SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
MALLINCKRODT GROUP INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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[LOGO]
NOTICE OF 1995
ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
MALLINCKRODT GROUP INC.
[LOGO]
MALLINCKRODT GROUP INC.
September 8, 1995
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Mallinckrodt Group Inc. to be held on Wednesday, October 18, 1995, in St. Louis,
Missouri. A map showing the location of the meeting place is set out at the end
of the attached Proxy Statement. In addition to the formal items of business to
be brought before the meeting, members of management will report on the
Company's operations and answer stockholder questions.
This booklet includes the Notice of the Annual Meeting and the Proxy
Statement. The Proxy Statement describes the formal business that will be
transacted at the Annual Meeting and provides information about the Company and
the items to be voted upon.
Your vote is very important. Whether or not you expect to attend the Annual
Meeting, please ensure that your shares will be represented by promptly
completing, signing, and returning your proxy card in the envelope provided.
Even though you execute this proxy, you may revoke it at any time before it is
voted. If you attend the meeting you will be able to vote in person if you wish
to do so, even if you have previously returned your proxy card.
Your cooperation and prompt attention to this matter will be appreciated.
Thank you for your continued support of Mallinckrodt Group.
Sincerely,
[SIGNATURE]
C. RAY HOLMAN
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
7733 FORSYTH BLVD., ST. LOUIS, MISSOURI 63105 TELEPHONE (314) 854-5200
[LOGO]
MALLINCKRODT GROUP INC.
HEADQUARTERS OFFICE: 7733 FORSYTH BLVD., ST. LOUIS, MISSOURI 63105
-------------------
NOTICE OF EIGHTY-SIXTH ANNUAL MEETING OF STOCKHOLDERS
-----------------
To our Stockholders:
The Eighty-Sixth Annual Meeting of Stockholders of Mallinckrodt Group Inc.
will be held on Wednesday, October 18, 1995, at 10:00 a.m. local time, at the
Corporation's subsidiary, Mallinckrodt Chemical, Inc., 3600 N. Second Street,
St. Louis, Missouri, to:
1. Elect one director for a term expiring in 1997 and four directors for
terms expiring in 1998, as RECOMMENDED by the Board of Directors;
2. Ratify the appointment of independent auditors to examine and report on
the financial statements of the Corporation for fiscal 1996, as
RECOMMENDED by the Board of Directors; and
3. Transact any other business that may properly come before the meeting or
any adjournment thereof.
Only Common and 4% Cumulative Preferred stockholders of record at the close
of business on August 29, 1995, are entitled to notice of and to vote at the
meeting.
Admission to the meeting will be by ticket only. If you are a stockholder of
record and plan to attend, please mark the appropriate box on the enclosed proxy
card so we can mail a ticket to you in advance of the meeting. If your shares
are held through an intermediary such as a bank or brokerage firm, please
request a ticket by writing to the Corporate Secretary, Mallinckrodt Group Inc.,
7733 Forsyth Boulevard, St. Louis, Missouri 63105. Evidence of your stock
ownership must accompany your letter.
Dated: September 8, 1995
By Order of the Board of Directors
[SIGNATURE]
ROGER A. KELLER
VICE PRESIDENT, SECRETARY AND
GENERAL COUNSEL
Your vote is important. Please promptly mark, date, sign and return your proxy
in the enclosed envelope.
PROXY STATEMENT
MALLINCKRODT GROUP INC.
7733 FORSYTH BOULEVARD, ST. LOUIS, MISSOURI 63105
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Mallinckrodt Group Inc. for the Annual
Meeting of Stockholders to be held on October 18, 1995, notice of which, to all
stockholders of record entitled to vote as of August 29, 1995, accompanies this
statement. Only Common and 4% Cumulative Preferred stockholders of record at the
close of business on August 29, 1995, are entitled to vote at this meeting. At
that time, the number of outstanding shares of capital stock of the Corporation
entitled to vote was as follows: 4% Cumulative Preferred Stock, par value $100
per share, 98,330 shares and Common Stock, par value $1 per share, 76,816,607
shares. Each such share is entitled to one vote on each matter properly brought
before the Annual Meeting.
Shares represented by proxies will be voted in accordance with directions
given on the proxy card by a stockholder. Any signed and returned proxy not
specifying to the contrary will be voted as recommended by the Board of
Directors. A stockholder giving a proxy has the right to revoke it at any time
before it has been voted at the meeting.
Proxies marked as abstaining will be treated as present for purposes of
determining a quorum for the Annual Meeting, but will not be counted as voting
in respect of any matter as to which abstinence is indicated. Proxies returned
by brokers as "non-votes" on behalf of shares held in street name because
beneficial owners' discretion has been withheld as to one or more matters on the
agenda for the Annual Meeting will not be treated as present for purposes of
determining a quorum for the Annual Meeting unless they are voted by the broker
on at least one matter on the agenda; such shares will not be counted as to the
matters for which a non-vote is indicated on the broker's proxy.
The Annual Report of the Corportation for the fiscal year ended June 30,
1995, this Proxy Statement, and the proxy card are first being mailed to
stockholders commencing on or about September 8, 1995.
AGENDA ITEM 1
ELECTION OF DIRECTORS
At the outset of fiscal 1995, the Board of Directors consisted of twelve
members. Effective on the date of the Annual Meeting of Stockholders in October
1994, George D. Kennedy, a director of the Corporation since 1975 and the
incumbent Chairman of the Board, elected to retire from the Board. In addition,
Dr. Louis Fernandez, a director since 1986, did not stand for reelection, having
reached the retirement age of 70 for directors under the Board's directors'
retirement policy. Effective February 14, 1995, the Board elected William L.
Davis, III a director and effective April 3, 1995, elected Anthony Viscusi a
director.
Of the twelve current directors, C. Ray Holman, the Company's Chairman,
President and Chief Executive Officer, is the only one who is an employee of the
Corporation. Raymond F. Bentele was President and Chief Executive Officer of
Mallinckrodt, Inc., a subsidiary, and Executive Vice President of the
Corporation, until his retirement as an officer in December 1992. The remaining
directors are not and have not been officers or employees of the Corporation.
As provided in the Corporation's certificate of incorporation and by-laws,
the Board is divided into three classes, with one class standing for election
each year for three-year terms. The classes of the Board are kept as equal in
size as practicable and each must have a minimum of three directors. The class
of 1995 has consisted of three directors: Ms. Karmel; Dr. Rushton; and Mr. Toll.
Upon recommendation of the Corporate Governance Committee, the Board believes
all three directors should be continued in office and has nominated each for
re-election by the stockholders for three-year terms.
Messrs. Davis and Viscusi, having been selected by the Board to fill interim
vacancies, are required by New York law to be elected by the stockholders at
this meeting to continue in office. The
1
Corporate Governance Committee has recommended, and the Board has nominated, Mr.
Davis for election by the stockholders for a three-year term and Mr. Viscusi for
a two-year term in order to keep the three classes of directors as nearly equal
as practicable.
The shares represented by the proxies named on the enclosed proxy card will
be voted, unless authorization to do so is withheld, in favor of the election of
the nominees as directors to serve for the terms indicated or until their
successors shall have been duly elected and qualified. Each of the nominees is
willing to so serve. Biographical information, current as of July 1, 1995,
concerning each of the nominees and the directors continuing in office follows.
There are no family relationships among any of the nominees or any of the
incumbents or any executive officer of the Corporation or any of its
subsidiaries. Except for Messrs. Davis and Viscusi, all nominees have previously
been considered and elected by the stockholders.
As required by New York law, directors are to be elected by a plurality of
the votes cast at the meeting in person or by proxy by the holders of shares
entitled to vote in the election.
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF THE FOLLOWING FIVE
NOMINEES (ITEM NO. 1 ON THE PROXY CARD).
NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 1998
WILLIAM L. DAVIS, III, 51, Senior Executive Vice President of Emerson
[PHOTO] Electric Co. Mr. Davis joined Emerson in 1977 and has had increasingly
important responsibilities. Mr. Davis was formerly President of two of
Emerson's operating divisions, Skil and Appleton. In 1988, he was named
Executive Vice President of Emerson with responsibility for that company's
tool business. He was named Senior Executive Vice President in 1993 and
assumed responsibility for Emerson's power transmission business. In 1995,
Mr. Davis assumed operating responsibilities for Emerson's process control
businesses. Member, Audit Committee and Social Responsibility Committee.
ROBERTA S. KARMEL, 58, Professor of Law and Co-Director, Center for the
[PHOTO] Study of International Business Law, Brooklyn Law School since 1985; of
counsel, Kelley Drye & Warren since January 1, 1995. She serves as a
director of Kemper National Insurance Companies. Mrs. Karmel served as a
Commissioner of the U.S. Securities and Exchange Commission from 1977 until
1980 and as a director of the New York Stock Exchange from 1983 until June
1989. She was a partner of Kelley Drye & Warren from 1987 to 1994.
Mallinckrodt director since 1980. Chair, Organization and Compensation
Committee and member, Corporate Governance Committee.
BRIAN M. RUSHTON, Ph.D., 61, President of the American Chemical Society
[PHOTO] (ACS). Dr. Rushton served as Senior Vice President, Research and
Development, for Air Products and Chemicals, Inc., in Allentown,
Pennsylvania, from 1992 to 1993. He joined Air Products in 1981 as Vice
President of Research and Development. Dr. Rushton served as President of
Celanese Research Corporation for Celanese Corporation (now Hoechst
Celanese) in Summit, New Jersey, from 1975 to 1981, and also held the post
of Corporate Vice President Technology from 1980 to 1981. Mallinckrodt
director since April 1994. Member, Audit Committee and Social
Responsibility Committee.
2
DANIEL R. TOLL, 67, corporate and civic director. He serves as a
[PHOTO] director of Brown Group, Inc., A.P. Green Industries, Inc., Kemper National
Insurance Companies, Kemper Corporation, Lincoln National Convertible
Securities Fund, Inc., Lincoln National Income Fund, Inc., and NICOR, Inc.
He was formerly President and a director of Walter E. Heller International
Corporation, a financial services firm, and was a director of its
subsidiary, The American National Bank and Trust Company of Chicago until
1985. Since then he has been a corporate and civic director. Mallinckrodt
director since 1985. Member, Corporate Governance Committee and
Organization and Compensation Committee.
NOMINEE FOR ELECTION AS DIRECTOR FOR TERM EXPIRING IN 1997
ANTHONY VISCUSI, 62, President, Chief Executive Officer and director of
[PHOTO] Vasomedical, Inc. since June 1994. Mr. Viscusi was Senior Vice President,
Worldwide Marketing for the AgVet division of Merck & Co. Inc. from 1987 to
1993. In 1961, Mr. Viscusi joined the international human health division
of Merck in which he spent most of his career in various general management
positions after having taught at Columbia, Wesleyan and Princeton
universities. Member, Audit Committee and Corporate Governance Committee.
DIRECTORS CONTINUING IN OFFICE
RAYMOND F. BENTELE, 58. Mr. Bentele joined Mallinckrodt, Inc. in 1967,
[PHOTO] became Controller and then Vice President, Finance Administration in 1977,
Chief Operating Officer in 1979, and was President and Chief Executive
Officer from 1981 until his retirement in December 1992. He joined the
Corporation as Senior Vice President when it acquired Mallinckrodt, Inc. in
1986, and was Executive Vice President of the Corporation from 1989 until
retirement. He is a director of the Kellwood Company, Leggett & Platt,
Inc., and IMC Global Inc. Mallinckrodt director since 1990. Chair, Audit
Committee and member, Social Responsibility Committee. Term expires in
1996.
DR. RONALD G. EVENS, 55, medical doctor, Director of the Mallinckrodt
[PHOTO] Institute of Radiology at Washington University, St. Louis, Missouri, head
of the Department of Radiology and Mallinckrodt Professor of Radiology of
the University's Medical School, and Professor of Medical Economics at the
Olin School of Business. He was Vice Chancellor for Financial Affairs of
the University during 1988 to 1990 and President and Chief Executive
Officer of Children's Hospital, St. Louis, Missouri during 1985-1988. He is
a director of The Boatmen's National Bank of St. Louis and Right Choice of
Missouri (formerly known as Blue Cross/Blue Shield of Missouri).
Mallinckrodt director since 1990. Chair, Social Responsibility Committee
and member, Audit Committee. Term expires in 1996.
ALEC FLAMM, 68, retired Vice Chairman, President, and Chief Operating
[PHOTO] Officer of Union Carbide Corporation. Mr. Flamm joined Union Carbide in
1949 and over the years he had increasingly important responsibilities in
technology, marketing, operations, and management. He became a director of
Union Carbide in 1981 and retired from the board and the company in 1986.
Mallinckrodt director since 1986. Chair, Executive Committee and member,
Organization and Compensation Committee. Term expires in 1996.
3
C. RAY HOLMAN, 52, Chairman since October 1994 and President and Chief
[PHOTO] Executive Officer and a director of the Corporation since December 1992.
Mr. Holman joined Mallinckrodt, Inc., as Assistant Controller in 1976, and
held increasingly more responsible positions thereafter: Controller, 1977;
Chief Financial Officer, 1979; Group Vice President, Finance and Corporate
Development and Chief Financial Officer, 1982; and Group Vice President for
Hospital and Laboratory Products, 1983, and for Medical Products, 1985. He
continued in operations after the Corporation acquired Mallinckrodt, Inc.,
in 1986, became President and Chief Executive Officer of Mallinckrodt
Medical in 1989, and a Corporate Vice President in 1990. He is a director
of Laclede Gas Company and Boatmen's Bancshares and is active in industry
and civic organizations. Member, Executive Committee. Term expires in 1997.
CLAUDINE B. MALONE, 59, President of Financial & Management Consult-
[PHOTO] ing, a management consulting firm located in McLean, Virginia. Ms. Malone
was a visiting professor at Colgate-Darden Business School, University of
Virginia, from 1984 to 1987, and an adjunct professor at Georgetown
University, School of Business Administration, from 1982 to 1984. She
currently serves on the boards of Dell Computer Corporation; Hannaford
Bros. Co.; Hasbro, Inc.; Houghton Mifflin Company; Lafarge Corporation; The
Limited Inc.; Science Applications International Corporation; and The Union
Pacific Corporation. Mallinckrodt director since February 1994. Member,
Organization and Compensation Committee and Social Responsibility
Committee. Term expires in 1997.
MORTON MOSKIN, 68, consultant; retired partner, White & Case. He joined
[PHOTO] the law firm of White & Case, New York City, in 1950, and was a partner
from 1962 through 1994. Mallinckrodt director since 1973. Chair, Corporate
Governance Committee and member, Executive Committee. Term expires in 1997.
HERVE M. PINET, 69, international consultant. Senior Advisor, Merrill
[PHOTO] Lynch & Co. from 1984 until May 1991. Mr. Pinet was President, Compagnie
Financiere de Paribas and Chairman and Chief Executive Officer, Becker
Paribas Inc. from 1982 until 1984. From 1975 to 1978 he was Executive Vice
President of Paribas and then President of Paribas International until
1982. Mallinckrodt director since 1973. Member, Corporate Governance
Committee and Executive Committee. Term expires in 1996.
4
INFORMATION ABOUT THE BOARD OF DIRECTORS
In accordance with the laws of the State of New York, the Board of Directors
is responsible for supervising the overall affairs of the Corporation. Five
committees of the Board, as described below, assist the Board in carrying out
its duties.
The Board held six regular meetings and two special telephone meetings
during the 1995 fiscal year. Overall attendance of directors at Board and
Committee meetings was in excess of 95%. All directors attended at least 75% of
the meetings of the Board and all committees of the Board of which they were
members.
COMMITTEES OF THE BOARD
The Board of Directors has established five standing committees: Executive;
Audit; Corporate Governance; Organization and Compensation; and Social
Responsibility. The committees held a total of twenty regular meetings and four
special telephone meetings during fiscal 1995. The Executive Committee consists
of Mr. Holman and three non-employee directors. The Audit, Corporate Governance,
Organization and Compensation, and Social Responsibility Committees each
consists of non-employee directors (although Mr. Bentele, who is Chair of the
Audit Committee and a member of the Social Responsibility Committee, is a former
officer and employee of the Corporation). The current members of these
committees are identified in the personal information about the directors in
this Proxy Statement.
EXECUTIVE COMMITTEE. The Executive Committee, between meetings of the Board
and subject to limitations imposed by law or by the Board of Directors, may
exercise the powers of the Board as necessary in the best interests of the
Corporation. The Executive Committee did not meet during the last fiscal year.
AUDIT COMMITTEE. The Audit Committee, which met four times during the past
fiscal year, evaluates the performance of the Corporation's independent auditors
and their fees for services; reviews the scope and results of the audit
examination to be performed each year with the independent auditors, the
Corporation's internal auditing staff, and management; reviews the non-auditing
services performed by the independent auditors and considers the effects thereof
on their independence; and reviews the Corporation's internal accounting control
systems with the independent auditors.
CORPORATE GOVERNANCE COMMITTEE. The Corporate Governance Committee met
seven times during the last fiscal year. Its functions include making
recommendations to the Board of persons to be nominated for election as
directors of the Corporation. It also evaluates Board procedures and the
performance of the Board, its members, and its committees and reviews
developments in the governance of publicly held companies as they may affect the
Corporation. This Committee will consider persons recommended by stockholders as
potential future nominees for election to the Board if the names of such persons
are submitted (in accordance with the bylaws' time requirements described below
under "Miscellaneous Information") in writing to the Secretary of the
Corporation, together with a full description of the qualifications and business
or professional experience of the proposed nominees and a statement from them of
their willingness to serve.
ORGANIZATION AND COMPENSATION COMMITTEE. The Organization and Compensation
Committee met eight times during the last fiscal year. The responsibilities of
this Committee include overview of the Corporation's stock option plans,
incentive compensation, pension and other benefit plans; the review of
perquisites and other benefits available to various levels of corporate
personnel; and the review and approval and/or recommendation to the Board for
approval of the amount and nature of compensation to be paid to corporate
officers and other key employees. See pages 16-19 for the report of, and
additional information about, this Committee.
SOCIAL RESPONSIBILITY COMMITTEE. The Social Responsibility Committee met
four times during the last fiscal year. Its function is to review the
Corporation's policies and procedures in
5
business matters having particular social concern, including environmental
protection, equal employment opportunities, occupational health and safety,
regulatory compliance, and product quality and safety; to review the aspects of
the Corporation's research and development activities relevant to the
Committee's purpose; and to review political and social developments as they may
affect the Corporation.
DIRECTORS' COMPENSATION
COMPENSATION FOR DIRECTORS' SERVICES
Mr. Holman is currently the only employee director of the Corporation.
Employee directors receive no fees or remuneration, as such, for service on the
Board or on any committee of the Board.
During the last fiscal year, non-employee directors received an annual
retainer of $30,000, attendance fees of $2,000 for each Board meeting attended
($750 for telephone Board meetings), $1,000 for each meeting they attended of a
Board committee to which they were assigned ($500 for telephone committee
meetings), an annual retainer of $3,600 for services as chair of a Board
committee, and an annual retainer of $3,600 for service as a member of the
Executive Committee.
Effective October 1994 and concurrent with the election of Mr. Holman as
Chairman of the Board, the Board selected Mr. Flamm to serve as Board
intermediary for a one-year term. The responsibilities of the intermediary
include presiding at all executive sessions of the Board from which the CEO is
absent, interacting with the Board and the CEO in setting agendas and assessing
objectives, and coordinating the Board's formal CEO performance appraisal. For
his services as Board intermediary, Mr. Flamm receives an annual retainer of
$25,000 (of which $18,750 was paid in fiscal 1995), but does not receive an
additional retainer for serving as chair or a member of the Executive Committee.
At the 1994 Annual Meeting, the Company's stockholders approved the Deferral
Election Plan for Non-Employee Directors. The Deferral Plan provides
non-employee directors with the option of receiving in the form of cash or
Common Stock of the Company all or part of their directors' compensation
(whether retainers, meeting fees, or cash dividends on Common Stock previously
deferred) on a deferred basis. A director electing to participate in the
Deferral Plan must file an irrevocable election with the Company before the
first day of any calendar year for which the election is to apply. Two
non-employee directors have elected to defer all of their retainers and fees,
and one non-employee director has elected to defer his retainer, under this
plan.
Non-employee directors participate in the stockholder-approved Directors
Stock Option Plan under which, commencing with the 1990 annual meeting until
that held in the year 2000, annual grants of stock options are automatically
made to each individual who is elected to the Board of Directors at such meeting
or who had previously been elected to the Board and is continuing on the Board
for a term extending beyond such meeting. Each option grant permits the
non-employee director, for a period of up to ten years from the date of grant
(unless the period is shortened under provisions taking effect upon death or
retirement), to purchase from the Corporation up to 1,500 shares of the
Corporation's Common Stock at the fair market value of such shares on the date
the option is granted. One-half of the total number of shares covered by each
option grant become exercisable on and after its first anniversary and the
remaining one-half on and after the second anniversary. An aggregate of 225,000
shares of Common Stock are subject to the Plan. The following automatic grants
have been made under the Plan: 15,000 shares in the aggregate to the ten non-
employee directors on October 17, 1990, at an exercise price of $18.54 per share
(as adjusted to reflect a three-for-one stock split effective November 12,
1991); 15,000 shares in the aggregate to the ten non-employee directors on
October 16, 1991, at a split adjusted exercise price of $40.00 per share; 13,500
shares in the aggregate to nine such directors on October 21, 1992, at an
exercise price of $34.75 per share; 13,500 shares in the aggregate to nine
non-employee directors on October 21, 1993, at an exercise price of $34.44 per
share; and 13,500 shares in the aggregate to nine non-employee directors on
October 19, 1994, at an exercise price of $31.81 per share. Additional grants of
1,500 shares to each eligible director will automatically be made effective and
at the market value on the date of this Annual Meeting. The options are
nonstatutory options not intended to qualify under Section 422A of the Internal
Revenue Code. The Plan is administered by the Board of Directors. The Board,
however,
6
has no authority in respect of grants, which occur automatically as provided in
the Plan, and in general, may not materially increase the benefits under the
Plan or, without further approval of the stockholders, amend the Plan in any
respect involving grants.
Non-employee directors are also provided with accident coverage while on
Company business and may participate in the Company's matching gift program for
gifts up to $2,000 per year.
Pursuant to a Director Retirement Service Plan adopted in 1984, as amended,
non-employee directors who serve at least five years as a director, agree to
remain available to provide consultation services to Mallinckrodt management,
and do not work for a competitor, will upon attainment of age 70 and after
retirement from the Board, receive an annual nonqualified pension from the
Corporation. The annual pension is payable for the longer of the retired
director's years of service or ten years, in an amount equal to a percentage of
the annual retainer in effect at retirement, depending upon the length of the
director's service (60% if five-six years, 70% if seven, 80% if eight, 90% if
nine, and 100% if ten years or more). If any retired director dies before
receiving the full benefit, the remaining benefit is payable to the surviving
spouse until completion or the spouse's earlier death. The Corporation accrued
$333,000 in fiscal 1995 against future liabilities under the Plan.
In accordance with Board policy, the Chief Executive Officer, the Chairman
of the Board if he or she is not the Chief Executive Officer, and non-employee
directors retire from the board at the annual meeting next following their
reaching age 70. Directors who are officers (other than the CEO and the Chairman
if he or she is not the CEO) retire at the annual meeting next following the end
of their service as an officer subject to the Board's discretion to recommend
that the retired officer (if otherwise eligible) be elected as a non-employee
director.
COMPENSATION FOR NON-DIRECTOR SERVICES
Dr. Evens has for some years rendered consulting services to Mallinckrodt
Medical's imaging division. During fiscal 1995, he was paid $35,004 for these
services. In general, there has been a history of research grants and
contributions to, and other support by Mallinckrodt and its businesses of
Washington University, with which Dr. Evens is associated in several capacities;
in fiscal 1995, this totalled about $840,000.
The firm of White & Case, of which Mr. Moskin is a former partner, performed
legal services for the Corporation during fiscal 1995 for which that firm was
paid its usual and customary charges.
Mr. Pinet rendered international consulting services for the Corporation and
its subsidiaries in fiscal 1995, for which he received $120,000.
George D. Kennedy, who retired from the Board in October 1994, became a
consultant upon his retirement as Chief Executive Officer of the Company on
November 1, 1991. At that time, Mr. Kennedy agreed to continue as a director and
as Chairman of the Board, in each case if so elected, until the annual meeting
in October 1993, in consideration of $675,000 per annum (inclusive of director
compensation). His contract was extended for one additional year ending in
October 1994 at a fee (inclusive of director compensation) of $500,000 per
annum.
7
OWNERSHIP OF THE CORPORATION'S SECURITIES
SECURITIES OWNED BY DIRECTORS AND OFFICERS
The following table shows the number of shares of the Corporation's Common
Stock held beneficially as of July 1, 1995, by each director and nominee for
director, each of the named executive officers in the Summary Compensation
Table, and all directors and executive officers as a group. The number of shares
shown for each individual (and for all directors and officers as a group)
represents less than 1% of the Common Stock outstanding. The following named
individuals have sole voting and investment power over all stock reflected in
the table.
NUMBER OF
COMMON
SHARES OWNED
BENEFICIALLY
AS OF 7/1/95
NAME (1)(2)
----------------------------- ------------
Raymond F. Bentele 121,350
Paul D. Cottone 490
William L. Davis 500
Ronald G. Evens 8,200 (3)
Alec Flamm 6,150
C. Ray Holman 195,663
Roberta S. Karmel 7,550
Claudine B. Malone 700
Morton Moskin 5,853
Robert G. Moussa 54,921
Mack G. Nichols 138,454
Herve M. Pinet 15,750
Michael A. Rocca 14,000
Brian M. Rushton 200
Daniel R. Toll 6,750
Anthony Viscusi 1,000
All directors and executive
officers as a group (21
individuals) 740,813
<FN>
------------------------
(1) The Securities and Exchange Commission ("SEC") considers any person who has
or shares voting and/or investment power with respect to a security or who
has the right to acquire a security within sixty days (such as through the
exercise of an option), to be the beneficial owner of that security.
(2) Included are 548,050 shares which are subject to stock options held by all
directors and executive officers of the Corporation as a group which may be
exercised within sixty days of July 1, 1995. Also included are 5,000 shares
of restricted stock contingently awarded to Mr. Rocca under the
Corporation's 1973 Stock Option and Award Plan. The table does not include
share equivalents credited to director participants in the Deferral
Election Plan for Non-Employee Directors as described on page 6, as to
which no voting or investment power exists prior to share issuance.
(3) This does not include 1,300 shares for which Dr. Evens disclaims beneficial
ownership.
DIRECTOR SHARE OWNERSHIP REQUIREMENTS
The Board adopted in 1995 a policy on director share ownership to underscore
the importance of better aligning the interests of the directors with those of
the Corporation's stockholders. Ownership targets are tied to the amount of the
annual retainer paid to directors. Neither unexercised stock options granted
under the Directors Stock Option Plan nor share equivalents credited under the
Deferral Election Plan for Non-Employee Directors will be included for purposes
of satisfying a director's minimum share ownership requirement. Each new
director must, within three years after
8
joining the Board, own shares of Mallinckrodt Common Stock with a market value
at the time of acquisition of at least one times the annual retainer; and must
within two years thereafter (and for so long as service on the Board continues),
own shares of Mallinckrodt Common Stock with a value when acquired of at least
two times the annual retainer or 1,000 shares, whichever is greater. Directors
serving when the policy was adopted must meet similar ownership requirements
within three years and five years, respectively, after adoption. In addition to
the foregoing, any future candidate for nomination as a non-employee director
must beneficially own Common Stock of the Corporation at the time share
ownership is reported in the Proxy Statement in which such nomination is
submitted for stockholder approval.
OWNERSHIP OF VOTING STOCK BY OTHERS
On the basis of filings with the SEC and other information deemed reliable
by the Corporation (but excluding holdings of Cede & Co. and Kray & Co.,
nominees for depositories of the New York and Chicago Stock Exchanges,
respectively), the Corporation believes that as of on or about August 1, 1995,
the following named institution owned more than 5% of the Corporation's Common
Stock. No changes in this holding have come to the Corporation's attention since
then. To the Corporation's knowledge, no person or concern beneficially owns
more than 5% of its Preferred Stock.
DISPOSITIVE TOTAL
VOTING AUTHORITY AUTHORITY AMOUNT OF
-------------------------- -------------------------- BENEFICIAL
NAME AND ADDRESS SOLE SHARED SOLE SHARED OWNERSHIP
----------------------------------------------------- --------- --------------- --------- --------------- ------------
College Retirement Equities Fund .................... 4,319,950 0 4,319,950 0 4,319,950
New York, N.Y.
Investment Company
% OF
NAME AND ADDRESS CLASS
----------------------------------------------------- ----------
College Retirement Equities Fund .................... 5.59%
New York, N.Y.
Investment Company
OTHER TRANSACTIONS WITH AND SECTION 16(A) FILINGS
OF DIRECTORS AND OFFICERS
Mr. Cottone has an employment contract with the Corporation that provides
for his serving as Senior Vice President of the Company and Chief Executive
Officer and President of Mallinckrodt Veterinary, Inc., a wholly-owned
subsidiary of the Company, for a minimum base salary of $300,000 per annum until
October 1, 1996, and participation in incentive compensation programs and other
benefits. His base salary was increased to $321,000 per annum on July 1, 1995.
Mr. Rocca also has a two-year employment contract with the Corporation
(through April 5, 1996) as Senior Vice President and Chief Financial Officer of
the Company, that provides a minimum base salary of $260,000 per annum and
participation in incentive compensation programs and other benefits. Effective
July 1, 1995, his base salary was increased to $285,000.
Agreements with 10 executive officers, including those named in the Summary
Compensation Table, and 40 key managers, to become effective in the event of a
change in control of the Corporation, are intended to assure the Corporation and
its operating subsidiaries of the continued services of those executives. In
general, all provide that, in the event there is a change in control of the
Corporation (as defined in the agreements), the executive shall remain employed
by the Corporation in his or her then current position at then current base and
incentive compensation and benefit levels for a period of three years, subject
to earlier expiration because of voluntary resignation (as defined), retirement,
disability, or termination for cause as defined and as determined by the Board
of Directors, during which the executive is to devote his or her full-time
efforts faithfully and efficiently to the Corporation. Should there be both a
change in control and a subsequent breach by the Corporation of any of these
agreements, the Corporation would become obligated to provide certain severance
benefits, including two years' base salary plus twice the average of the prior
two or three years' bonuses, and if necessary the costs of enforcement thereof
against the Corporation up to $200,000 in each such case provided the executive
has acted in good faith. In addition, the Corporation would become obligated to
continue the executive's participation in various compensation and benefit plans
mentioned in this Proxy Statement in which the executive is participating or was
eligible to participate when the agreement became effective, provided the
executive does not engage in harmful competition with the Corporation or breach
his or her confidentiality obligations. The Corporation is not aware of any
current or potential development that would result in a change in control.
"Change in control" is defined in the agreements substantially as indicated at
page 14.
9
Certain provisions of the Internal Revenue Code impose a 20% tax surcharge
upon former executives of a corporation and deny Federal income tax
deductibility to the corporation as to a significant portion of severance
payments made to the former executive because of a change in control if such
payments as a whole exceed three times his or her average annual base and
incentive compensation for the most recent five years. The amounts estimated to
be payable under the agreements, should those agreements become effective, are
not believed to be large enough to subject the executives to the surcharge or to
deprive the Corporation of any deduction. However, the Corporation has entered
into separate agreements with each of the executives involved which, in the
event of a change in control and subsequent breach of a contingent employment
agreement requiring payment of these severance related benefits, would provide
reimbursement for any resulting tax surcharge the executive became obligated to
pay ("grossed up" to include any tax due on such additional amounts paid to him
or her), up to a specified maximum in each case.
Were a change in control to occur and were all the contingent employment
agreements then to be breached by the Corporation, the aggregate amount of cash
that would be payable in respect of all contracts is estimated (as of July 1,
1995, and excluding any gross-up) to be $25,923,384 including the following
estimated amounts for the individuals listed in the compensation table on page
11: Mr. Holman, $2,143,013; Mr. Cottone, $1,025,200; Mr. Moussa, $1,058,773; Mr.
Nichols, $1,174,040; and Mr. Rocca, $828,700; and all present executive officers
as a group $9,258,400.
Section 16(a) of the Securities Exchange Act of 1934 and rules promulgated
thereunder require directors and certain officers and beneficial owners of the
Corporation's equity securities to file with the SEC reports about such
ownership and changes in ownership. So far as the Corporation is aware, based
solely upon a review of the reports known by it to have been filed with the SEC,
its compensation programs involving its equity securities, and representations
of its directors and officers, all of the required filings for the period
beginning July 1, 1994, and ending June 30, 1995, have been timely made except
(a) the Company inadvertently caused Mr. Cottone's initial filing on Form 3 to
be filed five days late and (b) in November 1994 a filing to reflect the
purchase of 1,000 shares of the Company's Common Stock by Mr. Rocca was
inadvertently filed six days late.
AGENDA ITEM 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Since 1913 the firm of Ernst & Young LLP and its predecessors (including
Arthur Young & Company), independent auditors, has examined and reported on the
financial statements of the Corporation. The Board of Directors, upon
recommendation of the Audit Committee, has appointed Ernst & Young LLP as
independent auditors to examine and report on the financial statements of the
Corporation for the year ending June 30, 1996, subject to stockholder approval.
During the year ended June 30, 1995, Ernst & Young LLP provided the
Corporation with audit services, including examinations of and reporting on the
Corporation's consolidated financial statements, as well as those of several of
its subsidiaries and of certain of its employee benefit plans. Audit services
also included accounting advisory services and review of filings with the SEC
and the annual report to shareholders. Ernst & Young LLP's fees for such
services during fiscal 1995, including travel and related expenses, totalled
$2,266,950.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will have the opportunity to make any statements they may
desire. They will also be available to respond to appropriate questions of the
stockholders.
Ratification of the appointment of Ernst & Young LLP as independent auditors
requires the affirmative vote of a majority of the votes cast at the meeting by
holders of the Corporation's 4% Cumulative Preferred Stock and Common Stock,
voting without regard to class.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THIS APPOINTMENT (ITEM NO. 2 ON THE PROXY CARD).
10
EXECUTIVE COMPENSATION
The following Summary Compensation Table shows compensation information for
Mr. Holman and the four other executive officers most highly compensated in
fiscal 1995. Executive officers are the corporate officers of the Corporation
elected by the Board of Directors.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION ----------------------------------
-----------------------------------
OTHER AWARDS
ANNUAL --------------------- ALL OTHER
COMPEN- RESTRICTED COMPEN-
SALARY SATION STOCK OPTIONS/ SATION
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) ($)(1) ($)(2) SARS (3) ($)(4)
------------------------------------ ---- --------- --------- ----------- ---------- -------- ----------
C.R. Holman
Chairman, President and CEO 1995 $ 617,520(5) $ 470,000 -- $ 0 41,250 $ 9,450
President and CEO 1994 525,060 470,000 -- 846,973 31,300 13,634
President and CEO 1993 433,013(6) 220,000 -- 945,638 30,000 15,543
M.G. Nichols
Senior Vice President, President, 1995 376,200 192,000 $ 50,759(7) 0 20,000 9,450
Mallinckrodt Chemical, Inc. 1994 341,940 220,000 -- 196,763 13,500 7,095
(all three years) 1993 322,560 140,000 -- 228,600 18,000 6,084
R.G. Moussa
Senior Vice President, President, 1995 343,200 179,100 -- 0 16,500 9,450
Mallinckrodt Medical, Inc. 1994 312,000 175,000 -- 196,763 13,500 12,948
(all three years) 1993 265,937(8) 130,000 -- 217,290 12,000 8,920
M.A. Rocca
Senior Vice President, CFO and 1995 265,320 122,700 333,588(10) 0 13,600 8,358
Treasurer 1994 63,176(9) 50,000 -- 156,563(11) 12,000 0
P.D. Cottone
Senior Vice President, President, 1995 225,000(12) 143,700 152,829(13) 0 30,000 9,450
Mallinckrodt Veterinary, Inc.
<FN>
----------------------------------
(1) Consistent with applicable regulations, certain non-cash compensation
need not be reported.
(2) Under the Long-Term Incentive Plan for Senior Management, a three-year
Plan which ended June 30, 1994, awards totaling 141,500 restricted shares
were made on July 1, 1992, to 45 individuals, including Mr. Holman, 6,600
shares; Mr. Nichols, 7,200 shares; and Mr. Moussa, 2,730 shares. In
December 1992, additional awards of 21,810 and 3,870 restricted shares
were made to Messrs. Holman and Moussa, respectively, concurrent with
promotions. During fiscal 1994, awards totaling 132,832 restricted shares
were made to 41 individuals, including Mr. Holman, 28,410 shares; Mr.
Nichols, 6,600 shares; and Mr. Moussa, 6,600 shares. Valuation in the
Table is based on the market price of the stock at the time of grant. All
such restricted shares have vested in accordance with the terms of the
Plan. Dividends were paid on the restricted shares at the same rate as
paid to all holders of the Company's Common Stock.
(3) The Company did not grant stock appreciation rights during the last three
fiscal years. In fiscal 1993, limited stock appreciation rights, that
apply only in the event of a change in control of the Company, were
granted in tandem with the reported stock option grants.
(4) These amounts reflect the Company's contributions under the Investment
Plan, which is described on page 15 below.
(5) Mr. Holman was elected Chairman of the Board on October 19, 1994.
(6) Mr. Holman became President and CEO of the Company on December 10, 1992;
he served as Vice President and President of Mallinckrodt Medical, Inc.
until then.
(7) The amount indicated for Mr. Nichols for fiscal 1995 includes $17,230 for
spousal travel and $12,818 for club dues and expenses.
(8) Mr. Moussa became an executive officer of the Company on December 10,
1992; he was a Senior Vice President of Mallinckrodt Medical, Inc. until
then.
(9) Mr. Rocca joined the Company as an executive officer in April 1994.
(10) The amount indicated for Mr. Rocca for fiscal 1995 includes $288,316 for
reimbursement of relocation expenses (grossed-up for tax payments) in
connection with Mr. Rocca's employment by the Company.
(11) The Company awarded 5,000 restricted shares of its Common Stock to Mr.
Rocca in April 1994 concurrent with his employment. All shares will vest
two years from the grant date. At June 30, 1995, the market value of
these shares was $177,500. Dividends are paid on the restricted shares at
the same rate as paid to all holders of Common Stock.
(12) Mr. Cottone joined the Company as an executive officer and as President
of Mallinckrodt Veterinary, Inc. in October 1994.
(13) The amount indicated for Mr. Cottone for fiscal 1995 includes $78,692 for
reimbursement of relocation expenses (grossed-up for tax payments) in
connection with Mr. Cottone's employment by the Company.
STOCK OPTIONS
The Company has three stock option plans: the Directors Plan described at
pages 6-7 above, which is limited to non-employee directors, the 1973 Stock
Option and Award Plan (the 1973 Plan) and the 1981 Stock Option Plan (the 1981
Plan). Non-employee directors are not eligible for grants under the latter two
plans. The 1981 Plan expired in accordance with its terms on December 16, 1991,
except as to then outstanding grants and awards. The terms of options thereunder
are substantially the same as the terms of options under the 1973 Plan. The 1973
Plan is a non-qualified plan under Section 401(a) of the Internal Revenue Code.
Until fiscal 1990, grants of Common Stock under the 1973 Plan were largely
limited to officers and key managers. In 1990, pursuant to amendments
11
approved by the stockholders that enlarged eligibility for grants, all employees
of the Company worldwide are now eligible for grants, and the Company has made
grants periodically to virtually all of its then current regular employees. The
following two tables are summaries of all employee stock options granted in
fiscal 1995 and all employee stock options exercised in fiscal 1995 and
remaining outstanding at the close of fiscal 1995 for each of the named
executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------
PERCENT
OF TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE VALUE
SECURITIES GRANTED AT ASSUMED ANNUAL RATES OF
UNDERLYING TO EXERCISE STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM (3)
GRANTED IN FISCAL PRICE EXPIRATION -------------------------------------------
NAME (1) YEAR (2) ($/SH) DATE 0% ($) (4) 5% ($) 10% ($)
-------------------------------------- ---------- --------- -------- ---------- ---------- -------------- --------------
C.R. Holman........................... 41,250 2.9% $29.97 12/12/04 $0 $ 777,563 $ 1,970,513
M.G. Nichols.......................... 20,000 1.4% 29.97 12/12/04 0 377,000 955,400
R.G. Moussa........................... 16,500 1.2% 29.97 12/12/04 0 311,025 788,205
P.D. Cottone.......................... 13,500 1.0% 31.40 10/18/04 0 266,625 675,540
16,500 1.2% 29.97 12/12/04 0 311,025 788,205
M.A. Rocca............................ 13,600 1.0% 29.97 12/12/04 0 256,360 649,672
Gain for all Stockholders at Assumed Rates of Appreciation (5)........................ $0 $1,454,433,080 $3,685,587,150
<FN>
------------------------------
(1) These awards were made pursuant to the 1973 Plan. Under this Plan, the
option price must not be less than 100% of the fair market value of the
stock at the time the option is granted. "Fair market value" is defined in
the Plan to be the average of the means between the highest and lowest
prices at which the stock is traded for each of the fifteen business days
preceding the date of grant as reflected on the composite tape of New York
Stock Exchange issues. An employee is obligated to remain in the employ of
the Company or its subsidiaries for at least one year from the date of
grant before he or she may exercise any such option and not more than 50%
of the shares granted may be exercised within the twelve months after that
year. The option becomes fully exercisable two years after the grant date.
The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares of Common Stock or by offset of
the underlying shares, subject to certain conditions. The Company did not
grant any stock appreciation rights during fiscal 1995.
(2) The Company granted options to purchase a total of 1,406,156 shares of its
Common Stock to employees in fiscal 1995, including the options granted to
the named executive officers as stated in this table. Options granted to
employees in fiscal 1995 have an average exercise price of $30.04 per share
and expire at various times, 10 years from the respective grant dates.
(3) Total dollar gains based on indicated rates of appreciation over a 10 year
term. Assumed future stock prices are shown in parentheses.
(4) No gain to the optionees is possible without an increase in the stock
price, which will benefit all stockholders commensurately. A zero percent
stock price appreciation will result in zero dollars for the optionees.
(5) Hypothetical dollar gains based on the 76,751,086 common shares outstanding
(less shares held in treasury) at June 30, 1995, for comparison with
assumed appreciation in shares subject to options granted in fiscal 1995 to
each of the named executive officers using a weighted average exercise
price of $30.13 per share.
The potential realizable value of each grant of employee stock options,
assuming that the market price of the underlying security appreciates in value
from the date of grant to the end of the option term at the rates of 5% and 10%,
are shown above. Hypothetical future values, based on the difference between the
option price at date of grant and the stock prices resulting from the assumed
rates of growth, indicate what gain would be realized if such options were
exercised immediately prior to their expiration date. The actual future gain, if
any, of the stock options will depend upon the future appreciation in the market
price of the Company's Common Stock. There is no assurance that the assumed
future values reflected in the preceding table will actually be attained. Use of
this model should not be viewed in any way as a forecast of the future
performance of the Company's stock, which will be determined by future events
and unknown factors.
12
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS
FY-END (1) AT FY-END ($)(2)
SHARES ACQUIRED VALUE REALIZED ---------------------------- --------------------------------
NAME ON EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------- --------------- ----------------- ----------- --------------- ------------- -----------------
C.R. Holman...... 0 $ 0 120,650 56,900 $ 937,609 $ 235,781
M.G. Nichols..... 0 0 117,550 26,750 1,537,352 113,908
R.G. Moussa...... 0 0 46,550 23,250 335,858 94,553
P.D. Cottone.. 0 0 0 30,000 0 146,595
M.A. Rocca....... 0 0 6,000 19,600 18,300 93,508
<FN>
------------------------------
(1) Options granted in fiscal 1993 to officers of the Company subject to the
requirements of Section 16(a) of the Securities Exchange Act of 1934 have
limited stock appreciation rights attached. A limited stock appreciation
right is exercisable only if attached to an exercisable option and only in
the event of a change in control of the Company. The Company has not
granted stock appreciation rights in tandem with any of the options
reflected in this table.
(2) Values are based on the June 30, 1995, market price of $35.50 per share
less option exercise at base price. These values are presented pursuant to
SEC rules and the actual amount, if any, realizable upon exercise will
depend upon the market price of the common stock relative to the exercise
price per share of common stock at the time the stock options are
exercised. There is no assurance that the values of unexercised
in-the-money options reflected in the table will be realized.
PENSION PLANS
The Corporation maintains a non-contributory qualified pension plan that
covers virtually all salaried employees, including officers, and most non-union
hourly employees. The Corporation also has a Supplemental Executive Retirement
Plan that provides a supplemental pension benefit for managers above a specified
salary grade who have been approved for participation by the Chief Executive
Officer. Participants include the named officers and are generally limited to
key managers of the Corporation and its subsidiaries.
Based on certain assumptions, including continuance of the qualified pension
plan and the Supplemental Executive Retirement Plan, the following table shows
the estimated annual pension benefits that would be payable to participants in
both plans at age 65 for various compensation and years-of-service combinations,
based upon a straight-life annuity form of benefit. If elected, any of several
optional forms of pension (apart from the lump sum option) would, on an
actuarial basis, reduce benefits to the participant but provide benefits to a
surviving beneficiary.
ANNUAL AVERAGE OF HIGHEST
FIVE YEARS OF COVERED
REMUNERATION FOR PENSION ANNUAL BENEFITS FOR YEARS
PURPOSES IN TEN YEARS OF SERVICE INDICATED
PRECEDING NORMAL ----------------------------------------------------------------------------
RETIREMENT DATE 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
-------------------------- ----------- ----------- ----------- ----------- ----------- -----------
$ 100,000 $ 40,000 $ 50,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000
300,000 120,000 150,000 180,000 180,000 180,000 180,000
500,000 200,000 250,000 300,000 300,000 300,000 300,000
700,000 280,000 350,000 420,000 420,000 420,000 420,000
900,000 360,000 450,000 540,000 540,000 540,000 540,000
1,100,000 440,000 550,000 660,000 660,000 660,000 660,000
1,300,000 520,000 650,000 780,000 780,000 780,000 780,000
A subsidiary of the Corporation, Mallinckrodt, Inc., had a separate
Supplemental Executive Retirement Plan, a non-contributory, non-qualified
pension plan to provide upon retirement an additional pension benefit for its
key executives. As amended, the Plan has been incorporated into the
Corporation's SERP and now applies only to four current executives of the
Corporation (including two
13
of the named executive officers, Messrs. Holman and Nichols). The following
table shows the additional amount of retirement benefit payable to those
executives at age 65 for various compensation and years-of-service combinations
based upon a life only form of annuity:
ANNUAL AVERAGE OF HIGHEST
THREE YEARS OF COVERED
REMUNERATION FOR PENSION NET ADDITIONAL ANNUAL BENEFITS FOR YEARS
PURPOSES IN TEN YEARS OF SERVICE INDICATED
PRECEDING NORMAL ----------------------------------------------------------------------------
RETIREMENT DATE 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
-------------------------- ----------- ----------- ----------- ----------- ----------- -----------
$ 100,000 $ 4,600 $ 5,750 $ 1,330 $ 6,900 $ 6,900 $ 6,900
300,000 13,800 17,250 3,990 20,700 20,700 20,700
500,000 23,000 28,750 6,650 34,500 34,500 34,500
700,000 32,200 40,250 9,310 48,300 48,300 48,300
900,000 41,400 51,750 11,970 62,100 62,100 62,100
1,100,000 50,600 63,250 14,630 75,900 75,900 75,900
1,300,000 59,800 74,750 17,290 89,700 89,700 89,700
Compensation covered by the pension plans will generally be equal to the
dollar amounts in the salary and bonus columns of the Summary Compensation
Table. Social security benefits, qualified plan limitations on eligible
compensation, and applicable integration adjustments are not reflected in the
above tables. The current credited years of service for the individuals named in
the Summary Compensation Table are as follows: Mr. Holman, 18 yrs., 10 mos.; Mr.
Nichols, 15 yrs., 11 mos.; Mr. Moussa, 17 yrs., 5 mos.; Mr. Cottone, 9 mos.; and
Mr. Rocca, 1 yr., 3 mos.
EMPLOYMENT CONTRACTS AND OTHER ARRANGEMENTS
See pages 9-10 above regarding contracts with officers and key managers. In
1988 the Corporation adopted the Management Compensation and Benefit Assurance
Program to ensure that persons who were then or thereafter became officers and
other key managers would receive the compensation and benefits that have been
committed to or are reasonably expected by them under the terms of certain
unfunded compensation and benefit plans, including reasonable severance in the
event of involuntary termination without cause following a change in control.
Under the Program trusts have been established (subject to the rights of
creditors of the Corporation) and letters of credit have been obtained so that
the Corporation's commitments, grants and awards to such personnel will be
honored, including deferred compensation, annual bonus, long term incentive
compensation, supplemental retirement provisions, contingent employment and
gross-up agreements (described at pages 9-10 above), and stock options and
related LSARs. The annual cost to the Corporation to maintain the Program in
fiscal 1995 was approximately $364,000. The amount of funding under the
letter-of-credit arrangements that would occur if the Board of Directors
determined funding was appropriate would depend upon the Corporation's
outstanding compensation commitments subject to the Program at the time and the
extent the Board then determined to fund them.
Also in 1988, and for the same reasons, the Corporation adopted a severance
and benefit assurance policy for all full-time salaried employees assigned to
corporate staff functions, exclusive of those having contingent employment
agreements referred to above (approximately 64 employees in all). Only such
employees who are involuntarily terminated without cause within three years
after a change in control of the Corporation would participate. The amount of
severance paid would depend upon length of service and salary grade and amount.
"Change in control" of the Corporation is defined to occur when any of the
following occurs: (a) a report under the securities laws is required that a
change in control has occurred; (b) a person becomes the beneficial owner of 20%
or more of the voting power of the Corporation; (c) the present and their
successor directors cease to be a majority of the Board of Directors; (d) a
merger of the Corporation in which less than 50% of the voting power is retained
by the pre-merger shareholders; and (e) the sale of all or substantially all of
the assets of the Corporation. "Absolute Change in Control" means either the
occurrence of the event in clause (c) above or a person becomes the owner of 50%
or more of the voting power.
14
INVESTMENT PLAN AND OTHER BENEFITS
The Corporation has an Investment Plan under which salaried and most
non-union hourly employees of the Corporation, including officers, who elect to
participate in the Plan may make regular contributions by salary reduction
and/or by payroll deduction of from 1% to a maximum of 15% of their annual base
salaries. Under the Plan and subject to certain statutory limitations, the
Corporation contributes an amount equal to 20%, or such greater amount as may be
approved by the Board of Directors, of a participant's contributions up to 6% of
his or her annual base salary. For fiscal 1995, the Corporation's contribution
in excess of 20% depended and was based upon the Corporation's return on
invested capital, and was an additional 85% for a total of 105%. All
contributions are invested, as selected by the participant, in a Fixed Income
Fund (composed primarily of contracts with two insurance companies), a
Mallinckrodt Group Inc. Stock Fund, an S&P 500 Index Fund, and a Balanced Fund.
The Corporation's contributions to the Plan on behalf of the named executive
officers are reflected in the Summary Compensation Table.
The Corporation provides life insurance coverage for officers and key
employees. Coverage equals up to four times annual salary and is provided at
corporate expense, one-half by means of individual permanent insurance (which is
to continue in effect after retirement) and the other half by individual term
insurance (which will be discontinued at retirement unless the cost is assumed
by the executive). The Corporation also maintains a supplemental death benefit
program that provides individual pre-tax death benefits up to $2,000,000,
depending on a participant's position in the organization, for certain current
and former employees, including Messrs. Holman and Nichols.
The fiscal 1995 cost to the Corporation for present and retired executives
in the above life insurance programs was $517,197 of which $47,378 was for
officers. The imputed cost of coverage for the named officers is included under
Other Annual Compensation in the Summary Compensation Table.
The Corporation maintains a comprehensive employee benefit program that
provides medical, dental, death, disability, and similar benefits in the context
of a cafeteria benefit plan as defined in Section 125 of the Internal Revenue
Code. Employees may pay for certain benefits by means of salary reduction
contributions pursuant to the plan, known as the Flexsecurity Plan.
15
REPORT OF ORGANIZATION AND COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Company's primary financial objective is to maximize shareholder value
over time. To this end, the Company has created a comprehensive business
strategy. A primary function of the Organization and Compensation Committee (the
"Committee") is to develop and administer total compensation policies that are
consistent with the Company's strategic business objectives. The Committee
recommends compensation actions for the President and Chief Executive Officer
and for all other corporate officers to the Board for approval. The Committee
approves the compensation for all other key executives. The Committee is
comprised entirely of independent outside directors.
The Committee adheres to a number of guiding principles in structuring the
compensation packages of key executives, including the five named executive
officers.
GUIDING PRINCIPLES
- EQUITY-BASED COMPENSATION. Equity-based plans comprise a major part of the
variable portion of total compensation to link compensation to Company
performance and shareholder interests.
- PAY AT RISK. At least half of the TOTAL compensation for executives is
comprised of short- and long-term performance-based variable pay. The
Committee believes in placing a high percentage of executives'
compensation at risk.
- MANAGEMENT CONTINUITY. Compensation programs are structured to attract,
motivate and retain LONG-TERM, those individuals who can contribute to the
creation of shareholder value.
- COMPETITIVENESS. Total compensation is designed to provide executives with
an OPPORTUNITY to earn at a level well above comparable companies, IF
COMPANY PERFORMANCE IS SUBSTANTIALLY HIGHER THAN THAT ACHIEVED BY OTHER
COMPANIES IN THE COMPANY'S "COMPARATOR GROUP" (AS DEFINED BELOW). The
Company's ability to significantly challenge and motivate its management
team is enhanced by providing executives the opportunity to earn at this
level of compensation.
COMPONENTS OF EXECUTIVE COMPENSATION
The four elements of executive compensation are:
- Base Salary
- Annual Incentives
- Long-Term Incentives
- Stock Options
These elements are structured to recognize meaningful differences in
individual performance and cumulatively to provide executives with the
OPPORTUNITY to significantly exceed competitive levels of total compensation if
the Company's performance is significantly better than that of its competitors.
In structuring compensation, the Committee reviews competitive data provided by
independent compensation consultants. These data compare the Company's
compensation levels and practices with a group of companies (the "comparator
group") that tend to have similar sales volumes, similar lines of business, and
established records of successful performance against financial measures deemed
important by the Company. Competitive data for compensation programs includes
that from many of the companies in the S&P indices shown in the performance
graph on page 19 below.
The Committee periodically revises the mix of the various components of
total compensation. Currently, base salary comprises about 35%, annual
incentives approximately 15%, and long-term incentives and stock options about
50% of total compensation. The total compensation program is considered in
setting the individual components.
BASE SALARY. Base salary increases are provided to executives consistent
with an evaluation of each executive's performance, salary levels within the
comparator group, as well as the performance of the Company as a whole. In
addition to measuring performance in financial terms, the Committee also
evaluates the success of the executive in areas that cannot be measured by
traditional accounting
16
criteria, including the development and execution of strategic plans, the growth
and development of management and employees, and the exercise of leadership
within the industry and in the communities that the Company serves. Salary
reviews normally occur at twelve-month intervals.
ANNUAL INCENTIVES. A target annual incentive is established for each
eligible executive in the form of percentage of salary range midpoint.
Incentives earned are based primarily on: performance of the executive's
operating unit (achievement of pre-established profit, return on invested
capital, revenue, and cash flow objectives); contribution of the relevant
operating unit to implementation of the Company's strategic plan; achievement by
the executive's operating unit of non-financial goals, such as employee safety
and environmental compliance; and individual performance against pre-established
objectives. Actual incentives paid can range from 0% to 175% of target. For the
Chief Executive Officer and staff executives, incentives earned are based on
Mallinckrodt Group Inc. earnings per share performance, asset management
objectives, and individual performance. In fiscal 1995, for each of the
presidents of the Company's three primary operating subsidiaries, 50% of the
annual incentive was based on the performance of their respective business units
and 50% was based on Company performance.
LONG-TERM INCENTIVES. Long-term incentives comprise about half of the total
compensation for key executives, including the five named executive officers.
Each of the long-term incentive programs is discussed below.
- LONG-TERM INCENTIVE PLAN. At the 1994 Annual Meeting, the Company's
stockholders approved a new Long-Term Incentive Compensation Plan (the
1994 Plan) for approximately 50 of the Company's key executives. The Plan
succeeded a long-term compensation plan for senior management that was in
effect for the three prior fiscal years. The 1994 Plan is designed to
provide awards based on the attainment of long-term financial objectives
as measured over three-year performance cycles. The initial performance
cycle is the three-year period commenced July 1, 1994. Awards under the
1994 Plan will be paid 50% in cash and 50% in shares of the Company's
Common Stock.
Target levels of incentive compensation established under the 1994 Plan
for each participant are competitive with levels for similar positions
within the Company's comparator group. Target levels of compensation will
be achieved, however, ONLY if a combination of vigorous financial goals
have been achieved at the end of the three-year performance cycle. Such
goals will include any or all of the following: net after-tax income; net
after-tax income per share; earnings from continuing operations; earnings
from continuing operations per share; operating earnings; operating
earnings per share; return on assets; return on equity; return on invested
capital; debt ratings; revenues; and revenue growth. The specific
performance goals vary among business groups within the Company and were
determined, in part, by reference to the projected performance of other
companies in the Company's comparator group (based on published analysts'
consensus expectations for such other companies as of Plan inception).
Compensation for corporate officers will be based entirely on performance
of the Company against established goals. Compensation for all other
participants will be based both on performance of the Company and the
performance of their business unit against the established goals.
- STOCK OPTIONS. Non-qualified stock options are granted to provide key
executives with the opportunity to acquire an equity interest in the
Company, align their interests with that of the Company's stockholders,
and share in the appreciation of the value in the Company's stock. Again,
grant size and potential compensation value are based on option programs
utilized by companies in the comparator group. Normally stock options are
granted annually. THE COMPANY HAS NEVER RE-PRICED ANY STOCK OPTION GRANT.
As part of the stock option program, grants are also made annually, on
the same date and at the same option price as for executives, to virtually
all of the Company's employees on the grant date worldwide.
As part of their total compensation, executives are also provided with
various benefits. In addition to the benefits offered to the general employee
population, executives are provided with higher levels
17
of life insurance and disability coverage, as well as benefits such as tax
planning, annual physical, and luncheon club memberships for business purposes.
The executive officers along with certain other executives are also covered by a
Supplemental Executive Retirement Plan (SERP). One of the primary purposes of
this Plan is to attract and retain high caliber mid-career talent. Further
information on this Plan is provided on pages 13-14.
The executive compensation programs of the Company cannot anticipate all
situations that may occur from time to time. When unusual circumstances occur,
the Committee reserves the right to take appropriate actions which, in its best
judgment, are in the best long-term interests of the Company and its
shareholders.
DISCUSSION OF COMPENSATION FOR THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mr. Holman's compensation for fiscal 1995 was determined in accordance with
the executive compensation policies as described above. In addition, the
Committee considered the compensation of chief executive officers of other
companies in the comparator group.
Mr. Holman received a merit increase of 10.5% on July 1, 1994 (twelve months
from the date of his last increase) which brought his annual base salary to
$580,020. With this increase, his base salary was approximately 77% of the CEO
level for the comparator group. Effective October 19, 1994, the date of the
Annual Shareholders meeting, Mr. Holman received a 10.3% promotional increase
concurrent with his election as Chairman of the Board. This placed his base
salary more appropriately at about 85% of the level for CEOs of companies within
the comparator group.
Mr. Holman was granted an annual incentive award of $470,000 for fiscal 1995
based predominantly on Mallinckrodt Group Inc. earnings per share, which were
slightly above target, as well as his own personal performance.
On December 13, 1994, the Committee approved a stock option grant for Mr.
Holman of 41,250 shares. The number of stock options granted to Mr. Holman is
consistent with the targeted levels established for the Chief Executive Officer
based on practices within the comparator group.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
annual tax deduction to $1 million per person for compensation paid to the
executive officers listed on page 11 of this Proxy Statement, unless certain
requirements are met. It is the Committee's policy to maximize the
effectiveness, as well as the tax deductibility, of the Company's Executive
Compensation Programs. Therefore, the Committee considers it to be in the best
interest of the Company's stockholders to retain discretion in the Company's
annual incentive program to award executives based on a full range of
performance criteria important to the Company's success. As a result of such
discretion, compensation paid to covered employees under the annual incentive
program will not be exempt from the deduction limit. In order to preserve tax
deductibility, the Committee may, but will not be obligated, to award
compensation under the annual incentive program on a deferred basis.
It is presently expected that the compensation paid under the Company's
long-term incentive compensation plan will qualify as performance based and will
not be counted towards the deduction limit. The Committee's present intention is
to comply with the requirements of Section 162(m) unless the Committee feels
that such compliance would not be in the best interest of the Company and its
stockholders. In view of the compensation levels of the covered employees in
fiscal 1995, the Committee expects the impact, if any, on the Company of any
loss of deductions resulting from the application of Section 162(m) will be
immaterial.
ORGANIZATION AND
COMPENSATION COMMITTEE:
Roberta S. Karmel, Chair
Alec Flamm
Claudine B. Malone
Daniel R. Toll
18
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Organization and Compensation Committee during
any part of fiscal 1995 were at any time in the past an officer or employee of
the Company or any subsidiary. There are no executive officer interlocks with
another company.
PERFORMANCE GRAPH
The following graph compares the total return (assuming reinvestment of
dividends and $100 invested on June 30, 1990) of Mallinckrodt common stock with
those of the S&P 500, S&P Health Care Composite, and S&P Specialty Chemicals
Group indices:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MALLINCKRODT GROUP S&P 500 S&P HEALTH CARE S&P CHEMICALS
Jun-90 100 100 100 100
Jun-91 161.36 107.39 123.86 107.8
Jun-92 166.35 121.73 133.71 121.51
Jun-93 158.77 138.26 117.51 143.74
Jun-94 174.57 140.24 117.54 128.88
Jun-95 193.88 176.69 169.63 164.63
MISCELLANEOUS INFORMATION
The Board of Directors and management know of no matters that will be
presented for consideration at the meeting other than those stated in the Notice
of Meeting and described in this Proxy Statement.
Pursuant to the by-laws of the Corporation, and apart from matters included
in the proxy statement, for a matter to be properly brought before the annual
meeting for consideration a shareholder must, not less than seventy days and not
more than ninety-five days before the date of the meeting, deliver or cause to
be delivered a written notice to the Secretary of the Corporation specifying
certain details concerning the nature of the proposed business, including the
reasons why it is sought to be raised and submitted for a vote of the
stockholders, and otherwise meeting certain requirements of the by-laws. Full
details regarding the requirements of the by-laws are available upon request to
the Secretary. Pursuant thereto, the last day for receipt of such a notice to be
effective for this meeting was August 9, 1995. Notwithstanding satisfaction of
the notice and other requirements, the proposed business described in the notice
may still be deemed not to be properly brought before the meeting if, pursuant
to state law or to any rule or regulation of the SEC, it was offered as a
stockholder proposal and was omitted, or had it been so offered, it could have
been omitted, from the notice of, and proxy materials for, the meeting (or any
supplement thereto) authorized by the Board of Directors.
If any matter properly comes before the meeting the persons named in the
accompanying proxy will vote such proxy in accordance with their judgment
regarding such matter, including without
19
limitation the election of a director or directors other than those nominated
herein should an emergency or unexpected occurrence make the use of
discretionary authority necessary, and also regarding matters incident to the
conduct of the meeting.
Proxies will be solicited to assure that stockholders who are unable to
attend the meeting have the opportunity nonetheless to cast a vote on the issues
to come before the meeting. In addition to the use of the mails, proxies may be
solicited by personal interview, telephone, and telegrams by directors,
officers, and employees of the Corporation. Arrangements may also be made with
brokerage houses and other custodians, nominees, and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of
record by such persons, and the Corporation may reimburse them for reasonable
out-of-pocket expenses incurred by them in connection therewith. In addition,
the Corporation has retained Georgeson & Co. to aid in the solicitation, at an
estimated cost of $9,000 plus expenses. The cost of all proxy solicitation,
including payments to Georgeson & Co., will be borne by the Corporation.
For stockholders who may be interested in submitting a resolution for
consideration at the next annual stockholders' meeting, the deadline pursuant to
SEC rules for submitting such proposals for consideration for inclusion in the
proxy statement will be May 11, 1996. The deadline for receipt of proposals
subject to the above by-law will be August 7, 1996, on the assumption the Board
will fix the date of next year's meeting on the third Wednesday in October, as
has been customary, or if the Board fixes another date, the tenth day following
public disclosure of the meeting date. Proposals should be sent to the Secretary
of the Corporation, 7733 Forsyth Blvd., St. Louis, Missouri 63105.
Pursuant to Section 726(d) of the New York Business Corporation Law,
shareholders of record entitled to vote for the election of directors are hereby
informed that the Corporation has renewed its directors and officers
indemnification insurance for a three year period effective June 1, 1995. The
insurance carriers are National Union Fire Insurance Co., CNA, Aetna Casualty
and Surety Co., Reliance Insurance Co., Federal (Chubb), and Zurich American in
various and successive layers of coverage that total $110,000,000 (subject to
retention and co-insurance). The annual cost is $620,000. All directors and
corporate and staff officers of the Corporation and of its wholly-owned
subsidiary corporations are insured thereunder.
By Order of the Board of Directors
[SIGNATURE]
Roger A. Keller
VICE PRESIDENT, SECRETARY AND
GENERAL COUNSEL
Dated: September 8, 1995
20
[MAP]
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[Logo]
P PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
R THE COMPANY FOR ANNUAL MEETING OF STOCKHOLDERS, OCTOBER 18, 1995
O
X
Y The undersigned appoints C. Ray Holman, Claudine B. Malone and Morton
Moskin, or any of them, with full power of substitution, proxies to vote
the shares which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders of Mallinckrodt Group Inc. to
be held on October 18, 1995, at the Company's subsidiary, Mallinckrodt
Chemical, Inc., 3600 N. Second Street, St. Louis, Missouri, at 10 a.m.,
local time, and any adjournments thereof, hereby revoking any proxy
heretofore given.
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Election of Five Directors. Nominees: William L. Davis, III, Roberta S.
Karmel, Brian M. Rushton, and Daniel R. Toll, for terms expiring in 1998,
and Anthony Viscusi for a term expiring in 1997.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO
VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXY
COMMITTEE CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
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SEE REVERSE
SIDE
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----- PLEASE MARK YOUR ------
X VOTE AS IN THIS
----- EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 AND 2. AS TO ALL OTHER MATTERS ARISING AT THE MEETING, THIS PROXY WILL BE VOTED IN THE DISCRETION OF THE NAMED PROXIES,
ALL IN ACCORDANCE WITH THE NOTICE AND PROXY STATEMENT FOR THE MEETING, RECEIPT OF WHICH IS ACKNOWLEDGED.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
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FOR WITHHELD AS TO ALL NOMINEES FOR AGAINST ABSTAIN
------- ------- ------- ------- -------
1. Election of To withhold authority to vote for any 2. Appointment of
Directors nominee(s), mark the "FOR" box and independent auditors.
write the name of each such nominee
------- ------- on the line provided below. ------- ------- -------
3. In the discretion of the proxies, upon such
other business as may properly come before the
meeting.
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-------
Please check this box to request a
ticket to the Annual Meeting. A map
to help you locate the site of the
------- meeting is in the Proxy Statement.
SIGNATURE(S) DATE , 1995
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NOTE: Please date and sign exactly as name appears hereon. If shares are held jointly or by two or more persons, each stockholder
named should sign. Executors, administrators, trustees, etc. should so indicate when signing. If the signer is a
corporation, please sign full corporate name by duly authorized officer. If a partnership, please sign in partnership name
by authorized person.
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