UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Soliciting Material Pursuant to
[_] Confidential, For Use of the SS.240.14a-11(c) or SS.240.14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
ST. JUDE MEDICAL, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
________________________________________________________________________________
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________________________________________
3) Filing Party:
________________________________________________________________________________
4) Date Filed:
________________________________________________________________________________
Notice of 2002 Annual Meeting and
PROXY STATEMENT
[LOGO] SJM ST. JUDE MEDICAL
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ST. JUDE MEDICAL
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ONE LILLEHEI PLAZA
ST. PAUL, MINNESOTA 55117
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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TIME ...................... 9:30 a.m. C.D.T.
Thursday, May 16, 2002
PLACE ..................... Lutheran Brotherhood Auditorium
Lutheran Brotherhood Building
625 Fourth Avenue South
Minneapolis, Minnesota
ITEMS OF BUSINESS ......... (1) To elect four members of the Board of
Directors, for terms ending in 2005.
(2) To approve the St. Jude Medical, Inc. 2002
Stock Plan.
(3) To approve the appointment of Ernst & Young
LLP as the Company's independent auditors for
2002.
(4) To transact such other business as may
properly come before the meeting and any
adjournment.
RECORD DATE ............... Holders of St. Jude Medical, Inc. common stock
of record at the close of business on March 22,
2002, are entitled to vote at the meeting.
ANNUAL REPORT ............. The Company's 2001 Annual Report, which is
not a part of the proxy soliciting material, is
enclosed.
PROXY VOTING .............. It is important that your shares be represented
at the meeting. You can vote your shares by
completing and returning the enclosed proxy
card as soon as possible. You can revoke a
proxy at any time prior to its exercise at the
meeting by following the instructions in the
accompanying proxy statement.
Kevin T. O'Malley
VICE PRESIDENT, GENERAL COUNSEL &
SECRETARY
March 28, 2002
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TABLE OF CONTENTS
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PAGE
----
PROXY STATEMENT ........................................................................ 1
Proxies and Voting Procedures ......................................................... 1
Shareholders Entitled to Vote ......................................................... 2
Required Vote ......................................................................... 2
Cost of Proxy Solicitation ............................................................ 2
GOVERNANCE OF THE COMPANY .............................................................. 3
Committees of the Board of Directors .................................................. 3
Report of the Audit Committee ......................................................... 4
Compensation of Directors ............................................................. 5
Section 16(a) Beneficial Ownership Reporting Compliance ............................... 6
BOARD OF DIRECTORS ..................................................................... 7
Nominees for Term Expiring in 2005 .................................................... 8
Directors Whose Terms Will Expire in 2003 ............................................. 9
Directors Whose Terms Will Expire in 2004 ............................................. 10
SHARE OWNERSHIP OF MANAGEMENT AND DIRECTORS ............................................ 11
PROPOSAL TO APPROVE THE 2002 STOCK PLAN ................................................ 13
PROPOSAL TO RATIFY THE APPOINTMENT OF AUDITORS ......................................... 16
STOCK PERFORMANCE GRAPH ................................................................ 17
EXECUTIVE COMPENSATION ................................................................. 18
Report of the Compensation Committee on Executive Compensation ........................ 18
Summary Compensation Table ............................................................ 21
Option Grants in Last Fiscal Year ..................................................... 22
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Options Values .... 22
Employment, Termination and Change in Control Agreements .............................. 23
Loan Guarantees ....................................................................... 23
SHAREHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING ...................................... 24
OTHER MATTERS .......................................................................... 24
APPENDIX A -- Charter of the Audit Committee of the Board of Directors ................. 25
ii
St. Jude Medical, Inc. [LOGO] SJM ST. JUDE MEDICAL
One Lillehei Plaza
St. Paul, MN 55117
PROXY STATEMENT
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We are providing these proxy materials in connection with the solicitation
by the Board of Directors of St. Jude Medical, Inc., of proxies to be voted at
the Company's 2002 Annual Meeting of Shareholders and at any meeting following
adjournment thereof.
You are cordially invited to attend the annual meeting on May 16, 2002,
beginning at 9:30 a.m. C.D.T. The meeting will be held in the Lutheran
Brotherhood Auditorium, 625 Fourth Avenue South, Minneapolis, Minnesota. The
location is accessible to handicapped persons.
We are first mailing this proxy statement and accompanying forms of proxy
and voting instructions on or about March 28, 2002, to holders of the Company's
common stock on March 22, 2002, the record date for the meeting.
PROXIES AND VOTING PROCEDURES
YOUR VOTE IS IMPORTANT. Because many shareholders cannot attend the meeting
in person, it is necessary that a large number be represented by proxy. Please
refer to your proxy card or the information forwarded by your bank, broker or
other holder of record to see which options for voting by proxy are available to
you. By providing your voting instructions promptly, you may save the Company
the expense of a second mailing.
You can revoke your proxy at any time before it is exercised at the meeting
by timely delivery of a properly executed, later-dated proxy or by voting by
ballot at the meeting. If your shares are held in the name of a bank, broker or
other holder of record, you must obtain a proxy, executed in your favor, from
the holder of record, to be able to vote at the meeting.
All shares entitled to vote and represented by properly completed proxies
received prior to the meeting and not revoked will be voted at the meeting in
accordance with your instructions. IF YOU DO NOT INDICATE HOW YOUR SHARES SHOULD
BE VOTED ON A MATTER, THE SHARES REPRESENTED BY YOUR PROPERLY COMPLETED PROXY
WILL BE VOTED AS THE BOARD OF DIRECTORS RECOMMENDS.
If any other matters are properly presented at the annual meeting for
consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time or place, the persons named as proxies will
have discretion to vote on those matters according to their best judgment to the
same extent as the person delivering the proxy would be entitled to vote. At the
date this proxy statement went to press, we did not anticipate that any other
matters would be raised at the meeting.
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SHAREHOLDERS ENTITLED TO VOTE
Shareholders at the close of business on the record date are entitled to
notice of and to vote at the annual meeting. Each share is entitled to one vote
on each matter properly brought before the meeting.
On March 22, 2002, there were 87,915,367 shares of common stock
outstanding.
REQUIRED VOTE
The presence, in person or by proxy, of the holders of a majority of the
shares entitled to at the meeting is necessary to constitute a quorum at the
meeting. Abstentions and broker "non-votes" are counted as present and entitled
to vote for purposes of determining a quorum. A broker "non-vote" occurs when a
broker, bank, or other nominee holding shares for a beneficial owner does not
vote on a particular proposal because the nominee does not have discretionary
voting power with respect to that item and has not received voting instructions
from the beneficial owner.
A majority of shares present at the meeting and entitled to vote is
required for the election of each nominee for Director and for approval of the
St. Jude Medical, Inc. 2002 Stock Plan. Abstentions will be counted as present
and entitled to vote for purposes of calculating the number of votes cast for a
Director or for the 2002 Stock Plan, but will be deemed not to have been voted
in favor of the Director or approval of the plan. Broker non-votes will not be
counted as shares that are present and entitled to vote on the election of
Directors or approval of the 2002 Stock Plan.
COST OF PROXY SOLICITATION
St. Jude Medical, Inc. will pay the cost of soliciting proxies. Proxies may
be solicited on behalf of the Company by Directors, officers or employees of the
Company in person or by telephone, facsimile or other electronic means. These
persons will not receive any additional compensation for providing this service.
In accordance with the regulations of the Securities and Exchange
Commission and the New York Stock Exchange, we will also reimburse brokerage
firms and other custodians, nominees and fiduciaries for their reasonable
expenses incurred in sending proxies and proxy materials to beneficial owners of
St. Jude Medical stock.
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GOVERNANCE OF THE COMPANY
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St. Jude Medical's business, property and affairs are managed under the
direction of the Board of Directors. Members of the Board are kept informed of
the Company's business through discussion with the CEO and officers, by
reviewing materials provided to them and by participating in meetings of the
Board and its committees.
During 2001, the Board held seven meetings and the committees held a total
of sixteen meetings. The average attendance at the Board and committee meetings
was 98% and each Director attended at least 75% of all meetings of the Board and
of the Committees on which the Director served.
COMMITTEES OF THE BOARD OF DIRECTORS
During 2001, the Board of Directors had three ongoing committees: the Audit
Committee, the Compensation Committee, and the Nominating and Governance
Committee. During 2001 the Audit Committee met six times, the Compensation
Committee met seven times, and the Nominating and Governance Committee met three
times.
The Nominating and Governance Committee is responsible for recommending
good governance practices. The Nominating and Governance Committee evaluates the
qualifications of and nominates candidates for positions on the Board. In
addition, the Nominating and Governance Committee facilitates an evaluation by
Board members of Board and individual director performance and provides feedback
to the entire Board. The procedures for shareholders to nominate directors are
the same as those for the submission of Shareholder Proposals, which can be
found on page 24.
The Compensation Committee's duties include annual approval of the
Company's compensation policies, including salary, bonus and long-term incentive
programs, evaluation of the appropriate base salary level for Executive
Officers, evaluation of and recommendations for changes to the total
compensation of the CEO for approval of the Board of Directors and consideration
of matters with respect to profit sharing and other employee benefits provided
by the Company.
The duties of the Audit Committee are described in its report, which
follows.
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REPORT OF THE AUDIT COMMITTEE
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The Audit Committee ("Committee") reviews the Company's financial reporting
process on behalf of the Board of Directors ("Board").
We meet with management periodically to consider the adequacy of the
Company's internal controls and the objectivity of its financial reporting. We
discuss these matters with the Company's independent auditors and with
appropriate Company financial personnel.
We regularly meet privately with the independent auditors who have
unrestricted access to the Committee.
We also recommend to the Board the appointment of the independent auditors
(subject to shareholder approval) and review periodically their performance and
independence from management.
The Directors who serve on the Committee are all "independent" for purposes
of the New York Stock Exchange listing standards. That is, the Board has
determined that none of us has a relationship to the Company that may interfere
with our independence from the Company and its management.
The Board has adopted a written charter which describes the functions the
Committee is to perform. We reviewed the charter and recommended certain changes
that have been approved by the Board. You can find a copy of the revised charter
attached to this proxy statement as Appendix A.
Management has the primary responsibility for the Company's consolidated
financial statements and the overall reporting process, including the Company's
system of internal controls.
The independent auditors audit the annual consolidated financial statements
prepared by management, express an opinion as to whether those financial
statements fairly present the financial position, results of operation and cash
flows of the Company in conformity with accounting principles generally accepted
in the United States and discuss with us any issues they believe should be
raised with us.
This year, we reviewed the Company's audited consolidated financial
statements and met with both management and Ernst & Young LLP, the Company's
independent auditors, to discuss the consolidated financial statements.
Management has represented to us that the consolidated financial statements were
prepared in accordance with accounting principles generally accepted in the
United States.
We have received from and discussed with Ernst & Young LLP, the written
disclosures and the letter required by Independence Standards Board No. 1
(Independence Discussion with Audit Committees) and considered the compatibility
of non-audit services with the auditor's independence. We also discussed with
Ernst & Young LLP, any matters required to be discussed by Statement on Auditing
Standards No. 61, as amended by Statement on Auditing Standards No. 90
(Communication with Audit Committees).
We recommended to the Board that the Company's audited consolidated
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001.
Stuart M. Essig
Richard R. Devenuti
Thomas H. Garrett III
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COMPENSATION OF DIRECTORS
Each non-employee director (except for the Chairman of the Board) receives
a retainer of $3,000 per month plus $2,000 per diem for each Board meeting
attended the Chairman of the Board receives a retainer of $6,000 per month plus
$3,000 per diem for each Board Meeting attended. Committee chairpersons receive
an additional annual fee of $4,000 and committee members an additional annual
fee of $2,000. Directors are reimbursed for expenses incurred in connection with
travel and lodging when attending meetings of the Board or otherwise engaged in
Company business. Directors may elect to receive the annual retainer fee either
as 100% cash, 50% cash plus 50% restricted stock, or 100% restricted stock.
Restricted stock is valued at the fair market value of the stock on the date of
grant. The restriction on the stock lapses on the six-month anniversary of the
grant date.
Under the 2000 Stock Plan each person who is not an employee of the Company
and who is elected, re-elected or serving an unexpired term as a director at any
annual or special meeting of shareholders automatically receives, as of the date
of such meeting, an option to purchase 3,000 shares of common stock at an option
price equal to 100% of the fair market value of the Company's common stock on
such date. All such options are designated as non-qualified stock options with
eight-year terms and fully vest on the six month anniversary from the grant
date. Further, under the 2000 Plan, non-employee directors are eligible to
receive options from time to time in addition to the annual grants described
above, but no non-employee director may receive options which, together with the
automatic grant of options described above, exceed 5,000 shares in any calendar
year. The Board of Directors has voted to grant at the time of the Annual
Meeting each director an additional option grant to purchase 1,000 shares under
the same terms and conditions as the automatic 3,000 share option grant.
Directors who are appointed between Annual Shareholder Meetings are voted a
pro-rata stock option based upon a fraction of 4,000 shares on the same terms
and conditions as the stock options described previously, except the price is
100% of the fair market value on the date of appointment. At the 2001 annual
meeting of shareholders, each non-employee director received an automatic grant
of an option to purchase 3,000 shares at $65.95 per share, the fair market value
of the common stock on the date of grant. No additional options were granted to
non-employee directors in 2001 under the 2000 Plan.
The proposed 2002 Stock Plan described elsewhere in this proxy statement
includes similar provisions for automatic annual option grants and additional,
discretionary option grants to non-employee directors, except that under the
2002 Stock Plan, each director will receive an automatic grant on the date of
each annual meeting of 4,000 shares of the Company's common stock, and the total
number of options granted to non-employee directors in any calendar year may not
exceed 7,500 shares. If the 2002 Stock Plan is approved by shareholders, each
non-employee director who is elected or continuing his or her service as a
director on the date of the 2002 annual meeting will be granted an option to
purchase 4,000 shares of our common stock on the date of the meeting.
Each director may receive reimbursement for one physical examination every
12 months up to a maximum of $700 per exam. Board members also participate in
the Company's charitable contribution matching program under which eligible
charitable contributions are matched by the Company up to a maximum of $1,000
each year.
Under a retirement plan for non-employee directors that was terminated
April 1, 1996, each non-employee director on the Board at that time who serves
five years or more will receive payment of an annual benefit equal to the
average of the annual retainers paid to the director during his or her service
as a director, with a minimum annual benefit of $24,000. The
5
retirement benefit will commence at the later of the time of retirement from the
Board or when the director becomes 60 years old. The retirement benefit is
payable over a number of years equal to the director's years of service as a
member of the Board of Directors prior to April 1, 1996.
SECTION16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our Directors
and Executive Officers to file reports of holdings and transactions in St. Jude
Medical stock with the Securities and Exchange Commission. Based on our records
and other information, we believe that all Securities and Exchange Commission
filing requirements applicable to our Directors and Executive Officers with
respect to 2001 were met except that the filing of Mr. Heinmiller's exercise of
an option for 1,500 shares was late and a Form 3 was filed for Mr. Adinolfi
three days late.
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BOARD OF DIRECTORS
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The Board of Directors is divided into three classes, whose terms expire at
successive annual meetings.
Four Directors will be elected at the annual meeting to serve for a
three-year term expiring at the Company's annual meeting in 2005. We have
nominated Richard R. Devenuti, Stuart M. Essig, Thomas H. Garrett III, and Wendy
L. Yarno for these positions. You can find the principal occupation of and other
information about the nominees below.
The persons named on the proxy card will vote the proxy for the election of
Mr. Devenuti, Mr. Essig, Mr. Garrett and Ms. Yarno unless you indicate that your
vote for any of the nominees should be withheld. The persons named as proxies
will not vote for additional Directors. If elected, Mr. Devenuti, Mr. Essig, Mr.
Garrett and Ms. Yarno will continue in office until their successors have been
duly elected and qualified, or until the earlier of their death, resignation or
retirement. We expect all nominees to be able to serve if elected.
Beginning on page 8, you can find the principal occupation and other
information about the Directors whose terms of office will continue after the
annual meeting. You can find the information about the St. Jude Medical stock
ownership of the nominees and those other Directors on page 11.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MR. DEVENUTI,
MR. ESSIG, MR. GARRETT AND MS. YARNO AS DIRECTORS.
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NOMINEES FOR TERM EXPIRING IN 2005
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[PHOTO] RICHARD R. DEVENUTI, Director of St. Jude Medical since 2001. Vice
President and Chief Information Officer of Microsoft Corporation, a
software company, since March 1999. From May 1996 to March 1999, Vice
President, Worldwide Operations, Microsoft Corporation. Committee:
Audit Committee Member. Age: 44.
[PHOTO] STUART M. ESSIG, Ph.D., Director of St. Jude Medical since 1999.
President and Chief Executive Officer and a member of the Board of
Directors of Integra Life Sciences Holdings Corporation, a
manufacturer of medical devices, implants and biomaterials, since
December 1997. Previously a managing director of Goldman, Sachs & Co.,
an investment bank, responsible for the medical technology practice.
Also a Director of Vital Signs, Inc., a respiratory medical device
company. Committees: Chairperson of the Audit Committee. Age: 40.
[PHOTO] THOMAS H. GARRETT III, Director of St. Jude Medical since 1979.
Self-employed as a business consultant since June 1996. Previously, a
member of the law firm of Lindquist & Vennum PLLP of Minneapolis,
Minnesota and its Managing Partner from 1993 through 1995. Director of
Check Technology Corporation, a manufacturer of financial document
printing systems, and Lifecore Biomedical, Inc., a biomedical and
surgical device manufacturer. Committees: Member of the Audit
Committee. Age: 57.
[PHOTO] WENDY L. YARNO, Director of St. Jude Medical since 2002. Since 2000,
Senior Vice President, Human Resources, Merck & Co., Inc. From 1997 to
1998, Vice President, Ortho McNeil Pharmaceutical, Women's Health Care
Franchise, Johnson & Johnson, a medical products company. During 1999,
Vice President, Worldwide Human Health, and Vice President, Human
Resources, Merck & Co., Inc. Committee: Compensation Committee Member.
Age: 47.
8
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DIRECTORS WHOSE TERMS WILL EXPIRE IN 2003
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[PHOTO] RONALD A. MATRICARIA, Director of St. Jude Medical since 1993.
President and Chief Executive Officer of St. Jude Medical from April
1993 to December 1997 and Chief Executive Officer of St. Jude Medical
from January 1998 to May 1999. Chairman of St. Jude Medical since May
1995. Director of Cyberonics, Inc. Age: 59.
[PHOTO] WALTER L. SEMBROWICH, Ph.D., Director of St. Jude Medical since 1994.
Founder, Chairman and CEO of Birch Point Medical, Inc., a manufacturer
of drug delivery systems. From 1996 to 1999, President of Aviex, Inc.,
a management and investment firm serving medical start-up companies.
Director of Opticon Medical, a medical device company that
manufactures urology products. Committees: Chairperson of the
Compensation Committee and member of the Nominating and Governance
Committee. Age: 59.
[PHOTO] DANIEL J. STARKS, Director of St. Jude Medical since 1996. President
and COO of St. Jude Medical since February 1, 2001. Previously,
President and Chief Executive Officer of the Cardiac Rhythm Management
Division of the Company. Previously Chief Executive Officer and
President, Daig Corporation. Age: 47.
[PHOTO] FRANK C-P YIN, M.D., Ph.D., Director of St. Jude Medical since 2001.
The Stephen F. and Camilla Braver Professor of Biomedical Engineering
and Chairman, Department of Biomedical Engineering, Washington
University, St. Louis, Missouri. Committee: Compensation Committee
Member. Age: 58.
9
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DIRECTORS WHOSE TERMS WILL EXPIRE IN 2004
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[PHOTO] TERRY L. SHEPHERD, Director of St. Jude Medical since 1999. Chief
Executive Officer of St. Jude Medical, Inc. President of the St. Jude
Medical Cardiac Surgery Division from 1994 to 1999. Age: 49.
[PHOTO] DAVID A. THOMPSON, Director of St. Jude Medical since 1999. Retired in
1995 from Abbott Laboratories, a medical products company, where he
held several corporate officer positions. Director of Tripath, a
cancer diagnostic imaging company; and Third Wave Technologies, a
company that develops genomic assays. Committees: Chairperson of the
Nominating and Governance Committee and member of the Compensation
Committee. Age: 60.
[PHOTO] STEFAN K. WIDENSOHLER, Director of St. Jude Medical since 2001.
President and CEO of Krauth Medical Group, a European distributor of
medical and surgical devices and services since 1992. Committee:
Compensation Committee Member. Age: 42.
10
SHARE OWNERSHIP OF MANAGEMENT AND DIRECTORS AND
CERTAIN BENEFICIAL OWNERS
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The following table presents information provided to the Company as to the
beneficial ownership of the Company's common stock as of February 22, 2002, by
(i) each person known to the Company to be the beneficial owner of more than 5%
of such stock, (ii) named executive officers appearing in the summary
compensation table on page 21 and (iii) all directors and executive officers as
a group. Unless otherwise noted, these persons have sole dispositive power with
respect to the shares owned by them.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
BENEFICIAL OWNERS OWNERSHIP CLASS
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Richard R. Devenuti -- *
Stuart M. Essig 12,651(1) *
Thomas H. Garrett III 51,153(1)(2) .1%
Ronald A. Matricaria 2,248,480(1) 2.5%
Walter L. Sembrowich 29,500(1) *
Terry L. Shepherd 536,571(1) .6%
Daniel J. Starks 2,088,248(1) 2.4%
David A. Thompson 13,811(1) *
Stefan K. Widensohler -- *
Wendy L. Yarno -- *
Frank C-P Yin -- *
Michael J. Coyle 180,907(1) .2%
Michael T. Rousseau 41,628(1) *
John C. Heinmiller 98,199(1) .1%
Directors and Executive Officers
as a Group (22) 5,840,026(3) 6.4%
Janus Capital Corporation 4,457,735(4) 5.1%
100 Filmore Street
Denver, Colorado 80206
FMR CORP 5,794,827(5) 6.7%
82 Devonshire Street
Boston, MA 02109
11
FOOTNOTES
* Less than .1%
(1) Includes 10,000, 23,500, 2,230,681, 23,500, 511,587, 237,050, 10,000,
176,850, 37,000 and 52,562 shares which Messrs. Essig, Garrett, Matricaria,
Sembrowich, Shepherd, Starks, Thompson, Coyle, Rousseau and Heinmiller,
respectively, may acquire within sixty days from the date hereof, pursuant
to the exercise of stock options.
(2) Includes 12,000 shares owned by Mr. Garrett's wife to which Mr. Garrett
disclaims beneficial ownership.
(3) Includes 3,327,166 shares that such individuals may acquire within sixty
days from the date hereof, pursuant to the exercise of stock options.
(4) Based on information contained in a Schedule 13G dated February 8, 2002,
delivered to the Company indicating that Janus Capital Corporation is the
beneficial owner of 4,457,735 shares as of December 31, 2001.
(5) Based on information contained in a Schedule 13G dated February 14, 2002,
delivered to the Company indicating that FMR CORP is the beneficial owner
of 5,794,827 shares, and possess sole voting power with respect to 328,299
shares, and sole dispositive power with respect to 5,794,827 shares as of
December 31, 2001.
12
PROPOSAL TO APPROVE THE 2002 STOCK PLAN
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REASONS FOR APPROVAL AND VOTE REQUIRED
On February 15, 2002, our Board of Directors adopted the St. Jude Medical,
Inc. 2002 Stock Plan (which we call the "Stock Plan" in this proxy statement),
subject to shareholder approval. The purpose of the Stock Plan is to enable St.
Jude Medical and our subsidiaries to retain and attract executives and other
employees, non-employee directors and consultants who contribute to St. Jude
Medical's success by their ability, ingenuity and industry, and to enable these
individuals to participate in our long-term success and growth by giving them a
proprietary interest in St. Jude Medical.
The Stock Plan authorizes the grant of stock options. No other types of
awards may be granted under the Stock Plan. The Board of Directors believes that
stock options have been, and will continue to be, a very important factor in
attracting and retaining experienced and talented employees and non-employee
directors who can contribute significantly to the management, growth and
profitability of our business. Additionally, the Board of Directors believes
that stock-based compensation aligns the interests of our managers and
non-employee directors with the interests of our shareholders. The availability
of stock options not only increases employees' focus on the creation of
shareholder value, but also enhances employees' loyalty and generally provides
increased motivation for our employees to contribute to the future success of
St. Jude Medical.
Approval of the Stock Plan requires the affirmative vote of the holders of
a majority of the shares of our common stock present in person or represented by
proxy at the annual meeting and entitled to vote.
SECTION 1. Summary of the Stock Plan
The following summary describes the material terms of the Stock Plan.
SHARES AUTHORIZED. The Stock Plan will authorize the issuance of an
aggregate of 6,000,000 shares of our common stock.
If any shares of common stock subject to an option under the Stock Plan are
not purchased or are forfeited, or if any stock option terminates without the
delivery of shares, then such shares will be available for future option grants
under the Stock Plan.
ELIGIBILITY. Employees, officers, directors and consultants who are
responsible for or contribute to the management, growth and profitability of our
business or the business of any of our affiliates are eligible to receive stock
options under the Stock Plan.
STOCK PLAN ADMINISTRATION. The Stock Plan will be administered by a
committee of directors appointed by the Board of Directors and comprised of a
number of directors that is no less than the number required to permit stock
options granted under the Stock Plan to qualify under Section 162(m) of the
Internal Revenue Code of 1986 and Rule 16b-3 promulgated under the Securities
Exchange Act of 1934. Currently, these provisions require that at least two
directors serve on the committee. Each director serving on the committee must be
a "non-employee director" within the meaning of Rule 16b-3 and an "outside
director" within the meaning of Section 162(m). The committee will have the
authority to establish rules for the administration of the Stock Plan, to select
the individuals to whom stock options are granted, to determine the types of
stock options to be granted and the number of shares of common stock covered by
the options, and to set the vesting and other terms and conditions of the
options.
The committee has the authority to accelerate the vesting of stock options
granted under the Stock Plan and to determine whether shares or other amounts
that may be payable under the Stock Plan may be deferred. The committee may
delegate to the president and/or chief executive officer of St. Jude Medical the
right to grant awards with respect to individuals who are not subject to Section
16(b) of the Securities
13
Exchange Act of 1934, so long as such delegation would not cause the Stock Plan
not to comply with the requirements of Section 162(m) of the Internal Revenue
Code.
TYPES AND TERMS OF STOCK OPTIONS. The Stock Plan will permit the granting
of "incentive stock options" meeting the requirements of Section 422 of the
Internal Revenue Code and "non-qualified stock options" that do not meet such
requirements. No other awards may be granted under the Stock Plan. Stock options
may be granted for no cash consideration or for any cash or other consideration
as may be determined by the committee or required by applicable law.
The exercise price per share under any stock option will not be less than
100% of the fair market value of our common stock on the date the option is
granted. Options may be exercised by payment of the exercise price, either in
cash or, at the discretion of the committee, in whole or in part by tendering
shares of our common stock or other consideration having a fair market value on
the date of exercise equal to the exercise price. The fair market value of our
common stock on a given date generally will be the closing price of the common
stock as reported on the NYSE on that date.
Stock options granted under the Stock Plan may not have a term longer than
eight years. No person may receive grants of stock options under the Stock Plan
that exceed 500,000 shares during any fiscal year of St. Jude Medical.
TRANSFERABILITY. Incentive stock options will not be transferable other
than by will or by the laws of descent and distribution. Non-qualified stock
options may be transferred by gift, without consideration, by the optionee under
a written instrument acceptable to the committee, to a member of the optionee's
family or to a trust or similar entity whose beneficiaries are the optionee
and/or members of the optionee's family.
WITHHOLDING OBLIGATIONS. Under the Stock Plan, the committee may permit
participants receiving or exercising awards to surrender shares of common stock
to St. Jude Medical to satisfy federal, state or local withholding tax
obligations.
ADJUSTMENTS. In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, reverse stock split, other change
in corporate structure affecting our common stock, spin-off, split-up, or other
distribution of assets to shareholders, or other similar corporate transaction
or event affecting our shares of common stock, then an appropriate adjustment
automatically will be made to proportionately adjust the maximum number of
shares available for grant under the Stock Plan, the number of shares subject to
outstanding stock options and the exercise price and other provisions of the
stock options. Except for these adjustments, no option may be amended to reduce
its initial exercise price, and no option may be canceled and replaced with an
option or options having a lower exercise price.
AMENDMENTS. The Board of Directors may amend, alter or discontinue the
Stock Plan at any time. However, shareholder approval must be obtained for any
amendment that would impair the rights of an optionee under a previously granted
stock option or that requires the approval of shareholders under any securities
laws or regulations or other regulatory requirements applicable to St. Jude
Medical.
EFFECTIVE DATE; TERM. In order to become effective, the Stock Plan must be
approved by our shareholders by February 15, 2003. If the Stock Plan is approved
by shareholders before that date, it will be deemed to be effective as of
February 15, 2002, and stock options may be granted under the Stock Plan during
a 10-year period beginning on the effective date of the Stock Plan. However, the
term of any stock option granted under the Stock Plan may extend beyond this
10-year period.
SECTION 2. Tax Consequences
The following is a summary of the principal U.S. federal income tax
consequences generally applicable to stock options granted under the Stock Plan.
14
The grant of an option is not expected to result in any taxable income for
the recipient. Upon exercising a non-qualified stock option, the optionholder
must recognize ordinary income equal to the excess of the fair market value of
the shares of common stock acquired on the date of exercise over the exercise
price, and St. Jude Medical will be entitled at that time to a tax deduction for
the same amount. Upon exercising an incentive stock option, the holder of the
incentive stock option generally will have no taxable income (except that an
alternative minimum tax liability and possibly a payroll tax liability may
result), and St. Jude Medical will not be entitled to a tax deduction and may
incur a payroll tax liability.
The tax consequence to an optionholder upon a disposition of shares
acquired through the exercise of an option will depend on how long the shares
have been held and upon whether the shares were acquired by exercising an
incentive stock option or by exercising a non-qualified stock option. Generally,
there will be no tax consequences to St. Jude Medical in connection with the
disposition of shares acquired under an option. However, we may be entitled to a
tax deduction in the case of a disposition of shares acquired under an incentive
stock option before the applicable incentive stock option holding periods set
forth in the Internal Revenue Code have been satisfied.
SPECIAL RULES. Special rules may apply in the case of individuals subject
to Section 16(b) of the Securities Exchange Act of 1934. In particular, unless a
special election is made pursuant to the Internal Revenue Code, shares received
pursuant to the exercise of a stock option may be treated as restricted as to
transferability and subject to a substantial risk of forfeiture for a period of
up to six months after the date of exercise. Accordingly, the amount of any
ordinary income recognized, and the amount of the tax deduction that may be
taken by St. Jude Medical, are determined as of the end of such period.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE ST. JUDE
MEDICAL 2002 STOCK PLAN. PROXIES WILL BE VOTED FOR THE PROPOSAL UNLESS OTHERWISE
SPECIFIED.
15
PROPOSAL TO RATIFY THE APPOINTMENT OF AUDITORS
- --------------------------------------------------------------------------------
Based on the recommendation of the Audit Committee, the Board of Directors
has appointed Ernst & Young LLP as independent auditors for 2002, subject to
shareholder ratification. Ernst & Young will audit our consolidated financial
statements for 2002 and perform other services.
AUDIT FEES. The aggregate fees for professional services rendered by Ernst
& Young in connection with their audit of our consolidated financial statements
for 2001 and their reviews of the consolidated financial statements included in
our Quarterly Reports of Form 10-Q for 2001 was approximately $541,900.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. There were no
professional services rendered, and therefore no fees billed by Ernst & Young in
2001 relating to financial information systems design and implementation.
ALL OTHER FEES. The aggregate fees billed for all other services rendered
by Ernst & Young in 2001 were approximately $1,579,500.
RATIFICATION OF APPOINTMENT. A proposal will be presented at the Annual
Meeting to ratify the appointment of Ernst & Young as our independent auditors.
A representative of Ernst & Young will be present at the meeting with the
opportunity to make a statement and to answer your questions. If the
shareholders do not ratify the appointment of Ernst & Young, the Board will
reconsider its selection of independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP.
Proxies will be voted for ratification of the appointment of Ernst & Young
LLP unless otherwise specified.
16
STOCK PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
The graph below compares the cumulative total shareholder returns for St.
Jude Medical common stock for the last five years as compared with the S&P 500
Health Care Equipment Index and the S&P 500 Stock Index weighted by market value
at each measurement point. The comparison assumes that $100 was invested on
December 31, 1996, in St. Jude Medical common stock and in each of these S&P 500
indexes and assumes the reinvestment of any dividends.
This graph covers the period of time from December 31, 1996, through
December 31, 2001.
[PLOT POINTS CHART]
1996 1997 1998 1999 2000 2001
------- ------- ------- ------- ------- -------
St. Jude Medical, Inc. .......... $ 100.0 $ 72.0 $ 65.8 $ 72.4 $ 145.0 $ 183.2
S&P 500 Health Care
Equipment Index ................ $ 100.0 $ 121.9 $ 171.4 $ 157.0 $ 229.2 $ 216.5
S&P 500 Index ................... $ 100.0 $ 133.1 $ 170.8 $ 206.5 $ 187.9 $ 165.6
17
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
Our report covers the following topics:
* Role of the Compensation Committee
* Executive Compensation Philosophy and Process
* Components of Our Executive Compensation Program
* Compensation of the Chief Executive Officer
* Broader Employee Compensation
ROLE OF THE COMPENSATION COMMITTEE
We are responsible to the Company's Board of Directors and shareholders for
establishing and administering compensation programs for the Company's executive
officers (Executive Officers). None of the members of the Committee is a current
or former employee of the Company. All decisions by the Committee relating to
the compensation of the Executive Officers are reviewed by the Board of
Directors.
EXECUTIVE COMPENSATION PHILOSOPHY
AND PROCESS
The goal of our compensation program is to attract, retain and motivate
talented executives to enable the Company to be successful in a highly
competitive industry and to enhance shareholder value. The following principles
were used in the design of the program:
* Compensation should be related to individual performance and qualifications.
* Executive Officers and employees should be encouraged to own St. Jude Medical
stock.
* A substantial part of an Executive Officer's compensation should be
incentive-based and subject to risk.
We evaluate the Company's Executive Officer's compensation program in
relation to the programs offered by other medical products companies. An
analysis of ten peer group medical products companies' executive level
compensation programs was performed in 2001. Our objective is to attract and
retain talented individuals by targeting total executive compensation for
standard performers at the 60th percentile of the market as defined by the
ten-company peer group analysis. An Executive Officer's individual performance
and experience can cause the officer's total compensation to be higher or lower
than the 60th percentile. The ten companies in the compensation peer group are
not the same companies in the stock performance graph on page 17. When making
recommendations regarding the compensation of our CEO, we consider the results
of the formal review by the Board of Directors of the CEO's performance. When
evaluating the compensation of our other executive officers, we consider the
recommendations of our CEO and of our President and COO.
Our policy is to maximize the deductibility of compensation payments to
Executive Officers under Section 162(m) of the Internal Revenue Code ("the
Code"). Our shareholders have approved our Management Incentive Compensation
Plan (MICP) which is an annual cash incentive plan that is designed and
administered in such a manner that compensation awarded under the MICP is tax
deductible.
COMPONENTS OF OUR EXECUTIVE
COMPENSATION PROGRAM
Our compensation program for Executive Officers has three components:
* Base Salary
* Annual Incentive Award
* Stock Based Compensation
BASE SALARY. An Executive Officer's base salary is determined by an
assessment of his or her sustained performance, advancement potential,
experience, responsibility, scope and
18
complexity of the position, current salary in relation to the range designated
for the job and salary levels for comparable positions at the peer group
companies mentioned previously. Additionally, the Committee sets base salaries
for Executive Officers based on the Executive Officer's contribution to the
Company's success through operational improvements and strategic initiatives.
Based upon the peer group data, the Executive Officers' base salary levels are
currently estimated to be at the 60th percentile. The base salary of the CEO and
the President and COO is also governed by employment agreements.
ANNUAL INCENTIVE AWARDS. Annual incentive awards are designed to provide
Executive Officers an additional incentive for achieving the annual performance
goals established in the yearly business plan. Payments under the Company's
annual cash incentive plan, MICP, are based on the Company's level of
achievement of annual earnings per share targets as well as divisional and
geographical profitability and sales targets, all as established under the
Company's annual operating plan. There is a pre-assigned relative weighting
ascribed to each of these factors.
Executive Officers are eligible for normal annual cash incentive payments
ranging from 40% to 60% of base salary, except for the CEO and President and COO
who are eligible for a normal incentive payment of up to 100% of base salary.
The payments can increase by up to 50% of the normal payments based on
performance above targeted levels and decrease substantially if actual results
fail to meet targeted levels. For 2001, the Company's earnings per share
performance exceeded targeted levels and, therefore, the awards were above the
normal levels for that portion of the incentive payments attributable to
earnings per share. Achievement of other performance targets varied.
STOCK BASED COMPENSATION. We believe that stock based compensation creates
an appropriate incentive for Executive Officers and employees to identify with
the interests of shareholders.
STOCK OPTION AWARDS. Stock options are awarded at an exercise price equal
to or greater than the fair market value of the stock on the date of grant and,
therefore, only have value if the price of the Company's stock appreciates in
value from the date the stock options are granted. The Executive Officers and
shareholders mutually benefit from such stock price appreciation.
Stock options are awarded from time to time consistent with the Company's
objective to provide (i) a long-term equity interest in the Company, and (ii) an
opportunity for a greater financial reward if long-term performance is
sustained. To encourage a longer-term perspective and to retain our employees,
the options cannot be exercised immediately. Generally options become
exercisable over a four-year period. The number of options granted to each
Executive Officer falls within a predetermined range, set and approved annually
by the Committee. Individual grant size is dependent upon the Company's future
business plans and the Executive Officer's ability to positively impact those
plans, the Executive Officer's position and level of responsibility within the
Company, and an evaluation of the Executive Officer's performance. No
pre-assigned relative weight is ascribed to any of these factors. In 2001, a
total of 617,500 stock options were granted to Executive Officers.
RESTRICTED STOCK AWARDS. We believe restricted shares provide an immediate
and direct link to shareholder interests. The timing and number of shares
granted is based on the Company's future business plans and the Executive
Officer's ability to positively impact those plans. Restricted stock awards
generally vest over a four-year period. In 2001, a total of 5,000 restricted
shares were awarded to Executive Officers.
STOCK OWNERSHIP GUIDELINES. St. Jude Medical established stock ownership
guidelines for officers and directors in 1995. These guidelines set stock
ownership targets which management and Board members are encouraged to achieve.
Targeted stock ownership levels range from one to three times base salary for
Executive Officers.
19
In 2001, stock ownership guidelines for Board members were reviewed and set at
five times annual retainer for Board members.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In 2001, Mr. Shepherd, the CEO, was the most highly compensated Executive
Officer.
BASE SALARY. Mr. Shepherd's employment agreement, which became effective in
May 1999, provided for an initial base salary of $500,000. In May 2001, in
accordance with his employment agreement, we reviewed Mr. Shepherd's
compensation in light of the peer group data and Mr. Shepherd's performance
evaluation by the Board. We determined that an increase in base compensation of
15% was appropriate. Therefore, we increased Mr. Shepherd's annual base salary
from $500,000 to $575,000 effective as of May 1, 2001. As a result of this
increase, Mr. Shepherd earned a base salary of approximately $550,000 in 2001.
ANNUAL INCENTIVE AWARD. Mr. Shepherd earned an award of $658,846 under the
MICP for 2001.
STOCK OPTION VESTING. Under criteria established at the time of grant,
62,812 stock option shares granted previously to Mr. Shepherd vested due to time
and performance during 2001.
PROPOSED CHANGE IN COMPENSATION. In May we reviewed Mr. Shepherd's
compensation. Our analysis of the peer group data and Mr. Shepherd's performance
evaluation by the Board indicated that an increase of 15% was appropriate in our
view. Effective May 2001, Mr. Shepherd received a base salary of $575,000 per
annum. Mr. Shepherd did not receive additional stock option grants in 2001.
BROADER EMPLOYEE COMPENSATION
The Company operates in a very competitive environment. The skills that
many of our employees need to possess can be used in other high technology
companies. Thus, we are competing for talented people not only in the medical
device industry, but also in the high technology market. The data analyzed when
considering broader employee compensation are a blend of high technology and
general industry data. We decided to grant total stock options in 2001
comparable to the number granted in 2000 recognizing that this would deliver a
total compensation level between the 60th and 75th percentile. For some
individuals or groups this grant range is at or above the 75th percentile. We
have determined that this level of grant is appropriate to reward management for
delivering an operating result and performance that has created shareholder
value in excess of comparables and creates an incentive for the management group
to remain with the Company and continue this performance.
Walter L. Sembrowich
David A. Thompson
Stefan K. Widensohler
Wendy L. Yarno
Frank C-P Yin
20
EXECUTIVE COMPENSATION AND OTHER INFORMATION
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION(1) OPTIONS(2) COMPENSATION(3)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- ----------------------------------------------------------------------------------------------------------------------
Terry L. Shepherd 2001 549,038 658,846 -- -- 47,747
Chief Executive Officer 2000 500,000 600,000 -- -- 47,957
1999 418,019 384,832 -- 400,000 46,837
Daniel J. Starks 2001 492,039 580,674 -- -- 31,080
President and Chief 2000 380,000 296,062 -- 400,000 31,290
Operating Officer 1999 346,875 201,621 -- 45,000 30,170
Michael J. Coyle 2001 322,692 249,606 97,032 55,000 31,080
President, Cardiac Rhythm 2000 235,000 130,719 -- 100,000 31,290
Management 1999 200,000 101,250 -- 35,000 30,170
Michael T. Rousseau 2001 315,481 207,034 -- 205,000 31,080
President, U.S. Sales 2000 262,260 136,375 41,737 62,500 18,290
1999 201,346 93,626 188,613 32,000 --
John C. Heinmiller 2001 300,000 180,000 -- 52,500 31,080
Vice President - Finance 2000 275,000 165,000 -- 52,500 31,290
and Chief Financial Officer 1999 247,404 129,887 -- 35,000 30,458
- ----------------------------------------------------------------------------------------------------------------------
FOOTNOTES
(1) In accordance with SEC rules, perquisites or other personal benefits are
included in the table only to the extent the total exceeds the lesser of
$50,000, or 10% of total salary and bonus, of any named executive officer.
Mr. Coyle's 2001 other annual compensation includes $74,402 of relocation
expenses. Mr. Rousseau's 2000 other annual compensation includes $27,037 of
mortgage differential payments. Mr. Rousseau's 1999 other annual
compensation includes $11,265 of mortgage differential payments and
$164,627 of relocation expenses.
(2) No stock appreciation rights have been granted to the named executive
officers. Figures in this column represent the number of shares that can be
purchased upon exercise of stock options granted during the year.
(3) Consists solely of matching retirement plan contributions by St. Jude
Medical, except for Mr. Shepherd whose all other compensation also consists
of a special retirement provision for all years.
21
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------------------------------
NUMBER OF % OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES EXERCISE PRESENT
GRANTED(1) IN FISCAL PRICE EXPIRATION VALUE(4)
NAME (#) YEAR ($/SH) DATE ($)
- ---- ---------- ------------- -------- ---------- ----------
Terry L. Shepherd -- -- $ -- $ --
Daniel J. Starks -- -- -- --
Michael J. Coyle 55,000 (3) 1.7% 73.02 12/10/2009 1,432,442
Michael T. Rousseau 150,000 (2) 4.7% 61.70 06/28/2009 3,387,675
55,000 (3) 1.7% 73.02 12/10/2009 1,432,442
John C. Heinmiller 52,500 (3) 1.6% 73.02 12/10/2009 1,367,331
FOOTNOTES
(1) The Company has never issued any options with a reload provision. In the
event of a change-in-control of the Company, all options become 100%
vested.
(2) These options were granted to Mr. Rousseau on June 28, 2001, in connection
with his promotion to President, U.S. Sales. The options have an exercise
price equal to the fair market value on the date of grant. 100,000 of these
options vest after 4 years on June 28, 2005, and the remaining vest
annually in 25% increments.
(3) The options have an exercise price equal to the fair market value on the
date of grant and vest annually in 25% increments.
(4) The Company uses the Black-Scholes option pricing model to establish stock
option values for purposes of this table. The actual value, if any, will
depend on the excess of the stock price over the exercise price on the date
the option is exercised. There is no assurance that the value realized will
be at or near the value as estimated by the Black-Scholes model. The
specific assumptions used in valuing the stock options under the
Black-Scholes model were as follows:
* Volatility of approximately 30.9%, representing the estimated annual
variance in the daily percentage change in the price of the Company's
common stock over a five-year period.
* Risk-free rate of return ranging from 4.4% to 4.9%, representing the
average five-year treasury rate on the date of grant.
* Expected term of five years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
SHARES AT FISCAL YEAR-END (#) AT FISCAL YEAR-END(1) ($)
ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ------------------ ----------- ------------- ----------- -------------
Terry L. Shepherd -- $ -- 469,337 223,663 $20,061,189 $ 9,676,189
Daniel J. Starks -- -- 170,750 479,250 6,416,748 13,515,615
Michael J. Coyle 6,750 366,424 157,550 207,200 5,604,821 4,968,932
Michael T. Rousseau -- -- 33,875 265,625 1,419,579 4,637,260
John C. Heinmiller 1,500 57,094 50,312 115,688 2,063,014 2,278,862
FOOTNOTES
(1) Values were calculated using a price of $76.54 per share, the closing sale
price of the Company's common stock as reported by the New York Stock
Exchange on December 28, 2001.
22
EMPLOYMENT, TERMINATION AND CHANGE
IN CONTROL AGREEMENTS
CEO EMPLOYMENT AGREEMENT. The Board of Directors appointed Mr. Shepherd as
the Company's President and Chief Executive Officer pursuant to an Agreement
effective May 5, 1999, that ends on May 4, 2004. Mr. Shepherd will receive an
annual salary of $500,000 subject to annual review for possible increases by the
board of directors, and customary fringe benefits provided to Company officers,
including an opportunity to earn a bonus.
PRESIDENT AND COO EMPLOYMENT AGREEMENT. The Board of Directors appointed
Mr. Starks as the Company's President and Chief Operating Officer pursuant to an
agreement effective March 25, 2001, that ends on January 31, 2006. Mr. Starks
will receive an annual salary of $500,000 subject to annual review for possible
increase, by the board of directors, and customary fringe benefits provided to
Company officers, including an opportunity to earn a bonus.
SEVERANCE AGREEMENTS. The Company has entered into change of control
severance agreements (the "Severance Agreement") with 20 of its senior
executives, including Mr. Shepherd and Mr. Starks and the other named Executive
Officers. The Severance Agreements provide for certain payments and other
benefits if, following a Change in Control, the Company terminates the
executive's employment without Cause or the executive terminates his employment
for Good Reason. Such payments and benefits include: (i) severance pay equal to
three times the sum of the executive's annual salary, target bonus and certain
other compensation paid to the executive during the twelve months prior to the
termination; (ii) three years of life, health and disability insurance
substantially similar to that in effect at the time of termination; (iii) the
payment of legal fees and expenses relating to the termination; (iv) the
termination of any noncompetition arrangement between the Company and the
executive; and (v) a gross-up payment for any excise tax imposed on such
payments or benefits and for any tax imposed on such gross-up. Under the
Severance Agreements, "Cause" is defined as a conviction for felony criminal
conduct; "Good Reason" is defined to include a change in the executive's
responsibility or status, a reduction in salary or benefits, or a mandatory
relocation; and "Change in Control" is defined to include a change in control of
the type required to be disclosed under Securities and Exchange Commission proxy
rules, acquisition by a person or group of 35% of the outstanding voting stock
of the Company, a proxy fight or contested election which results in Continuing
Directors (as defined) not constituting a majority of the Company's Board of
Directors, or another event the majority of the Continuing Directors determines
to be a change in control.
INDEMNIFICATION AGREEMENTS. The Company has entered into indemnification
agreements with each of its directors and Executive Officers which provide for
indemnification against certain costs incurred by each director and Executive
Officer made or threatened to be made a party to a proceeding because of his or
her official capacity as a director or Executive Officer. The indemnification
agreements, together with the Company's Bylaws, provide for indemnification to
the fullest extent permitted by Minnesota law.
LOAN GUARANTEES
In 1998, the Company established a program under which the Company
guarantees personal loans to employees for the purchase of the Company's common
stock. During 2001, two employees participated in the program.
The employee is personally responsible for interest and principal payments
on these loans. During 2001, the largest outstanding principal amount of each
loan guaranteed by the Company in excess of $60,000 to any Executive Officer of
the Company was as follows: Mr. Shepherd $496,661 and Mr. Healy $78,794.
23
SHAREHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING
- --------------------------------------------------------------------------------
Under SEC rules, shareholders who wish to present a proposal to the 2003
Annual Meeting and have it included in our proxy statement for that meeting must
submit the proposal in writing to Kevin T. O'Malley, Secretary, St. Jude
Medical, Inc., One Lillehei Plaza, St. Paul, Minnesota 55117. We must receive
your written proposal no later than November 29, 2002.
Shareholders who intend to present a proposal at the 2003 Annual Meeting,
but not to include the proposal in our proxy statement, must comply with the
requirements established in the Company's Bylaws. These require, among other
things, that a shareholder submit a written notice to the Secretary of the
Company of the intention to bring a proposal before the meeting not less than 50
days nor more than 75 days prior to the meeting (or if less than 60 days' notice
or prior public disclosure of the date of the Annual Meeting is given to
shareholders, not later than the tenth day following the day on which the notice
of the date of the annual meeting was mailed or such public disclosure was
made).
OTHER MATTERS
- --------------------------------------------------------------------------------
Whether or not you plan to attend the meeting, please mark, sign, date and
promptly return the proxy card sent to you in the envelope provided. No postage
is required for mailing in the United States.
Ronald A. Matricaria Terry L. Shepherd
Chairman of the Board of Directors Chief Executive Officer
March 28, 2002
24
APPENDIX A
ST. JUDE MEDICAL, INC.
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
ORGANIZATION
This charter governs the operations of the audit committee ("Committee").
The Committee shall consist of at least three directors. The Chairperson and
members of the Committee will be recommended by the Chairman of the Board and
will be appointed by the Board of Directors. The members of the Audit Committee
shall meet the independence and experience requirements of the New York Stock
Exchange. At the time of appointments to the Committee, the Board shall
interpret the requirements of the New York Stock Exchange and shall certify that
the requirements are met or require that they be met within a reasonable period
of time.
STATEMENT OF POLICY
The Committee shall provide assistance to the Board in fulfilling its
oversight responsibility to the shareholders and other constituents relating to
the Company's financial statements and the financial reporting process, the
systems of internal accounting and financial controls, the internal audit
function, the annual independent audit of the Company's financial statements,
and the legal compliance and ethics programs as established by management and
the Board. In so doing, it is the responsibility of the Committee to maintain
free and open communication between the Committee, independent auditors, and
management of the Company. In discharging its oversight role, the Committee is
empowered to investigate any matter brought to its attention with full access to
all books, records, facilities, and personnel of the Company and to retain
outside counsel or other experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Committee is to oversee the Company's
financial reporting process on behalf of the Board and report the results of its
activities to the Board. Management is responsible for preparing the Company's
financial statements, and the independent auditors are responsible for auditing
those financial statements. Policies and procedures of the Committee should
remain flexible in order to best react to changing conditions and circumstances.
Committee meetings may be held telephonically and written minutes shall be
prepared by the Committee for all meetings. Regularly scheduled Committee
meetings require a quorum to be present. The Audit Committee shall have the
authority to retain special legal, accounting or other consultants to advise the
Committee. The Audit Committee may request any officer or employee of the
Company or the Company's outside counsel or independent auditors to attend a
meeting of the Committee or to meet with any members of, or consultants to, the
Committee.
The Audit Committee shall:
1. Review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval.
2. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing principles and
practices as well as the adequacy of internal controls that could significantly
affect the Company's financial statements, prior to the filing of the Company's
Annual Report on Form 10-K or prior to the distribution of the Company's annual
report to shareholders. This review shall specifically include a report from
management assessing the Company's internal controls.
3. Review with management and the independent auditors the significant
financial
25
reporting issues and judgements made in connection with the preparation of the
Company's financial statements.
4. Review with management and the independent auditors the Company's
quarterly earnings press release after the independent auditors have completed
their SAS 71 review. In addition, each committee member shall individually
review the Company's Quarterly Report on Form 10-Q and approve it in writing
prior to the filing of such report.
5. Review annually with management the Company's Financial Risk Management
Policy and the implementation of the policy.
6. Review major changes to the Company's accounting principles and
practices as suggested by the independent auditors and management.
7. Recommend to the Board the appointment of the independent auditors,
which firm is ultimately accountable to the Audit Committee and the Board.
8. Review the fees paid to the independent auditors and approve the annual
audit fees to be paid to the independent auditors.
9. Review the independent auditors' annual communication regarding the
auditor's independence, discuss such reports with the auditor, and if so
determined by the Audit Committee, recommend that the Board take additional
action to satisfy itself of the independence of the auditor.
10. Evaluate the performance of the independent auditors and recommend that
the Board either reappoint or replace the independent auditors.
11. Review the significant reports to management prepared by the internal
auditing function and management's responses.
12. Meet with the independent auditors prior to the annual audit to review
the planning, staffing and scope of the audit.
13. Obtain from the independent auditors assurance that Section 10A of the
Securities Exchange Act of 1934 has not been implicated.
14. Discuss with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the conduct of
the audit.
15. Review with the independent auditors any significant problems or
difficulties the auditor may have encountered during the annual audit and any
management letter comments deemed significant by the auditor, including the
Company's response to such comments. Such review should include: (a) any
significant difficulties encountered in the course of the audit work, including
any restrictions on the scope of activities or access to required information;
and (b) any significant changes required in the planned scope of the audit.
16. Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's annual proxy statement.
17. Review annually with the Company's General Counsel legal matters that
may have a material impact on the Company's consolidated financial statements,
the Company's compliance policies and any material reports or inquiries received
from regulators or governmental agencies.
18. Meet at least annually with the chief financial officer, the senior
internal auditing executive and the independent auditors in separate executive
sessions.
19. Review and approve annually the internal audit plan for the upcoming
year. In addition, review any significant changes to the internal audit plan
that occurred.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with
26
generally accepted accounting principles. This is the responsibility of
management and the independent auditors. Nor is it the duty of the Audit
Committee to conduct investigations, to resolve disagreements, if any, between
management and the independent auditors or to assure compliance with laws and
regulations.
The Audit Committee shall make regular reports to the Board.
This Charter of the Audit Committee of the Board of Directors was amended
and approved by the Board of Directors of this Corporation on February 22, 2002.
27
[LOGO] SJM ST. JUDE MEDICAL
[STJCM-ST. JUDE MEDICAL, INC.] [FILE NAME: ZSTJC2.ELX] [VERSION-(1)]
[03/25/02] [ORIG. 03/25/02]
FOLD AND DETACH HERE ZSTJC2
ST. JUDE MEDICAL, INC.
P
R THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 16, 2002
O
THE UNDERSIGNED HEREBY APPOINTS TERRY L. SHEPHERD, JOHN C. HEINMILLER
X AND KEVIN T. O'MALLEY OR ANY ONE OF THEM, AS PROXIES, WITH FULL POWER
OF SUBSTITUTION TO VOTE ALL THE SHARES OF COMMON STOCK WHICH THE
Y UNDERSIGNED WOULD BE ENTITLED TO VOTE IF PERSONALLY PRESENT AT THE
ANNUAL MEETING OF SHAREHOLDERS OF ST. JUDE MEDICAL, INC., TO BE HELD
MAY 16, 2002 AT 9:30 A.M. AT THE LUTHERAN BROTHERHOOD AUDITORIUM,
LUTHERAN BROTHERHOOD BUILDING, 625 FOURTH AVENUE SOUTH, MINNEAPOLIS,
MINNESOTA, OR AT ANY ADJOURNMENTS THEREOF, UPON ANY AND ALL MATTERS
WHICH MAY PROPERLY BE BROUGHT BEFORE THE MEETING OR ADJOURNMENTS
THEREOF, HEREBY REVOKING ALL FORMER PROXIES.
(TO BE SIGNED ON REVERSE SIDE)
[SEE REVERSE SIDE]
ST. JUDE MEDICAL, INC.
C/O EQUISERVE
P.O. BOX 43068
PROVIDENCE, RI 02940
[STJCM-ST. JUDE MEDICAL, INC.] [FILE NAME: ZSTJC1.ELX] [VERSION-(2)]
[03/26/02] [ORIG. 03/25/02]
FOLD AND DETACH HERE ZSTJC1
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
1. ELECTION OF DIRECTORS. FOR AGAINST ABSTAIN
NOMINEES: (01) Richard R. Devenuti 2. Proposal to approve the St. Jude Medical 2002
(02) Stuart M. Essig Stock Plan. [ ] [ ] [ ]
(03) Thomas H. Garrett
(04) Wendy L. Yarno 3. Proposal to ratify the re-appointment of Ernst
& Young LLP as the Company's Independent Auditors. [ ] [ ] [ ]
4. In their discretion, the proxies are authorized
to vote upon such other business as may properly
come before the meeting. [ ] [ ] [ ]
FOR ALL NOMINEES [ ] WITHHOLD AUTHORITY [ ]
(EXCEPT AS SPECIFIED TO VOTE FOR ALL NOMINEES
BELOW)
[ ]_____________________________________________
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR MARK HERE FOR ADDRESS MARK HERE IF YOU PLAN
ANY INDIVIDUAL NOMINEE WRITE THAT NOMINEE'S NAME CHANGE AND NOTE AT LEFT [ ] TO ATTEND THE MEETING [ ]
IN THE SPACE PROVIDED ABOVE.)
Please date and sign exactly as your name(s) appears hereon indicating, where proper,
official position or representative capacity in which you are signing. When signing as
Executor, Administrator, Trustee or Guardian give full title as such; when shares have
been issued in names of two or more persons, all should sign.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO
SPECIFICATION IS MADE THE SHARES WILL BE VOTED "FOR" ALL NOMINEES FOR DIRECTOR, "FOR"
PROPOSALS 2 AND 3, AND IN THE DISCRETION OF THE NAMED PROXIES ON ALL OTHER MATTERS.
Signature: ________________________________ Date: ______________ Signature: ________________________________ Date: ______________