SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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[ ] Definitive Additional Materials
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ss. 240.14a-12
St. Jude Medical, Inc.
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Notice of 2004 Annual Meeting and
PROXY STATEMENT
[LOGO] St. Jude Medical
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ST. JUDE MEDICAL, INC.
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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. CDT
Wednesday, May 12, 2004
PLACE.................. Minnesota Historical Center
345 Kellogg Boulevard West
St. Paul, Minnesota 55102
ITEMS OF BUSINESS...... (1) To elect three members of the Board of
Directors, for terms ending in 2007.
(2) To consider a proposal to increase the
Company's authorized shares of the
common stock to 500 million shares.
(3) To consider a proposal to approve the
Company's Management Incentive
Compensation Plan.
(4) To ratify the appointment of Ernst &
Young LLP as the Company's independent
auditors for 2004.
(5) To consider a shareholder proposal
regarding compensation of the Company's
senior executives.
(6) 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 15, 2004,
are entitled to notice of and to vote at the meeting.
ANNUAL REPORT.......... The Company's 2003 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 &
March 30, 2004 Secretary
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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
Principles of Corporate Governance....................................... 3
Communications with Directors............................................ 3
Director Nomination Process.............................................. 3
Attendance at Annual Shareholder Meeting................................. 4
Director Independence and Audit Committee Financial Expert............... 4
Committees of the Board of Directors..................................... 4
Report of the Audit Committee............................................ 5
Compensation of Directors................................................ 6
Related Party Transactions............................................... 6
Section 16(a) Beneficial Ownership Reporting Compliance.................. 7
BOARD OF DIRECTORS......................................................... 8
Nominees for Term Expiring in 2007....................................... 8
Directors Whose Terms Will Expire in 2005................................ 9
Directors Whose Terms Will Expire in 2006................................ 10
SHARE OWNERSHIP OF MANAGEMENT AND DIRECTORS AND
CERTAIN BENEFICIAL OWNERS............................................... 11
STOCK PERFORMANCE GRAPH.................................................... 12
EXECUTIVE COMPENSATION..................................................... 13
Report of the Compensation Committee on Executive
Compensation.......................................................... 13
Summary Compensation Table............................................... 16
Option Grants in Last Fiscal Year........................................ 17
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values................................................ 17
Equity Compensation Plan Information..................................... 18
Employment, Termination and Change in Control Agreements................. 19
PROPOSAL TO RATIFY THE APPOINTMENT OF AUDITORS............................. 20
PROPOSAL TO APPROVE THE MANAGEMENT INCENTIVE
COMPENSATION PLAN (MICP)................................................ 21
PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK FROM 250,000,000
TO 500,000,000.......................................................... 23
SHAREHOLDER PROPOSAL REGARDING COMPENSATION OF
SENIOR EXECUTIVES....................................................... 26
SHAREHOLDER PROPOSALS FOR THE 2005 ANNUAL MEETING.......................... 29
OTHER MATTERS.............................................................. 29
APPENDIX A - Principles of Corporate Governance............................ 30
APPENDIX B - 2004 Management Incentive Compensation Plan................... 34
[LOGO] St. Jude Medical
St. Jude Medical, Inc.
One Lillehei Plaza
St. Paul, MN 55117
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 12, 2004
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 2004 Annual Meeting of Shareholders and at any meeting
following adjournment thereof.
You are cordially invited to attend the annual meeting on May 12, 2004,
beginning at 9:30 a.m. C.D.T. The meeting will be held in the Minnesota
Historical Center, 345 Kellogg Boulevard West, St. Paul, 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 ________, 2004, to holders of the Company's
common stock on March 15, 2004, 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 at the meeting 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 IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD
OF DIRECTORS, AS SET FORTH IN THIS PROXY STATEMENT.
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.
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 the record date, March 15, 2004, there were 175,292,185 shares of
common stock outstanding and, therefore, entitled to vote at the annual meeting.
REQUIRED VOTE
The presence, in person or by proxy, of a majority of the shares entitled to
vote at the meeting is necessary to constitute a quorum for the transaction of
business 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.
The affirmative vote of a majority of the shares of the Company's common stock
present and entitled to vote at the annual meeting is required for the election
of each nominee for Director, to ratify the appointment of Ernst & Young LLP as
the Company's independent auditors for 2004, to approve the Company's Management
Incentive Compensation Plan, and to approve the shareholder proposal regarding
compensation of the Company's senior executives. The affirmative vote of a
majority of the shares of the Company's common stock entitled to vote at the
annual meeting is required to approve the amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of the Company's
common stock. Abstentions on any matter will be counted as shares that are
present and entitled to vote for purposes of determining the approval of such
matter. Broker non-votes on any matter will not be considered as present and
entitled to vote for purposes of determining the approval of such matter.
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.
The Company has retained Georgeson Shareholder Communications, Inc. to
assist in the solicitation of proxies for an estimated fee of $10,500 plus
out-of-pocket expenses.
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 other officers, by
reviewing materials provided to them by the CEO and officers and by
participating in meetings of the Board and its Committees.
During 2003, the Board held five meetings and the Committees of the Board
held a total of fifteen meetings. The average attendance at the Board and
Committee meetings was 90% and each Director attended at least 75% of all
meetings of the Board and of the Committees on which the Director served.
The independent members of the Board also meet at scheduled executive
sessions at least twice a year. The Chairperson of the Governance and Nominating
Committee serves as the Presiding Director for these meetings.
PRINCIPLES OF CORPORATE GOVERNANCE
The Board of Directors amended its Principles of Corporate Governance on
February 23, 2004, which are attached as Appendix A.
COMMUNICATIONS WITH DIRECTORS
Any shareholder wishing to communicate with one or more non-management
Directors may do so by sending a letter addressed to the Director or Directors
to:
c/o Corporate Secretary
St. Jude Medical, Inc.
One Lillehei Plaza
St. Paul, MN 55117
All such correspondence will be forwarded to the non-management Director
or Directors.
DIRECTOR NOMINATION PROCESS
The Governance and Nominating Committee considers suggestions from many
sources, including shareholders, for possible candidates for Directors. The
Governance and Nominating Committee would consider any candidate proposed by a
shareholder in the same manner as other possible candidates. The Governance and
Nominating Committee has not adopted any specific criteria for a Director
position.
The Governance and Nominating Committee believes that it is not necessary
to adopt criteria for the selection of Directors. The Governance and Nominating
Committee believes that the desirable background of a new individual member of
the Board of Directors may change over time and that a thoughtful, thorough
process for the selection is more important than adopting criteria for
Directors. During 2003 the Governance and Nominating Committee surveyed the
Board of Directors to assess the areas of expertise the Board of Directors
believed would be most desirable to add to the Board. Financial expertise and
industry knowledge were two of the most desirable characteristics at that time.
The Governance and Nominating Committee has recently worked with
independent search firms which assist in identifying Director candidates. Once
candidates are identified, they are evaluated through a series of interviews
with members of the Governance and Nominating Committee, several other
Directors, and members of management, including the Company's General Counsel.
Candidates are also asked to complete a Director questionnaire used by the
Company.
Any shareholder wishing to propose that a person be appointed to the
Board of Directors or that management nominate a person for election to the
Board of Directors may submit such a proposal to:
Governance and Nominating Committee
c/o Corporate Secretary
St. Jude Medical, Inc.
One Lillehei Plaza
St. Paul, MN 55117
During the past year, the Governance and Nominating Committee retained a
third party search firm to assist the Committee in the process of identifying
and evaluating potential nominees for the Board.
Since the 2003 annual shareholder meeting, the Board of Directors has
appointed Mr. Rocca to the Board. Mr. Rocca was recommended for appointment by
the Governance and Nominating Committee.
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ANNUAL SHAREHOLDER MEETING
Three of the Company's Directors attended the 2003 annual shareholder
meeting. The Company will reimburse a Director's travel expenses for attending
the annual shareholder meeting, but attendance by non-management directors is
not required. The Board of Directors will consider holding a Board of Directors
meeting in conjunction with the 2005 annual shareholder meeting and subsequent
annual shareholder meetings in order to facilitate attendance by Directors at
such meetings.
DIRECTOR INDEPENDENCE AND AUDIT COMMITTEE FINANCIAL EXPERT
The Board undertook a review of Director independence in February 2004.
As part of that process, the Board reviewed all transactions and relationships
between each Director (or any member of his or her immediate family) and the
Company, the Company's executive officers and the Company's auditors. As a
result of this review, the Board affirmatively determined that all of the
Directors, except Mr. Shepherd, who is retiring, Mr. Starks and Mr. Widensohler,
are independent under the Company's Principles of Corporate Governance and the
New York Stock Exchange listing standards. See "Related Party Transactions" on
page ____.
In February 2004, the Board also determined that all members of the Audit
Committee are financially literate under the New York Stock Exchange listing
standards and that Mr. Essig and Mr. Devenuti qualify as an "audit committee
financial expert" within the meaning of the rules of the Securities and Exchange
Commission.
COMMITTEES OF THE BOARD OF DIRECTORS
During 2003, the Board of Directors had three ongoing committees: the
Audit Committee, the Compensation Committee, and the Governance and Nominating
Committee. During 2003 the Audit Committee met eight times, the Compensation
Committee met four times, and the Governance and Nominating Committee met two
times.
Each Committee of the Board has a separate written charter which is
available on the Company's website at www.sjm.com.
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Each member of the Audit Committee, the Compensation Committee, and the
Governance and Nominating Committee are independent under the Company's
Principles of Corporate Governance and the New York Stock Exchange listing
standards.
The Governance and Nominating Committee is responsible for recommending good
governance practices. The Governance and Nominating Committee evaluates the
qualifications of and nominates candidates for positions on the Board. The
procedures for shareholders to nominate directors can be found on page ______.
In addition, the Governance and Nominating Committee facilitates an annual
evaluation by Board members of Board and individual Director performance and
provides feedback to the entire Board.
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.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee reviews the Company's consolidated financial
statements, financial reporting process, and internal controls on behalf of the
Board of Directors.
We meet with management periodically to consider, among other things, the
adequacy of the Company's disclosure and internal controls and the objectivity
of its financial reporting. We discuss these matters with the Company's
independent auditors, Ernst & Young LLP, and with appropriate Company financial
personnel.
We regularly meet privately with the independent auditors who have
unrestricted access to the Audit Committee.
We also appoint the independent auditors, approve the scope of their
audit services, approve the performance of non-audit services by the independent
auditors, and review periodically their performance and independence from
management.
The Directors who serve on the Committee are all independent under the
Company's Principles of Corporate Governance and the New York Stock Exchange
listing standards.
The Board has adopted a written charter which describes the functions the
Audit Committee is to perform. In February 2004, we reviewed the charter and
recommended to the Board that no changes were needed. The charter of the Audit
Committee is available on the Company's website at www.sjm.com.
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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
consolidated financial statements fairly present the financial position, results
of operation and cash flows of the Company in conformity with generally accepted
accounting principles 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 to discuss these
financial statements. Management has represented to us that these financial
statements were prepared in accordance with generally accepted accounting
principles. We also considered the report of the independent auditors.
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 the independence of Ernst &
Young LLP. We have also considered the compatibility of non-audit services with
the auditor's independence. In addition, we 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).
Based on our review and discussions described above, 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, 2003 filed with the Securities and Exchange Commission.
Stuart M. Essig
Richard R. Devenuti
Thomas H. Garrett III
COMPENSATION OF DIRECTORS
Each non-employee director receives a retainer of $3,000 per month plus
$2,000 per diem for each Board meeting attended. Committee chairpersons receive
an additional annual fee of $9,000 and Committee members an additional annual
fee of $4,000. The Presiding Director receives an additional annual fee of
$5,000. 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 Company's 2002 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 meeting of shareholders automatically receives, as of the
date of such meeting, an option to purchase 4,000 shares of the Company's common
stock at an exercise price per share equal to 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 of the grant date. Further, under the 2002 Stock Plan,
non-employee Directors also 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 7,500 shares in any calendar year. 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 exercise price is the fair market value on the
date of appointment. At the 2003 annual meeting of shareholders, each
non-employee Director received an automatic grant of an option to purchase 4,000
shares at $51.70 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
2003.
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 serving 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 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.
RELATED PARTY TRANSACTIONS
Mr. Widensohler is a director of and the beneficial owner of
approximately 45% of the common stock of Invatech, an Italian company that makes
and sells products to Getz Co., Ltd, a Japanese distributor of medical
technology products that was acquired by the Company on April 1, 2003. Sales by
Invatech to Getz during 2003 were $4,747,757. In February 2004, the Board of
Directors determined that Mr. Widensohler was no longer considered an
independent Director and he ceased to be a member of the Compensation Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and Directors to file initial reports of ownership and
reports of changes in ownership of our securities with the Securities and
Exchange Commission. Based on a review of the Section 16(a) reports filed by our
Directors and executive officers in 2003 and on written representations by the
Directors and executive officers, we believe that all Section 16(a) filing
requirements applicable to our Directors and executive officers during 2003 were
satisfied, except that the following Directors each filed one Form 4 reporting
one transaction three days late: Mr. Devenuti, Mr. Essig, Mr. Garrett, Mr.
Thompson, Mr. Widensohler, Ms. Yarno, and Mr. Yin; and Mr. Rousseau failed to
file a Form 4 reporting one transaction for 10 months.
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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.
Three Directors will be elected at the annual meeting to serve for a three-year
term expiring at the Company's annual meeting in 2007. We have nominated Mr.
Rocca, Mr. Thompson and Mr. Widensohler for these positions. Each nominee
currently serves as a Director. You can find the principal occupation of and
other information about the nominees below.
Mr. Shepherd, whose term as a Director expires at the 2004 annual
meeting, will retire as a Director and as Chairman and Chief Executive Officer
at the time of the annual meeting. In connection with Mr. Shepherd's retirement,
the Board of Directors has determined to decrease the number of Directors in
this class from four to three.
The persons named on the proxy card will vote the proxy for the election
of Mr. Rocca, Mr. Thompson and Mr. Widensohler unless you indicate that your
vote for any of the nominees should be withheld. If elected, Mr. Rocca, Mr.
Thompson and Mr. Widensohler 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 ___________, 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 ______.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MR. ROCCA,
MR. THOMPSON AND MR. WIDENSOHLER AS DIRECTORS.
PROXIES WILL BE VOTED FOR THE ELECTION OF MR. ROCCA, MR. THOMPSON AND MR.
WIDENSOHLER UNLESS OTHERWISE SPECIFIED.
NOMINEES FOR TERM EXPIRING IN 2007
[PHOTO] MICHAEL A. ROCCA, Director of St. Jude Medical since March 2004.
Retired in 2000 from Mallinckrodt, Inc., a pharmaceutical and
medical device manufacturer, where he was Senior Vice President
and Chief Financial Officer from 1994 to 2000. Director of Ligand
Pharmaceuticals, Inc., a biotech company that develops oncology
drugs and morphine based pain medications, and Lawson Software,
Inc., a manufacturer of enterprise software. Age 59.
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[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 Third Wave Technologies, a company
that develops genomic assays. Committees: Chairperson of the
Governance and Nominating Committee and Compensation Committee
Member. Presiding Director. Age: 62
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[PHOTO] STEFAN K. WIDENSOHLER, Director of St. Jude Medical since 2001.
President and Chief Executive Officer of Krauth Medical Group, a
European distributor of medical and surgical devices and services,
since 1992. Committee: Compensation Committee Member through
February 2004. Age: 44
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2005
[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: 46
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[PHOTO] STUART M. ESSIG, 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. Committees: Chairperson of the Audit Committee and
Governance and Nominating Committee Member. Age: 42
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[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 Lifecore Biomedical, Inc., a biomedical and
surgical device manufacturer. Committee: Audit Committee Member.
Age: 59
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[PHOTO] WENDY L. YARNO, Director of St. Jude Medical since 2002. Executive
Vice President, Worldwide Human Health Marketing, Merck & Co.
Inc., a pharmaceutical company, since January 2003. From 2000 -
2002 Senior Vice President, Human Resources, Merck & Co., Inc.
From 1997 - 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: Chairperson of Compensation Committee. Age: 49
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2006
[PHOTO] DANIEL J. STARKS, Director of St. Jude Medical since 1996.
President and COO of St. Jude Medical since February 1, 2001.
From April 1998 to February 1, 2001, President and Chief Executive
Officer of the Cardiac Rhythm Management Division of the Company.
Previously Chief Executive Officer and President, Daig
Corporation. Director of Urologix, Inc., a urology medical device
company. Age: 49
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[PHOTO] FRANK C-P YIN, 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: 60
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 20, 2004,
by (a) each of the Company's Directors, Director nominees and executive officers
appearing in the summary compensation table on page ____, (b) all of the
Company's Directors and executive officers as a group and (c) each person known
to the Company to be the beneficial owner of more than 5% of the common stock.
Unless otherwise noted, these persons have sole voting and dispositive power
with respect to the shares owned by them.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
BENEFICIAL OWNERS OWNERSHIP CLASS
----------------- ---------- ----------
Richard R. Devenuti 16,745 (1) *
Stuart M. Essig 38,792 (1) *
Thomas H. Garrett III 112,146 (1)(2) 0.1%
Michael A. Rocca -- *
Terry L. Shepherd 1,220,089 (1) 0.7%
Daniel J. Starks 3,952,396 (1) 2.2%
David A. Thompson 39,622 (1) *
Stephan K. Widensohler 17,000 (1) *
Wendy L. Yarno 14,085 (1) *
Frank C-P Yin 17,490 (1) *
John C. Heinmiller 268,665 (1) 0.2%
Michael T. Rousseau 251,698 (1) 0.1%
Michael J. Coyle 611,863 (1) 0.3%
Directors and Executive Officers
as a Group (20) 7,574,906 (3) 4.2%
FMR Corp. 16,051,874 (4) 9.3%
82 Devonshire Street
Boston, MA 02109
FOOTNOTES
* Less than 0.1%
(1) Includes the number of shares which each Director or executive officer
may acquire within 60 days from February 20, 2004, pursuant to the
exercise of stock options, as follows: Mr. Devenuti, 16,000; Mr. Essig,
32,000; Mr. Garrett, 50,000; Mr. Shepherd, 1,168,480; Mr. Starks,
950,000; Mr. Thompson, 32,000; Mr. Widensohler, 16,000; Ms. Yarno,
13,340; Mr. Yin, 16,000; Mr. Heinmiller, 178,750; Mr. Rousseau, 251,250;
and Mr. Coyle, 604,450.
(2) Includes 24,000 shares owned by Mr. Garrett's wife as to which Mr.
Garrett disclaims beneficial ownership.
(3) Includes 4,317,270 shares that such individuals may acquire within 60
days from February 20, 2004, pursuant to the exercise of stock options.
(4) This information and the following information is derived from a Schedule
13G dated February 16, 2004, delivered to the Company. Fidelity
Management & Research Company ("Fidelity"), 82 Devonshire Street, Boston,
Massachusetts 02109, a wholly-owned subsidiary of FMR Corp. and an
investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, is the beneficial owner of 13,457,636 shares or
7.800% of the Common Stock outstanding of St. Jude Medical Incorporated
(the "Company") as a result of acting as an investment adviser to various
investment companies registered under Section 8 of the Investment Company
Act of 1940. Edward C. Johnson 3d, FMR Corp., through its control of
Fidelity, and the funds each has sole power to dispose of the 13,457,636
shares owned by the Funds. Neither FMR Corp. nor Edward C Johnson 3d,
Chairman of FMR Corp., has the sole power to vote or direct the voting of
the shares owned directly by the Fidelity Funds, which power resides with
the Funds' Board of Trustees. Fidelity carries out the voting of the
shares under written guidelines established by the Funds' Boards of
Trustees. Fidelity Management Trust Company, 82 Devonshire Street,
Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR Corp. and a
ban defined in Section 3(a)(6) of the Securities Exchange Act of 1934, is
the beneficial owner of 1,085,257 shares or 0.629% of the Common Stock
outstanding of the Company as a result of its serving as investment
manager of the institutional account(s). Edward C. Johnson 3d and FMR
Corp., through its control of Fidelity Management Trust Company, each has
sole dispositive power over 1,085,257 shares and sole power to vote or to
direct the voting of 956,857 shares, and no power to vote or to direct
the voting of 128,400 shares of Common Stock owned by the institutional
account(s) as reported above. Strategic Advisers, Inc., 82 Devonshire
Street, Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR
Corp. and an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, provides investment advisory services to
individuals. As such, FMR Corp's beneficial ownership includes 200,000
shares, or 0.116%, of the Common Stock stock outstanding of St. Jude
Medical Incorporated, beneficially owned through Strategic Advisers, Inc.
STOCK PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
The graph below compares the cumulative total shareholder returns for St.
Jude Medical common stock for the last five years ended December 31, 2003, as
compared with the Standard & Poor's 500 Health Care Equipment Index and the
Standard & Poor's 500 Index weighted by market value at each measurement point.
The comparison assumes that $100 was invested on December 31, 1998, in St. Jude
Medical common stock and in each of these Standard & Poor's indexes and assumes
the reinvestment of any dividends.
[CHART APPEARS HERE]
1998 1999 2000 2001 2002 2003
------ ------ ------ ------ ------ ------
St. Jude Medical, Inc. $100.0 $110.1 $220.4 $278.6 $285.0 $440.2
S&P 500 Health Care
Equipment Index $100.0 $ 92.2 $135.3 $128.4 $112.1 $148.0
S&P 500 Index $100.0 $120.9 $110.0 $ 96.9 $ 75.6 $ 97.1
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
Our report covers the following topics:
o Role of the Compensation Committee
o Executive Compensation Philosophy and Process
o Components of Our Executive Compensation Program
o Compensation of the Chief Executive Officer
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. None of the members of the Compensation Committee is a
current or former employee of the Company. Each of the members of the
Compensation Committee is independent under the Company's Principles of
Corporate Governance and the New York Stock Exchange listing standards. 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:
o Compensation should be related to individual performance and
qualifications.
o Executive officers and employees should be encouraged to own St. Jude
Medical stock.
o A substantial part of an executive officer's compensation should be
incentive-based, tied to performance, and subject to risk.
We evaluate the Company's compensation program for executive officers in
relation to the programs offered by other medical products companies. In 2003,
we engaged an independent compensation consultant to analyze the level of
executive compensation for a peer group of ten medical products companies. The
ten companies in the compensation peer group are not the same companies in the
stock performance graph on page ___. 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 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.
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. Our
shareholders have approved our Management Incentive Compensation Plan (the
"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.
Consistent with this policy, the Board of Directors is requesting that
shareholders again approve the MICP at the 2004 annual meeting in order to
maintain the deductibility of compensation awarded under the MICP.
COMPONENTS OF OUR EXECUTIVE COMPENSATION PROGRAM
Our compensation program for executive officers has three components:
o Base Salary
o Annual Incentive Award
o 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 complexity of the position, current salary
in relation to the range designated for the job and salary levels for comparable
positions at the compensation 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
within 3 percent of the 60th percentile. The base salaries of the CEO and the
President and COO are also governed by employment agreements. See "Employment,
Termination and Change of Control Agreements" on page ___.
ANNUAL INCENTIVE AWARDS. Annual incentive awards are designed to provide
executive officers an additional incentive for achieving the annual performance
goals established in the Company's yearly business plan approved by the Board of
Directors. All annual incentive awards to executive officers are awarded and
paid under MICP. Payments under the 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 business 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 45% to 70% of base salary, except for the CEO and President and COO
who are eligible for a normal annual cash 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 can decrease substantially if actual
results fail to meet targeted levels.
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 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 executive officers and employees with a long-term equity
interest in the Company and 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
past performance. No pre-assigned relative weight is ascribed to any of these
factors. In 2003, a total of 930,000 stock options were granted to executive
officers.
[check]
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 2003, we granted no restricted stock
awards to executive officers or employees.
STOCK OWNERSHIP GUIDELINES. St. Jude Medical established stock ownership
guidelines for all executive 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. Stock ownership guidelines for Board members are
set at five times the annual retainer for Board members.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In 2003, Mr. Shepherd, the CEO, was our 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 2003, in
accordance with his employment agreement, we reviewed Mr. Shepherd's
compensation in light of the compensation peer group data and Mr. Shepherd's
performance evaluation conducted by the Board. We determined that an increase in
base compensation of approximately 5% was appropriate. Therefore, we increased
Mr. Shepherd's annual base salary from $700,000 to $735,000 effective as of May
5, 2003. As a result of this increase, Mr. Shepherd earned a base salary of
approximately $723,000 in 2003.
ANNUAL INCENTIVE AWARD. Mr. Shepherd earned an award of $715,656 under
the MICP for 2003. His award was based 25% on the Company's achievement of the
revenue target and 75% on the Company's achievement of the earnings per share
target established under the MICP.
STOCK OPTIONS VESTING. Under criteria established at the time of grant,
155,000 stock option shares granted previously to Mr. Shepherd vested due to
time and performance during 2003.
STOCK OPTION GRANTS. Mr. Shepherd was granted a non-qualified stock
option for 200,000 shares during 2003, which vests over a four-year period. The
rationale for the stock option grant to Mr. Shepherd was based on a review of
CEO compensation from the compensation peer group and the Compensation
Committee's view that Mr. Shepherd's performance has been outstanding.
David A. Thompson
Wendy L. Yarno
Frank C-P Yin
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- -------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION (1) OPTIONS (2) COMPENSATION (3)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- -------------------------------------------------------------------------------------------------------------------------------
Terry L. Shepherd 2003 722,885 715,656 - 200,000 51,317
Chairman and Chief Executive Officer 2002 656,731 812,704 - 300,000 51,422
2001 549,038 658,846 - - 47,747
Daniel J. Starks 2003 675,769 669,012 - 200,000 34,650
President and Chief Operating Officer 2002 613,462 759,159 - 300,000 34,755
2001 492,039 580,674 - - 31,080
John C. Heinmiller 2003 400,000 277,200 - 80,000 34,650
Vice President-Finance and 2002 352,000 217,800 - 80,000 34,155
Chief Financial Officer 2001 300,000 180,000 - 52,500 31,080
Michael T. Rousseau 2003 400,000 231,000 - 75,000 34,650
President, U.S. Sales 2002 369,865 238,650 - 90,000 34,755
2001 315,481 207,034 - 205,000 31,080
Michael J. Coyle 2003 388,942 256,605 - 75,000 34,650
President, Cardiac Rhythm Management 2002 349,538 256,911 - 85,000 34,755
2001 322,692 249,606 97,032 55,000 31,080
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.
(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 the 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 of $16,667 for all years.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------------------------------------
NUMBER OF % OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES EXERCISE PRESENT
GRANTED (1) IN FISCAL PRICE EXPIRATION VALUE (3)
NAME (#) YEAR ($/SH) DATE ($)
- ------------------- ------------ -------------- -------- ---------- ----------
Terry L. Shepherd 200,000 (2) 4.4% $ 49.65 4/15/2011 $3,541,500
Daniel J. Starks 200,000 (2) 4.4% 49.65 4/15/2011 3,541,500
John C. Heinmiller 80,000 (2) 1.8% 61.90 12/8/2011 1,794,216
Michael T. Rousseau 75,000 (2) 1.6% 61.90 12/8/2011 1,682,078
Michael J. Coyle 75,000 (2) 1.6% 61.90 12/8/2011 1,682,078
Footnotes
(1) The Company has never issued any options with a reload provision. In the
event of a change in control of the Company, all options become 100%
vested.
(2) The options have an exercise price equal to the fair market value on the
date of grant and vest in 25% increments on the first four anniversaries
of the date of grant. The dates of grant were as follows: for Messrs.
Shepherd and Starks, April 15, 2003; and for Messrs. Heinmiller, Rousseau
and Coyle, December 8, 2003.
(3) The Company uses the Black-Scholes option pricing model to establish
stock option values for purposes of this table. The actual value, if any,
will depend on the excess of the stock price over the exercise price on
the date the option is exercised. There is no assurance that the value
realized will be at or near the value as estimated by the Black-Scholes
model. The specific assumptions used in valuing the stock options under
the Black-Scholes model were as follows:
- Volatility of 35.0%, representing the estimated annual variance in
the daily percentage change in the price of the Company's common
stock over a five-year period;
- Risk-free rate of return ranging from 2.94% to 3.25%, representing
the average five-year Treasury rate on the date of grant;
- Expected term of five years; and
- Dividend yield of 0.0%.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
SHARES AT FISCAL YEAR-END (#) AT FISCAL YEAR-END (1) ($)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ---------------- ------------ ----------- ------------- ----------- -------------
Terry L. Shepherd -- $ -- 1,263,800 622,200 $54,339,928 $15,956,654
Daniel J. Starks -- -- 835,000 765,000 29,336,103 20,084,760
John C. Heinmiller 49,500 1,920,043 223,750 218,750 7,826,773 3,748,911
Michael T. Rousseau 34,000 1,309,558 251,250 478,750 8,486,619 11,806,352
Michael J. Coyle -- -- 604,450 285,050 22,862,430 6,380,047
FOOTNOTES
(1) Values were calculated by subtracting the exercise price per share from
the closing sale price of $60.82 per share of the Company's common stock
as reported by the New York Stock Exchange on January 2, 2004, the last
trading day of fiscal year 2003.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2003 about
the Company's common stock that may be issued under all of its existing equity
compensation plans, including the St. Jude Medical, Inc. 1991 Stock Plan, the
St. Jude Medical, Inc. 1994 Stock Option Plan, the St. Jude Medical, Inc. 1997
Stock Option Plan, the St. Jude Medical, Inc. 2000 Stock Plan, the St. Jude
Medical, Inc. 2000 Employee Stock Purchase Savings Plan, and the St. Jude
Medical, Inc. 2002 Stock Plan, as Amended. All of these plans have been approved
by the Company's shareholders.
Number of securities
Number of securities remaining available for
to be issued upon Weighted average future issuance under
exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column(a))
Plan category (a) (b) (c)
- -------------------------- ------------------------ ----------------------- ----------------------------
Equity compensation
plans approved by
shareholders 29,563,147 $31.09 5,712,866 (1)
Equity compensation
plans not approved by
shareholders - - -
- -------------------------- ------------------------ ----------------------- ----------------------------
Total 29,563,147 $31.09 5,712,866
- -------------------------- ------------------------ ----------------------- ----------------------------
FOOTNOTES
(1) The shares available for future issuance as of December 31, 2003 included
the following
- 1,200,378 shares available for purchase by employees under the St.
Jude Medical, Inc. 2000 Employee Stock Purchase Savings Plan; and
- 73,704 shares available under the St. Jude Medical, Inc. 2000
Stock Plan for restricted stock grants
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. The Agreement provides that Mr.
Shepherd will receive an annual salary of at least $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 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. The Agreement provides
that Mr. Starks will receive an annual salary of at least $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.
SEVERANCE AGREEMENTS. The Company has entered into change in control severance
agreements (the "Severance Agreements") with 20 of its senior executives,
including Mr. Shepherd and Mr. Starks and the other executive officers appearing
in the Summary compensation table. 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 or her 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.
PROPOSAL TO RATIFY THE APPOINTMENT OF AUDITORS
- --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors has appointed Ernst & Young
LLP as the Company's independent auditors for 2004, subject to shareholder
ratification. Ernst and Young LLP will audit our consolidated financial
statements for 2004 and perform other services.
AUDIT AND OTHER FEES
The following table presents Ernst & Young LLP fees for professional services by
type and amount charged by Ernst & Young LLP to the Company during fiscal years
2003 and 2002 (in thousands):
2003 2002
---- ----
Audit Fees (1) $ 1,923 $ 1,306
Audit-Related Fees (2) 160 399
Tax Fees (3) 2,637 1,026
All Other Fees -- --
FOOTNOTES
(1) Audit fees represent amounts for the audit of the consolidated financial
statements included in the Company's Annual Report on Form 10-K, reviews
of the consolidated financial statements included in the Company's
Quarterly Reports on Form 10-Q and statutory audits of various Company
subsidiaries outside of the United States.
(2) Audit-related fees represent amounts for employee benefit plan audits,
due diligence assistance and other attestation services.
(3) Tax fees represent amounts for preparation or review of the Company's
income and related tax returns, tax planning and tax advice. Tax fees for
preparation or review of the Company's income and related tax returns
totaled $729 and $643 in fiscal years 2003 and 2002, respectively.
PREARRANGED POLICY FOR AUDIT AND PERMISSIBLE NON-AUDIT SERVICES
In 2003 the Audit Committee adopted the "Pre-approval of Independent Auditor
Services and Fees" policy. The policy requires that all services by the
Company's Auditor be approved in advance by the Audit Committee and expresses a
preference that non-audit services be performed by persons other than the
Company's independent auditors. Each year, usually in the fourth quarter, the
Audit Committee authorizes the terms, including the scope, and the fees for the
annual audit. Once a year the Audit Committee reviews general requests to
approve non-audit matters, including fees, performed by the Company's
independent auditor. In addition, specific requests for non-audit services by
the independent auditor may be brought to the Audit Committee from time to time.
The policy also prohibits engaging the independent auditor from performing
services prohibited by law.
In 2003 there were no fees paid to Ernst & Young that were not approved in
advance by the Audit Committee.
RATIFICATION OF APPOINTMENT. A proposal will be presented at the Annual Meeting
to ratify the appointment of Ernst & Young LLP as our independent auditors. A
representative of Ernst & Young LLP 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 LLP, the Audit
Committee will reconsider its selection of independent auditors.
REQUIRED VOTE AND BOARD RECOMMENDATION
The affirmative vote of a majority of the shares of the Company's common
stock present and entitled to vote at the annual meeting is required to ratify
the appointment of Ernst & Young LLP. Proxies will be voted for ratification of
the appointment of Ernst & Young LLP unless otherwise specified.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
---
OF THE APPOINTMENT OF ERNST & YOUNG LLP.
PROPOSAL TO APPROVE THE MANAGEMENT INCENTIVE
COMPENSATION PLAN (MICP)
Section 162(m) of the Internal Revenue Code of 1986 limits the Company's
deduction for federal income tax purposes of compensation in excess of $1
million per individual paid to the Company's Chief Executive Officer and its
four highest paid executive officers. Compensation plans which are performance
based within the requirements of Section 162 (m) and are approved by the
Company's shareholders will not be subject to the deduction limit. Therefore, in
order to maximize the Company's tax deductions, the Board of Directors of the
Company is requesting that shareholders approve the Management Incentive
Compensation Plan ("MICP") at the annual meeting.
The following is a summary of the material features of the MICP. The MICP
is attached as Appendix B to this Proxy Statement, and the following summary is
qualified in its entirety by reference to it.
PURPOSE
The MICP is designed to attract, retain and reward highly qualified
executives who are important to the Company's success and to provide incentives
relating directly to the financial performance of the Company.
ADMINISTRATION
The MICP is administered by the Compensation Committee of the Board of
Directors. The present members of the Compensation Committee are Wendy Yarno,
David Thompson, and Frank Yin, all of whom are deemed to be outside directors of
the Company, as defined under Section 162(m). None of the members of the
Compensation Committee receives compensation from the Company in any capacity
other than as a Director of the Company. In addition, each member of the
Compensation Committee is independent under the Company's Principles of
Corporate Governance and the New York Stock Exchange listing standards.
The Compensation Committee may amend, modify, suspend or terminate the
MICP for the purpose of meeting or addressing any changes in legal requirements
of for any other purpose permitted by law. The Compensation Committee will seek
shareholder approval of any amendment determined to require shareholder approval
or advisable under the regulations of the Internal Revenue Service or other
applicable laws or regulations.
ELIGIBLE PARTICIPANTS
Individuals who are eligible to participate in the MICP include the
executive officers and certain other employees of the Company as may be
determined by the Compensation Committee. Individuals subject to the reporting
requirements of Section 16 of the Securities Exchange Act of 1934 are considered
to be executive officers for the purposes of the MICP. For the Company's last
fiscal year, 549 officers and other management employees participated in the
MICP.
AWARDS UNDER MICP
Promptly after the beginning of the fiscal year, consistent with the
requirements stated in Section 162(m), the Compensation Committee establishes
financial objectives by which the financial performance of the Company and its
divisions will be measured during the fiscal year; determines the executive
officer's [and employees] eligible to participate; determines each executive
officer's [and employees] bonus based on the attainment of the financial
objectives for the fiscal year; and determines the frequency at which each bonus
will be paid when attained.
Individual awards will be based on attainment of financial goals based on
the stock price of the Company's shares, the Company's earnings per share,
market share, sales, return on equity, asset management, the expenses or
profitability of the Company or any division or subsidiary, or divisional or any
combination of such goals. For employees other than executive officers,
subjective, individual performance goals may also be established.
The maximum bonus amount that can be paid to any employee with respect to
any one fiscal year results cannot exceed the greater of $2,000,000 or 1.5% of
the Company's consolidated after tax net profit. For 2004, the Committee has set
the maximum bonus at 150% of each individual's base salary for the fiscal year.
Such bonus amounts shall be paid within 90 days after the close of the Company's
fiscal year. The employee may elect to defer some or all of the payment under
the Company's deferred compensation plan. Bonuses will be paid only when the
Compensation Committee certifies that the relevant financial goals established
at the beginning of the fiscal year have been met, and the Compensation
Committee reserves the right to reduce the amount of any award even if the goals
have been attained.
REQUIRED VOTE AND BOARD RECOMMENDATION
The affirmative vote of a majority of the shares of the Company's common
stock present and entitled to vote at the annual meeting is required to approve
the MICP. Proxies will be voted for approval of the MICP unless otherwise
specified.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
---
APPROVAL OF THE COMPANY'S MANAGEMENT INCENTIVE
COMPENSATION PLAN
PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 250,000,000 TO 500,000,000
The Articles of Incorporation of the Company, as amended and presently in
effect (the "Articles"), authorize the issuance of 250,000,000 shares of common
stock, $.10 par value per share, and 25,000,000 shares of preferred stock, $1.00
par value per share. As of December 31, 2003, 173,014,167 shares of common stock
were outstanding and 76,985,833 shares of common stock were authorized but
unissued. Of the unissued shares, 5,712,866 shares were reserved for issuance
pursuant to the Company's various stock plans, leaving a balance of
approximately 71,272,967 authorized, unissued and unreserved shares of common
stock.
The Board of Directors recommends that the authorized number of shares of
common stock be increased from 250,000,000 to 500,000,000. If approved, Article
VII of the Articles will be amended to increase the authorized shares of common
stock of the Company to 500,000,000. No change in the authorized preferred stock
is being proposed.
PURPOSES AND EFFECTS OF THE AMENDMENT
Except for shares reserved as noted above, the Company has no agreements
or understandings concerning the issuance of any additional shares of common
stock. However, the Board of Directors believes that the increased authorization
is advisable at this time so that shares will be available for issuance in the
future on a timely basis if such need arises in connection with stock split or
dividends, financings, acquisitions, employee benefit plans or other corporate
purposes. This will enable the Company to take advantage of market conditions,
the availability of favorable financing, and opportunities for acquisitions
without the delay and expense associated with convening a special shareholders'
meeting.
The proposed shares of common stock for which authorization is sought
would be part of the existing class of common stock and would have no effect
upon the terms of the common stock or the rights of the holders of such stock.
The proposed additional authorized shares of common stock would have the same
rights and privileges as the shares of common stock presently outstanding.
Holders of the Company's common stock do not have preemptive rights to purchase
additional shares of common stock and are not entitled to cumulative voting for
the election of Directors.
Unless required by law, the Company's Articles or the rules of any stock
exchange on which the Company's shares of common stock are then listed, the
Board of Directors will be able to provide for the issuance of the additional
shares of common stock without further action by the Company's shareholders and
no further authorization by the shareholders will be sought prior to such
issuance. Under the existing New York Stock Exchange Listed Company Manual,
approval by the Company's shareholders is required prior to the listing of
additional shares of common stock in certain circumstances including (i) in
connection with certain equity compensation plans, (ii) in connection with an
issuance that will result in a change of control of the Company and (iii) in
connection with certain issuances if the voting power of the stock to be issued
is equal to or in excess of 20% of the voting power outstanding prior to the
issuance of
such stock or if the number of shares to be issued is equal to or in excess of
20% the total number of shares outstanding prior to the issuance of such stock.
Although not designed or intended for such purposes, the effect of the
proposed increase in the authorized shares of common stock might be to render
more difficult or to discourage a merger, tender offer, proxy contest or change
in control of the Company and the removal of management, which shareholders
might otherwise deem favorable. The authority of the Board of Directors to issue
shares of common stock might be used to create voting impediments or to
frustrate an attempt by another person or entity to effect a takeover or
otherwise gain control of the Company because the issuance of additional shares
of common stock would dilute the voting power of the shares of common stock then
outstanding. Shares of common stock could also be issued to purchasers who would
support the Board of Directors in opposing a takeover bid which the Board of
Directors determines not to be in the best interests of the Company and its
shareholders.
In addition to the proposed amendment, the Company's Articles currently
contain provisions approved by the Company's shareholders, as do the Bylaws,
that may have the effect of discouraging certain types of tender offers and
other transactions that involve a change of control of the Company. The
Company's Directors are elected for three-year staggered terms and cumulative
voting in the election of Directors is prohibited. The Company's Articles and
Bylaws provide that a vote of 80% of the outstanding shares of voting stock,
voting together as a single class, is required to remove Directors, and that
such Directors may only be removed for cause. The affirmative vote of the
holders of a 80% of the outstanding shares of voting stock, voting together as a
single class, is required to amend provisions of the Articles relating to the
staggered terms and the removal of Directors.
The Articles contain "fair price" provisions that require the affirmative
vote of 75% of the voting power of the outstanding shares of voting stock,
voting together as a single class, to approve certain business combinations
involving the Company and a related shareholder (including mergers,
consolidations and sales of a substantial part of the Company's assets) unless
specified price criteria and procedural requirements are met or unless the
transaction is approved by a majority of the continuing Directors as provided
therein. The affirmative vote of the holders of a 80% of the outstanding shares
of voting stock, voting together as a single class, is required to amend
provisions of the Articles relating to the "fair price" provisions.
The Articles provide that the Board of Directors retains the power to
designate series of preferred stock and to determine the powers, rights,
preferences, qualifications and limitations of each series.
On July 16, 1997, the Company's Board of Directors declared a dividend of
one preferred share purchase right ("Right") for each outstanding share of
common stock held of record as of July 28, 1997. One Right was also issued with
respect to each share of common stock issued after July 28, 1997. Each Right
entitles the holder to purchase from the Company one one-hundredth of a share of
Series B Junior Preferred Stock at a price of $200, subject to certain
adjustments. The Rights are exercisable when, and are not transferable apart
from the shares of the Company's common stock until the earlier of (i) the tenth
day following the public announcement that a person or group of affiliated or
associated persons (with certain exceptions,
including an exception for FMR Corp., so long as FMR Corp., together with its
affiliates, beneficially owns less than 20% of the Company's outstanding voting
stock) has acquired 15% or more of the voting stock of the Company (or such
earlier date as a majority of the Board of Directors shall become aware of that
a person has acquired 15% or more) or (ii) the tenth business day (or such later
date as may be determined by the Board of Directors prior to such time as any
person or group of affiliated or associated persons acquires 15% or more)
following the public announcement of intent to or commencement of a tender or
exchange offer for 15% or more of the Company's shares. If the specified
percentage of the Company's common stock is acquired, each Right will entitle
the holder (other than the acquiring person or group) to receive, upon exercise,
such number of shares of common stock of either the Company or the acquiring
company having a market value equal to two times the exercise price of the
Right. The Rights are redeemable by the Company's Board of Directors in certain
circumstances and expire on July 15, 2007.
The overall effect of the foregoing provisions of the Company's Articles
and Bylaws, together with the Rights and the ability of the Board of Directors
to issue additional shares of common stock, may be to delay or prevent attempts
by others or entities to acquire control of the Company without negotiations
with the Company's Board of Directors.
REQUIRED VOTE AND BOARD RECOMMENDATION
The affirmative vote of a majority of the shares of the Company's common
stock entitled to vote at the annual meeting is required to approve the
amendment to the Articles. Proxies will be voted for approval of the amendment
to the Articles unless otherwise specified.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE FOLLOWING
---
RESOLUTIONS TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION:
RESOLVED, that the first sentence of Article VII of the corporation's Articles
of Incorporation be replaced with the following: "The authorized capital stock
of this corporation shall be Five Hundred Million (500,000,000) shares of common
stock of the par value of Ten Cents ($.10) per share (the "Common Stock") and
Twenty-Five Million (25,000,000) shares of preferred stock of the par value of
One Dollar ($1.00) per share (the "Preferred Stock")."
RESOLVED FURTHER, that the officers of the corporation, acting individually, are
each authorized to execute such documents and certificates and to take such
action as may be necessary to give effect to the previous resolution.
SHAREHOLDER PROPOSAL REGARDING COMPENSATION OF
SENIOR EXECUTIVES
The following Shareholder Proposal has been submitted to the Company for
action at the meeting by the United Association S & P 500 Index Fund, of 1
Freedom Valley Drive, Oaks, PA 19456, the beneficial owner of 10,865 shares of
stock. The text of the proposal is as follows:
COMMONSENSE EXECUTIVE COMPENSATION PROPOSAL
Resolved, that the shareholders of St. Jude Medical, Inc. ("Company")
request that the Company's Board of Directors and its Executive Compensation
Committee replace the current system of compensation for senior executives with
the following "Commonsense Executive Compensation" program including the
following features:
(1) Salary - The Chief Executive Officer's salary should be targeted at the mean
of salaries paid at peer group companies, not to exceed $1,000,000 annually. No
senior executive should be paid more than the CEO.
(2) Annual Bonus - The annual bonus paid to senior executives should be based on
well-defined quantitative (financial) and qualitative (non-financial)
performance measures. The maximum level of annual bonus should be a percentage
of the executive's salary level, capped at 100% of salary.
(3) Long-Term Equity Compensation - Long-Term equity compensation to senior
executives should be in the form of restricted shares, not stock options. The
restricted share program should utilize justifiable performance criteria and
challenging performance benchmarks. It should contain a vesting requirement of
at least three years. Executives should be required to hold all shares awarded
under the program for the duration of their employment. The value of the
restricted share grant should not exceed $1,000,000 on the date of grant.
(4) Severance - The maximum severance payment to a senior executive should be no
more than one year's salary and bonus.
(5) Disclosure - Key components of the executive compensation plan should be
outlined in the Compensation Committee's report to shareholders, with variances
from the Commonsense program explained in detail.
The Commonsense compensation program should be implemented in a manner that does
not violate any existing employment agreement or equity compensation plans.
SUPPORTING STATEMENT
We believe that compensation paid to senior executives at most companies,
including ours, is excessive, unjustified, and contrary to the interests of the
Company, its shareholders, and other important corporate constituents. CEO pay
has been described as a "wasteland that has not been reformed." (Institutional
Shareholder Services senior vice-president, WALL STREET JOURNAL, "Executive Pay
Keeps Rising, Despite Outcry," October 3, 2003). As of 2002, the CEO-worker pay
gap of 282-to-1 was nearly seven times as large as the 1982 ratio of 42-to-1
according to the United for a Fair Economy's Tenth Annual CEO Compensation
Survey ("Executive Excess 2003 - CEO's Win, Workers and Taxpayers Lose.")
We believe that it is long past time for shareholders to be proactive and
provide companies clear input on the parameters of what they consider to be
reasonable and fair executive compensation. We believe that executive
compensation should be designed to promote the creation of long-term corporate
value. The Commonsense executive compensation principles seek to focus senior
executives, not on quarterly performance numbers, but on long-term corporate
value growth, which should benefit all the important constituents of the
Company. We challenge our Company's leadership to embrace the ideas embodied in
the Commonsense proposal, which still offers executives the opportunity to build
personal long-term wealth but only when they generate long-term corporate value.
STATEMENT OF THE BOARD OF DIRECTORS IN
RESPONSE TO SHAREHOLDER PROPOSAL
The Board of Directors has considered this proposal and believes that its
adoption would not be in the best interests of the Company and its shareholders.
The Board of Directors believes that the executive compensation program
currently in place at the Company is effective and properly motivates executives
to advance the long-term success of St. Jude Medical. The Compensation Committee
of the Board of Directors is charged with the responsibility of establishing and
administering the compensation program for the Company's executive officers. The
Board believes that a Compensation Committee composed of independent directors
is the best assurance that executive compensation will serve the best interests
of shareholders. None of the members of the Company's Compensation Committee is
a current or former employee of the Company, and all of the members of the
Committee are independent under the rules of the Securities and Exchange
Commission and the New York Stock Exchange.
The Board of Directors and the Compensation Committee believe it is
important to preserve the flexibility of the Company's compensation program so
that the Compensation Committee can choose incentives that are in line with the
goals that the Company seeks to pursue through its compensation arrangements.
The Company's executive compensation program is evaluated in relation to the
programs offered by other medical products companies.
The Board believes that limiting the Compensation Committee's ability to
design compensation programs and set competitive compensation levels in line
with those for other companies would place St. Jude Medical at a significant
competitive disadvantage in the recruitment and retention of its executives. In
choosing the appropriate compensation arrangement to use for its executives, the
Compensation Committee must be able to consider a variety of factors such as the
goals the Board has established for the Company and management, tax consequences
of various arrangements and competitive practices of other medical products
companies.
The Board believes that its current executive compensation program meets
the concerns that executive compensation be tied to the Company's performance
and provide long-term incentives to executives, while providing the Board and
the Compensation Committee with the flexibility necessary to recruit and retain
executives in a competitive environment. Allowing the Compensation Committee to
have flexibility to adapt to changes in the market for compensation as well as
changes in the Company is the best way to assure the competitiveness of the
Company. The Board believes that its current executive compensation practices
are not only reasonable but, in light of the Company's performance, have also
delivered excellent value to the Company's shareholders.
For the reasons described above, the Board believes that this shareholder
proposal is not in the best interests of the Company and its shareholders and
therefore recommends a vote "AGAINST" the proposal.
REQUIRED VOTE AND BOARD RECOMMENDATION
The affirmative vote of a majority of the shares of the Company's common
stock present and entitled to vote at the annual meeting is required to approve
the shareholder proposal. Proxies will be voted against the shareholder proposal
unless otherwise specified.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE
-------
SHAREHOLDER PROPOSAL.
SHAREHOLDER PROPOSALS FOR THE 2005 ANNUAL MEETING
Under SEC rules, shareholders who wish to present a proposal at the 2005
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, 2004.
Shareholders who intend to present a proposal at the 2005 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.
Terry L. Shepherd
Chairman of the Board of Directors and
Chief Executive Officer
March 30, 2004
APPENDIX A
ST. JUDE MEDICAL, INC.
PRINCIPLES OF CORPORATE GOVERNANCE
The Board of Directors of St. Jude Medical, Inc. has adopted the
following principles of corporate governance:
I. BOARD OF DIRECTORS
A. Independence. A majority of the members of the Board of
Directors shall be independent of management.
B. Determination of Independence. The Governance and
Nominating Committee will annually review the status of
each director as independent or not independent using the
following criteria from the Company's by-laws:
1. has not been employed by the corporation in an
executive capacity within the last five years;
2. is not, and is not affiliated with a company that
is, an advisor or consultant to the corporation, or
a significant customer or supplier of the
corporation;
3. has no personal service contract(s) with the
corporation or the corporation's senior management;
4. is not affiliated with a not-for-profit entity that
receives significant contributions from the
corporation;
5. is not employed by a public company at which an
executive officer of the corporation serves as a
director;
6. does not have a relationship described in 1 through
5 above with any affiliate of the corporation; and
7. is not a member of the immediate family of any
person described in 1 through 6 above.
In addition, the Governance and Nominating Committee will
consider each director's status as independent under the
New York Stock Exchange and SEC definitions. The
Committee's recommendations will be referred to the entire
Board of Directors for final determination.
C. Committees. The board of directors has three standing
Committees: Audit, Compensation, and Governance and
Nominating. Each of these Committees has a written charter.
Each Committee consists entirely of independent directors.
Committee membership is proposed by the Governance and
Nominating Committee and approved by the entire board.
APPENDIX A
D. Sessions of the Independent Directors. At least twice each
year the independent members of the Board of Directors meet
in a separate session. These sessions are chaired by the
Presiding Director who is the Chairperson of the Governance
and Nominating Committee.
E. Annual Board Performance Review. Each year the Board of
Directors will conduct a review of its own performance as
well as the performance of its standing Committees.
F. Board Role in Strategy. The Board of Directors dedicates
the major portion of two meetings each year to the
Company's strategic plan - one meeting at the beginning of
the strategic planning process and the second to approve
the plan.
G. Board Role in Succession Planning. The board devotes a
substantial portion of one meeting each year to a
management-led review of the Company's succession planning
process. The major portion of one independent directors
session each year is devoted to the CEO succession plan.
H. CEO Review. Each year the Board of Directors conducts a
formal review of the CEO's performance.
I. Director Terms. Each director is elected for a three-year
term. The terms are staggered. The Board of Directors has
no term limit policy. The Board of Directors has a
retirement policy of age 70 or, in the case of a director
first elected to a three-year term that would expire after
the age of 70, the expiration of the three-year term.
Directors are not required to submit their resignation upon
a change in their occupation.
J. Limit of Number of Directorships. The Company has a
guideline that directors should serve on no more than three
to five boards of other publicly owned companies.
K. Director Education and Orientation. The Company has a
formal orientation program for new directors. The Company
does not require that directors attend a "director college"
or similar program.
L. Director Responsibilities. Directors are expected to have a
good attendance record at board and committee meetings, to
read in advance the meeting materials, to be generally
knowledgeable about the strategy and affairs of the Company
and to approach their duties with an independent frame of
mind.
M. Access to Others. Directors have access to all the officers
of the Company and as a board or as a board committee have
the authority to directly retain independent advisors if
they consider it to be advisable.
APPENDIX A
II. COMBINATION OF CHAIRMAN AND CEO POSITIONS
The Company believes it is well served by having the positions of
Chairman of the Board and CEO combined.
III. COMPENSATION
A. Shareholder Approval of Plans. The Company submits its
stock option and other stock plans and executive bonus
plans to the shareholders for approval.
B. Repricing of Stock Options. The Company does not reprice
stock options.
C. Stock Ownership Guidelines. In order to align the interests
of shareholder's and management, the Company has stock
ownership guidelines for directors, officers and senior
employees.
D. Loans to Officers and Directors. Company loans to officers
and directors are prohibited.
E. Compensation of Directors. The following principles are
used to develop the compensation of non-management
directors:
1. Directors should be fairly compensated for the time
commitment and responsibility associated with
service as a director.
2. Directors compensation should be comparable to the
compensation of directors of companies of similar
size and nature as St. Jude Medical, Inc.
3. Director compensation should facilitate directors
acquiring an equity position in the Company
consistent with the stock ownership guidelines.
F. Stock Option Accounting Treatment. The Company accounts for
stock options under FASB standard 123 using the intrinsic
value method.
IV. CODE OF BUSINESS CONDUCT
The Company has adopted a Code of Business Conduct that applies to
all employees and directors. Any waivers granted under the Code
must be approved by the Board of Directors.
V. SHAREHOLDER RIGHTS PLAN
The Board of Directors has adopted a shareholders rights plan. The
Board believes that this can be used to protect shareholder
interests and the Board does not intend to use it in a manner that
entrenches management.
VI. RELATIONSHIP WITH EXTERNAL AUDITORS
The Audit Committee of the Board of Directors has the authority to
retain and terminate the Company's external auditor. The Company
has a policy that
APPENDIX A
prohibits the hiring of personnel from the Company's external
auditor for two years after the person has left the external
auditor. The Company has a policy prohibiting directors and
executive officers from using the Company's external auditor for
tax services.
APPENDIX B
ST. JUDE MEDICAL, INC.
MANAGEMENT INCENTIVE COMPENSATION PLAN
(AS ADOPTED ON FEBRUARY 23, 2004)
1. PURPOSE
The St. Jude Medical, Inc. Management Incentive Compensation Plan (the
"Plan") is designed to attract, retain, and reward highly qualified executives
who are important to the Company's success and to provide incentives relating
directly to the financial performance and long-term growth of the Company.
2. DEFINITIONS
(a) BOARD - The Board of Directors of St. Jude Medical, Inc.
(b) CODE - The Internal Revenue Code of 1986, as amended.
(c) COMMITTEE - The Compensation Committee of the Board, or such other
committee of the Board that is designated by the Board to
administer the Plan, in compliance with requirements of Section
162(m) of the Code.
(d) COMPANY - St. Jude Medical, Inc. and any other corporation in
which St. Jude Medical, Inc. controls, directly or indirectly,
fifty percent or more of the combined voting power of all classes
of voting securities.
(e) EXECUTIVE OFFICER - Any officer of the Company subject to the
reporting requirements of Section 16 of the Securities and
Exchange Act of 1934 ("Exchange Act").
(f) INCENTIVE COMPENSATION - The cash incentive awarded to a
Participant pursuant to terms and conditions of the Plan.
(g) PARTICIPANT - Any Executive Officer and any other employee or
class of management employees of the Company as may be designated
by the Committee.
(h) PLAN - The St. Jude Medical, Inc. Management Incentive
Compensation Plan.
(i) SALARY - The direct gross (as opposed to taxable) compensation
earned by the Participant as base salary during the fiscal year,
excluding any and all commissions, bonuses, incentive payments
payable during the fiscal year, and other similar payments.
3. ELIGIBILITY
The Committee shall, each fiscal year, designate those employees,
including Executive Officers of the Company who are eligible to receive
Incentive Compensation under this Plan for the fiscal year.
4. ADMINISTRATION
The awards under the Plan shall be based on the attainment of financial
performance goals for the fiscal year, as determined for each Participant by the
Committee. The Committee shall administer the Plan and shall have full power and
authority to construe, interpret, and administer the Plan necessary to comply
with the requirements of Section 162(m) of the Code. The Committee's decisions
shall be final, conclusive, and binding upon all persons. The Committee shall
certify in writing prior to commencement of
APPENDIX B
payment of the bonus that the performance goal or goals under which the bonus is
to be paid has or have been achieved. The Committee in its sole discretion has
the authority to reduce or eliminate the amount of a bonus otherwise payable to
Executives upon attainment of the performance goal established for a fiscal
year. At the beginning of each fiscal year consistent with the requirements of
Section 162(m), the Committee shall: (i) determine the percentage of the
Participant's Salary that may be awarded as Incentive Compensation for the
fiscal year, up to a maximum award under the Plan of the greater of $2,000,000
or 1.5% of the Company's consolidated after tax net profits for the fiscal year;
(ii) determine the Participants eligible to participate in the Plan for the
fiscal year; (iii) determine financial performance goals as set forth in Section
5 herein for each Participant on which Incentive Compensation will be paid; (iv)
determine each Executive's Incentive Compensation for the fiscal year; and (v)
determine the frequency at which each Participant's Incentive Compensation will
be paid when attained.
Except with respect to Incentive Compensation payable to Executive
Officers of the Company, the Committee may delegate the establishment of
performance goals, and the general powers of the Committee described above with
respect to the Plan to the Chief Executive Officer of the Company.
The Committee may amend, modify, suspend, or terminate the Plan for the
purpose of meeting or addressing any changes in legal requirements or for any
other purpose permitted by law. The Committee will seek shareholder approval of
any amendment determined to require a shareholder approval or advisable under
the regulations of the Internal Revenue Service or other applicable law or
regulation.
5. FINANCIAL PERFORMANCE GOALS
With respect to any Participant who is an Executive Officer, the
Committee shall establish performance goals based on the stock price of the
Company's shares, the Company's earnings per share, market share, sales, return
on equity, asset management or the expenses or profitability of the Company or
any division or subsidiary, or any combination of such goals for the fiscal
year, or a portion thereof. For employees other than executive officers,
subjective, individual performance goals may also be established. Any
performance goal shall be established in a manner such that a third party having
knowledge of the relevant performance results could calculate the amount to be
paid to the Participant. Any such goal shall be established when the outcome of
the goal is substantially uncertain. The Committee shall not increase the
maximum amount of the Incentive Compensation payable upon attainment of the goal
after the goal has been established. The Incentive Compensation may be paid in
whole or in part upon the attainment of any one of the goals. Any such goal
shall comply with the applicable requirements of Section 162(m) of the Code and
any regulations promulgated thereunder.
With respect to any Participant other than an Executive Officer, the
Committee may establish performance goals based on other than the financial
performance of the Company specified above.
APPENDIX B
6. PAYMENT OF INCENTIVE COMPENSATION; NONASSIGNABILITY
The Incentive Compensation shall be paid only upon certification of the
attainment of the preestablished performance goals by the Committee. Such
Incentive Compensation shall be paid within 90 days of the end of the fiscal
year, but any Participant who is eligible to participate in the Company's
deferred compensation plan may elect to defer part or all of such Incentive
Compensation under such plan. No Incentive Compensation or any other benefit
under the Plan shall be assignable or transferable by the Particiapnt during the
Participant's lifetime.
7. NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in the Plan shall confer upon any employee any right to continue
in the employ of the Company or shall interfere with or restrict in any way the
right of the Company to discharge an employee at any time for any reason
whatsoever, with or without cause.
ST. JUDE MEDICAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 12, 2004
The undersigned hereby appoints Daniel J. Starks, John C. Heinmiller 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 undersigned would be entitled to
vote if personally present at the Annual Meeting of shareholders of St. Jude
Medical, Inc., to be held May 12, 2004 at 9:30 a.m., CDT, at the Minnesota
Historical Center, 345 Kellogg Boulevard West, St. Paul, 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 THE REVERSE SIDE)
SEE REVERSE SIDE
ST. JUDE MEDICAL, INC.
C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
[X] PLEASE MARK
VOTE AS IN
THIS EXAMPLE
MANAGEMENT RECOMMENDS A VOTE FOR EACH OF THE DIRECTOR
NOMINEES AND FOR PROPOSALS 2, 3 AND 4.
1. Election of Directors (01) Michael A. Rocca
(02) David A. Thompson
(03) Stefan K. Widensohler
FOR ALL NOMINEES [ ] [ ] WITHHOLD AUTHORITY TO
(Except as specified below) VOTE FOR ALL NOMINEES
[ ] ____________________________
(Instructions: to withhold authority to vote for any individual nominee
write that nominee's name in the space provided above.)
FOR AGAINST ABSTAIN
2. Proposal to ratify the appointment of Ernst & [ ] [ ] [ ]
Young LLP as the Company's independent auditors
for 2004.
3. Proposal to approve the Company's Management [ ] [ ] [ ]
Incentive Compensation Plan.
4. Proposal to increase the Company's authorized [ ] [ ] [ ]
shares of common stock to 500 million shares.
MANAGEMENT RECOMMENDS A VOTE AGAINST THE FOLLOWING PROPOSAL
5. Proposal to adopt the Commonsense Executive [ ] [ ] [ ]
Compensation Proposal.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
MARK HERE FOR [ ] MARK HERE IF YOU [ ]
ADDRESS CHANGE PLAN TO ATTEND
AND NOTE AT LEFT THE MEETING
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 DIRECTORS,
"FOR" PROPOSAL 2, 3, AND 4, AGAINST PROPOSAL 5, AND IN THE DISCRETION OF THE
NAMED PROXIES ON ALL OTHER MATTERS.
Signature: _____________________________________________ Date: _________________
Signature: ____________________________________________ Date: _________________