers all
elements of an executive's compensation package.
BASE SALARY.
The Committee annually reviews the base salaries of executive officers. In
determining appropriate salary levels, the Committee considers individual
performance, level of responsibility, scope and complexity of the
position, and salary levels for comparable positions at the peer and
cross-industry companies referenced above. In addition to the above, in
determining the base salary for the chief executive officer, the Committee
also considers corporate operating performance, strategic planning and
succession planning for senior management. Factors considered in
determining base salary are not assigned pre-determined relative weights.
Although the Company's operating performance exceeded targeted levels for
fiscal 1994, the Company is aggressively managing costs. To demonstrate
commitment to cost management, the executive officers named in the Summary
Compensation Table below, including Mr. George, did not receive base
salary increases during fiscal 1994, except for the promotional increase
for Mr. Collins. Any increase in their total compensation during this
period occurred only through "at risk" performance- and stock-based
compensation.
ANNUAL INCENTIVE AWARDS.
The purpose of the Company's annual incentive program is to provide a
direct financial incentive in the form of an annual cash bonus to
executive officers and key managers who achieve corporate operating,
business unit and geographic performance goals established under the
Company's annual operating plan.
Beginning in fiscal 1995, executive officers are eligible for target
awards under the annual incentive program ranging from 50% to 65% of base
salary, with 65% in the case of the chief executive officer. The size of
the target award is determined by the executive officer's position and
competitive data for similar positions at the peer and cross-industry
companies referenced above. The Company sets aggressive performance goals
and, in keeping with the strong performance-based philosophy, the
resulting awards decrease or increase substantially if actual Company
performance fails to meet or exceeds targeted levels. The awards can range
from 0% to 150% of the target amounts. For fiscal 1994, corporate
operating performance was assessed against a target measure of corporate
profit before taxes and after-tax return on net assets, with these
measures given respective weights of 60% and 40%. Business unit and
geographic financial performance were assessed against target measures of
earnings before interest and taxes, return on net assets, revenue,
distribution expense and/or inventory turnover, with these measures
assigned respective weights that vary for each participant. In fiscal
1994, all executive officers received annual incentive compensation
because their respective performance levels were met or exceeded.
Mr. George's annual incentive compensation is based solely on the
corporate operating performance of the Company. For fiscal 1994, Mr.
George received an award of 112.6% of the target level because actual
corporate profit before taxes and after-tax return on net assets (weighted
at 60% and 40%, respectively) exceeded the performance targets.
LONG-TERM INCENTIVE PLANS.
Long-term incentives are provided to executive officers primarily through
the Company's performance share and stock option programs.
The primary purpose of the performance share program is to offer incentive
to executive officers to achieve the long-term performance goals of the
Company. These targets are based primarily on the Company's long-term
financial goals, with consideration given to an historic analysis of
Company and peer group companies' performance. The target award for each
executive officer is also approved by the Committee based on the scope and
complexity of the position and competitive compensation data.
The program provides the possibility of earning a payout in Company Common
Stock and cash at the end of a three-year performance cycle. As with
short-term incentive compensation, a threshold level of performance is
required before payout occurs. At the end of each three-year cycle, the
award earned can range from 0% to 180% of the initial performance share
units awarded. Performance targets are consistent with the Company's
long-term financial goals and were measured in fiscal 1994 based on
three-year cumulative earnings per share and three-year average return on
net assets, with these two measures given equal weight in determining
performance level. The value of the award is determined by the average
price of the Company's Common Stock for the last 20 trading days of the
performance cycle. At least half of the award must be paid in the
Company's stock, with the other half paid in cash or Company Common Stock
at the discretion of the Committee. The plan is thus aligned with both
financial results and shareholder value, as the percentage payout varies
with financial performance, and the value of the performance share units
varies with the stock price.
For the three-year cycle ended in fiscal 1994, the Company achieved
cumulative earnings per share and average return on net assets
significantly in excess of performance targets. Consequently, the payout
for this cycle for all executive officers, including Mr. George, was 180%
of the target award.
The Company's stock option program provides compensation opportunities
that directly link the interests of management and shareholders, and aid
in retaining key executive officers. Executive officers are eligible for
annual grants of stock options. Guideline levels of options are prepared
based on competitive data from the peer and cross-industry companies
referenced above. Individual awards are based on the individual's
responsibilities and performance, ability to impact financial performance
and future potential. These factors are not assigned pre-determined
relative weights. All individual stock option grants for executive
officers are reviewed and approved by the Committee. Executive officers
receive gains from exercised stock options only to the extent that the
fair market value of the stock has increased since the date of option
grant.
In fiscal 1994, Mr. George was granted an annual stock option to purchase
up to 9,717 shares of the Company's common stock at an average exercise
price of $75.125 per share. In addition, Mr. George was granted an option
to purchase up to 22,432 shares at an exercise price of $68.875 in
exchange for terminating an existing nonqualified retirement benefit of
$100,000 per year for life. This retirement benefit had replaced benefits
foregone by Mr. George upon leaving his previous employer in order to join
Medtronic. See "Employment and Change in Control Arrangements." The
exchange of a guaranteed benefit for stock options is consistent with the
Company's emphasis on linking pay with performance and stock-based
compensation, and benefits the Company by eliminating an accrued
nonqualified benefit expense.
The Committee occasionally grants restricted stock with a fixed
restriction period to ensure retention of key executive officers or as
part of compensation provided to a new executive officer to replace
compensation foregone by the officer when leaving another company to join
Medtronic. During fiscal 1994, one executive officer was granted 195
shares of restricted stock in connection with his induction into the
Bakken Society, the Company's honorary technology society, in recognition
of his significant technological contributions to the Company.
TOTAL COMPENSATION OF CHIEF EXECUTIVE OFFICER. Mr. George's total
compensation for fiscal 1994 was designed so that a significant portion of
pay was linked to Company performance. Of his total compensation, 71% was
derived from variable annual and long-term incentive elements. This "at
risk" portion of compensation was heavily weighted with long-term
incentives (approximately 52% of Mr. George's total compensation was
derived from stock option and performance share programs). The emphasis on
"at risk" and long-term incentives is intended to align Mr. George's
compensation with the achievement of long-term growth and performance by
the Company.
DEDUCTIBILITY CAP ON EXECUTIVE COMPENSATION
Effective January 1, 1994, the Internal Revenue Code will generally deny the
deduction for compensation in excess of $1 million paid to executive officers
named in the Proxy Statement, subject to an exception for "performance-based"
compensation. Performance-based compensation, as defined in the tax law, is
not subject to this limitation on deductibility provided that certain
shareholder approval and other requirements are met. The Committee has
determined that it will make every effort, consistent with sound executive
compensation principles, to ensure that all amounts paid to the executive
officers named in the Proxy Statement are deductible by the Company.
Accordingly, the Committee has elected to seek shareholder approval of the
1994 Stock Award Plan and the Management Incentive Plan (see pages 19 through
31). The Committee expects that all performance- based compensation paid
under these plans will qualify for deductibility under the new tax law.
CONCLUSION
The executive officer compensation program administered by the Committee
provides incentive to attain strong financial performance and an alignment
with shareholder interests. The Committee believes that the Company's
compensation program focuses the efforts of the Company's executive officers
on the continued achievement of growth and profitability for the benefit of
the Company's shareholders.
COMPENSATION COMMITTEE:
Thomas E. Holloran, Chair
F. Caleb Blodgett
Edith W. Martin, Ph.D.
Richard L. Schall
Gerald W. Simonson
Richard A. Swalin, Ph.D.
SHAREHOLDER RETURN PERFORMANCE GRAPH
The graph and table below compare the cumulative total shareholder return on
the Company's Common Stock for the last five fiscal years with the cumulative
total return on the S&P 500 Index and the S&P Medical Products and Supplies
Index over the same period. The graph and table assume the investment of $100
in each of the Company's Common Stock, the S&P 500 Index and the S&P Medical
Products and Supplies Index on May 1, 1989 and that all dividends were
reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG MEDTRONIC,
S&P 500, AND S&P MEDICAL PRODUCTS & SUPPLIES INDUSTRY INDEX
[graph]
<TABLE>
<CAPTION>
April 30 April 30 April 30 April 30 April 30 April 30
1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
MEDTRONIC $100.00 $136.13 $239.71 $284.19 $285.62 $331.85
S&P 500 100.00 110.44 129.84 148.09 161.73 170.35
S&P MP&S 100.00 109.17 176.37 194.90 155.47 145.80
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation for each of
the last three fiscal years ended April 30, 1994 awarded to or earned by the
Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION
POSITION YEAR ($) ($) ($)(1)
- - --------------------- ------ -------- -------- -----------
<S> <C> <C> <C> <C>
William W. George 1994 $479,991 $324,282 --
President and Chief 1993 479,991 338,394 --
Executive Officer 1992 435,050 277,475 *
Glen D. Nelson, M.D. 1994 369,996 208,308 $21,111
Vice Chairman 1993 369,996 217,373 21,746
1992 330,000 175,395 *
Arthur D. Collins Jr. 1994 335,833 164,699 1,461
Chief Operating Officer 1993 316,458 185,919 --
1992 -- -- *
Robert L. Ryan 1994 300,000 135,120 --
Senior Vice President and 1993 62,884(9) -- --
Chief Financial Officer 1992 -- -- *
Bobby I. Griffin 1994 271,575 110,585 2,973
Executive Vice President 1993 271,575 131,225 2,949
And President, Pacing 1992 255,000 125,358 *
LONG-TERM COMPENSATION
-----------------------------
AWARDS PAYOUTS
--------------------------- ---------
RESTRICTED SECURITIES
STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL AWARDS OPTIONS/SARS PAYOUTS(5) COMPENSATION(6)
POSITION ($)(2) (#) ($) ($)
- - -------------------- ----------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
William W. George -- 32,149(3) $490,677 $55,085
President and Chief -- 7,398 504,587 57,263
Executive Officer -- 8,739 592,418 *
Glen D. Nelson, M.D. -- 6,988 334,990 32,754
Vice Chairman -- 5,306 432,557 24,139
-- 6,387 501,339 *
Arthur D. Collins Jr. -- 3,993 -- 129,734(7)
Chief Operating Officer $866,200 31,575(4) -- 161,887(7)
-- -- -- *
Robert L. Ryan -- 6,639 -- 94,599(8)
Senior Vice President and -- 7,507 -- 50,000(10)
Chief Financial Officer -- -- -- *
Bobby I. Griffin 12,480 3,993 230,014 26,372
Executive Vice President -- 2,806 301,234 28,495
And President, Pacing -- 3,160 332,165 *
</TABLE>
- - ----------------
(1) Amounts payable by the Company in above-market interest under deferred
compensation plan.
(2) Mr. Collins received 12,200 shares of restricted stock when he joined
the Company to replace restricted stock he forfeited upon termination from
his previous employer. Half of these shares vested one year after the date of
grant. At April 30, 1994, Mr. Collins held a total of 6,100 shares of
restricted stock having a market value of $459,025. These shares subsequently
vested on May 12, 1994, at which time Mr. Collins no longer held any
restricted stock. On June 23, 1993, Mr. Griffin received a restricted stock
award for 195 shares in connection with his induction into the Company's
honorary technology society. The shares had a market value of $14,674 at
April 30, 1994, and vested 100% on June 22, 1994, at which time Mr. Griffin
no longer held any restricted stock. Dividend equivalents were paid on the
restricted stock held by Messrs. Collins and Griffin. As of April 30, 1994,
Messrs. George, Nelson, and Ryan held no restricted stock.
(3) Includes stock option to purchase up to 22,432 shares of Common Stock in
exchange for terminating existing nonqualified retirement benefit of $100,000
per year for life. See "Employment and Change in Control Arrangements."
(4) Includes stock option to purchase up to 28,922 shares of Common Stock
granted as part of Mr. Collins' employment arrangement, a significant amount
of which was a replacement for stock options forfeited upon termination from
his previous employer.
(5) Includes the value of both cash and stock earned in fiscal 1994 under
the Company's long-term incentive plan described in "Other Long-Term
Incentive Awards" below. The stock for the fiscal 1994 payment was valued at
$74.03 per share, the average fair market value for the last 20 trading days
in April 1994.
(6) Amounts in this column for fiscal 1994 include the following: the
Company contributed $6,351 under the employee stock ownership plan for each
of the named executive officers for fiscal 1994 except for Mr. Ryan, for whom
the Company contributed $2,019; the Company contributed $6,053, $1,121,
$6,053, $2,019 and $6,053 to Messrs. George, Nelson, Collins, Ryan and
Griffin, respectively, to match employee contributions under the 401(k)
supplemental retirement plan; and the Company contributed $42,681, $25,281,
$17,330, $1,010 and $13,968 to Messrs. George, Nelson, Collins, Ryan and
Griffin, respectively, under the nonqualified supplemental benefit plan.
(7) Includes $100,000 employment award for each of fiscal 1993 and 1994 in
connection with his initial hiring. In addition, fiscal 1993 includes $61,887
in relocation expenses.
(8) Includes $89,550 in relocation expenses.
(9) Mr. Ryan joined the Company in April 1993.
(10) Includes an employment award of $50,000 in connection with his initial
hiring.
* In accordance with transitional provisions of the Securities and Exchange
Commission's revised rules for executive compensation disclosure, amounts of
Other Annual Compensation and All Other Compensation are not included for
fiscal 1992.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth for each of the named executives the stock
options and stock appreciation rights granted by the Company in fiscal 1994
and the potential value of these stock options and stock appreciation rights
determined pursuant to Securities and Exchange Commission requirements.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERM
------------------------------------- ------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS EXERCISE
OPTIONS/SARS GRANTED TO OR BASE
GRANTED EMPLOYEES IN PRICE EXPIRATION 0% 5% 10%
NAME (#) FISCAL YEAR ($/SH) DATE ($) ($)(3) ($)(3)
- - ------------ ------------- -------------- -------- ----------- ---- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
W.W. George 22,432(2) 4.2% $68.88 5/5/03 $0 $971,645 $2,462,338
9,717 1.8 75.13 11/22/03 0 459,087 1,163,415
G.D. Nelson, 6,988 1.3 75.13 11/22/03 0 330,153 836,673
M.D.
A.D. Collins, 3,993 .8 75.13 11/22/03 0 188,652 478,081
Jr.
R.L. Ryan 3,311 .6 68.88 5/5/03 0 143,416 363,445
3,328 .6 75.13 11/22/03 0 157,234 398,461
B.I. Griffin 3,993 .8 75.13 11/22/03 0 188,652 478,081
</TABLE>
- - ----------------
(1) All stock options granted to the named executive officers have an
exercise price equal to the fair market value on the date of grant, vest
annually in 25% increments (except as provided in Note 2 below) and have
limited stock appreciation rights attached to them which become immediately
exercisable in the event of a change in control. See "Employment and Change
in Control Arrangements" below.
(2) Mr. George was granted an option to purchase up to 22,432 shares of the
Company's Common Stock in exchange for terminating an existing nonqualified
retirement benefit of $100,000 per year for life. The option will become 100%
exercisable when Mr. George reaches age 58 on September 14, 2000. See
"Employment and Change in Control Arrangements" below.
(3) The hypothetical potential appreciation shown in these columns reflects
the required calculations at annual rates of 5% and 10% set by the Securities
and Exchange Commission, and therefore is not intended to represent either
historical appreciation or anticipated future appreciation of the Company's
Common Stock price.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth for each of the named executive officers the
value realized from stock options exercised during fiscal 1994 and the number
and value of exercisable and unexercisable stock options and stock
appreciation rights held at April 30, 1994.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/SARS IN-THE-MONEY
AT FISCAL OPTIONS/SARS AT
YEAR-END (#) FISCAL YEAR-END ($)(1)
----------------- ----------------------
SHARES VALUE
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE ($) UNEXERCISABLE UNEXERCISABLE
- - ------------ ------------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
W.W. George 0 $ 0 125,892/44,644 $6,268,136/22,932
G.D. Nelson, 54,400 3,438,509 23,368/16,465 759,818/76,326
M.D.
A.D. Collins, 0 0 15,124/20,444 61,459/61,958
Jr.
R.L. Ryan 0 0 1,876/12,270 0/21,524
B.I. Griffin 0 0 4,255/8,824 109,901/38,052
</TABLE>
(1) Value of unexercised in-the-money options is determined by multiplying
the difference between the exercise price per share and $75.25, the closing
price per share on April 29, 1994, by the number of shares subject to such
options.
OTHER LONG-TERM INCENTIVE AWARDS
The following table sets forth the number of performance share units granted
to each of the named executives in fiscal 1994 under the Company's
performance share plans and the performance-based award formula under such
plans.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE
BASED-PLANS
NUMBER OF PERFORMANCE OR ---------------------------------
SHARES, UNITS OTHER PERIOD
OR OTHER UNTIL
RIGHTS MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT ($) ($) ($)
- - ------------ --------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
W.W. George 3,825(2) 5/1/93-4/30/96 $62,061 $310,303 $558,546
3,580(3) 5/1/94-4/30/97 58,086 290,428 522,770
G.D. Nelson, M.D. 2,654(2) 5/1/93-4/30/96 43,061 215,306 387,550
2,492(3) 5/1/94-4/30/97 40,433 202,164 363,894
A.D. Collins, Jr. 2,072(2) 5/1/93-4/30/96 33,618 168,091 302,564
2,336(3) 5/1/94-4/30/97 37,902 189,508 341,114
R.L. Ryan 1,913(2) 5/1/93-4/30/96 31,038 155,192 279,346
1,710(3) 5/1/94-4/30/97 27,745 138,724 249,703
B.I. Griffin 1,731(2) 5/1/93-4/30/96 28,085 140,427 252,769
1,614(3) 5/1/94-4/30/97 26,187 130,936 235,684
</TABLE>
- - ------------------
(1) Payout of awards is based on achieving specified levels of designated
performance objectives during a three-year performance cycle. Payout can
range from 0% to 180% of units granted, with 20% and 180% as the threshold
and maximum payouts, respectively. Payout of 100% of the units granted
represents the target payout. Awards are payable at least 50% in Common
Stock, with the remainder paid in cash or Common Stock at the discretion of
the Compensation Committee. The value in dollars is determined when the award
is earned based on the average fair market value per share for the last 20
trading days of the performance cycle. For illustrative purposes, the value
of estimated future payouts was determined using the closing price of the
Common Stock on July 8, 1994 ($81.125 per share). See "Report of the
Compensation Committee on Fiscal 1994 Executive Compensation -- Long-Term
Incentive Plans" above.
(2) These awards were granted under the 1979 Restricted Stock and Performance
Share Award Plan.
(3) These awards were granted under the new 1994 Stock Award Plan prior to
fiscal year-end on April 29, 1994 to meet the then applicable deductibility
requirement of Section 162(m) of the Internal Revenue Code. The awards are
contingent on shareholder approval of such plan at the 1994 Annual Meeting.
PENSION PLAN
The Company's pension plan is a defined benefit plan covering most U. S.
employees and generally provides 40% of the average of the highest five
consecutive years of compensation (including certain incentive compensation)
in the final ten years of service, offset by a Social Security allowance as
published each year by the Internal Revenue Service. The table below
illustrates the annual benefits payable to participants who retire at age 65
with the indicated years of service with Medtronic and with the indicated
five-year highest average annual compensation. The benefits have been
calculated on a 50% joint and survivor annuity basis, before reduction for
any amounts that may be available from Medtronic's former Retirement Account
Plan, and include amounts that are provided under the nonqualified
supplemental benefit plan. The compensation considered in determining the
pensions payable to the below-named executive officers is the compensation
shown in the "Salary" and "Bonus" columns of the Summary Compensation Table
on page 14.
<TABLE>
<CAPTION>
FIVE-YEAR
AVERAGE YEARS OF SERVICE WITH THE COMPANY
ANNUAL ----------------------------------------------------
COMPENSATION(1) 15 20 25 30 35
- - ----------------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 34,472 $ 45,966 $ 57,452 $ 68,945 $ 73,455
400,000 70,552 94,075 117,583 141,105 150,125
600,000 106,632 142,183 177,714 213,265 226,795
800,000 142,712 190,293 237,844 285,425 303,465
1,000,000 178,792 238,402 297,975 357,585 380,135
1,200,000 214,872 286,511 358,106 429,745 456,805
</TABLE>
- - ---------------
(1) Calculated by considering a participant's compensation levels during the
ten-year period immediately preceding retirement. The credited years of
service (rounded to the nearest whole year) for the executive officers named
in the Summary Compensation Table were as follows at April 30, 1994: W.W.
George, 5 years; G.D. Nelson, 8 years; A.D. Collins, Jr., 2 years; R.L. Ryan,
1 year; and B.I. Griffin, 21 years.
Certain limitations on the amount of benefits under tax qualified plans, such
as the Company's 401(k) supplemental retirement plan, employee stock
ownership plan and retirement plan, were imposed by the Employee Retirement
Income Security Act of 1974 ("ERISA") and Tax Reform Act of 1986 ("TRA"). The
Company's nonqualified supplemental benefit plan provides for the payment of
amounts to officers who may be affected by those limitations so that, in
general, total benefits will be equal to the level of benefits which would
have been payable under the named plans but for the ERISA and TRA
limitations. The amounts shown in the pension plan table above include the
additional retirement benefits provided under the nonqualified supplemental
benefit plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1994, the members of the Compensation Committee were Holloran
(Chair), Blodgett, Martin, Schall, Simonson and Swalin. Mr. Holloran served
in various capacities as an officer of the Company from 1961 to 1975,
including serving as president of the Company from January 1974 to December
1975. Under Section 162(m) of the Code, Mr. Holloran is considered an outside
director until the date of the 1995 Annual Meeting of Shareholders.
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
CHANGE IN CONTROL ARRANGEMENTS.
The executive officers of the Company, including those named in the
Summary Compensation Table, have change in control agreements (the
"Agreements") with the Company. The Agreements are operative only upon the
occurrence of a "change in control," which includes substantially those
events described below. Absent a "change in control," the Agreements do
not require the Company to retain the executives or to pay them any
specified level of compensation or benefits.
Each Agreement provides that for three years after a "change in control"
there will be no adverse change in the executive's salary, bonus,
opportunity, benefits or location of employment. If during this three-year
period the executive's employment is terminated by the Company other than
for cause, or if the executive terminates his employment for good reason
(as defined in the Agreements, and including compensation reductions,
demotions, relocation and excess travel), or voluntarily during the 30-day
period following the first anniversary of the "change in control," the
executive is entitled to receive an accrued salary and annual incentive
payment through the date of termination and, except in the event of death
or disability, a lump sum severance payment ("Lump Sum Payment") equal to
three times (two times in the event of termination by the executive in the
aforementioned 30-day period) the sum of his base salary and annual bonus
(and certain insurance and other welfare plan benefits). Further, an
additional payment ("gross-up") is required in an amount such that after
the payment of all taxes, income and excise, the executive will be in the
same after-tax position as if no excise tax under the Internal Revenue
Code had been imposed.
Generally, and subject to certain exceptions, a "change in control" is
deemed to have occurred if: (a) a majority of Medtronic's Board of
Directors becomes comprised of persons other than persons for whose
election proxies have been solicited by the Board, or who are then serving
as directors appointed by the Board to fill vacancies caused by death or
resignation (but not removal) of a director or to fill newly created
directorships; (b) another party becomes the beneficial owner of at least
30% of Medtronic's outstanding voting stock; or (c) Medtronic's
shareholders approve a definitive agreement or plan to merge or
consolidate Medtronic with another party (other than certain limited types
of mergers), exchange shares of voting stock of Medtronic for shares of
another corporation pursuant to a statutory exchange, sell or otherwise
dispose of all or substantially all of Medtronic's assets, or liquidate or
dissolve Medtronic.
If a "change in control" of the Company occurred mid-fiscal 1995 (November
1, 1994) and resulted in the involuntary termination of the named
executives at such time or the termination by such executives for good
reason, the Lump Sum Payment to be made under such Agreements to those
executive officers named in the Summary Compensation Table above would be
approximately as follows: W.W. George, $2,623,500; G.D. Nelson,
$1,968,000; A.D. Collins, Jr., $1,844,640; R.L. Ryan, $1,424,250; and B.I.
Griffin, $1,350,000. Such amounts are exclusive of the additional gross-up
payment required under each of the Agreements as a result of excise taxes
on a portion of those amounts.
In addition, events substantially identical to those described above also
constitute a "change in control" under certain of the Company's
compensation plans. The effects of a change in control under these plans
with respect to the compensation of each of the executive officers named
in the Summary Compensation Table are described below.
If a "change in control" of the Company occurs, awards under the Company's
management incentive plan will accelerate and, subject to certain
limitations set forth in the plan, each participant will be entitled to a
final award based on certain assumptions as to target performance and
salary. If a "change in control" of the Company occurred mid-fiscal 1995
(November 1, 1994), the awards under this plan to be paid to those
executive officers named in the Summary Compensation Table above would be
approximately as follows: W.W. George, $344,500; G.D. Nelson, $246,000;
A.D. Collins, Jr., $230,580; R.L. Ryan, $158,250; and B.I. Griffin,
$150,000.
The Company's restricted stock and performance share plans and agreements
thereunder provide that in the event of a "change in control" of the
Company, all restrictions under outstanding restricted stock awards shall
immediately lapse and the restricted stock period with respect to all such
shares shall be deemed to have expired, and performance share awards shall
vest immediately in a pro rata amount based on the portion of the
performance period elapsed prior to the "change in control" and certain
assumptions as to the anticipated performance which would have been
achieved during the applicable performance period. If a "change in
control" of the Company occurred mid-fiscal 1995 (November 1, 1994) and
further assuming for this purpose a market price for the Company's Common
Stock at such time of $81.125 (the July 8, 1994 New York Stock Exchange
closing price), the awards to be paid to those executive officers named in
the Summary Compensation Table above would be approximately as follows for
the performance share awards: W.W. George, $715,130; G.D. Nelson,
$496,285; A.D. Collins, Jr., $392,761; R.L. Ryan, $147,274 and B.I.
Griffin, $323,632. None of the named executive officers has outstanding
restricted stock awards.
The Company's stock option plans and agreements thereunder provide for or
permit acceleration of each option's exercisability upon the occurrence of
certain events (such as certain tender offers or exchange offers for the
Company's stock, certain changes in control of the Company, a merger or
consolidation of the Company with another entity, or a sale of
substantially all of the Company's assets or certain plans therefor) or at
the discretion of the Board of Directors.
Limited stock appreciation rights ("Limited Rights") granted under one of
the stock option plans are exercisable, with certain limitations, at any
time within the thirty-day period following a "change in control" of
Medtronic. Upon exercise of Limited Rights, the holder is entitled to
receive an amount in cash for each share with respect to which the Limited
Rights are exercised equal to the difference between the option exercise
price per share of stock covered by the underlying option and the fair
market value per share as of the date of exercise. If Limited Rights are
exercised, the underlying option will no longer be exercisable to the
extent of the number of shares with respect to which the Limited Rights
were exercised.
If a "change in control" occurs, subject to certain limitations,
Medtronic's contributions to the employee stock ownership plan for that
year will equal the greater of Medtronic's target percentage contribution
(presently 2.7% of aggregate covered employee compensation) or if a
"change in control" occurs after the first quarter of a plan year, the
percentage contribution Medtronic would have made upon completion of the
plan year based on performance as most recently projected by Medtronic
prior to the "change in control" and disregarding the effects of the
"change in control."
If a "change in control" occurs during a plan year, subject to certain
limitations, Medtronic's matching contribution to the 401(k) supplemental
retirement plan shall equal the greater of Medtronic's target percentage
matching contribution (presently 67.3% of the first 6% of a participant's
contribution), or if the "change in control" occurs after the first
quarter of a plan year, the percentage contribution Medtronic would have
made upon completion of the plan year based on performance as most
recently projected by Medtronic prior to the "change in control" and
disregarding the effects of the "change in control."
OTHER EMPLOYMENT ARRANGEMENTS.
When he joined the Company, Mr. George entered into an agreement that
provided, upon his retirement at any time after reaching age 58 in the
year 2000, an additional nonqualified retirement benefit of $100,000 per
year in the form of a single life annuity benefit. This retirement benefit
had replaced benefits foregone by Mr. George upon leaving his previous
employer to join Medtronic. Mr. George agreed to terminate this
arrangement in exchange for a stock option granted in May 1993. Under this
grant, Mr. George received an option to purchase up to 22,432 shares of
Common Stock at an exercise price of $68.875, which was the fair market
value on the date of grant. The option vests 100% when Mr. George reaches
age 58 and is exercisable for approximately three years thereafter.
Mr. Collins has a severance arrangement which provides that he will
receive an amount equal to his annual base salary and target annual
incentive award then in effect, plus a one-year continuation of benefits,
if he leaves the Company within the first 36 months of his employment for
any reason other than gross and willful neglect of duties.
Under the Company's postretirement survivor benefit plan, designated
beneficiaries or the estate of each Medtronic elected or appointed officer
who retires with the Company (as defined in the Company's tax-qualified
employee retirement plans) shall be entitled to receive following the
officer's death a lump sum payment equal to the annual salary of such
officer in effect at the date of retirement.
APPROVAL OF THE COMPANY'S 1994 STOCK AWARD PLAN
INTRODUCTION
The Company's Board of Directors, upon the recommendation of the Compensation
Committee of the Board, authorized the adoption of the Medtronic, Inc. 1994
Stock Award Plan (the "Plan") effective as of April 29, 1994, subject to the
approval of the Plan by the shareholders at the 1994 Annual Meeting of
Shareholders. A copy of the Plan is included as Appendix A to this Proxy
Statement, and this discussion is qualified in its entirety by reference to
the full text of the Plan.
The Compensation Committee and the Board of Directors believe that
stock-based compensation programs are a key element in achieving the
Company's continued financial and operational success. The Company's
compensation programs have been designed to motivate executives and other key
employees to work as a team to achieve the corporate goal of maximizing
shareholder return. The Plan proposed by the Board of Directors is also
designed to compensate executives for the creation of shareholder value
consistent with the philosophy the Compensation Committee set out in its
report elsewhere in this Proxy Statement. The Board of Directors sees this
proposal as a means of further aligning the goals of the Company's management
team with those of the shareholders.
The Plan is intended to replace the Company's existing stock-based plans and
to make administration of awards more efficient by bringing them under a
single plan. Upon approval of the Plan by the shareholders, no further grants
or awards will be made under the Company's 1979 Restricted Stock and
Performance Share Award Plan, 1979 Nonqualified Stock Option Plan, 1989
Phantom Stock Award Plan or 1991 Restricted Stock Plan for Non-Employee
Directors. However, all grants and awards made under such plans prior to such
shareholder approval will continue in accordance with the terms of such
plans.
As discussed in the report of the Compensation Committee elsewhere in this
Proxy Statement, the Plan has been designed to meet the new requirements of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
regarding deductibility of executive compensation. The basic features of the
Plan are summarized below.
PURPOSE
The purpose of the Plan is to motivate key personnel, including Non-Employee
Directors (as hereinafter defined), to produce a superior return to the
shareholders of the Company by offering such individuals an opportunity to
realize stock appreciation, by facilitating stock ownership, and by rewarding
them for achieving a high level of corporate performance. The Plan is also
intended to facilitate recruiting and retaining key personnel of outstanding
ability.
ADMINISTRATION
The Plan will be administered by a committee (the "Committee") of three or
more directors who are "disinterested persons" within the meaning of Rule
16b-3 ("Exchange Act Rule 16b-3") under the Securities Exchange Act of 1934
(the "Exchange Act"). The Company currently expects that the Compensation
Committee of the Board of Directors will be the Committee that administers
the Plan, all of whose members are both "disinterested directors" for
purposes of Exchange Act Rule 16b-3 and "outside directors" for purposes of
Section 162(m) of the Code. The Committee will have the exclusive power to
make awards under the Plan and to determine when and to whom awards will be
granted, and the form, amount and other terms and conditions of each award,
subject to the provisions of the Plan, except that the granting, terms,
conditions and eligibility requirements of awards granted under the Plan to
Board members who are not employees of the Company or its affiliates
("Non-Employee Directors") are governed solely by provisions of the Plan
relating to Non-Employee Directors (see "Non-Employee Director Awards"
below), and the Committee will have no discretion with respect to any terms,
conditions or eligibility requirements of such awards. Except with respect to
awards to Non-Employee Directors, the Committee will have the authority to
interpret the Plan and any award or agreement made under the Plan, to
establish, amend, waive and rescind any rules and regulations relating to the
administration of the Plan, to determine the terms and provisions of any
agreements entered into under the Plan (not inconsistent with the Plan), and
to make all other determinations necessary or advisable for the
administration of the Plan. The Committee may delegate its responsibilities
under the Plan to persons who are not "disinterested persons" within the
meaning of Exchange Act Rule 16b-3 for purposes of determining and
administering awards solely to employees who are not then subject to the
reporting requirements of Section 16 of the Exchange Act.
ELIGIBILITY AND NUMBER OF SHARES
All employees of the Company and its affiliates will be eligible to receive
awards under the Plan at the discretion of the Committee. Awards other than
incentive stock options (see "Types of Awards" below) also may be awarded by
the Committee to individuals who are not employees but who provide services
to the Company or its affiliates in the capacity of an independent
contractor. Non-Employee Directors are eligible for certain awards under the
Plan (see "Non-Employee Director Awards" below). The Company and its
affiliates currently have approximately 8,709 full-time employees, and there
are currently 13 Non-Employee Directors.
The total number of shares of Company Common Stock available for distribution
under the Plan is 2,800,000 (subject to adjustment for future stock splits,
stock dividends and similar changes in the capitalization of the Company). No
participant may receive any combination of options and stock appreciation
rights relating to more than 500,000 shares in the aggregate over a five-year
period under the Plan (which amount includes up to 350,000 shares pursuant to
awards and up to 150,000 shares received under the Plan in lieu of cash
compensation under the Company's annual incentive plan). No participant may
receive performance shares relating to more than 85,000 shares pursuant to
awards over a five-year period under the Plan. No more than 35% of all shares
subject to the Plan may be granted in the aggregate pursuant to restricted
stock, performance share and other stock-based awards (see "Types of Awards"
below).
The Plan provides that all awards are to be evidenced by written agreements
containing the terms and conditions of the awards. Such agreements will be
entered into by the recipients of the awards and the Company on or after the
time the awards are granted and are subject to amendment, including
unilateral amendment by the Company (with the approval of the Committee),
unless such amendments are deemed by the Committee to be materially adverse
to the recipient and are not required as a matter of law. Any shares of
Company Common Stock subject to awards under the Plan which are not used
because the terms and conditions of the awards are not met may again be used
for an award under the Plan, unless such shares are related to stock
appreciation rights which have been exercised or were shares of restricted
stock which were granted with dividend or voting rights during the
restriction period.
TYPES OF AWARDS
The types of awards that may be granted under the Plan include incentive and
nonqualified stock options, stock appreciation rights, restricted stock,
performance shares and other stock-based awards (awards based on stock other
than options, stock appreciation rights, restricted stock or performance
shares). Except for awards to Non-Employee Directors in lieu of certain
directors' fees (see "Non-Employee Director Awards" below), and subject to
certain restrictions applicable to incentive stock options, awards will be
exercisable by the recipients at such times as are determined by the
Committee, but in no event may the term of an award be longer than ten years
after the date of grant.
In addition to the general characteristics of all of the awards described in
this Proxy Statement, the basic characteristics of awards that may be granted
under the Plan are as follows:
INCENTIVE AND NONQUALIFIED STOCK OPTIONS.
Both incentive and nonqualified stock options may be granted to recipients
at such exercise prices as the Committee may determine but not less than
100% of their fair market value (as defined in the Plan) as of the date
the option is granted. Stock options may be granted and exercised at such
times as the Committee may determine, except that, unless applicable
federal tax laws are modified, (a) no incentive stock options may be
granted more than ten years after the effective date of the Plan, (b) an
incentive stock option shall not be exercisable more than ten years after
the date of grant and (c) the aggregate fair market value of the shares of
Company Common Stock with respect to which incentive stock options may
first become exercisable in any calendar year for any employee may not
exceed $100,000 under this Plan or any other plan of the Company.
Additional restrictions apply to an incentive stock option granted to an
individual who beneficially owns 10% or more of the combined voting power
of all classes of stock of the Company.
The purchase price payable upon exercise of options may be paid in cash,
or by reducing the number of shares delivered to the participant or by
delivering stock already owned by the participant (where the fair market
value of the shares withheld or delivered on the date of exercise is equal
to the option price of the stock being purchased), or in a combination of
cash and such stock, unless otherwise provided in the related agreement.
The participants may simultaneously exercise options and sell the stock
purchased upon such exercise pursuant to brokerage or similar
relationships and use the sale proceeds to pay the purchase price.
STOCK APPRECIATION RIGHTS AND PERFORMANCE SHARES.
The value of a stock appreciation right granted to a recipient is
determined by the appreciation in Company Common Stock, subject to any
limitations upon the amount or percentage of total appreciation that the
Committee may determine at the time the right is granted. The recipient
receives all or a portion of the amount by which the fair market value of
a specified number of shares, as of the date the stock appreciation right
is exercised, exceeds a price specified by the Committee at the time the
right is granted. The price specified by the Committee must be at least
100% of the fair market value of the specified number of shares of Company
Common Stock to which the right relates determined as of the date the
stock appreciation right is granted. A stock appreciation right may be
granted in connection with a previously or contemporaneously granted
option, or independent of any option. No stock appreciation right may be
exercised less than six months from the date it is granted unless the
recipient dies or becomes disabled.
Performance shares entitle the recipient to payment in amounts determined
by the Committee based upon the achievement of specified performance
targets during a specified term. With respect to recipients who are
"covered employees" under Section 162(m) of the Code, such performance
targets will consist of one or any combination of two or more of revenue,
revenue per employee, earnings before income tax (profit before taxes),
earnings before interest and income tax, net earnings (profit after
taxes), earnings per employee, tangible, controllable or total asset
turnover, earnings per share, operating income, total shareholder return,
market share, return on equity, before- or after-tax return on net assets,
distribution expense, inventory turnover or economic value added and any
such targets may relate to one or any combination of two or more of
corporate, group, unit, division, affiliate or individual performance. The
value in dollars is determined when the award is earned based on the
average fair market value per share for the last 20 trading days of the
performance cycle.
Payments with respect to stock appreciation rights and performance shares
may be paid in cash, shares of Company Common Stock or a combination of
cash and shares as determined by the Committee, provided that at least 25%
of the value of vested performance shares must be distributed in the form
of stock (or such higher percentage paid in stock as the Committee may
determine from time to time, which amount is currently 50%). Recipients
may defer any such cash payments under the Company's deferral plan if they
are eligible to participate in that plan.
RESTRICTED STOCK AND OTHER STOCK-BASED AWARDS.
Company Common Stock granted to recipients may contain such restrictions
as the Committee may determine, including provisions requiring forfeiture
and imposing restrictions upon stock transfer. Awards of restricted stock
may, in the discretion of the Committee, provide the participant with
dividends and voting rights prior to vesting. No award of restricted stock
may vest earlier than one year from the date of grant, except in the
circumstances provided in the applicable agreement. The Committee may also
from time to time grant awards of unrestricted stock or other stock-based
awards such as awards denominated in stock units, securities convertible
into stock and phantom securities.
TRANSFERABILITY
During the lifetime of a participant to whom an award is granted, only such
participant (or such participant's legal representative or, if so provided in
the applicable agreement in the case of a nonqualified stock option, a
permitted transferee as hereafter described) may exercise an option or stock
appreciation right or receive payment with respect to performance shares or
any other award. No award of restricted stock (prior to the expiration of the
restrictions), options, stock appreciation rights, performance shares or
other award (other than an award of stock without restrictions) may be sold,
assigned, transferred, exchanged, or otherwise encumbered, and any attempt to
do so will be of no effect, except that an agreement may provide that (a) an
award may be transferable to a successor in the event of a participant's
death and (b) a nonqualified stock option may be transferable to any member
of a participant's "immediate family" (as such term is defined in Rule
16a-1(e) under the Exchange Act) or to a trust whose beneficiaries are
members of such participant's "immediate family" or partnerships in which
such family members are the only partners, provided that the participant
receives no consideration for the transfer and such transferred nonqualified
stock option will continue to be subject to the same terms and conditions as
were applicable to such option immediately prior to its transfer.
ACCELERATION OF AWARDS, LAPSE OF RESTRICTIONS, FORFEITURE
The Committee may accelerate vesting requirements, performance periods and
the expiration of the applicable term or restrictions, and adjust performance
targets and payments, upon such terms and conditions as are set forth in the
participant's agreement, or otherwise in the Committee's discretion, which
may include, without limitation, acceleration resulting from a "change in
control" or a "fundamental change" (as those terms are defined in the Plan),
or the participant's death, disability, retirement or termination of
employment.
In the event of certain occurrences, which may include a recipient's
competition with, unauthorized disclosure of confidential information of, or
violation of the applicable business ethics policies or business policies of
the Company, any payment of cash, delivery of stock or a combination thereof
paid to the recipient within six months prior to the termination of
employment of the recipient (or their economic value) may be subject to
forfeiture at the Committee's discretion.
DURATION, ADJUSTMENTS, MODIFICATIONS, TERMINATION
The Plan will remain in effect until all stock subject to it is distributed
or all awards have expired or lapsed, whichever is later to occur, or the
Plan is terminated as described below.
In the event of a "fundamental change", recapitalizations, stock dividends,
stock splits or other relevant changes, the Committee has the discretion to
adjust the number of shares available for awards or the number of shares and
amount of cash subject to outstanding awards, the option exercise price of
outstanding options, and outstanding awards of performance shares and
payments with regard thereto. Adjustments in performance targets and payments
on performance shares are also permitted upon the occurrence of such other
events as may be specified in the related agreements, which may include a
"change of control", stock dividend, stock split or other relevant changes.
The Plan also gives the Board the right to amend, modify, terminate or
suspend the Plan, except that amendments to the Plan are subject to
shareholder approval if needed to comply with Exchange Act Rule 16b-3, the
incentive stock option provisions of the Code, their successor provisions, or
any other applicable law or regulation. Shareholder approval would also be
required to change the terms, conditions or eligibility requirements of
awards granted to Non-Employee Directors as described below under
"Non-Employee Director Awards," and in no event may the provisions of the
Plan as they relate to such awards be amended more than once every six
months, other than to comply with changes in the Code.
Under the Plan, the Committee may cancel outstanding options and stock
appreciation rights generally in exchange for cash payments to the recipients
in the event of a "fundamental change" (defined as certain dissolutions,
liquidations, mergers, consolidations, statutory share exchanges or other
similar events involving the Company).
NON-EMPLOYEE DIRECTOR AWARDS
OPTION GRANTS.
Each Non-Employee Director first elected or appointed to the Board on or
after the date of the 1994 Annual Meeting of Shareholders of the Company
will automatically, without any Committee action, be granted a one-time
nonqualified stock option to purchase that number of shares of Company
Common Stock determined by dividing (a) an amount equal to $152,000 plus a
percentage increase in such $152,000 amount which is equal to the
percentage increase from the $19,000 annual director retainer in effect at
the time of the 1994 Annual Meeting to the annual director retainer in
effect at the date such director first becomes a director by (b) the fair
market value of a share of Company Common Stock on the date of grant. An
employee of the Company or an affiliate who terminates such employment and
thereafter becomes a Non-Employee Director is not entitled to receive this
initial option grant, but will be entitled to receive the annual option
grants described in the next paragraph.
Each year on the date of the annual meeting of shareholders, each
Non-Employee Director who is a director of the Company immediately
following such annual meeting will automatically, without any Committee
action, be granted a nonqualified stock option to purchase that number of
shares of Company Common Stock equal to the sum of (a) the annual director
retainer in effect when the grant is made, (b) the aggregate meeting fees
in effect when the grant is made for the total number of regular Board
meetings held in the previous fiscal year and the median number of regular
Board Committee meetings directors were scheduled to attend during the
previous fiscal year, and (c) one annual committee chairmanship fee in
effect when the grant is made, divided by the fair market value of a share
of Company Common Stock on the date of the grant.
The purchase price of each share subject to a nonqualified stock option
granted to Non-Employee Directors will be the fair market value of a share
as of the date of grant. Such options will vest and become exercisable in
full one year after grant, except that a Non-Employee Director initially
appointed by the Board will not be entitled to exercise such an option
unless such director is first elected to the Board by the shareholders of
the Company. Notwithstanding the foregoing, vesting of an option granted
to a Non-Employee Director who has been elected by the shareholders will
accelerate and the option will become immediately exercisable in full upon
the occurrence of a "change in control" or in the event that the
Non-Employee Director ceases to serve as a director of the Company due to
death, disability or retirement under the policies of the Company then in
effect. Such options will expire at the earlier of (a) the ten-year
anniversary date of the option's grant, or (b) the five-year anniversary
date of the earlier of (i) termination as a director due to such death,
disability or retirement or (ii) the date the Non-Employee Director
otherwise ceases to be a director of the Company, provided that an option
granted to a Non-Employee Director initially appointed by the Board will
expire on the date such director ceases to be a director of the Company
unless such director was elected by the shareholders after the date of
such grant. A Non-Employee Director may exercise a nonqualified stock
option using any of the payment forms described under "Types of Awards --
Incentive and Nonqualified Stock Options" above.
In conjunction with the grant of any nonqualified stock option, the
Non-Employee Director receiving such grant will also simultaneously be
granted a limited stock appreciation right ("Limited Rights") with respect
to all of the shares covered by the related option, which Limited Rights
will become exercisable only after a "change in control" as defined in the
Plan. No Limited Right may be exercised within a period of six months
after the date of its grant. If Limited Rights are exercised, the related
option will no longer be exercisable to the extent of the number of shares
with respect to which the Limited Rights were exercised. Upon the exercise
or termination of a related option, Limited Rights granted with respect
thereto will terminate to the extent of the number of shares as to which
the related option was exercised or terminated.
Nonqualified stock options granted to Non-Employee Directors are subject
to transferability restrictions similar to those described under
"Transferability" above, except that the possibility of transfers to a
Non-Employee Director's "immediate family," trusts whose beneficiaries are
members of such director's "immediate family" or partnerships in which
such family members are the only partners will be permitted only in the
event of certain changes to Exchange Act Rule 16b-3, or when such director
is no longer subject to the reporting requirements of Section 16 of the
Exchange Act. In the event of a Non-Employee Director's death, an
unexpired nonqualified stock option granted to such director will be
transferable to the beneficiary designated by such director or, if no
beneficiary has been designated, such director's legal representative will
succeed to the option, and it will be transferable by will or pursuant to
the laws of descent and distribution.
ISSUANCE OF RESTRICTED STOCK IN LIEU OF COMPENSATION.
Each Non-Employee Director may irrevocably elect, at least six months
prior to the date on which such restricted stock is issued, to receive all
or any portion of the annual director retainer and any applicable
committee chairmanship fee due in the form of restricted stock to be
issued as of the first day of the year for which such annual retainer is
payable (currently October 1), based on the fair market value of the
Company's Common Stock at the time of issuance.
Shares of such restricted stock may not be assigned, sold, pledged,
hypothecated or otherwise transferred or disposed of (including, without
limitation, transfer by gift or donation), until the restrictions have
lapsed. Such restrictions will lapse upon the first to occur of (a) death,
or resignation or removal of the Non-Employee Director from the Board as a
result of disability, (b) retirement of the Non-Employee Director from the
Board in accordance with the policies of the Company then in effect
providing for retirement of Non-Employee Directors, (c) acceptance by the
Board of the offer of the Non-Employee Director to resign from the Board
in accordance with the policies of the Company then in effect after a
material change in such Non-Employee Director's full-time position or
responsibilities, (d) termination of service as a director with the
consent of a majority of the members of the Board other than the
terminating Non-Employee Director, or (e) a "change in control" (as
defined in the Plan). During the restricted period, the Non-Employee
Director will be entitled to all voting, dividend and distribution rights
with respect to such shares. If the Non-Employee Director ceases to be a
director of the Company before the restrictions lapse, such restricted
stock will be forfeited and revert to the Company.
FEDERAL TAX CONSIDERATIONS
The Company has been advised by its counsel that awards made under the Plan
generally will result in the following tax events for United States citizens
under current United States federal income tax laws.
INCENTIVE STOCK OPTIONS.
A recipient will realize no taxable income, and the Company will not be
entitled to any related deduction, at the time an incentive stock option
is granted under the Plan. If certain statutory employment and holding
period conditions are satisfied before the recipient disposes of shares
acquired pursuant to the exercise of such an option, then no taxable
income will result upon the exercise of such option and the Company will
not be entitled to any deduction in connection with such exercise. Upon
disposition of the shares after expiration of the statutory holding
periods, any gain or loss realized by a recipient will be a capital gain
or loss. The Company will not be entitled to a deduction with respect to a
disposition of the shares by a recipient after the expiration of the
statutory holding periods.
Except in the event of death, if shares acquired by a recipient upon the
exercise of an incentive stock option are disposed of by such recipient
before the expiration of the statutory holding periods (a "disqualifying
disposition"), such recipient will be considered to have realized as
compensation, taxable as ordinary income in the year of disposition, an
amount, not exceeding the gain realized on such disposition, equal to the
difference between the exercise price and the fair market value of the
shares on the date of exercise of the option. The Company will be entitled
to a deduction at the same time and in the same amount as the recipient is
deemed to have realized ordinary income. Any gain realized on the
disposition in excess of the amount treated as compensation or any loss
realized on the disposition will constitute capital gain or loss,
respectively. If the recipient pays the option price with shares that were
originally acquired pursuant to the exercise of an incentive stock option
and the statutory holding periods for such shares have not been met, the
recipient will be treated as having made a disqualifying disposition of
such shares, and the tax consequences of such disqualifying disposition
will be as described above.
The foregoing discussion applies only for regular tax purposes. For
alternative minimum tax purposes an incentive stock option will be treated
as if it were a nonqualified stock option, the tax consequences of which
are discussed below.
NONQUALIFIED STOCK OPTIONS.
A recipient will realize no taxable income, and the Company will not be
entitled to any related deduction, at the time a nonqualified stock option
is granted under the Plan. At the time of exercise of a nonqualified stock
option, the recipient will realize ordinary income, and the Company will
be entitled to a deduction, equal to the excess of the fair market value
of the stock on the date of exercise over the option price. Upon
disposition of the shares, any additional gain or loss realized by the
recipient will be taxed as a capital gain or loss.
STOCK APPRECIATION RIGHTS AND PERFORMANCE SHARES.
Generally (a) the recipient will not realize income upon the grant of a
stock appreciation right or performance share award, (b) the recipient
will realize ordinary income, and the Company will be entitled to a
corresponding deduction, in the year cash, shares of common stock or a
combination of cash and shares are delivered to the recipient upon
exercise of a stock appreciation right or in payment of the performance
share award and (c) the amount of such ordinary income and deduction will
be the amount of cash received plus the fair market value of the shares of
common stock received on the date of issuance. The federal income tax
consequences of a disposition of unrestricted shares received by the
recipient upon exercise of a stock appreciation right or in payment of a
performance share award are the same as described below with respect to a
disposition of unrestricted shares.
RESTRICTED AND UNRESTRICTED STOCK.
Unless the recipient files an election to be taxed under Section 83(b) of
the Code, (a) the recipient will not realize income upon the grant of
restricted stock, (b) the recipient will realize ordinary income, and the
Company will be entitled to a corresponding deduction, when the
restrictions have been removed or expire, and (c) the amount of such
ordinary income and deduction will be the fair market value of the
restricted stock on the date the restrictions are removed or expire. If
the recipient files an election to be taxed under Section 83(b) of the
Code, the tax consequences to the recipient and the Company will be
determined as of the date of the grant of the restricted stock rather than
as of the date of the removal or expiration of the restrictions.
With respect to awards of unrestricted stock, (a) the recipient will
realize ordinary income and the Company will be entitled to a
corresponding deduction upon the grant of the unrestricted stock, and (b)
the amount of such ordinary income and deduction will be the fair market
value of such unrestricted stock on the date of grant.
When the recipient disposes of restricted or unrestricted stock, the
difference between the amount received upon such disposition and the fair
market value of such shares on the date the recipient realizes ordinary
income will be treated as a capital gain or loss.
WITHHOLDING
The Plan permits the Company to withhold from awards an amount sufficient to
cover any required withholding taxes. In lieu of cash, a participant may
elect to cover withholding obligations through a reduction in the number of
shares to be delivered to such participant or by delivery of shares already
owned by the participant. The use of stock to satisfy withholding obligations
is subject to certain restrictions if the participant is subject to the
reporting requirements of Section 16 of the Exchange Act.
NEW PLAN BENEFITS
The awards shown below were granted by the Compensation Committee in April
and June 1994, subject to approval of the Plan by the shareholders at the
1994 Annual Meeting of Shareholders. The tables also include information
relating to the Non-Employee Director annual nonqualified stock option grants
in August 1994.
1994 PERFORMANCE SHARE AWARDS(1)
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF OR OTHER PERIOD NON-STOCK PRICE BASED-PLANS
SHARES, UNITS UNTIL ------------------------------------
OR OTHER MATURATION THRESHOLD TARGET MAXIMUM
NAME AND POSITION RIGHTS (#) OR PAYOUT ($) ($) ($)
- - ------------------------------ ------------- --------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
W.W. George, President 3,580 5/1/94- 4/30/97 $ 58,086 $ 290,428 $ 522,770
and Chief Executive Officer
G.D. Nelson, M.D, Vice Chairman 2,492 5/1/94- 4/30/97 40,433 202,164 363,894
A.D. Collins, Jr., Chief 2,336 5/1/94- 4/30/97 37,902 189,508 341,114
Operating Officer
R.L. Ryan, Senior Vice 1,710 5/1/94- 4/30/97 27,745 138,724 249,703
President and Chief Financial Officer
B.I. Griffin, Executive Vice 1,614 5/1/94- 4/30/97 26,187 130,936 235,684
President and President, Pacing
All Executive Officers as a 17,004 5/1/94- 4/30/97 275,890 1,379,450 2,483,009
Group
All Directors who are not 0 0 0 0 0
Executive Officers as a Group
All Non-Executive Officer 7,954 5/1/94- 4/30/97 129,054 645,268 1,161,483
Employees as a Group
</TABLE>
- - -----------------
(1) Payout of awards is based on achieving specified levels of earnings per
share and after-tax return on net assets during a three-year performance
cycle. Payout can range from 0% to 180% of units granted, with 20% and 180%
as the threshold and maximum payouts, respectively. Payout of 100% of the
units granted represents the target payout. Awards will be payable at least
50% in Common Stock, with the remainder paid in cash or Common Stock at the
discretion of the Compensation Committee. The value in dollars is determined
when the award is earned based on the average fair market value per share for
the last 20 trading days of the performance cycle. For illustrative purposes,
the value of estimated future payouts was determined using the closing price
of the Common Stock on July 8, 1994 ($81.125 per share).
1994 STOCK OPTION AWARDS TO ALL EMPLOYEES AND NON-EMPLOYEE DIRECTORS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR THE OPTION TERM
---------------------------------
OPTIONS EXERCISE PRICE EXPIRATION
NAME AND POSITION GRANTED (#) ($/SH) DATE 0%($) 5%($)(1) 10%($)(1)
- - -------------------------- ------------ --------------- ----------- ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
All Executive Officers 0 $ 0 0 0 $ 0 $ 0
as a Group
All Directors who are not 5,124(2) 81.125 8/31/04 0 261,422 662,494
Executive Officers as a
Group
All Non-Executive Officer 6,287 75.75 4/29/04 0 299,505 759,004
Employees as a Group
7,743 78.625 6/22/04 0 382,867 970,260
</TABLE>
- - -----------------
(1) The hypothetical potential appreciation shown in these columns reflects
the required calculations at annual rates of 5% and 10% set by the Securities
and Exchange Commission, and therefore are not intended to represent either
historical appreciation or anticipated future appreciation of the Company's
Common Stock price.
(2) Pursuant to the Plan, and subject to approval of the Plan by the
shareholders at the 1994 Annual Meeting, Non-Employee Directors of the
Company will receive the annual nonqualified option grant on August 31, 1994.
The actual number of shares and potential realizable values will be based on
the fair market value of such shares on that date, which will also be the
exercise price of such options. For purposes of the table, the number of
shares and potential realizable values were calculated based upon the closing
price of the Company's Common Stock on July 8, 1994 ($81.125 per share).
1994 RESTRICTED STOCK AWARDS
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF SHARES (#) DOLLAR VALUE($)(1)
- - ------------------ --------------------- ------------------
<S> <C> <C>
All Executive Officers as a Group 0 $ 0
All Directors who are not Executive Officers as a 951 77,150
Group(2)
All Non-Executive Officer Employees as a Group 36,490 2,960,251
</TABLE>
- - -----------------------
(1) Based upon the closing price of the Company's Common Stock on July 8,
1994 ($81.125 per share).
(2) The number of shares of restricted stock that will be granted in lieu of
the annual director retainer and chairmanship fees, described above under
"Non-Employee Director Awards -- Issuance of Restricted Stock in Lieu of
Compensation," varies with each Non-Employee Director's election to
participate.
VOTING REQUIREMENTS; RECOMMENDATION
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company entitled to vote on this item and present in
person or by proxy at the Annual Meeting is required for approval of the
Plan. Proxies solicited by the Board of Directors will be voted for approval
of the Plan, unless shareholders specify otherwise in their proxies.
For this purpose, a shareholder voting through a proxy who abstains with
respect to approval of the Plan is considered to be present and entitled to
vote on the approval of the Plan at the Annual Meeting, and is in effect a
negative vote, but a shareholder (including a broker) who does not give
authority to a proxy to vote, or withholds authority to vote, on the approval
of the Plan shall not be considered present and entitled to vote on the
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 1994
STOCK AWARD PLAN.
APPROVAL OF THE COMPANY'S MANAGEMENT INCENTIVE PLAN
INTRODUCTION
The Company has had some form of annual incentive plan in place since 1977.
In response to the new federal tax law described below, the Board of
Directors, upon the recommendation of the Compensation Committee of the
Board, amended the Company's current annual incentive plan, known as the
Medtronic, Inc. Management Incentive Plan ("MIP"), effective as of April 29,
1994, and determined that the MIP would be submitted for shareholder approval
at the 1994 Annual Meeting of Shareholders so that compensation under the MIP
will be deductible. A copy of the MIP is included as Appendix B to this Proxy
Statement, and this discussion is qualified in its entirety by reference to
the full text of the MIP.
SECTION 162(M) OF THE CODE
As a result of the enactment in 1993 of Section 162(m) of the Code ("Section
162(m)"), effective for tax years beginning January 1, 1994 and thereafter,
publicly held companies will be limited to an annual deduction for federal
income tax purposes of $1,000,000 for compensation paid to each of the chief
executive officer and the other four most highly compensated executive
officers (who are collectively referred to herein as "Covered Employees")
determined at the end of each year. However, "performance-based" compensation
is excluded from this limitation on deductibility. Under Section 162(m) and
proposed regulations thereunder, compensation is considered performance-based
if it is payable only upon the attainment of one or more performance goals
established by a compensation committee of the board of directors consisting
of at least two outside directors, the material terms of the compensation and
the performance goals are disclosed to and approved by shareholders before
payment, and the compensation committee certifies that such performance goals
have been satisfied. The Company's Compensation Committee (the "Committee")
qualifies as a committee of outside directors under Section 162(m).
Performance goals can be based on one or more business criteria that apply to
an individual, a business unit or the company as a whole. The maximum amount
that may be paid to Covered Employees or the formula used to calculate such
amount must be approved by the Company's shareholders. In accordance with
proposed regulations under Section 162(m), the Compensation Committee may not
increase the amount of compensation payable if the performance goal is met
but may reduce or eliminate compensation even if the performance goal is
attained. In light of this legislation and in keeping with the Compensation
Committee's philosophy of performance-based pay, the Board is submitting the
MIP to shareholders for approval.
PURPOSE
The MIP is designed to motivate officers and other key employees to achieve
the Company's operating goals by providing the opportunity for incentive
compensation in addition to annual salaries. The MIP is also designed to
promote the accomplishment of management's primary annual objectives as
reflected in the Company's annual operating plan, in the various business
unit annual operating plans and in the objectives established by management
for employees, and to recognize the achievement of these objectives through
the payment of incentive compensation.
ADMINISTRATION
The Committee will administer the MIP, and may establish such rules and
regulations as it deems necessary to do so. The Committee may delegate
certain of its administrative powers and responsibilities under the MIP to
the Chief Executive Officer of the Company for employees other than Covered
Employees.
ELIGIBILITY
Employees eligible to participate in the MIP include executive officers,
heads of key staff functions, heads of operating business units and other
major contributors to business unit or corporate results. For each year, the
Committee will select those Covered Employees who are to be participants in
the MIP. The Chief Executive Officer will select the other participants in
the MIP each year from among the other eligible employees.
For the Company's current fiscal year (which is also the current MIP plan
year), 310 officers and other employees have been selected to participate in
the MIP.
AWARDS UNDER THE MIP
At the beginning of each plan year (or at such other time as is consistent
with the requirements of Section 162(m)), each participant in the MIP will be
assigned to a specified Participation Category. The range of potential awards
to participants under the MIP is stated for each Participation Category as
percentages of each participant's salary (as defined in the MIP) and, if
minimum performance objectives are met or exceeded, actual awards will fall
within a scale ranging from designated minimum awards to designated target
awards to designated maximum awards. The designated target award for each
respective Participation Category is referred to as the "Target Award
Percentage."
Each participant will also be assigned to a specified performance category
("Performance Category"), which will set forth the weighted combinations of
performance factors to be considered in connection with the award. Such
factors may be one or a combination of the performance of the participant
individually, as part of a team or as a member of management ("Management"
performance), the participant's division or other business unit ("Unit
Financial" performance), and the Company as a whole ("Corporate Financial"
performance). Performance Categories for Covered Employees will be based
solely on one or any combination of two or more of the following factors:
revenue, revenue per employee, earnings before income tax (profit before
taxes), earnings before interest and income tax, net earnings (profit after
taxes), earnings per employee, tangible, controllable or total asset
turnover, earnings per share, operating income, total shareholder return,
market share, return on equity, before- or after-tax return on net assets,
distribution expense, inventory turnover or economic value added; and such
factors may relate to one or any combination of two or more of corporate,
group, unit, division, affiliate or individual performance. These factors
will be treated as Corporate Financial, Unit Financial or Management
objectives, as appropriate.
At the beginning of each plan year (or at such other time as is consistent
with the requirements of Section 162(m)), the Committee will establish the
objectives by which performance during the plan year will be measured. Each
objective will have a stated performance target. In the event that more than
one objective is used, the multiple objectives, when established, will be
appropriately weighted by percentage in accordance with their importance
(with the aggregate weighted objectives totalling 100%). At the end of each
plan year the degree of achievement of each objective will be expressed as a
percentage of the performance target for each such objective. When one
objective in any of the three performance areas is used, such percentage will
constitute the "Corporate Financial Score", the "Unit Financial Score" or the
"Management Score", as the case may be. When more than one objective is used,
the percentage achievement of each objective's target must be multiplied by
the percentage weight (out of 100%) assigned to each such specific objective,
and the resulting percentages for the various objectives must then be added.
Unit Financial objectives will be based on financial goals reflected in the
respective business unit's operating plan, and Management objectives will
relate to objectives in the business unit's annual operating plan and/or
long-range plan.
At the beginning of each plan year (or at such other time as is consistent
with the requirements of Section 162(m)), the Committee will establish a
minimum threshold level of Corporate Financial objectives which the Company
must achieve for there to be any award made under the MIP. If this minimum
threshold is not met, no awards will be paid to participants regardless of
whether other objectives have been met. Similarly, the Committee (in the case
of Covered Employees) and the Chief Executive Officer (for participants other
than Covered Employees) may adopt a minimum threshold level of a business
unit's most significant financial objective which the business unit must
achieve for there to be any award based on such business unit's financial and
management performance. If such minimum is established and is not met, no
award will be paid for one or both of the Unit Financial and Management
portions, as determined by the Committee (for Covered Employees) or the Chief
Executive Officer (for other participants), under the Performance Category of
each participant in the applicable business unit.
Each participant's final award will be equal to the sum of the following:
(a) the Corporate Financial portion of each participant's award will be the
product of (i) the participant's salary for the plan year, (ii) the Target
Award Percentage for the participant's applicable Participation Category,
(iii) the Corporate Financial percentage under the participant's Performance
Category and (iv) the Corporate Performance Score;
(b) the Unit Financial portion of each participant's award will be the
product of (i) the participant's salary for the plan year, (ii) the Target
Award Percentage for the participant's applicable Participation Category,
(iii) the Unit Financial percentage under the participant's Performance
Category and (iv) the Unit Financial Score; and
(c) the Management portion of each participant's award will be the product of
(i) the participant's salary for the plan year, (ii) the Target Award
Percentage for the participant's applicable Participation Category, (iii) the
Management percentage under the participant's Performance Category and (iv)
the individual's Management Score;
provided, however, that the final award to any participant may not exceed the
maximum award as a percentage of salary for such participant's Participation
Category, and that no Covered Employee may receive an award in excess of $2
million in any plan year. For purposes of the foregoing calculation, the
salary of a Covered Employee will be such employee's annual salary in effect
on the first day of the plan year.
Final awards will be paid to each participant in cash within 90 days after
the end of the plan year unless the participant is eligible to participate in
and elects to defer some or all of the payment under the Company's deferral
plan or elects to receive stock options under the 1994 Stock Award Plan in
lieu of some or all of such cash, if and on such terms as are permitted by
the Committee.
TERMINATION OF EMPLOYMENT
Following termination of employment during a plan year by reason of death,
disability or normal or early retirement, a participant will be eligible to
receive a pro rata award equal to the portion of the final award, otherwise
determined in accordance with the MIP, represented by the percentage equal to
the number of full months of employment during the plan year divided by 12.
Following a termination of employment for any other reason, a participant's
eligibility to receive an award for that plan year (not greater than the
prorated amount described in the preceding sentence) will be determined
solely at the discretion of the Chief Executive Officer or, in the case of a
Covered Employee, solely at the discretion of the Committee.
NONASSIGNABILITY OF BENEFITS
No participant may assign, transfer or encumber any interest in the MIP or
any payments thereunder.
CHANGE IN CONTROL PROVISIONS
The MIP contains provisions providing for acceleration of payment of awards
during a plan year in which a "change in control" of the Company occurs (as
that term is defined in the MIP).
MODIFICATION, TERMINATION
The Committee, in its sole discretion, may modify, suspend, terminate or
reinstate the Plan, provided that prior approval of the Board of Directors is
required (a) to render non-employees eligible to participate in the MIP or
(b) to increase the maximum awards (expressed as a percentage of salary) for
a Participation Category beyond the maximum award which has previously been
approved by the Board for such Participation Category.
FEDERAL TAX CONSEQUENCES
Under the Code as presently in effect, a grant of an award under the MIP
would have no federal income tax consequence. Cash payment of the award is
taxable to a participant as ordinary income. Amounts taxable to employees
under the MIP will be deductible by the Company as compensation. The Company
will withhold from payments under the MIP amounts necessary to pay any
required taxes.
NEW PLAN BENEFITS
The following table sets forth certain information regarding potential
payments for fiscal 1995 pursuant to awards granted by the Compensation
Committee on April 29, 1994, subject to shareholder approval of the MIP at
the 1994 Annual Meeting. Such payments are based on salary levels at the
beginning of the current plan year and the Participation Categories assigned
to all participants.
<TABLE>
<CAPTION>
ESTIMATED PAYMENTS(1)
--------------------------------------
NAME AND POSITION MINIMUM($) TARGET($) MAXIMUM($)
- - ------------------- ------------ ----------- ------------
<S> <C> <C> <C>
W.W. George, President and Chief Executive $ 172,252 $ 344,504 $ 516,757
Officer
G.D. Nelson, M.D, Vice Chairman 122,987 245,973 368,960
A.D. Collins, Jr., Chief Operating Officer 115,294 230,588 345,882
R.L. Ryan, Senior Vice President and Chief 79,125 158,250 237,374
Financial Officer
B.I. Griffin, Executive Vice President and 74,683 149,366 224,049
President, Pacing
All executive officers as a group 803,301 1,606,602 2,409,903
All directors who are not executive officers as 0 0 0
a group
All non-executive officer employees as a group 3,051,341 6,102,681 9,154,022
</TABLE>
(1) No payments will be made under the MIP for the current plan year unless a
minimum threshold level of designated objectives is achieved.
VOTING REQUIREMENTS; RECOMMENDATION
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company entitled to vote on this item and present in
person or by proxy at the Annual Meeting is required for approval of the MIP.
Proxies solicited by the Board of Directors will be voted for approval of the
MIP, unless shareholders specify otherwise in their proxies.
For this purpose, a shareholder voting through a proxy who abstains with
respect to approval of the MIP is considered to be present and entitled to
vote on the approval of the MIP at the Annual Meeting, and is in effect a
negative vote, but a shareholder (including a broker) who does not give
authority to a proxy to vote, or withholds authority to vote, on the approval
of the MIP shall not be considered present and entitled to vote on the
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE MANAGEMENT
INCENTIVE PLAN.
APPROVAL OF SELECTION OF AUDITORS
Upon recommendation of its Audit Committee, Medtronic's Board has selected
Price Waterhouse, certified public accountants, as independent auditors for
Medtronic for the fiscal year ending April 30, 1995. That firm has acted as
independent auditors for Medtronic for more than 20 years, and the Board
considers it highly qualified. Although it is not required to do so, the
Board of Directors wishes to submit the selection of Price Waterhouse for
shareholders' approval at the Annual Meeting. If the shareholders do not give
approval, the Board will reconsider its selection.
Representatives of Price Waterhouse will be present at the Annual Meeting,
will have the opportunity to make a statement if they desire and will be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THIS
APPOINTMENT.
GENERAL
The costs of soliciting proxies will be borne by Medtronic, including the
reimbursement to record holders of their expenses in forwarding proxy
materials to beneficial owners. Directors, officers and regular employees of
Medtronic, without extra compensation, may solicit proxies personally or by
mail, telephone, fax, telex, telegraph or special letter.
Medtronic has retained Chemical Bank, a firm that provides professional proxy
soliciting services, to aid in the solicitation of proxies for a fee of up to
$6,500 and reimbursement for certain out-of-pocket expenses.
Any shareholder proposals for the Company's 1995 Annual Meeting of
Shareholders (anticipated date August 30, 1995) must be received by the
Company by March 29, 1995 in order to be included in the Company's Proxy
Statement. The proposals also must comply with all applicable statutes and
regulations.
Medtronic's 1994 Annual Shareholder Report, including financial statements,
is being sent to shareholders of record on July 8, 1994, together with this
Proxy Statement. MEDTRONIC WILL FURNISH TO SHAREHOLDERS WITHOUT CHARGE A COPY
OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED APRIL 30, 1994,
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, UPON RECEIPT OF WRITTEN
REQUEST ADDRESSED TO: INVESTOR RELATIONS DEPARTMENT, MEDTRONIC, INC., 7000
CENTRAL AVENUE N.E., MINNEAPOLIS, MINNESOTA 55432.
The Board of Directors knows of no other matters to be presented at the
Annual Meeting. If any other business properly comes before the Annual
Meeting or any adjournment thereof, the proxies will vote on that business in
accordance with their best judgment.
By Order of the Board of Directors,
/s/ Ronald E. Lund
Ronald E. Lund, Secretary
APPENDIX A
1994 STOCK AWARD PLAN
(EFFECTIVE APRIL 29, 1994)
1. PURPOSE. The purpose of this 1994 Stock Award Plan (the "Plan") is to
motivate key personnel, including non-employee directors, to produce a
superior return to the shareholders of Medtronic, Inc. (the "Company") and
its Affiliates by offering such individuals an opportunity to realize Stock
appreciation, by facilitating Stock ownership, and by rewarding them for
achieving a high level of corporate performance. This Plan is also intended
to facilitate recruiting and retaining key personnel of outstanding ability.
2. DEFINITIONS. The capitalized terms used in this Plan have the meanings set
forth below.
(a) "Affiliate" means any corporation that is a "parent corporation" or
"subsidiary corporation" of the Company, as those terms are defined in
Sections 424(e) and (f) of the Code, or any successor provision, and, for
purposes other than the grant of Incentive Stock Options, any joint venture
in which the Company or any such "parent corporation" or "subsidiary
corporation" owns an equity interest.
(b) "Agreement" means a written contract entered into between the Company or
an Affiliate and a Participant containing the terms and conditions of an
Award in such form (not inconsistent with this Plan) as the Committee
approves from time to time, together with all amendments thereof, which
amendments may be unilaterally made by the Company (with the approval of the
Committee) unless such amendments are deemed by the Committee to be
materially adverse to the Participant and are not required as a matter of
law.
(c) "Annual Retainer" means the fixed annual fee of a Non-Employee Director
in effect on the first day of the year for which such Annual Retainer is
payable for services to be rendered as a Non-Employee Director of the
Company. The Annual Retainer does not include meeting or chairmanship fees.
(d) "Award" means a grant made under this Plan in the form of Options, Stock
Appreciation Rights, Restricted Stock, Performance Shares or any Other
Stock-Based Award.
(e) "Board" means the Board of Directors of the Company.
(f) "Change in Control" means:
(i)
acquisition by any individual, entity or group (within the meaning of Section
13(d) (3) or 14(d) (2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 30% or more of either (A) the
then outstanding Shares of Stock (the "Outstanding Company Common Stock") or
(B) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change of Control: (A) any
acquisition directly from the Company, (B) any acquisition by the Company or
any Subsidiary, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any Subsidiary or (D) any
acquisition by any corporation with respect to which, following such
acquisition, more than 55% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
acquisition in substantially the same proportions as their ownership,
immediately prior to such acquisition, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be; or
(ii)
individuals who, as of the effective date of this Plan provided in Section
14(a) of this Plan, constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents; or
(iii)
approval by the shareholders of the Company of a reorganization, merger,
consolidation or statutory exchange of Outstanding Company Voting Securities,
in each case, with respect to which all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such reorganization, merger, consolidation or exchange
do not, following such reorganization, merger, consolidation or exchange,
beneficially own, directly or indirectly, more than 55% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election
of directors, as the case may be, of the corporation resulting from such
reorganization, merger, consolidation or exchange in substantially the same
proportions as their ownership, immediately prior to such reorganization,
merger, consolidation or exchange of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be; or
(iv)
approval by the shareholders of the Company of (A) a complete liquidation or
dissolution of the Company or (B) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation
with respect to which, following such sale or other disposition, more than
55% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition
in substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be.
Notwithstanding the foregoing provisions of this definition, a Change of
Control shall not be deemed to occur with respect to a Participant if the
acquisition of the 30% or greater interest referred to in subparagraph (i) of
this definition is by a group, acting in concert, that includes the
Participant or if at least 40% of the then outstanding common stock or
combined voting power of the then outstanding voting securities (or voting
equity interests) of the surviving corporation or of any corporation (or
other entity) acquiring all or substantially all of the assets of the Company
shall be beneficially owned, directly or indirectly, immediately after a
reorganization, merger, consolidation, statutory share exchange or
disposition of assets referred to in subparagraph (iii) or (iv) of this
definition by a group, acting in concert, that includes that Participant.
(g)
"Code" means the Internal Revenue Code of 1986, as amended and in effect from
time to time, or any successor statute.
(h)
"Committee" means three or more Disinterested Persons designated by the Board
to administer this Plan under Section 3 hereof and constituted so as to
permit this Plan to comply with Exchange Act Rule 16b-3.
(i)
"Company" means Medtronic, Inc., a Minnesota corporation, or any successor to
all or substantially all of its businesses by merger, consolidation, purchase
of assets or otherwise.
(j)
"Disability" means the disability of a Participant such that the Participant
is (or in the case of a Non-Employee Director, would, if an employee, be)
considered disabled under any retirement plan of the Company which is
qualified under Section 401 of the Code, or, except as this term is used in
Sections 12 and 13 hereof, as otherwise determined by the Committee.
(k)
"Disinterested Person" means a member of the Board who is considered a
disinterested person within the meaning of Exchange Act Rule 16b-3.
(l)
"Employee" means any full-time or part-time employee (including an officer or
director who is also an employee) of the Company or an Affiliate. Except with
respect to grants of Incentive Stock Options, "Employee" shall also include
other individuals and entities who are not "employees" of the Company or an
Affiliate but who provide services to the Company or an Affiliate in the
capacity of an independent contractor. References in this Plan to
"employment" and related terms shall include the providing of services in any
such capacity.
(m)
"Exchange Act" means the Securities Exchange Act of 1934, as amended;
"Exchange Act Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act as in effect with respect to the
Company or any successor regulation.
(n)
"Fair Market Value" as of any date means, unless otherwise expressly provided
in this Plan:
(i)
the closing sale price of a Share (A) on the composite tape for New York
Stock Exchange ("NYSE") listed shares, or (B) if the Shares are not quoted on
the NYSE composite tape, on the principal United States securities exchange
registered under the Exchange Act on which the Shares are listed, or (C) if
the Shares are not listed on any such exchange, on the National Association
of Securities Dealers, Inc. Automated Quotation System National Market
System, in any case on the date immediately preceding that date, or, if no
sale of Shares shall have occurred on that date, on the next preceding day on
which a sale of Shares occurred, or
(ii)
if clause (i) is not applicable, what the Committee determines in good faith
to be 100% of the fair market value of a Share on that date.
However, if the applicable securities exchange or system has closed for the
day at the time the event occurs that triggers a determination of Fair Market
Value, all references in this paragraph to the "date immediately preceding
that date" shall be deemed to be references to "that date." In the case of an
Incentive Stock Option, if such determination of Fair Market Value is not
consistent with the then current regulations of the Secretary of the
Treasury, Fair Market Value shall be determined in accordance with said
regulations. The determination of Fair Market Value shall be subject to
adjustment as provided in Section 14(f) hereof.
(o)
"Fundamental Change" means a dissolution or liquidation of the Company, a
sale of substantially all of the assets of the Company, a merger or
consolidation of the Company with or into any other corporation, regardless
of whether the Company is the surviving corporation, or a statutory share
exchange involving capital stock of the Company.
(p)
"Incentive Stock Option" means any Option designated as such and granted in
accordance with the requirements of Section 422 of the Code or any successor
to such section.
(q)
"Non-Employee Director" means a member of the Board who is not an employee of
the Company or any Affiliate.
(r)
"Non-Qualified Stock Option" means an Option other than an Incentive Stock
Option.
(s)
"Other Stock-Based Award" means an Award of Stock or an Award based on Stock
other than Options, Stock Appreciation Rights, Restricted Stock or
Performance Shares.
(t)
"Option" means a right to purchase Stock, including both Non-Qualified Stock
Options and Incentive Stock Options.
(u)
"Participant" means an Employee or a Non-Employee Director to whom an Award
is made.
(v)
"Performance Period" means the period of time as specified in an Agreement
over which Performance Shares are to be earned.
(w)
"Performance Shares" means a contingent award of a specified number of
Performance Shares, with each Performance Share equivalent to one Share, a
variable percentage of which may vest depending upon the extent of
achievement of specified performance objectives during the applicable
Performance Period.
(x)
"Plan" means this 1994 Stock Award Plan, as amended and in effect from time
to time.
(y)
"Restricted Stock" means Stock granted under Section 10 or 13 hereof so long
as such Stock remains subject to one or more restrictions.
(z)
"Retirement" means retirement of an Employee as defined under any retirement
plan of the Company which is qualified under Section 401 of the Code (which
currently provides for retirement on or after age 55, provided the Employee
has been employed by the Company and/or one or more Affiliates for at least
ten years, or retirement on or after age 62), or as otherwise determined by
the Committee.
(aa)
"Share" means a share of Stock.
(bb)
"Stock" means the common stock, $.10 par value per share (as such par value
may be adjusted from time to time), of the Company.
(cc)
"Stock Appreciation Right" means a right, the value of which is determined
relative to appreciation in value of Shares pursuant to an Award granted
under Section 8 hereof.
(dd)
"Subsidiary" means a "subsidiary corporation," as that term is defined in
Section 424(f) of the Code, or any successor provision.
(ee)
"Successor" with respect to a Participant means the legal representative of
an incompetent Participant and, if the Participant is deceased, the legal
representative of the estate of the Participant or the person or persons who
may, by bequest or inheritance, or under the terms of an Award or of forms
submitted by the Participant to the Committee under Section 14(i) hereof,
acquire the right to exercise an Option or Stock Appreciation Right or
receive cash and/or Shares issuable in satisfaction of an Award in the event
of a Participant's death.
(ff)
"Term" means the period during which an Option or Stock Appreciation Right
may be exercised or the period during which the restrictions placed on
Restricted Stock or any other Award are in effect.
Except when otherwise indicated by the context, reference to the masculine
gender shall include, when used, the feminine gender and any term used in the
singular shall also include the plural.
3. ADMINISTRATION.
(a)
AUTHORITY OF COMMITTEE. The Committee shall administer this Plan. The
Committee shall have exclusive power to make Awards and to determine when and
to whom Awards will be granted, and the form, amount and other terms and
conditions of each Award, subject to the provisions of this Plan. The
Committee may determine whether, to what extent and under what circumstances
Awards may be settled, paid or exercised in cash, Shares or other Awards or
other property, or cancelled, forfeited or suspended. The Committee shall
have the authority to interpret this Plan and any Award or Agreement made
under this Plan, to establish, amend, waive and rescind any rules and
regulations relating to the administration of this Plan, to determine the
terms and provisions of any Agreements entered into hereunder (not
inconsistent with this Plan), and to make all other determinations necessary
or advisable for the administration of this Plan. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in this Plan
or in any Award in the manner and to the extent it shall deem desirable. The
determinations of the Committee in the administration of this Plan, as
described herein, shall be final, binding and conclusive.
(b)
DELEGATION OF AUTHORITY. The Committee may delegate all or any part of its
authority under this Plan to persons who are not Disinterested Persons for
purposes of determining and administering Awards solely to Employees who are
not then subject to the reporting requirements of Section 16 of the Exchange
Act.
(c)
AWARDS TO NON-EMPLOYEE DIRECTORS. Notwithstanding any contrary provisions of
this Plan, the granting, terms, conditions and eligibility requirements of
Awards granted to Non-Employee Directors under Sections 12 and 13 of this
Plan are governed solely by the provisions of this Plan pertaining thereto,
and the Committee shall have no discretion with respect to the granting of
such Awards or to alter or amend any terms, conditions or eligibility
requirements of such Awards to Non-Employee Directors.
(d)
RULE 16B-3 COMPLIANCE. It is the intent that this Plan and all Awards granted
pursuant to it shall be administered by the Committee so as to permit this
Plan and Awards to comply with Exchange Act Rule 16b-3. If any provision of
this Plan or of any Award would otherwise frustrate or conflict with the
intent expressed in this Section 3(d), that provision to the extent possible
shall be interpreted and deemed amended in the manner determined by the
Committee so as to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, the provision shall be deemed void
as applicable to Participants who are then subject to the reporting
requirements of Section 16 of the Exchange Act to the extent permitted by law
and in the manner deemed advisable by the Committee.
(e)
INDEMNIFICATION. To the full extent permitted by law, each member and former
member of the Committee and each person to whom the Committee delegates or
has delegated authority under this Plan shall be entitled to indemnification
by the Company against and from any loss, liability, judgment, damage, cost
and reasonable expense incurred by such member, former member or other person
by reason of any action taken, failure to act or determination made in good
faith under or with respect to this Plan.
4. SHARES AVAILABLE; MAXIMUM PAYOUTS.
(a)
SHARES AVAILABLE. The number of Shares available for distribution under this
Plan is 2,800,000 (subject to adjustment under Section 14(f) hereof).
(b)
SHARES AGAIN AVAILABLE. Any Shares subject to the terms and conditions of an
Award under this Plan which are not used because the terms and conditions of
the Award are not met may again be used for an Award under this Plan.
However, Shares with respect to which a Stock Appreciation Right has been
exercised, whether paid in cash and/or in Shares, and Shares of Restricted
Stock which have been granted with dividend or voting rights during the Term
of the Restricted Stock may not again be awarded under this Plan.
(c)
UNEXERCISED AWARDS. Any unexercised or undistributed portion of any
terminated, expired, exchanged, or forfeited Award or any Award settled in
cash in lieu of Shares (except as provided in Section 4(b) hereof) shall be
available for further Awards.
(d)
NO FRACTIONAL SHARES. No fractional Shares may be issued under this Plan;
fractional Shares will be rounded to the nearest whole Share.
(e)
MAXIMUM PAYOUTS. No more than 35% of all Shares subject to this Plan may be
granted in the aggregate pursuant to Restricted Stock, Performance Share and
Other Stock-Based Awards.
5. ELIGIBILITY. Awards may be granted under this Plan to any Employee at the
discretion of the Committee. Non-Employee Directors are eligible for certain
Awards under this Plan, as provided in Sections 12 and 13 hereof and subject
to the restrictions in Section 3(c) hereof.
6. GENERAL TERMS OF AWARDS.
(a)
AWARDS. Awards under this Plan may consist of Options (either Incentive Stock
Options or Non-Qualified Stock Options), Stock Appreciation Rights,
Performance Shares, Restricted Stock and Other Stock-Based Awards. Awards of
Restricted Stock may, in the discretion of the Committee, provide the
Participant with dividends or dividend equivalents and voting rights prior to
vesting (whether vesting is based on a period of time or based on attainment
of specified performance conditions).
(b)
AMOUNT OF AWARDS. Each Agreement shall set forth the number of Shares of
Restricted Stock, Stock or Performance Shares subject to such Agreement, or
the number of Shares to which the Option applies or with respect to which
payment upon the exercise of the Stock Appreciation Right is to be
determined, as the case may be, together with such other terms and conditions
applicable to the Award (not inconsistent with this Plan) as determined by
the Committee in its sole discretion.
(c)
TERM. Each Agreement, other than those relating solely to Awards of Stock
without restrictions, shall set forth the Term of the Award and any
applicable Performance Period for Performance Shares, as the case may be, but
in no event shall the Term of an Award (other than Awards granted in lieu of
cash compensation pursuant to Section 13 hereof or the Company's Management
Incentive Plan as amended from time to time) or the Performance Period be
longer than ten years after the date of grant. An Agreement with a
Participant may permit acceleration of vesting requirements and of the
expiration of the applicable Term upon such terms and conditions as shall be
set forth in the Agreement, which may, but need not, include, without
limitation, acceleration resulting from the occurrence of a Change in
Control, a Fundamental Change, or the Participant's death, Disability or
Retirement. Acceleration of the Performance Period of Performance Shares
shall be subject to Section 9(b) hereof.
(d)
AGREEMENTS. Each Award under this Plan shall be evidenced by an Agreement
setting forth the terms and conditions, as determined by the Committee, which
shall apply to such Award, in addition to the terms and conditions specified
in this Plan.
(e)
TRANSFERABILITY. During the lifetime of a Participant to whom an Award is
granted, only such Participant (or such Participant's legal representative
or, if so provided in the applicable Agreement in the case of a Non-Qualified
Stock Option, a permitted transferee as hereafter described) may exercise an
Option or Stock Appreciation Right or receive payment with respect to
Performance Shares or any other Award. No Award of Restricted Stock (prior to
the expiration of the restrictions), Options, Stock Appreciation Rights,
Performance Shares or other Award (other than an award of Stock without
restrictions) may be sold, assigned, transferred, exchanged, or otherwise
encumbered, and any attempt to do so shall be of no effect. Notwithstanding
the immediately preceding sentence, (i) an Agreement may provide that an
Award shall be transferable to a Successor in the event of a Participant's
death and (ii) an Agreement may provide that a Non-Qualified Stock Option
shall be transferable to any member of a Participant's "immediate family" (as
such term is defined in Rule 16a-1(e) promulgated under the Exchange Act, or
any successor rule or regulation) or to one or more trusts whose
beneficiaries are members of such Participant's "immediate family" or
partnerships in which such family members are the only partners; provided,
however, that (1) the Participant receives no consideration for the transfer
and (2) such transferred Non-Qualified Stock Option shall continue to be
subject to the same terms and conditions as were applicable to such
Non-Qualified Stock Option immediately prior to its transfer.
(f)
TERMINATION OF EMPLOYMENT. Except as otherwise determined by the Committee or
provided by the Committee in an applicable Agreement, in case of termination
of employment, the following provisions shall apply:
(1)
OPTIONS AND STOCK APPRECIATION RIGHTS.
(i)
DEATH. If a Participant who has been granted an Option or Stock Appreciation
Rights shall die before such Option or Stock Appreciation Rights have
expired, the Option or Stock Appreciation Rights shall become exercisable in
full, and may be exercised by the Participant's Successor at any time, or
from time to time, within three years after the date of the Participant's
death.
(ii)
DISABILITY OR RETIREMENT. If a Participant's employment terminates because of
Disability or Retirement, the Option or Stock Appreciation Rights shall
become exercisable in full, and the Participant may exercise his or her
Options or Stock Appreciation Rights at any time, or from time to time,
within three years after the date of such termination.
(iii)
REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT. If a Participant's
employment terminates for any reason other than death, Disability or
Retirement, the unvested or unexercised portion of any Award held by such
Participant shall terminate at the date of termination of employment.
(iv)
EXPIRATION OF TERM. Notwithstanding the foregoing paragraphs (i)-(iii), in no
event shall an Option or a Stock Appreciation Right be exercisable after
expiration of the Term of such Award.
(2)
PERFORMANCE SHARES. If a Participant's employment with the Company or any of
its Affiliates terminates during a Performance Period because of death,
Disability or Retirement, or under other circumstances provided by the
Committee in its discretion in the applicable Agreement, the Participant
shall be entitled to a payment of Performance Shares at the end of the
Performance Period based upon the extent to which achievement of performance
targets was satisfied at the end of such period (as determined at the end of
the Performance Period) and prorated for the portion of the Performance
Period during which the Participant was employed by the Company or any
Affiliate. Except as provided in this Section 6(f)(2) or in the applicable
Agreement, if a Participant's employment terminates with the Company or any
of its Affiliates during a Performance Period, then such Participant shall
not be entitled to any payment with respect to that Performance Period.
(3)
RESTRICTED STOCK. In case of a Participant's death, Disability or Retirement,
the Participant shall be entitled to receive that number of shares of
Restricted Stock under outstanding Awards which has been pro rated for the
portion of the Term of the Awards during which the Participant was employed
by the Company or any Affiliate, and with respect to such Shares all
restrictions shall lapse.
(g)
RIGHTS AS SHAREHOLDER. A Participant shall have no rights as a shareholder
with respect to any securities covered by an Award until the date the
Participant becomes the holder of record.
7. STOCK OPTIONS.
(a)
TERMS OF ALL OPTIONS. Each Option shall be granted pursuant to an Agreement
as either an Incentive Stock Option or a Non-Qualified Stock Option. Only
Non-Qualified Stock Options may be granted to Employees who are not employees
of the Company or an Affiliate. The purchase price of each Share subject to
an Option shall be determined by the Committee and set forth in the
Agreement, but shall not be less than 100% of the Fair Market Value of a
Share as of the date the Option is granted. The purchase price of the Shares
with respect to which an Option is exercised shall be payable in full at the
time of exercise, provided that, to the extent permitted by law, Participants
may simultaneously exercise Options and sell the Shares thereby acquired
pursuant to a brokerage or similar relationship and use the proceeds from
such sale to pay the purchase price of such Shares. The purchase price may be
paid in cash, or through a reduction of the number of Shares delivered to the
Participant upon exercise of the Option or by delivery to the Company of
Shares held by such Participant (in each case, such Shares having a Fair
Market Value as of the date the Option is exercised equal to the purchase
price of the Shares being purchased pursuant to the Option), or a combination
thereof, unless otherwise provided in the Agreement. Each Option shall be
exercisable in whole or in part on the terms provided in the Agreement. In no
event shall any Option be exercisable at any time after its Term. When an
Option is no longer exercisable, it shall be deemed to have lapsed or
terminated. No Participant may receive any combination of Options to purchase
and Stock Appreciation Rights relating to more than 500,000 Shares in the
aggregate (which amount includes up to 350,000 Shares pursuant to Awards and
up to 150,000 Shares received in lieu of cash compensation at the
Participant's election as permitted by the Compensation Committee) pursuant
to Awards over a five-year period under this Plan.
(b)
INCENTIVE STOCK OPTIONS. In addition to the other terms and conditions
applicable to all Options:
(i)
the aggregate Fair Market Value (determined as of the date the Option is
granted) of the Shares with respect to which Incentive Stock Options held by
an individual first become exercisable in any calendar year (under this Plan
and all other incentive stock option plans of the Company and its Affiliates)
shall not exceed $100,000 (or such other limit as may be required by the
Code), if such limitation is necessary to qualify the Option as an Incentive
Stock Option, and to the extent an Option or Options granted to a Participant
exceed such limit, such Option or Options shall be treated as a Non-Qualified
Stock Option;
(ii)
an Incentive Stock Option shall not be exercisable and the Term of the Award
shall not be more than ten years after the date of grant (or such other limit
as may be required by the Code) if such limitation is necessary to qualify
the Option as an Incentive Stock Option;
(iii)
the Agreement covering an Incentive Stock Option shall contain such other
terms and provisions which the Committee determines necessary to qualify such
Option as an Incentive Stock Option; and
(iv)
notwithstanding any other provision of this Plan to the contrary, no
Participant may receive an Incentive Stock Option under this Plan if, at the
time the Award is granted, the Participant owns (after application of the
rules contained in Section 424(d) of the Code, or its successor provision)
Shares possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or its subsidiaries, unless (A) the
option price for such Incentive Stock Option is at least 110% of the Fair
Market Value of the Shares subject to such Incentive Stock Option on the date
of grant and (B) such Option is not exercisable after the date five years
from the date such Incentive Stock Option is granted.
8. STOCK APPRECIATION RIGHTS. An Award of a Stock Appreciation Right shall
entitle the Participant, subject to terms and conditions determined by the
Committee, to receive upon exercise of the Stock Appreciation Right all or a
portion of the excess of (i) the Fair Market Value of a specified number of
Shares as of the date of exercise of the Stock Appreciation Right over (ii) a
specified price which shall not be less than 100% of the Fair Market Value of
such Shares as of the date of grant of the Stock Appreciation Right. A Stock
Appreciation Right may be granted in connection with a previously or
contemporaneously granted Option, or independent of any Option. If issued in
connection with an Option, the Committee may impose a condition that exercise
of a Stock Appreciation Right cancels the Option with which it is connected
and exercise of the connected Option cancels the Stock Appreciation Right.
Each Stock Appreciation Right may be exercisable in whole or in part on the
terms provided in the Agreement. Notwithstanding anything to the contrary
stated in this Plan, no Stock Appreciation Right shall be exercisable prior
to six months from the date of grant except in the event of the death or
Disability of the Participant. No Stock Appreciation Right shall be
exercisable at any time after its Term. When a Stock Appreciation Right is no
longer exercisable, it shall be deemed to have lapsed or terminated. Except
as otherwise provided in the applicable Agreement, upon exercise of a Stock
Appreciation Right, payment to the Participant (or to his or her Successor)
shall be made in the form of cash, Stock or a combination of cash and Stock
as promptly as practicable after such exercise. The Agreement may provide for
a limitation upon the amount or percentage of the total appreciation on which
payment (whether in cash and/or Stock) may be made in the event of the
exercise of a Stock Appreciation Right. As specified in Section 7(a) hereof,
no Participant may receive any combination of Options to purchase and Stock
Appreciation Rights relating to more than 500,000 Shares in the aggregate
pursuant to Awards over a five-year period under this Plan.
9. PERFORMANCE SHARES.
(a)
INITIAL AWARD. An Award of Performance Shares shall entitle a Participant (or
a Successor) to future payments based upon the achievement of performance
targets established in writing by the Committee. Payment shall be made in
Stock, or a combination of cash and Stock, as determined by the Committee,
provided that at least 25% of the value of the vested Performance Shares
shall be distributed in the form of Stock. With respect to those Participants
who are "covered employees" within the meaning of Section 162(m) of the Code
and the regulations thereunder, such performance targets shall consist of one
or any combination of two or more of revenue, revenue per employee, earnings
before income tax (profit before taxes), earnings before interest and income
tax, net earnings (profits after tax), earnings per employee, tangible,
controllable or total asset turnover, earnings per share, operating income,
total shareholder return, market share, return on equity, before- or
after-tax return on net assets, distribution expense, inventory turnover, or
economic value added, and any such targets may relate to one or any
combination of two or more of corporate, group, unit, division, Affiliate or
individual performance. The Agreement may establish that a portion of the
maximum amount of a Participant's Award will be paid for performance which
exceeds the minimum target but falls below the maximum target applicable to
such Award. The Agreement shall also provide for the timing of such payment.
Following the conclusion or acceleration of each Performance Period, the
Committee shall determine the extent to which (i) performance targets have
been attained, (ii) any other terms and conditions with respect to an Award
relating to such Performance Period have been satisfied, and (iii) payment is
due with respect to a Performance Share Award. No Participant may receive
Performance Shares relating to more than 85,000 Shares pursuant to Awards
over a five-year period under this Plan.
(b)
ACCELERATION AND ADJUSTMENT. The Agreement may permit an acceleration of the
Performance Period and an adjustment of performance targets and payments with
respect to some or all of the Performance Shares awarded to a Participant,
upon such terms and conditions as shall be set forth in the Agreement, upon
the occurrence of certain events, which may, but need not, include without
limitation a Change in Control, a Fundamental Change, the Participant's
death, Disability or Retirement, a change in accounting practices of the
Company or its Affiliates, or, with respect to payments in Stock for
Performance Share Awards, a reclassification, stock dividend, stock split or
stock combination as provided in Section 14(f) hereof.
(c)
VALUATION. Each Performance Share earned after conclusion of a Performance
Period shall have a value equal to the average of the Fair Market Values of a
Share for the 20 consecutive business days ending on and including the last
day of such Performance Period.
10. RESTRICTED STOCK. Restricted Stock may be granted in the form of Shares
registered in the name of the Participant but held by the Company until the
end of the Term of the Award. Any employment conditions, performance
conditions and the Term of the Award shall be established by the Committee in
its discretion and included in the applicable Agreement. The Committee may
provide in the applicable Agreement for the lapse or waiver of any such
restriction or condition based on such factors or criteria as the Committee,
in its sole discretion, may determine. No Award of Restricted Stock may vest
earlier than one year from the date of grant, except as provided in the
applicable Agreement.
11. OTHER STOCK-BASED AWARDS. The Committee may from time to time grant
Awards of Stock, and other Awards under this Plan (collectively herein
defined as "Other Stock-Based Awards"), including without limitation those
Awards pursuant to which Shares may be acquired in the future, such as Awards
denominated in Stock units, securities convertible into Stock and phantom
securities. The Committee, in its sole discretion, shall determine the terms
and conditions of such Awards provided that such Awards shall not be
inconsistent with the terms and purposes of this Plan. The Committee may, in
its sole discretion, direct the Company to issue Shares subject to
restrictive legends and/or stop transfer instructions which are consistent
with the terms and conditions of the Award to which such Shares relate.
12. AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS.
(a)
INITIAL OPTION GRANTS. Each Non-Employee Director first elected or appointed
to the Board on or after the date of the 1994 Annual Meeting of Shareholders
of the Company shall, without any Committee action, automatically be granted,
on the date such director first becomes a director, a Non-Qualified Stock
Option to purchase that number of Shares determined by dividing (i) an amount
equal to $152,000 plus a percentage increase in such $152,000 amount which is
equal to the percentage increase from the $19,000 Annual Retainer in effect
at the time of the 1994 Annual Meeting of Shareholders of the Company to the
Annual Retainer in effect at the date such director first becomes a director
by (ii) the Fair Market Value of a Share on the date of grant. No increase in
the Annual Retainer of the Non-Employee Directors after a person becomes a
Non-Employee Director shall increase the number of Shares for which the
Non-Qualified Stock Option granted under this Section 12(a) to such
Non-Employee Director may be exercised. An employee of the Company or an
Affiliate who terminates such employment and thereafter becomes a
Non-Employee Director is not entitled to receive a Non-Qualified Stock Option
under this Section 12(a), but will be entitled to receive Non-Qualified Stock
Options under Section 12(b) hereof. A Non-Employee Director is not entitled
to receive more than one Non-Qualified Stock Option under this Section 12(a)
during his or her lifetime.
(b)
ANNUAL OPTION GRANTS. Each year on the date of the Annual Meeting of
Shareholders of the Company, each Non-Employee Director who is a director of
the Company immediately following such Annual Meeting shall, without any
Committee action, automatically be granted a Non-Qualified Stock Option to
purchase that number of Shares equal to the sum of (i) the Annual Retainer
for Non-Employee Directors in effect when the grant is made, (ii) the
aggregate meeting fees in effect when the grant is made for the total number
of regular Board meetings held in the previous fiscal year and the median
number of regular Board committee meetings directors were scheduled to attend
during the previous fiscal year, and (iii) one annual committee chairmanship
fee in effect when the grant is made, divided by the Fair Market Value of a
Share on the date of the grant. No increase in the Annual Retainer, Board or
Board committee meeting fee or committee chairmanship fee for Non-Employee
Directors of the Company following the annual Non-Qualified Stock Option
grant shall increase the number of Shares for which such Non-Qualified Stock
Option may be exercised.
(c)
AGREEMENTS. Each such Non-Qualified Stock Option shall be evidenced by and
subject to the provisions of an agreement setting forth the terms of the
Non-Qualified Stock Option. It is intended that the provisions of this
Section 12 shall not cause the Non-Employee Directors to cease to be
considered Disinterested Persons and, as a result, the provisions of this
Section 12 shall be interpreted to be consistent with the foregoing intent.
Non-Employee Directors may not be granted Options under this Plan other than
pursuant to the provisions of this Section 12.
(d)
PURCHASE PRICE; TERM AND EXERCISABILITY OF OPTIONS. The purchase price of
each Share subject to a Non-Qualified Stock Option granted under this Section
12 shall be the Fair Market Value of a Share as of the date the Non-Qualified
Stock Option is granted. Notwithstanding anything to the contrary stated in
this Plan, for purposes of this Section 12 and the definition of Fair Market
Value in Section 2(n) hereof, each Non-Qualified Stock Option granted
pursuant to this Section 12 shall be deemed conclusively to have been granted
prior to the close of the applicable securities exchange or system on the
date of grant. Non-Qualified Stock Options granted to a Non-Employee Director
shall vest and become exercisable in full one year after the date of grant,
provided, however, that in no event shall a Non-Employee Director initially
appointed by the Board be entitled to exercise a Non-Qualified Stock Option
unless, and until such time as, such director shall have been elected to the
Board by the shareholders of the Company. Notwithstanding the foregoing,
vesting of a Non-Qualified Stock Option granted to a Non-Employee Director
who shall have been elected by the shareholders of the Company shall
accelerate and the Non-Qualified Stock Option shall become immediately
exercisable in full upon the occurrence of a Change in Control or in the
event that the Non-Employee Director ceases to serve as a director of the
Company due to death, Disability or retirement under the policies of the
Company then in effect providing for retirement of directors from the Board.
Non-Qualified Stock Options granted to a Non-Employee Director shall expire
at the earlier of (i) the ten-year anniversary date of the Non-Qualified
Stock Option's grant, or (ii) the five-year anniversary date of the earlier
of (A) termination as a director due to such death, Disability or retirement
or (B) the date the Non-Employee Director otherwise ceases to be a director
of the Company, provided that the Non-Qualified Stock Option granted to a
Non-Employee Director initially appointed by the Board shall expire on the
date such director ceases to be a director of the Company unless such
director shall have been elected by the shareholders subsequent to the grant
of the Non-Qualified Stock Option to such director.
(e)
PAYMENT OF OPTION PRICE. A Non-Employee Director may exercise a Non-Qualified
Stock Option granted pursuant to this Section 12 using as payment any form of
consideration provided for in Section 7(a) hereof, which form of payment
shall be within the sole discretion of the Non-Employee Director,
notwithstanding anything stated in Section 7(a) hereof.
(f)
LIMITED RIGHTS.
(i)
In conjunction with the grant of any Non-Qualified Stock Option pursuant to
this Section 12 (a "Related Option"), the Non-Employee Director receiving
such grant shall simultaneously be granted a limited Stock Appreciation Right
("Limited Rights") with respect to all of the Shares covered by such Related
Option. Each Limited Right shall be evidenced by a written limited right
certificate signed by an officer of the Company.
(ii)
Limited Rights shall be exercisable at any time within the thirty-day period
after a Change in Control, whether or not the Related Option is exercisable
and regardless of whether the Participant is a Non-Employee Director at the
time of exercise, so long as the holder of the Related Option is a
Non-Employee Director immediately preceding the Change in Control (provided
that in no event shall a Non-Employee Director initially appointed by the
Board be entitled to exercise the Limited Rights granted to such director
under this Plan unless, and until such time as, such director shall have been
elected to the Board by the shareholders of the Company).
(iii)
Notwithstanding the provisions of paragraph (ii) above, no Limited Right
shall be exercised within a period of six months after the date of grant of
the Limited Right.
(iv)
If Limited Rights are exercised, the Related Option shall no longer be
exercisable to the extent of the number of Shares with respect to which the
Limited Rights were exercised. Upon the exercise or termination of a Related
Option, Limited Rights granted with respect thereto shall terminate to the
extent of the number of Shares as to which the Related Option was exercised
or terminated.
(v)
A person entitled to exercise a Limited Right may, subject to its terms and
conditions and the terms and conditions of this Plan, exercise such Limited
Right in whole or in part by giving written notice to the Company of an
election to exercise such Limited Right. The date the Company receives the
notice is the exercise date. Upon exercise of Limited Rights, the holder
shall promptly be paid an amount in cash for each Share with respect to which
the Limited Rights are exercised equal to the difference between the exercise
price per Share covered by the Related Option and the Fair Market Value per
Share covered by the Related Option as of the date of exercise of the Limited
Right.
(vi)
A Limited Right may not be assigned and shall be transferable only if and to
the extent that the Related Option is transferable.
(g)
TRANSFERABILITY. During the lifetime of a Non-Employee Director who has been
granted a Non-Qualified Stock Option pursuant to this Section 12, only the
Non-Employee Director (or such Non-Employee Director's legal representative
or, if transfers to members of the Non-Employee Director's "immediate family"
or to family trusts or partnerships become permitted as hereinafter provided,
a permitted transferee) may exercise the Non-Qualified Stock Option. No such
Non-Qualified Stock Option may be sold, assigned, transferred, exchanged, or
otherwise encumbered, and any attempt to do so shall be of no effect. The
foregoing sentence notwithstanding, from and after the earlier of (i) the
time that Exchange Act Rule 16b-3 no longer prohibits such transfers as a
condition to application of such Rule or (ii) the time that the Non-Employee
Director retires from the Board and is no longer subject to the reporting
requirements of Section 16 of the Exchange Act, such Non-Employee Director
may transfer a Non-Qualified Stock Option granted pursuant to this Section 12
to any member of such Non-Employee Director's "immediate family" (as such
term is defined in Rule 16a-1(e) promulgated under the Exchange Act, or any
successor rule or regulation) or to one or more trusts whose beneficiaries
are members of such Non-Employee Director's "immediate family" or
partnerships in which such family members are the only partners; provided,
however, that (i) the transferor receives no consideration for the transfer
and (ii) such transferred Non-Qualified Stock Option shall continue to be
subject to the same terms and conditions as were applicable to such
Non-Qualified Stock Option immediately prior to its transfer. Unless a
Non-Qualified Stock Option granted pursuant to this Section 12 shall have
expired, in the event of a Non-Employee Director's death, a Non-Qualified
Stock Option granted to such Non-Employee Director pursuant to this Section
12 shall be transferable to the beneficiary, if any, designated by the
Non-Employee Director in writing to the Company prior to the Non-Employee
Director's death and such beneficiary shall succeed to the rights of the
Non-Employee Director to the extent permitted by law. If no such designation
of a beneficiary has been made, the Non-Employee Director's legal
representative shall succeed to such Non-Qualified Stock Option, which shall
be transferable by will or pursuant to the laws of descent and distribution.
(h)
PRIOR PLAN. In the event that this Plan is approved and ratified by the
shareholders of the Company as provided by Section 14(a) hereof, all
Non-Employee Director Non-Qualified Stock Options granted from and after such
approval shall be deemed to have been granted pursuant to this Plan and not
pursuant to any prior plan of the Company or otherwise.
13. ELECTIVE GRANTS TO NON-EMPLOYEE DIRECTORS IN LIEU OF COMPENSATION.
(a)
ISSUANCE OF RESTRICTED STOCK. Each Non-Employee Director may irrevocably
elect to receive all or any portion of the Annual Retainer, plus any
applicable fixed annual chairmanship fee payable to such Non-Employee
Director, in the form of Restricted Stock to be issued as of the first day of
the year for which such Annual Retainer is payable (currently October 1)
(which issuances of Restricted Stock shall be prorated for fractional years
for those Non-Employee Directors scheduled to retire, in accordance with the
policies of the Company then in effect, prior to the annual meeting following
such date). Each irrevocable election shall be made by the Non-Employee
Director on a form provided by the Company and returned to the officer or
other employee of the Company designated on such form at least six months
before the date the Restricted Stock will be issued (currently April 1). In
the event of such an election, a number of shares of Restricted Stock equal
to the portion of the Annual Retainer and such chairmanship fees as to which
the election is made, divided by the Fair Market Value of a Share as of the
first business day of the month in which the Restricted Stock is issued,
shall be issued in the name of the Non-Employee Director as of such date. The
remainder of the Annual Retainer and such chairmanship fees shall be paid in
cash to the Non-Employee Director at such time or times as payments thereof
are customarily made by the Company to Non-Employee Directors who receive
such payments in cash, except that each such payment shall be prorated based
upon the total percentage of the Annual Retainer and such chairmanship fees
with respect to which the Non-Employee Director has not elected to receive
Restricted Stock.
(b)
LAPSE OF RESTRICTIONS. The Shares of Restricted Stock issued under this
Section 13 may not be assigned, sold, pledged, hypothecated or otherwise
transferred or disposed of (including, without limitation, transfer by gift
or donation) except that such restrictions shall lapse upon the first to
occur of the following events:
(i)
death, or resignation or removal of the Non-Employee Director from the Board
as a result of the Disability of the Non-Employee Director;
(ii)
retirement of the Non-Employee Director from the Board in accordance with the
policies of the Company then in effect providing for retirement of
Non-Employee Directors;
(iii)
acceptance by the Board of the offer of the Non-Employee Director to resign
from the Board in accordance with the policies of the Company then in effect
after a material change in such Non-Employee Director's full-time position or
responsibilities;
(iv)
termination of service as a director with the consent of a majority of the
members of the Board other than the terminating Non-Employee Director; or
(v)
a Change in Control.
The Shares of Restricted Stock shall be held by the Company until the lapse
of the restrictions pursuant to this Section 13 (at which time they shall be
delivered to the Non-Employee Director without any legend on the Share
certificates referencing this Plan); provided, however, that unless and until
the Shares of Restricted Stock are forfeited pursuant to the last sentence of
this paragraph, the Non-Employee Director shall be entitled to all voting,
dividend and distribution rights with respect to such Shares (except that
dividends in Stock and Shares issued upon stock splits shall be deemed to
constitute additional Restricted Stock to be held by the Company pursuant to
this Plan). If the Non-Employee Director ceases to be a director of the
Company before the restrictions on the Restricted Stock lapse pursuant to
this Section 13, the Restricted Stock issued to the Non-Employee Director
shall be forfeited and revert to the Company.
(c)
PRIOR PLAN. In the event that this Plan is approved and ratified by the
shareholders of the Company as provided by Section 14(a) hereof, all Shares
of Restricted Stock granted to Non-Employee Directors from and after such
approval shall be deemed to have been granted pursuant to this Plan and not
pursuant to any prior plan of the Company or otherwise.
14. GENERAL PROVISIONS.
(a)
EFFECTIVE DATE OF THIS PLAN. This Plan shall become effective as of April 29,
1994, provided that this Plan is approved and ratified by the affirmative
vote of the holders of a majority of the outstanding Shares of Stock present
or represented and entitled to vote in person or by proxy at a meeting of the
shareholders of the Company no later than August 31, 1994.
(b)
DURATION OF THIS PLAN. This Plan shall remain in effect until all Stock
subject to it shall be distributed or all Awards have expired or lapsed,
whichever is latest to occur, or this Plan is terminated pursuant to Section
14(e) hereof. No Award of an Incentive Stock Option shall be made more than
ten years after the effective date provided in Section 14(a) hereof (or such
other limit as may be required by the Code) if such limitation is necessary
to qualify the Option as an Incentive Stock Option. Except with respect to
Awards granted pursuant to Sections 12 and 13 hereof, the date and time of
approval by the Committee of the granting of an Award shall be considered the
date and time at which such Award is made or granted, notwithstanding the
date of any Agreement with respect to such Award; provided, however, that the
Committee may grant Awards other than Incentive Stock Options to be effective
and deemed to be granted on the occurrence of certain specified
contingencies.
(c)
RIGHT TO TERMINATE EMPLOYMENT. Nothing in this Plan or in any Agreement shall
confer upon any Participant who is an Employee the right to continue in the
employment of the Company or any Affiliate or affect any right which the
Company or any Affiliate may have to terminate or modify the employment of
the Participant with or without cause.
(d)
TAX WITHHOLDING. The Company may withhold from any payment of cash or Stock
to a Participant or other person under this Plan an amount sufficient to
cover any required withholding taxes, including the Participant's social
security and medicare taxes (FICA) and federal, state and local income tax
with respect to income arising from payment of the Award. The Company shall
have the right to require the payment of any such taxes before issuing any
Stock pursuant to the Award. In lieu of all or any part of a cash payment
from a person receiving Stock under this Plan, the individual may elect to
cover all or any part of the required withholdings, and to cover any
additional withholdings up to the amount needed to cover the individual's
full FICA and federal, state and local income tax with respect to income
arising from payment of the Award, through a reduction of the number of
Shares delivered to such individual or a subsequent return to the Company of
Shares held by the Participant or other person, in each case valued in the
same manner as used in computing the withholding taxes under the applicable
laws; provided, however, that if at any time withholding shall be required
with respect to Non-Employee Directors, the Committee is required to permit a
Non-Employee Director to make such an election, subject to the limitations of
the following sentence. Such elections are subject to the following
limitations if, and to the extent, such limitations are necessary to comply
with Exchange Act Rule 16b-3 or any successor provision:
(1)
Except as set forth in clause (iii) below, any such election by a Participant
who is then subject to the reporting requirements of Section 16 of the
Exchange Act or any successor provision ("Section 16") or a Successor of such
a Participant may be made only if the conditions set forth in clauses (i) and
(ii) below are satisfied:
(i) (A) the election may be made during the period beginning on the third
business day following the date of public release of the Company's quarterly
or annual summary statements of sales and earnings and ending on the twelfth
business day following such date, or (B) the election may be made at least
six months prior to the date the Award is paid to the Participant;
(ii)
an election may not be made within six months of the date of grant of the
Award to which the payment relates; provided, however, that such restriction
does not apply in the event death or Disability of the Participant occurs
prior to such election and during that six-month period;
(iii)
notwithstanding the foregoing, a Participant who tenders previously owned
Shares to the Company in payment of the purchase price of Shares in
connection with exercise of an Option may also tender previously owned Shares
to the Company in satisfaction of any tax withholding obligations in
connection with such Option exercise without regard to the time periods set
forth in clauses (i) and (ii) above.
The foregoing restrictions do not apply to any Participant who is not subject
to the reporting requirements of Section 16 at the time of the election.
(2)
Any such election by a Participant who is subject to the reporting
requirements of Section 16 at the time is irrevocable and is subject to
approval by the Committee. The Committee's approval may be granted in advance
but is subject to revocation by the Committee at any time.
(e)
AMENDMENT, MODIFICATION AND TERMINATION OF THIS PLAN. Except as provided in
this Section 14(e), the Board may at any time amend, modify, terminate or
suspend this Plan. Except as provided in this Section 14(e), the Committee
may at any time alter or amend any or all Agreements under this Plan to the
extent permitted by law. Amendments are subject to approval of the
shareholders of the Company only if such approval is necessary to maintain
this Plan in compliance with the requirements of Exchange Act Rule 16b-3,
Section 422 of the Code, their successor provisions, or any other applicable
law or regulation. Without the approval of the shareholders of the Company,
no amendment, modification, termination or suspension of this Plan may alter
the provisions of this Plan so as to change the terms, conditions or
eligibility requirements of Awards granted or, subject to the right of the
Board to discontinue this Plan, to be granted to Non-Employee Directors
pursuant to Section 12 or 13 hereof. In no event shall the provisions of this
Plan as they relate to Options, Limited Rights or Shares of Restricted Stock
granted pursuant to Section 12 or 13 hereof be amended more than once every
six months other than to comply with changes in the Code. No termination,
suspension or modification of this Plan may materially and adversely affect
any right acquired by any Participant (or a Participant's legal
representative) or any Successor under an Award granted before the date of
termination, suspension or modification, unless otherwise agreed by the
Participant in the Agreement or otherwise or required as a matter of law. It
is conclusively presumed that any adjustment for changes in capitalization
provided for in Section 9(b) or 14(f) hereof does not adversely affect any
right of a Participant under an Award.
(f)
ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Appropriate adjustments in the
aggregate number and type of Shares available for Awards under this Plan, in
the limitations on the number and type of Shares that may be issued to an
individual Participant, in the number and type of Shares and amount of cash
subject to Awards then outstanding, in the Option exercise price as to any
outstanding Options and, subject to Section 9(b) hereof, in outstanding
Performance Shares and payments with respect to outstanding Performance
Shares may be made by the Committee in its sole discretion to give effect to
adjustments made in the number or type of Shares through a Fundamental Change
(subject to Section 14(g) hereof), recapitalization, reclassification, stock
dividend, stock split, stock combination, or other relevant change, provided
that fractional Shares shall be rounded to the nearest whole Share.
(g)
FUNDAMENTAL CHANGE. In the event of a proposed Fundamental Change: (a)
involving a merger, consolidation or statutory share exchange, unless
appropriate provision shall be made (which the Committee may, but shall not
be obligated to, make) for the protection of the outstanding Options and
Stock Appreciation Rights by the substitution of options, stock appreciation
rights and appropriate voting common stock of the corporation surviving any
such merger or consolidation or, if appropriate, the parent corporation of
the Company or such surviving corporation, to be issuable upon the exercise
of options or used to calculate payments upon the exercise of stock
appreciation rights in lieu of Options, Stock Appreciation Rights and capital
stock of the Company, or (b) involving the dissolution or liquidation of the
Company, the Committee may, but shall not be obligated to, declare, at least
twenty days prior to the occurrence of the Fundamental Change, and provide
written notice to each holder of an Option or Stock Appreciation Right of the
declaration, that each outstanding Option and Stock Appreciation Right,
whether or not then exercisable, shall be cancelled at the time of, or
immediately prior to the occurrence of, the Fundamental Change in exchange
for payment to each holder of an Option or Stock Appreciation Right, within
20 days after the Fundamental Change, of cash equal to (i) for each Share
covered by the cancelled Option, the amount, if any, by which the Fair Market
Value (as defined in this Section 14(g)) per Share exceeds the exercise price
per Share covered by such Option or (ii) for each Stock Appreciation Right,
the price determined pursuant to Section 8 hereof, except that Fair Market
Value of the Shares as of the date of exercise of the Stock Appreciation
Right, as used in clause (i) of Section 8, shall be deemed to mean Fair
Market Value for each Share with respect to which the Stock Appreciation
Right is calculated determined in the manner hereinafter referred to in this
Section 14(g). At the time of the declaration provided for in the immediately
preceding sentence, each Stock Appreciation Right that has been outstanding
for at least six months and each Option shall immediately become exercisable
in full and each person holding an Option or a Stock Appreciation Right shall
have the right, during the period preceding the time of cancellation of the
Option or Stock Appreciation Right, to exercise the Option as to all or any
part of the Shares covered thereby or the Stock Appreciation Right in whole
or in part, as the case may be. In the event of a declaration pursuant to
this Section 14(g), each outstanding Option and Stock Appreciation Right that
shall not have been exercised prior to the Fundamental Change shall be
cancelled at the time of, or immediately prior to, the Fundamental Change, as
provided in the declaration. Notwithstanding the foregoing, no person holding
an Option or Stock Appreciation Right shall be entitled to the payment
provided for in this Section 14(g) if such Option or Stock Appreciation Right
shall have expired pursuant to an Agreement. For purposes of this Section
14(g) only, "Fair Market Value" per Share means the cash plus the fair market
value, as determined in good faith by the Committee, of the non-cash
consideration to be received per Share by the shareholders of the Company
upon the occurrence of the Fundamental Change, notwithstanding anything to
the contrary provided in this Plan.
(h)
OTHER BENEFIT AND COMPENSATION PROGRAMS. Payments and other benefits received
by a Participant under an Award shall not be deemed a part of a Participant's
regular, recurring compensation for purposes of any termination, indemnity or
severance pay laws and shall not be included in, nor have any effect on, the
determination of benefits under any other employee benefit plan, contract or
similar arrangement provided by the Company or an Affiliate, unless expressly
so provided by such other plan, contract or arrangement or the Committee
determines that an Award or portion of an Award should be included to reflect
competitive compensation practices or to recognize that an Award has been
made in lieu of a portion of competitive cash compensation.
(i)
BENEFICIARY UPON PARTICIPANT'S DEATH. To the extent that the transfer of a
Participant's Award at death is permitted by this Plan or under an Agreement,
(i) a Participant's Award shall be transferable to the beneficiary, if any,
designated on forms prescribed by and filed with the Committee and (ii) upon
the death of the Participant, such beneficiary shall succeed to the rights of
the Participant to the extent permitted by law and this Plan. If no such
designation of a beneficiary has been made, the Participant's legal
representative shall succeed to the Awards, which shall be transferable by
will or pursuant to laws of descent and distribution to the extent permitted
by this Plan or under an Agreement.
(j)
FORFEITURES. In the event an Employee has received or been entitled to
payment of cash, delivery of Stock or a combination thereof pursuant to an
Award within six months prior to the Employee's termination of employment
with the Company and its Affiliates, the Committee, in its sole discretion,
may require the Employee to return or forfeit the cash and/or Stock received
with respect to the Award (or its economic value as of (i) the date of the
exercise of Options or Stock Appreciation Rights, (ii) the date of, and
immediately following, the lapse of restrictions on Restricted Stock or the
receipt of Stock without restrictions, or (iii) the date on which the right
of the Employee to payment with respect to Performance Shares vests, as the
case may be) in the event of any of the following occurrences: competition
with the Company or any Affiliate, unauthorized disclosure of material
proprietary information of the Company or any Affiliate, a violation of
applicable business ethics policies or business policies of the Company or
any Affiliate, or any other occurrence specified in the related Agreement.
The Committee's right to require forfeiture must be exercised within 90 days
after discovery of such an occurrence but in no event later than 15 months
after the Employee's termination of employment with the Company and its
Affiliates.
(k)
UNFUNDED PLAN. This Plan shall be unfunded and the Company shall not be
required to segregate any assets that may at any time be represented by
Awards under this Plan. Neither the Company, its Affiliates, the Committee,
nor the Board shall be deemed to be a trustee of any amounts to be paid under
this Plan nor shall anything contained in this Plan or any action taken
pursuant to its provisions create or be construed to create a fiduciary
relationship between the Company and/or its Affiliates, and a Participant or
Successor. To the extent any person acquires a right to receive an Award
under this Plan, such right shall be no greater than the right of an
unsecured general creditor of the Company.
(l)
LIMITS OF LIABILITY.
(i)
Any liability of the Company to any Participant with respect to an Award
shall be based solely upon contractual obligations created by this Plan and
the Agreement.
(ii)
Except as may be required by law, neither the Company nor any member or
former member of the Board or of the Committee, nor any other person
participating (including participation pursuant to a delegation of authority
under Section 3(b) hereof) in any determination of any question under this
Plan, or in the interpretation, administration or application of this Plan,
shall have any liability to any party for any action taken, or not taken, in
good faith under this Plan.
(m)
COMPLIANCE WITH APPLICABLE LEGAL REQUIREMENTS. No certificate for Shares
distributable pursuant to this Plan shall be issued and delivered unless the
issuance of such certificate complies with all applicable legal requirements
including, without limitation, compliance with the provisions of applicable
state securities laws, the Securities Act of 1933, as amended and in effect
from time to time or any successor statute, the Exchange Act and the
requirements of the exchanges on which the Company's Shares may, at the time,
be listed.
(n)
DEFERRALS AND SETTLEMENTS. The Committee may require or permit Participants
to elect to defer the issuance of Shares or the settlement of Awards in cash
under such rules and procedures as it may establish under this Plan. It may
also provide that deferred settlements include the payment or crediting of
interest on the deferral amounts. Participants who are eligible to
participate in the Medtronic, Inc. Capital Accumulation Plan Deferral Program
("CAP") shall be entitled to defer some or all of the cash portion of any
Performance Shares granted to them hereunder in accordance with the terms of
the CAP.
15. GOVERNING LAW. To the extent that federal laws do not otherwise control,
this Plan and all determinations made and actions taken pursuant to this Plan
shall be governed by the laws of Minnesota and construed accordingly.
16. SEVERABILITY. In the event any provision of this Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of this Plan, and this Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
17. TERMINATION OF PRIOR PLANS. Effective upon the approval of this Plan by
the Company's shareholders as provided by Section 14(a) hereof, no further
grants of options, performance shares or restricted stock or any other awards
shall be made under the Company's 1979 Restricted Stock and Performance Share
Award Plan, 1979 Nonqualified Stock Option Plan, 1989 Phantom Stock Award
Plan or 1991 Restricted Stock Plan for Non-Employee Directors (the "Prior
Plans"). Thereafter, all grants and awards made under the Prior Plans prior
to such approval by the shareholders shall continue in accordance with the
terms of the Prior Plans.
APPENDIX B
MEDTRONIC, INC.
MANAGEMENT INCENTIVE PLAN
(AMENDED EFFECTIVE APRIL 29, 1994)
I. PURPOSES
This Medtronic, Inc. Management Incentive Plan is effective as of April 29,
1994 (the "Plan") and amends and restates in its entirety the existing
Restated Medtronic, Inc. Management Incentive Plan originally adopted May 1,
1977 and most recently restated June 27, 1991. The Plan is designed to
motivate officers and other key employees to achieve the Company's operating
goals by providing the opportunity for incentive compensation in addition to
annual salaries. The Plan is also designed to promote the accomplishment of
management's primary annual objectives as reflected in the Company's annual
operating plan, in the various business unit annual operating plans, and in
the objectives established by management for employees, and to recognize the
achievement of management's objectives through the payment of incentive
compensation.
It is not the purpose of this Plan to reward employees for consistent
performance of primary job responsibilities, nor to assure the payment of
fixed salaries comparable in amount to those paid by similar companies, nor
to recognize achievements related to successful daily performance on the job,
all of which are intended to be identified, recognized, and rewarded through
the Company's ongoing administration of base salaries.
The Company intends that all amounts paid to Covered Employees under this
Plan should qualify as deductible "performance-based compensation" under
Section 162(m) of the Code, and the Plan shall be interpreted in accordance
with this intent.
II. DEFINITIONS
2.01 DEFINITIONS. As used in the Plan:
(a)
"Affiliate" shall mean any corporation that is a "parent corporation" or
"subsidiary corporation" of the Company, as those terms are defined in
Sections 424(e) and (f) of the Code, or any successor provision, and any
joint venture in which the Company or any such "parent corporation" or
"subsidiary corporation" owns an equity interest.
(b)
"Board of Directors" or "Board" shall mean the Board of Directors of the
Company.
(c)
"Chief Executive Officer" shall mean the person duly elected by the Board to
the office of Chief Executive Officer of the Company.
(d)
"Code" shall mean the Internal Revenue Code of 1986, as amended and in effect
from time to time, or any successor statute.
(e)
"Committee" shall mean the Compensation Committee of the Board of Directors,
which shall consist of members of the Board who are not employees and who are
not eligible for participation in this Plan.
(f)
"Company" shall mean Medtronic, Inc., its Affiliates and their successors and
assigns.
(g)
"Covered Employee" shall mean any Employee who is a "covered employee" as
defined in section 162(m) of the Code.
(h)
"Employee" shall mean any employee of the Company, whether or not an officer
or member of the Board, but excluding any temporary employee and any person
serving the Company only in the capacity of a member of the Board.
(i)
"Participant" shall mean an Employee who has been selected in accordance with
the Plan's terms by the Committee or the Chief Executive Officer for
participation in this Plan.
(j)
"Participation Categories" shall mean those categories which specify the
range of plan awards, one of which categories will be assigned to each Plan
Participant. The Participation Categories may be redesignated or revised
(such as by establishing more or fewer categories or by changing the
percentages of salary ranges applicable to a category) from time to time at
or prior to the commencement of an applicable Plan Year by the Committee or,
except as otherwise provided in Sections 3.02 and 3.03, by the Chief
Executive Officer if such administrative responsibility has been delegated to
such officer by the Committee.
(k)
"Performance Categories" shall mean those financial and management
objective-based categories for performance measurement specified in Section
4.05 hereof.
(l)
"Plan Year" shall mean the applicable fiscal year of the Company.
(m)
"Salary" shall mean the direct gross (as opposed to taxable) compensation
earned by a Participant as base salary during the Plan Year, excluding any
and all commissions, bonuses, incentive payments for the current Plan Year or
prior Plan Years and other similar payments.
(n)
"Subsidiary" means a "subsidiary corporation," as that term is defined in
Section 424(f) of the Code, or any successor provision.
Certain other terms used in the Plan shall have the meanings ascribed to such
terms in the text of the Plan.
III. ADMINISTRATION OF THE PLAN
3.01 COMMITTEE OVERSIGHT. The Committee will administer the Plan by majority
vote. The Committee may establish such rules and regulations as it deems
necessary for the Plan and its interpretation. In addition, the Committee may
make such determinations and take such actions in connection with the Plan as
it deems necessary. Each determination made by the Committee in accordance
with the provisions of the Plan will be final, binding and conclusive. The
Committee may rely on the financial statements certified by the Company's
independent public accountants.
3.02 CHIEF EXECUTIVE OFFICER'S OVERSIGHT. Except as provided in Section 3.03,
the Committee may delegate some or all of its administrative powers and
responsibilities under the Plan to the Chief Executive Officer for Employees
other than any Covered Employee. The Chief Executive Officer may make such
determinations and take such actions within the scope of such delegation and
as otherwise provided in the Plan as he deems necessary. Each such
determination made by the Chief Executive Officer will be final, binding and
conclusive. The Chief Executive Officer may rely on the financial statements
certified by the Company's independent public accountants. Unless the
Committee determines otherwise, the Committee shall be treated as delegating
its authority to the Chief Executive Officer to the full extent permitted
hereunder.
3.03 FURTHER APPROVAL NECESSARY. The Committee in its sole discretion may
modify, suspend, terminate or reinstate the Plan; provided, however, that the
Committee must receive prior approval of the Board of Directors (a) to render
nonemployees, whether or not members of the Board of Directors, eligible to
participate in the Plan, or (b) to increase the maximum awards (expressed as
a percentage of salary) for a Participation Category beyond the maximum award
which has been previously approved by the Board for such Participation
Category.
IV. ELIGIBILITY AND PARTICIPATION
4.01 CERTAIN PARTICIPANTS SELECTED BY COMMITTEE. At the beginning of each
Plan Year (or at such other time as is consistent with the requirements under
Section 162(m) of the Code), the Committee will assign each Covered Employee
to a Participation Category.
4.02 OTHER PARTICIPANTS. Employees eligible to participate in the Plan shall
include executives, heads of key staff functions, heads of operating business
units and other major contributors to business unit or corporate results. At
the beginning of each Plan Year, the Chief Executive Officer will select
Participants in the Plan (other than those Participants who are to be
assigned to Participation Categories by the Committee pursuant to Section
4.01 hereof) from among such eligible employees. In addition, the Chief
Executive Officer may select other employees (other than Covered Employees)
to participate in the Plan when the Chief Executive Officer, in his sole
discretion, deems such participation appropriate.
4.03 FUTURE PARTICIPATION. Participation in the Plan during one Plan Year
does not guarantee participation during any other Plan Year.
4.04 PARTICIPATION CATEGORY. The Chief Executive Officer shall designate for
each Participant in the Plan (other than Covered Employees) a Participation
Category for purposes of determining the Participant's award. The
Participation Categories and relative awards for such category for each Plan
Year shall be set forth in writing. The range of potential awards to
Participants under the Plan is stated for each Participation Category as
percentages of each Participant's Salary and, if minimum performance
objectives are met or exceeded, actual awards will fall within a scale
ranging from designated minimum awards to designated target awards to
designated maximum awards. The designated target award for each respective
Participation Category is sometimes referred to herein as the "Target Award
Percentage." Notwithstanding any contrary provisions of this Plan, the final
award granted to any Participant under this Plan shall not be permitted to
exceed the maximum award as a percentage of Salary for such Participant's
Participation Category.
4.05 PERFORMANCE CATEGORY. Each Participant's entitlement to an award under
the Plan will be based on one or more of the weighted combinations of the
performance of the Participant individually, as part of a team or as a member
of management ("Management" performance), the Participant's division or other
business unit ("Unit Financial" performance) and the Company as a whole
("Corporate Financial" performance). The Chief Executive Officer shall
designate for each Participant in the Plan (except for Covered Employees) a
Performance Category for purposes of establishing such weighted combination
from the Participant's Performance Categories. The Committee shall designate
Performance Categories for all Covered Employees; provided however, that for
Covered Employees such Performance Categories shall be based solely on one or
any combination of two or more of revenue, revenue per employee, earnings
before income tax (profit before taxes), earnings before interest and income
tax, net earnings (profit after taxes), earnings per employee, tangible,
controllable or total asset turnover, earnings per share, operating income,
total shareholder return, market share, return on equity, before- or
after-tax return on net assets, distribution expense, inventory turnover, or
economic value added. For Covered Employees, such targets may relate to one
or any combination of two or more of corporate, group, unit, division,
Affiliate, or individual performance, and such designated targets will be
treated as Corporate Financial objectives, Unit Financial objectives, or
Management objectives as appropriate.
V. PERFORMANCE OBJECTIVES
5.01 CORPORATE FINANCIAL OBJECTIVES. Subject to Section 4.05 hereof, at the
beginning of each Plan Year, or, with respect to Covered Employees, at such
other time as is consistent with the requirements under Section 162(m) of the
Code, the Committee will establish the Corporate Financial objectives by
which the Company's financial performance during the Plan Year will be
measured. Each Corporate Financial objective shall have a stated performance
target. In the event that more than one Corporate Financial objective is
used, the multiple Corporate Financial objectives shall be appropriately
weighted by percentage in accordance with their importance (with the
aggregate weighted objectives totalling 100%) at the time the objectives are
established. At the end of each Plan Year the degree of achievement of each
stated Corporate Financial objective shall be expressed as a percentage of
the Corporate Financial performance target for each such objective. When one
objective is used, such percentage shall constitute the "Corporate Financial
Score" as such term is used herein. (When more than one objective is used,
the determined percentage achievement of each objective's target must be
multiplied by the percentage weight (out of 100%) assigned to each such
specific objective, and the resulting percentages for the various objectives
must then be added and such sum shall constitute the Corporate Financial
Score.) The relationship between Corporate Financial performance and awards
hereunder will be distributed to all Participants at the beginning of each
Plan Year.
5.02 OVERRIDING MINIMUM THRESHOLD. At the beginning of each Plan Year (or at
such other time as is consistent with the requirements under Section 162(m)
of the Code), the Committee will designate a minimum threshold level of
Corporate Financial performance objective(s) which the Company must achieve
for there to be any award made under the Plan. If such minimum threshold is
not met or exceeded, no awards will be paid to Participants regardless of
whether other Corporate Financial objectives, Unit Financial objectives or
Management objectives have been met.
5.03 UNIT FINANCIAL OBJECTIVES. Subject to Section 4.05 hereof, at the
beginning of each Plan Year (or at such other time as is consistent with the
requirements under Section 162(m) of the Code), the Vice President or other
unit head responsible for each business unit of the Company will recommend
and the Chief Executive Officer will adopt the Unit Financial objectives by
which the business Unit's Financial performance will be measured. The Unit
Financial objective(s) will be based on financial goals reflected in the
respective business unit's fiscal year operating plan. Each Unit Financial
objective shall have a stated performance target. In the event that more than
one Unit Financial objective is used, the multiple Unit Financial objectives
shall be appropriately weighted in accordance with their importance (with the
aggregate weighted objectives totalling 100%). At the end of each Plan Year
the degree of achievement of each stated Unit Financial objective shall be
expressed as a percentage of the Unit Financial performance target for each
objective. When one objective is used, such percentage shall constitute the
"Unit Financial Score" as such term is used herein. When more than one
objective is used, the determined percentage achievement of each objective's
target must be multiplied by the percentage weight (out of 100%) assigned to
each such specific objective, and the resulting percentages for the various
objectives must then be added and such sum shall constitute the Unit
Financial Score. The relationship between Unit Financial performance and
awards hereunder shall be distributed at the beginning of each Plan Year to
all Participants to which it applies. For all Participants other than Covered
Employees, at the beginning of each Plan Year each business unit Vice
President or other unit head may recommend and the Chief Executive Officer
may adopt, in the Chief Executive Officer's sole discretion, a minimum
threshold level of the business unit's most significant financial objective
which the business unit must achieve for there to be any award based on such
business unit's financial and management performance. If such minimum is
established for any Participant (other than a Covered Employee) and is not
met or exceeded, no award will be paid for one or both of the Unit Financial
and Management portions, as determined by the Chief Executive Officer, under
the Performance Category of each Participant in the business unit. The
Committee shall determine whether a minimum threshold level shall apply in
the case of a Covered Employee and the consequences of the failure to attain
such minimum threshold level.
5.04 MANAGEMENT OBJECTIVES. Subject to Section 4.05 hereof, at the beginning
of each Plan Year (or, with respect to Covered Employees, at such other time
as is consistent with the requirements under Section 162(m) of the Code), the
manager of each Participant will recommend and the Chief Executive Officer
will adopt the Management objectives by which the individual Participant's
performance will be measured. Management objectives shall relate to
objectives in the business unit's annual operating plan and/or long-range
plan. Each Management objective shall have a stated performance target. In
the event that more than one Management objective is used, the multiple
Management objectives shall be appropriately weighted by percentage, at the
time they are established, in accordance with their importance (with the
aggregate weighted objectives totalling 100%). At the end of each Plan Year
the degree of achievement of each stated Management objective shall be
expressed as a percentage of the Management performance target for each such
objective. When one objective is used, such percentage shall constitute the
"Management Score" as such term is used herein. When more than one objective
is used, the determined percentage achievement of each objective's target
must be multiplied by the percentage weight (out of 100%) assigned to each
such specific objective, and the resulting percentages for the various
objectives must then be added and such sum shall constitute the Management
Score. The relationship between individual performance and awards hereunder
will be distributed at the beginning of each Plan Year to all Participants to
which it applies.
5.05 FINAL AWARD FUNDING. At the end of each Plan Year, the Chief Executive
Officer will submit to the Committee a statement of the proposed final award
to be granted to each Participant (including Covered Employees) under the
terms of the Plan. The Committee shall determine and certify that the
performance goals were satisfied and shall make the final award for each such
Participant; provided that no Covered Employee may receive an award under
this Plan in excess of $2 million during any Plan Year. The Chief Executive
Officer shall make the final award for each Participant, other than Covered
Employees, subject, however, to having first received the Committee's
approval of the aggregate amount of the awards to be paid to all of such
Participants.
VI. CALCULATION AND PAYMENT OF AWARDS
6.01 CALCULATION OF AWARDS. Each Participant's final award shall be equal to
the sum of the following:
(a)
CORPORATE FINANCIAL PORTION. The Corporate Financial portion of each
Participant's award will be the product of (i) the Participant's Salary, (ii)
the Target Award Percentage for the Participant's applicable Participation
Category, (iii) the Corporate Financial percentage under the Participant's
Performance Category and (iv) the Corporate Performance Score;
(b)
UNIT FINANCIAL PORTION. The Unit Financial portion of each Participant's
award will be the product of (i) the Participant's Salary, (ii) the Target
Award Percentage for the Participant's applicable Participation Category,
(iii) the Unit Financial percentage under the Participant's Performance
Category and (iv) the Unit Financial Score; and
(c)
MANAGEMENT PORTION. The Management portion of each Participant's award will
be the product of (i) the Participant's Salary, (ii) the Target Award
Percentage for the Participant's applicable Participation Category, (iii) the
Management percentage under the Participant's Performance Category and (iv)
the individual's Management Score;
provided, however, that for Covered Employees subsection (i) of (a), (b) and
(c) above shall be equal to such Participant's annual Salary in effect on the
first day of the Plan Year, if required to comply with Section 162(m) of the
Code.
6.02 PAYMENT OF AWARDS. Final awards shall be paid to each Participant in
cash within 90 days after the end of the Plan Year. Notwithstanding the
preceding sentence: (1) a Participant who is eligible to participate in the
Medtronic, Inc. Capital Accumulation Plan Deferral Program ("CAP") shall be
entitled to defer any part or all of the award granted to him or her
hereunder in accordance with the terms of the CAP, and (2) if the Committee
in its discretion permits, a Participant may elect to receive stock options
granted under the Company's 1994 Stock Award Plan in lieu of any part or all
of the cash award to which the Participant would otherwise be entitled
hereunder, in accordance with rules established by the Committee for such
purpose.
VII. EMPLOYMENT PROVISIONS
7.01 PROMOTIONS AND NEW EMPLOYEES. Except as to Covered Employees (as to whom
such determinations must be made by the Committee), Employees who are newly
hired or promoted into positions eligible for participation in the Plan will
participate in the degree deemed appropriate, if at all, by the Chief
Executive Officer and at the sole discretion of the Chief Executive Officer.
7.02 TERMINATION OF EMPLOYMENT.
(a)
DEATH, DISABILITY OR RETIREMENT. Following termination of employment (which
shall be deemed to occur on the date on which the Participant ceases working
for the Company) during a Plan Year by reason of death, disability or normal
or early retirement, a Participant will be eligible to receive a pro rata
award equal to the portion of the final award, otherwise determined in
accordance with Section 6.01, represented by the percentage equal to the
number of full months of employment during the Plan Year divided by 12. Such
pro rata award will be paid in accordance with Section 6.02.
(b)
OTHER TERMINATION. Following a termination of employment (which shall be
deemed to occur on the date on which the Participant ceases working for the
Company) during a Plan Year for any reason other than death, disability or
normal or early retirement, a Participant's eligibility to receive an award
for that Plan Year will be determined solely at the discretion of the Chief
Executive Officer, or, in the case of a Covered Employee, solely at the
discretion of the Committee. No such award may exceed a pro rata portion of
the amount that normally would be available under the Plan, with such pro
rata portion to be determined as in Section 7.02(a).
If a Participant's employment is terminated for "Cause," the time at which
such employee ceases to be an employee for purposes of this subparagraph
shall mean the time at which such employee is instructed or notified to cease
performing his or her job responsibilities for the Company or any Affiliate,
whether or not for other reasons such as payroll, benefits or compliance with
legal procedures or requirements that he or she may still have other
attributes of an employee. For purposes of this subparagraph, "Cause" shall
mean (i) failure to comply with any material policies and procedures of the
Company, (ii) conduct reflecting dishonesty or disloyalty to the Company, or
which may have a negative impact on the reputation of the Company, (iii)
commission of a felony, theft or fraud, or violations of law involving moral
turpitude or (iv) failure to perform the material duties of his or her
employment.
7.03 NO EMPLOYMENT CONTRACT. Nothing contained in the Plan shall create any
right in any employee to continued employment or otherwise affect his or her
status as an employee-at-will.
VIII. MISCELLANEOUS PROVISIONS
8.01 NONASSIGNABILITY OF BENEFITS. No Participant, nor his or her legal
representative, shall have any right to assign, transfer, appropriate,
encumber or anticipate any interest in the Plan or any payments hereunder.
Participants have only the right to receive payments under this Plan if, as
and when such payments are due and payable under the terms and conditions of
the Plan.
8.02 WITHHOLDING TAXES. The Company will deduct from all payments under the
Plan any taxes required to be withheld by the federal or any state or local
government and will pay over such taxes to such government for the account of
such Participant.
8.03 EXPENSES OF THE PLAN. The Company will bear all of the expenses of
administering the Plan and will not charge such expenses against amounts
payable hereunder.
8.04 APPLICABLE LAW. This Plan, all determinations made hereunder, and all
actions taken pursuant hereto will be governed by the laws of the state of
Minnesota.
IX. CHANGE IN CONTROL
9.01 CALCULATION OF AWARDS. Notwithstanding any other provisions of this
Plan, including without limitation the minimum threshold requirements of
Sections 5.02 and 5.03 and the provisions of Section 7.02(b) which shall not
apply, Participants shall be entitled to a final award calculated in
accordance with Section 6.01 of the Plan during any Plan Year in which there
is a Change in Control, as defined in Section 9.03 hereof; provided, however,
that for purposes hereof the amount of the final award shall be the product
of (i) the amount of the Participant's Salary that the Participant would have
earned if paid through the end of the Plan Year at the Participant's base
salary in effect at the time of the Change in Control and (ii) the greater of
(A) the target award as a percentage of salary for the Participant's
Participation Category or (B) if the Change in Control occurs after the first
quarter of a Plan Year, the award as a percentage of salary that the
Participant would have received if (1) no Change in Control had occurred
during such Plan Year, (2) Participant's employment did not terminate during
such Plan Year and (3) the applicable Management performance, Unit Financial
performance and Corporate Financial performance (or if less than all such
performance categories are to be taken into consideration in determining the
achievement of performance objectives of the Participant, such categories as
are to be taken into consideration in determining the achievement of such
performance objectives) had equalled the performance most recently projected
by the Company prior to the Change in Control with respect to such
performance categories for such Plan Year (adjusted to exclude (a) all legal,
accounting, investment banking and other costs and expenses incurred or
projected by the Company in connection with, or in opposition to, the events
resulting in the Change in Control and (b) the projected effect of the Change
in Control upon Management performance, Unit Financial performance and
Corporate Financial performance). The Company shall compute such projections
for the Plan Year at or about the end of each quarter, except the last
quarter, of each Plan Year.
9.02 PAYMENT OF AWARDS. Final awards shall be paid under this Article IX
within 90 days following the occurrence of the earliest Change in Control
described in Section 9.03. Notwithstanding the preceding sentence, a
Participant who is eligible to participate in the CAP shall be entitled to
defer any part or all of the award granted to him or her hereunder in
accordance with the terms of the CAP.
9.03 CHANGE IN CONTROL. For purposes of this Article IX, a "Change in
Control" shall mean:
(i)
the acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (A)
the then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a
Change of Control: (A) any acquisition directly from the Company, (B) any
acquisition by the Company or any Subsidiary, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any Subsidiary or (D) any acquisition by any corporation with
respect to which, following such acquisition, more than 55% of, respectively,
the then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such acquisition in substantially the same
proportions as their ownership, immediately prior to such acquisition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be; or
(ii)
individuals who, as of the effective date of this Plan, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of proxies
or consents; or
(iii)
approval by the shareholders of the Company of a reorganization, merger,
consolidation or statutory exchange of Outstanding Company Voting Securities,
in each case, with respect to which all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such reorganization, merger, consolidation or exchange
do not, following such reorganization, merger, consolidation or exchange,
beneficially own, directly or indirectly, more than 55% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election
of directors, as the case may be, of the corporation resulting from such
reorganization, merger, consolidation or exchange in substantially the same
proportions as their ownership, immediately prior to such reorganization,
merger, consolidation or exchange of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be; or
(iv)
approval by the shareholders of the Company of (A) a complete liquidation or
dissolution of the Company or (B) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation
with respect to which, following such sale or other disposition, more than
55% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition
in substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be.
Notwithstanding the foregoing provisions of this definition, a Change of
Control shall not be deemed to occur with respect to a Participant if the
acquisition of the 30% or greater interest referred to in subparagraph (i) of
this definition is by a group, acting in concert, that includes the
Participant or if at least 40% of the then outstanding common stock or
combined voting power of the then outstanding voting securities (or voting
equity interests) of the surviving corporation or of any corporation (or
other entity) acquiring all or substantially all of the assets of the Company
shall be beneficially owned, directly or indirectly, immediately after a
reorganization, merger, consolidation, statutory share exchange or
disposition of assets referred to in subparagraph (iii) or (iv) of this
definition by a group, acting in concert, that includes that Participant.
MEDTRONIC, INC.
PROXY
ANNUAL MEETING -- AUGUST 31, 1994
The undersigned appoints WINSTON R. WALLIN and RONALD E. LUND, and each of
them, as Proxies, each with the power to appoint his substitute, to represent
and vote, as designated below, all shares of the undersigned at the 1994
Annual Meeting of Shareholders of Medtronic, Inc. at the Medtronic, Inc.
Corporate Center at its Rice Creek facility, 7000 Central Avenue N.E.,
Minneapolis (Fridley), Minnesota, at 10:00 a.m., Central Daylight Time, on
Wednesday, August 31, 1994, and at any adjournment thereof.
The Board of Directors recommends votes FOR:
1. ELECT CLASS II DIRECTORS FOR THREE-YEAR TERMS:
Nominees: William W. George, Bernadine P. Healy, M.D., Richard L. Schall,
Gordon M. Sprenger, and Richard A. Swalin, Ph.D.
[ ] FOR all nominees listed above (except those whose names have been written
on the line below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above
(To withhold authority to vote for any nominee, write that nominee's name
on the line below.)
(Continued and to be signed and dated on the other side)
2. Approve adoption of the 1994 Stock Award Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approve adoption of the Management Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approve appointment of Price Waterhouse as independent auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting or any adjournment thereof.
Date: , 1994PLEASE DATE AND SIGN ABOVE exactly as name appears, indicating,
if appropriate, official position or representative capacity. If stock is
held in joint tenancy, each joint owner should sign.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL. THIS PROXY IS SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS.
MEDTRONIC, INC.
PROXY
ANNUAL MEETING -- AUGUST 31, 1994
The undersigned appoints WINSTON R. WALLIN and RONALD E. LUND, and each of
them, as Proxies, each with the power to appoint his substitute, to represent
and vote, as designated below, all shares of the undersigned at the 1994
Annual Meeting of Shareholders of Medtronic, Inc. at the Medtronic, Inc.
Corporate Center at its Rice Creek facility, 7000 Central Avenue N.E.,
Minneapolis (Fridley), Minnesota, at 10:00 a.m., Central Daylight Time, on
Wednesday, August 31, 1994, and at any adjournment thereof.
The Board of Directors recommends votes FOR:
1. ELECT CLASS II DIRECTORS FOR THREE-YEAR TERMS:
Nominees: William W. George, Bernadine P. Healy, M.D., Richard L. Schall,
Gordon M. Sprenger, and Richard A. Swalin, Ph.D.
[ ] FOR all nominees listed above (except those whose names have been written
on the line below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above
(To withhold authority to vote for any nominee, write that nominee's name
on the line below.)
(Continued and to be signed and dated on the other side)
2. Approve adoption of the 1994 Stock Award Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approve adoption of the Management Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approve appointment of Price Waterhouse as independent auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL. THIS PROXY IS SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS.
Benefit Plan Shares
ESOP Shares
Restricted Shares
Registered Shares
Date: , 1994
PLEASE DATE AND SIGN ABOVE exactly as name appears, indicating, if
appropriate, official position or representative capacity. If stock is held
in joint tenancy, each joint owner should sign.
