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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Nellcor Puritan Bennett Incorporated
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(Name of Registrant as Specified in Its Charter)
Nellcor Puritan Bennett Incorporated
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transactions applies:
N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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/ / 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 registrations statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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(LOGO)
Nellcor Puritan Bennett Incorporated
Executive Offices
Pleasanton, California 94588
(510) 463-4000
September 16, 1996
Dear Stockholder:
It is our pleasure to invite you to the 1996 Annual Meeting of Stockholders of
Nellcor Puritan Bennett Incorporated (the "Company") at 10:00 a.m. on Thursday,
October 17, 1996, at the offices of the Company, 4280 Hacienda Drive,
Pleasanton, California 94588.
The Secretary's formal notice of the meeting and the Proxy Statement appear on
the following pages and describe the matters to be acted upon. During the
meeting, time will be provided for a review of activities of the past year and
items of general interest about the Company.
We urge you to complete the enclosed Proxy and to return it in the accompanying
postage-paid envelope at your earliest convenience.
Sincerely,
C. RAYMOND LARKIN, JR.
President and Chief Executive Officer
3
(LOGO)
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 17, 1996
The 1996 Annual Meeting of Stockholders of Nellcor Puritan Bennett Incorporated,
a Delaware corporation (the "Company"), will be held on Thursday, October 17,
1996, at 10:00 a.m. at the offices of the Company, 4280 Hacienda Drive,
Pleasanton, California 94588 for the following purposes:
1. To elect a Board of Directors to serve until the next Annual
Meeting of Stockholders;
2. To consider and vote upon the proposed ratification of the
selection of Price Waterhouse as the Company's independent public
accountants for fiscal year 1997; and
3. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice.
The Board of Directors has fixed the close of business on September 3, 1996 as
the record date for the meeting, and only stockholders of record at the close of
business on that date are entitled to receive notice of and vote at the meeting.
A copy of the Company's Annual Report for the fiscal year 1996 ended July 7,
1996, containing financial statements, is included with this mailing.
We hope you will use this opportunity to take part in the affairs of your
Company by voting on the business to come before this meeting either in person
or by executing and returning promptly the enclosed Proxy in the accompanying
postage-paid envelope. Please note that the enclosed Proxy is printed on both
sides. If you attend the meeting, you may vote in person if you wish to do so
even though you have sent in your Proxy.
By Order of the Board of Directors
LAUREEN DEBUONO
Executive Vice President, Human Resources,
General Counsel and Secretary
Pleasanton, California
September 16, 1996
4
PROXY STATEMENT
TABLE OF CONTENTS
SUBJECT PAGE
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THE PROXY............................................................................. 1
VOTING AT THE ANNUAL MEETING.......................................................... 1
SOLICITATION.......................................................................... 1
MATTERS ON THE AGENDA................................................................. 2
PROPOSAL ONE -- ELECTION OF DIRECTORS................................................. 2
CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS................................. 5
NOMINATING AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS.............................................................. 6
BENEFICIAL OWNERS OF VOTING SECURITIES................................................ 7
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE............................... 8
EXECUTIVE COMPENSATION................................................................ 9
NOMINATING AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION................ 15
COMPANY STOCK PRICE PERFORMANCE....................................................... 20
PROPOSAL TWO -- RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS........................ 21
OTHER BUSINESS........................................................................ 21
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING......................................... 21
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5
NELLCOR PURITAN BENNETT INCORPORATED
4280 Hacienda Drive
Pleasanton, California 94588
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Nellcor Puritan Bennett Incorporated, a Delaware
corporation (the "Company"), for use at the 1996 Annual Meeting of Stockholders
of the Company to be held on Thursday, October 17, 1996, at 10:00 a.m. at the
offices of the Company, 4280 Hacienda Drive, Pleasanton, California 94588.
THE PROXY
The persons named as proxyholders were selected by the Board of Directors
of the Company and are executive officers of the Company.
A stockholder giving the enclosed Proxy may revoke it at any time before it
is voted by (i) giving notice to the Secretary of the Company in writing,
(ii) submitting a subsequently dated Proxy or (iii) voting in person at the
Annual Meeting.
VOTING AT THE ANNUAL MEETING
The only voting securities of the Company are its shares of Common Stock,
$.001 par value ("Common Stock"), of which 59,915,374 shares were
outstanding at the close of business on September 3, 1996. Only holders of
record at the close of business on September 3, 1996 are entitled to
receive notice of and to vote at the Annual Meeting. The holders of Common
Stock are entitled to one vote per share on each matter submitted to a vote
of stockholders.
On June 27, 1996, the stockholders of the Company approved a two-for-one
stock split of the Company's outstanding shares of Common Stock, which was
effective on June 27, 1996. Share and per share amounts referenced herein
reflect the two-for-one stock split.
With respect to the election of Directors, cumulative voting is permitted.
Under cumulative voting, each stockholder entitled to vote in the election
of Directors may cast a total number of votes equal to the number of
Directors to be elected (eight) multiplied by the number of votes to which
such stockholder's shares are entitled. Each stockholder may give one
candidate all the votes such stockholder may cast or, in the alternative,
may distribute such votes among as many candidates as such stockholder
chooses. Stockholders are requested, by means of the enclosed Proxy, to
grant the proxyholders discretionary authority to cumulate votes. The
holders of a majority of the outstanding Common Stock, present in person or
by Proxy, will constitute a quorum for the transaction of business at the
Annual Meeting or any adjournment thereof. Abstentions and broker non-votes
are included in the determination of whether a quorum is present. Each is
tabulated separately. Abstentions are counted in determining the number of
shares voted on the proposals submitted to stockholders (other than the
election of Directors) and will have the same effect as a "no" vote on such
proposals, whereas broker non-votes are not counted. Directors are elected
by plurality of the votes of the shares of Common Stock represented and
voted at the meeting, and abstentions and broker non-votes will have no
effect on the outcome of the election of Directors. The affirmative vote of
a majority of the shares of Common Stock present, or represented, and
entitled to vote at the Annual Meeting is required for approval of Proposal
Two.
This Proxy Statement and the enclosed Proxy are first being sent to
stockholders on or about September 16, 1996.
SOLICITATION
The cost of soliciting Proxies will be borne by the Company. The
solicitation of Proxies by mail may be supplemented by telephone, telegraph
or personal solicitation by executive officers, Directors and employees of
the Company, who will receive no extra compensation for their services. The
Company will
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reimburse, upon request, brokerage firms, banks and other nominees,
custodians and fiduciaries for the reasonable expenses incurred in sending
proxy material to beneficial owners of shares and obtaining the
instructions of such beneficial owners. The Company has engaged Corporate
Investor Communications, Inc. ("CIC"), a private proxy solicitation firm,
to supplement the Company's solicitation efforts. CIC will be paid its
customary fee, estimated to be approximately $6,000.
MATTERS ON THE AGENDA
The election of Directors and the ratification of the selection of Price
Waterhouse as the Company's independent public accountants are the two
matters on the agenda for the 1996 Annual Meeting of Stockholders of the
Company.
PROPOSAL ONE -- ELECTION OF DIRECTORS
At the 1996 Annual Meeting of Stockholders, eight individuals will be
elected as Directors for a one-year term until the 1997 Annual Meeting. The
Board of Directors has nominated the eight individuals listed below for
election at the 1996 Annual Meeting.
Mr. Burton A. Dole, Jr., Mr. Thomas A. McDonnell and Dr. Risa J.
Lavizzo-Mourey were first nominated for election to the Board of Directors
at the 1995 Annual Meeting of Stockholders pursuant to the terms of the
Agreement and Plan of Merger, as amended, between the Company and
Puritan-Bennett Corporation. Pursuant to an employment agreement with the
Company, Mr. Dole is to serve as Chairman of the Board of Directors of the
Company for a period of two years, which commenced on August 25, 1995. Mr.
Dole's employment agreement with the Company is further discussed on page 5
below.
After serving on the Company's Board of Directors since 1991, Mr. Walter J.
McNerney will not stand for re-election at the 1996 Annual Meeting of
Stockholders. Mr. McNerney was a valued member of the Board, providing
mentorship to the executive officer group as well as steering the Board
through major growth stages of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE EACH NOMINEE FOR
ELECTION AS A MEMBER OF THE BOARD OF DIRECTORS.
The Proxies given to the proxyholders will be voted or not voted as
directed thereon, and if no direction is given, will be voted FOR approval
of the Board's eight nominees. The Board of Directors knows of no reason
why any of these nominees should be unable or unwilling to serve, but if
any nominee should, for any reason, be unable or unwilling to serve, the
Proxies will be voted for the election of such other person to the office
of Director as the Board of Directors may recommend in the place of such
nominee.
Certain information with respect to each nominee appears on the following
pages, including age, period or periods served as a Director, position (if
any) with the Company, business experience during the past five years and
directorships of other publicly-owned corporations. Committees of the Board
of Directors of the Company, as well as each nominee's service on such
committees, are discussed on page 5 below.
There are no family relationships between any of the nominees or between
any of the nominees and any executive officer of the Company.
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7
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DIRECTOR
NAME, PRINCIPAL OCCUPATION AND OTHER INFORMATION SINCE
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BURTON A. DOLE, JR. Chairman of the Board of the Company. 1995
Mr. Dole served as President, Chief Executive Officer and Chairman of the Board of
Puritan-Bennett Corporation from 1986 until the merger of Puritan-Bennett and the
Company on August 25, 1995. Mr. Dole was President and Chief Executive Officer of
Puritan-Bennett from 1980 to 1986. Mr. Dole is a director of the New England
Company, the Anesthesia Patient Safety Foundation, the Health Industries
Manufacturers Association and the I. Heerman Anesthesia Foundation. In December
1995, Mr. Dole completed a three-year term as Chairman of the Board of the Federal
Reserve Bank of Kansas City. Age: 58
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ROBERT J. GLASER, M.D. Director for Medical Science and Trustee of the Lucille P. 1991
Markey Charitable Trust.
Dr. Glaser is the Director for Medical Science (since 1984) and a Trustee of the
Lucille P. Markey Charitable Trust (since 1989), which provides major grants in
support of basic biomedical research. He is also a Consulting Professor of
Medicine at Stanford University where he served as the Dean of the School of
Medicine from 1965 to 1970. Dr. Glaser was a founding member of the Institute of
Medicine of the National Academy of Sciences. Dr. Glaser is a Director of Alza
Corporation and Hanger Orthopedic Group, Inc. Age: 77
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FREDERICK M. GRAFTON Retired Management Consultant to Several Technology 1988
Companies.
Mr. Grafton is a retired management consultant to several technology companies. He
retired as President of Raychem Ventures, Inc., a subsidiary of Raychem
Corporation (a materials technology driven product company), in February 1990. Mr.
Grafton joined Raychem Corporation in 1962 and served as Division General Manager
and Group Vice President of Raychem Corporation until 1988 when he became
President of Raychem Ventures, which manages a venture portfolio of Raychem
Corporation. Age: 70
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DONALD L. HAMMOND Technical Consultant to Several Technology Companies. 1990
Mr. Hammond is a technical consultant to several technology companies. Previously,
he was Director of Hewlett-Packard Laboratories of the Hewlett-Packard Company, a
manufacturer of computer systems and electronic products. Mr. Hammond joined
Hewlett-Packard in 1959 and served as a Founding Director of Hewlett-Packard
Laboratories from 1966 until his retirement in 1988. He is a Director of
Mid-Peninsula Bank and Iridex Corporation. Age: 69
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C. RAYMOND LARKIN, JR. President and Chief Executive Officer of the Company. 1989
Mr. Larkin is the President and Chief Executive Officer of the Company. He has
been with the Company since 1983, serving as Vice President, Sales and Vice
President, Sales and Marketing until his election as President and Chief Operating
Officer in February 1989 and Chief Executive Officer in November 1989. Mr. Larkin
is a Director of Ventritex, Inc., Neuromedical Sciences Inc. and Arthrocare
Corporation. Age: 48
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8
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DIRECTOR
NAME, PRINCIPAL OCCUPATION AND OTHER INFORMATION SINCE
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RISA J. LAVIZZO-MOUREY, M.D. Associate Professor of Medicine and Healthcare 1995
Systems at the University of Pennsylvania.
Dr. Lavizzo-Mourey is the Sylvan Eisman Associate Professor of Medicine and
Healthcare Systems at the University of Pennsylvania. From 1992 to 1994, Dr.
Lavizzo-Mourey was Deputy Administrator of the United States Agency for Healthcare
Policy and Research. Dr. Lavizzo-Mourey has been a consultant to the White House
Department of Health and Human Services, foreign governments and health care
corporations. Dr. Lavizzo-Mourey has held various faculty positions at Harvard
University Medical School and Temple University Medical School. She is a Director
of Medicus Systems Corporation and Beverly Enterprises, Inc. Age: 41.
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THOMAS A. MCDONNELL President and Chief Executive Officer of DST Systems, Inc. 1995
Mr. McDonnell served as a director of Puritan-Bennett Corporation from April 1994
until the merger of Puritan-Bennett and the Company on August 25, 1995. Mr.
McDonnell has served as Chief Executive Officer of DST Systems, Inc., a provider
of data processing based services to the financial industry, since October 1984.
Mr. McDonnell has served as President of DST Systems, Inc. from 1973 until October
1984 and from March 1987 to the present, and has been a Director of DST Systems,
Inc. since 1971. He is a Director of Informix Software, Inc., BHA Group, Inc.,
First of Michigan Capital Corp., Janus Capitol Corporation and Cerner Corporation.
Age: 51
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EDWIN E. van BRONKHORST Consultant to Various Technology Companies and Treasurer 1985
and Trustee of the David and Lucile Packard Foundation.
Mr. van Bronkhorst has been a consultant to various technology companies since
1984 and is currently Treasurer and Trustee of the David and Lucile Packard
Foundation. Previously, he served as Senior Vice President, Chief Financial
Officer and Treasurer of the Hewlett-Packard Company, a manufacturer of computer
systems and electronic products, from 1962 until his retirement in 1984. Mr. van
Bronkhorst joined Hewlett-Packard in 1953 and served on its Board of Directors
from 1962 to 1984. He is a Director of California Water Service Company, Mid-
Peninsula Bank and Visigenic Software, Inc. Age: 72
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9
CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board of Directors has established two standing committees, the
Nominating and Compensation Committee and the Audit Committee. During
fiscal year 1996, the Nominating and Compensation Committee consisted of
Messrs. Glaser, Grafton, Hammond, McNerney and van Bronkhorst, with Mr.
Hammond serving as Chairperson. The Nominating and Compensation Committee
is authorized to consider and nominate individuals for election to the
Board of Directors at the annual meeting of stockholders for which the
candidate is to be nominated, to propose candidates to fill vacancies on
the Board, to review and recommend to the Board for approval the
compensation of the President and Chief Executive Officer of the Company
and to review and recommend to the Board for approval the executive officer
salary and compensation structure recommended by the President and Chief
Executive Officer, including the grant of stock options. The Nominating and
Compensation Committee held 2 meetings in fiscal year 1996.
The Nominating and Compensation Committee will consider candidates
submitted by stockholders for nomination for election to the Board of
Directors. A stockholder desiring to nominate a candidate must provide for
written notice to be delivered or mailed to and received by the Secretary
of the Company no less than 30 days and no more than 60 days prior to the
annual meeting of stockholders for which the candidate is to be nominated.
This notice must include, as to each person proposed for nomination for
election as a Director, the person's name, age, business address, residence
address, principal occupation or employment, the number of shares of
Company Common Stock beneficially owned by the person and any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Regulation
14A of the Securities Exchange Act of 1934, as amended. This notice must
also include the name and record address of the stockholder giving the
notice and the number of shares of Company Common Stock beneficially owned
by such stockholder. The Nominating and Compensation Committee may require
any proposed nominee to furnish such other information as may be reasonably
required by the Committee to determine the eligibility of such person to
serve as a Director of the Company.
During fiscal year 1996, the Audit Committee consisted of Ms.
Lavizzo-Mourey and Messrs. Glaser, Hammond and van Bronkhorst, with Mr. van
Bronkhorst serving as Chairperson. The Audit Committee is the principal
link between the Board and the Company's independent public accountants.
The Committee makes recommendations to the Board regarding selection and
employment of the Company's independent public accountants and, working
with the Company's external auditors, monitors internal control procedures.
The Audit Committee held 3 meetings in fiscal year 1996.
The Board of Directors held 8 meetings during fiscal year 1996. All
Directors attended more than 75% of the total meetings of the Board and of
the committees of which they are members.
Each non-employee Director received a retainer fee of $11,500 for fiscal
year 1996 to serve on the Board plus a fee of $1,500 for each meeting of
the Board attended and $1,000 for each Board committee meeting attended
which was not held on the same day as a Board meeting. The chairperson of a
Board committee meeting received an additional $1,000 for each committee
meeting. In June 1995, the Board increased, effective January 1996, the
yearly retainer fee from $10,000 to $12,000, to be payable quarterly. The
Company does not pay directors' fees to Directors who are employees of the
Company.
In addition to Board retainer and attendance fees, Mr. Grafton received
$2,228 in consulting fees during fiscal year 1996 pursuant to a consulting
agreement with the Company.
In connection with the merger with Puritan-Bennett, the Company entered
into an employment agreement with Mr. Burton A. Dole, Jr. pursuant to which
Mr. Dole would serve as Chairman of the Board of Directors of the Company
for a two-year term, which commenced on August 25, 1995. As Chairman of the
Board for this two-year term, Mr. Dole receives a salary of $250,000 per
year. Mr. Dole's employment agreement also provides for an additional term
of seven and one-half years during which Mr. Dole will serve as an employee
of the Company with more limited duties at a salary of $44,000 per
5
10
year. Mr. Dole's employment agreement provides certain additional employee
benefits, including severance payments upon certain termination events.
Non-employee Directors receive non-discretionary stock option grants under
the Company's 1988 Stock Option Plan for Non-Employee Directors, as amended
(the "Directors' Plan"). Each non-employee Director (i) upon joining the
Board for the first time will be automatically granted an option under the
Directors' Plan to purchase 20,000 shares of Company Common Stock, vesting
over four years from the date of grant, 25% at the end of the first year
and 6.25% per quarter thereafter, and (ii) at the beginning of each fiscal
year, will be automatically granted an option under the Directors' Plan to
purchase 10,000 shares, vesting over one year.
The following table sets forth as to all non-employee Directors for fiscal
year 1996 (i) the number of shares of the Company's Common Stock subject to
options granted under the Directors' Plan and the weighted average per
share exercise price for such options and (ii) the number of shares of
Common Stock acquired and the net value realized (fair market value of the
shares acquired on the date of exercise less the exercise price) upon the
exercise of options.
FISCAL YEAR 1996
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OPTIONS GRANTED OPTIONS EXERCISED
------------------------ ---------------------------
NUMBER EXERCISE NUMBER NET VALUE
NAME OF SHARES PRICE OF SHARES REALIZED(1)
------------------------------------ --------- -------- --------- -----------
Burton A. Dole, Jr.................. -- -- 24,640 $ 513,068
Robert J. Glaser, M.D............... 10,000 $ 22.344 25,000 $ 421,563
Frederick M. Grafton................ 10,000 $ 22.344 10,000 $ 168,750
Donald L. Hammond................... 10,000 $ 22.344 20,000 $ 303,750
Risa J. Lavizzo-Mourey, M.D......... 20,000 $ 26.813 -- $ --
Thomas A. McDonnell................. 20,000 $ 26.063 -- $ --
Walter J. McNerney.................. 10,000 $ 22.344 20,000 $ 307,750
Edwin E. van Bronkhorst............. 10,000 $ 22.344 50,000 $ 776,875
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Notes:
(1) Equal to the fair market value of the shares of Company Common Stock
acquired on the date the options were exercised less the exercise
price.
The per share closing price of the Company's Common Stock as reported by
the Nasdaq National Market on July 5, 1996 was $23.875.
NOMINATING AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION IN COMPENSATION DECISIONS
There are no Nominating and Compensation Committee interlocks between the
Company and other entities involving any of the Company's executive
officers and members of the Company's Board of Directors who serve as
executive officers of such entities, and no member of the Nominating and
Compensation Committee is a present or former officer or employee of the
Company.
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BENEFICIAL OWNERS OF VOTING SECURITIES
The following table sets forth, as of September 3, 1996, the beneficial
holdings of the Company's Common Stock (the Company's only outstanding
voting securities) by (i) each of the non-employee Directors and nominees
for election as Directors of the Company, (ii) the President and Chief
Executive Officer (also a nominee for election as a Director of the Company
and hereafter referred to as the Chief Executive Officer) and the other
named executive officers listed in the Summary Compensation Table appearing
later in this Proxy Statement and (iii) all directors and executive
officers of the Company as a group.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
NAME OF BENEFICIAL OWNER (1)(2) PERCENT OF CLASS
--------------------------------------------------- -------------------- ----------------
Laureen DeBuono.................................... 56,050 .09%
Executive Vice President, Human Resources,
General Counsel and Secretary
Burton A. Dole, Jr................................. 398,600 .66%
Director and Nominee, Chairman of the Board
Michael P. Downey.................................. 149,350 .25%
Executive Vice President, Chief Financial Officer
Robert J . Glaser, M.D............................. 42,000 .07%
Director and Nominee
Frederick M. Grafton............................... 70,000 .12%
Director and Nominee
Donald L. Hammond.................................. 70,000 .12%
Director and Nominee
Russell D. Hays.................................... 34,850 .06%
Executive Vice President, President, Hospital
Business
C. Raymond Larkin, Jr.............................. 743,193 1.23%
Director and Nominee, President
and Chief Executive Officer
Risa J. Lavizzo-Mourey, M.D........................ 6,000 .01%
Director and Nominee
Thomas A. McDonnell................................ 9,400 .02%
Director and Nominee
Walter J. McNerney................................. 112,600 .19%
Director
David B. Swedlow, M.D.............................. 182,063 .30%
Senior Vice President, Medical Affairs and
Technology Development
Edwin E. van Bronkhorst............................ 72,000 .12%
Director and Nominee
All Directors and Executive Officers as a group
(24 persons)(3).................................. 2,539,590 4.07%
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Notes:
(1) Except as hereinafter provided, each Director and named executive
officer listed in the table has sole voting and sole dispositive power.
Mr. Dole disclaims beneficial ownership with respect to 112 shares held
by an immediate family member.
(2) Includes for each Director and named executive officer listed in the
table: (i) in the cases of Messrs. Glaser, Grafton, Hammond, McDonnell,
McNerney and van Bronkhorst and Ms. Lavizzo-Mourey, options to purchase
40,000, 60,000, 40,000, 5,000, 100,000, 10,000 and 5,000 shares of
Common Stock, respectively, granted under the Directors' Plan described
on page 6 above, (ii) in the case of Mr. Dole, options to purchase
294,256 shares of Common Stock granted under the 1995 Merger Stock
Incentive Plan described on page 10 below and (iii) in the cases of Ms.
DeBuono and
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Messrs. Downey, Hays, Larkin, and Swedlow, options to purchase 54,850,
147,350, 34,850, 611,125, and 114,063 shares of Common Stock,
respectively, granted under the Company's 1991 Equity Incentive Plan,
as amended, and the 1994 Equity Incentive Plan, as amended, described
on page 10 below, all of which options are exercisable within 60 days
of September 3, 1996. Also includes for all Directors and executive
officers as a group options to purchase 2,024,358 shares of Common
Stock which are exercisable within 60 days of September 3, 1996.
(3) Executive Officers include the Chief Executive Officer and all
Executive Vice Presidents and Vice Presidents of the Company.
The following table sets forth, as of August 14, 1996, the beneficial
holdings of the Company's Common Stock (the Company's only outstanding
voting securities) by persons or entities known to the Board of Directors
to be the beneficial owners of more than 5% of the Common Stock of the
Company.
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
-------------------------------------------------- ----------------------- ----------------
FMR Corp.(2)...................................... 4,959,100 8.28%
82 Devonshire Street
Boston, Massachusetts 02109
Ohio Public Employees Retirement System(3)........ 4,048,600 6.76%
277 East Town Street
Columbus, Ohio 43215
The Northern Trust Company(4)..................... 3,987,489 6.66%
50 South LaSalle Street
Chicago, Illinois 60675
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Notes:
(1) Information regarding the beneficial ownership of Company Common Stock
has been obtained from FMR Corp., Ohio Public Employees Retirement
System and The Northern Trust Company, respectively.
(2) FMR Corp. has sole voting power with respect to 79,500 shares and sole
dispositive power with respect to 4,959,100 shares.
(3) Ohio Public Employees Retirement System has sole voting and sole
dispositive power with respect to 4,048,600 shares.
(4) The Northern Trust Company has sole voting power with respect to
2,584,234 shares, sole dispositive power with respect to 3,169,855
shares, shared voting power with respect to 288,485 shares and shared
dispositive power with respect to 685,192 shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's executive officers and Directors to file reports of
beneficial ownership on Form 3 and changes in beneficial ownership on Forms
4 or 5 with the Securities and Exchange Commission ("SEC"). Executive
officers and Directors are also required by SEC rules to furnish the
Company with copies of all Section 16(a) reports filed. As part of a
Section 16 compliance program established by the Company for its executive
officers and Directors, the Company undertakes to file these reports on
their behalf. Based solely on its review of the Forms 3 and 4 filed on
behalf of its executive officers and Directors, as well as written
representations from these individuals that Forms 5 to reflect the change
in beneficial ownership due to the two-for-one stock split were timely
filed, the Company believes that, during the fiscal year ended July 7,
1996, all Section 16(a) filing requirements applicable to its executive
officers and Directors were complied with pursuant to SEC rules.
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EXECUTIVE COMPENSATION
The Company provides to its executive officers cash compensation and other
compensation pursuant to certain employee incentive and benefit plans.
SUMMARY OF CASH COMPENSATION:
The following table provides certain summary information regarding cash
compensation paid by the Company on an accrual basis as well as other
compensation for services rendered paid to or on behalf of the named
executive officers for the last three fiscal years ended July 7, 1996, July
2, 1995 and July 3, 1994:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION(1)
- ----------------------------- ---- --------- -------- ------------ ---------------
C. Raymond Larkin, Jr........ 1996 $ 416,173 $246,600 120,000 $ 500
President and Chief 1995 321,057 417,390 106,000 400
Executive Officer 1994 302,171 178,000 108,000 0
Russell D. Hays.............. 1996 $ 285,577 $137,500 $ 500
Executive Vice President, 1995 2,115 100,000 50,000
President, Home Care 1994
Business
Michael P. Downey............ 1996 $ 275,153 $137,500 44,000 $ 1,000
Executive Vice President, 1995 217,041 190,181 40,000 800
Chief Financial Officer 1994 181,001 73,347 40,000 800
Laureen DeBuono.............. 1996 $ 274,246 $137,500 44,000 $ 1,000
Executive Vice President, 1995 212,712 186,116 40,000 800
Human Resources, General 1994 169,478 75,106 40,000 800
Counsel and Secretary
David B. Swedlow, M.D........ 1996 $ 293,771 $115,729 40,000 $ 500
Senior Vice President, 1995 274,210 198,015 40,000 800
Medical Affairs and 1994 253,290 102,025 40,000 800
Technology Development
- ---------------
Notes:
(1) Amounts reported as All Other Compensation represent the matching
contributions paid by the Company to the named executive officers
pursuant to the Voluntary Investment Plus Plan, as amended and restated
("VIP Plan"), described on page 12 below. With respect to Mr. Hays, the
amount reported as All Other Compensation for fiscal year 1995
represents the reimbursement of certain relocation expenses.
(2) Mr. Hays joined the Company in June 1995.
OTHER COMPENSATION:
The Company has in effect compensation plans providing various forms of
benefits, payable in cash or deferred for several years (or until
retirement). Executive officers are eligible to participate in certain of
these plans, as discussed below. The cash bonus plan for executive officers
is currently administered by the Nominating and Compensation Committee of
the Board of Directors, as described and discussed in the Nominating and
Compensation Committee Report on pages 15 through 19 below; all other
compensation plans are currently administered by the Board of Directors
with the assistance of the Executive Vice President, Human Resources,
General Counsel and Secretary.
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EMPLOYEE STOCK OPTION PLANS
The Company has options outstanding under the following plans: the 1982
Incentive Stock Option Plan (the "ISO Plan"), the 1985 Equity Incentive
Plan (the "1985 Plan"), the 1991 Equity Incentive Plan, as amended (the
"1991 Plan"), the 1994 Equity Incentive Plan, as amended (the "1994 Plan"),
the 1995 Merger Stock Incentive Plan (the "Merger Incentive Plan") and
several Infrasonics, Inc. option plans assumed by the Company upon the
merger of Infrasonics into the Company on June 27, 1996. Shares remaining
available for issuance under the ISO Plan and the 1985 Plan at the time of
such plans' termination by the stockholders in October 1991 became
available for issuance under the 1991 Plan. As of September 3, 1996, there
remained 9,588,774 shares available for issuance under the 1991 Plan and
the 1994 Plan.
The Merger Incentive Plan was approved by stockholders on August 24, 1995
at the special meeting of stockholders called in connection with the merger
of the Company and Puritan-Bennett Corporation. The Merger Incentive Plan
was adopted to grant Puritan-Bennett employees options to purchase Company
Common Stock in replacement of certain options to purchase Puritan-Bennett
stock remaining outstanding or expiring unexercised at the closing of the
merger. Other than the initial issuance of replacement options under the
Merger Incentive Plan, no additional options to acquire Company Common
Stock will be available for issuance under the Merger Incentive Plan.
In connection with the merger of Infrasonics, Inc. into the Company on June
27, 1996, options outstanding under Infrasonics' option plans (the
"Infrasonics Plans") were assumed by the Company and converted into options
to purchase Company Common Stock. No additional options to acquire Company
Common Stock will be available for issuance under the Infrasonics Plans.
The 1991 Plan and the 1994 Plan are currently administered by the
Nominating and Compensation Committee of the Board of Directors with
respect to executive officers and by the Board with respect to other key
employees and consultants. The Board or the Nominating and Compensation
Committee, as the case may be, has the sole discretion to determine the
executive officers, key employees and consultants to whom options may be
granted, the number of shares subject to such options and the type and term
of the options.
The option exercise price of an incentive stock option granted under the
ISO Plan, the 1991 Plan and the 1994 Plan must be at least 100% of the fair
market value of the Company's Common Stock on the date of grant, and the
option exercise price of a nonqualified stock option granted under the 1985
Plan, 1991 Plan and the 1994 Plan must be at least 85% of the fair market
value of the Company's Common Stock on the date of grant. It should be
noted, however, that all options granted to date pursuant to the plans
described above have option exercise prices that are no less than 100% of
the fair market value of the Company's Common Stock on the date of grant
and that none may be exercised more than ten years from the date of grant.
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The following table contains information concerning stock option grants in
fiscal year 1996 to the named executive officers:
OPTION GRANTS IN FISCAL YEAR 1996
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR
OPTIONS EMPLOYEES IN EXERCISE OPTION TERM
GRANTED FISCAL YEAR PRICE EXPIRATION ---------------------
NAME (#)(1) 1996 ($/SH)(2) DATE 5%($)(3) 10%($)(3)
- ------------------------------- ------------ ------------ -------- ---------- --------- ---------
C. Raymond Larkin, Jr.......... 120,000 0.04564 26.00 7/25/05 1,961,472 4,970,364
Laureen DeBuono................ 44,000 0.01673 26.00 7/25/05 719,206 1,822,467
Michael P. Downey.............. 44,000 0.01673 26.00 7/25/05 719,206 1,822,467
Russell D. Hays................ -- -- -- -- -- --
David B. Swedlow, M.D.......... 40,000 0.01520 26.00 7/25/05 653,824 1,656,788
- ---------------
Notes:
(1) These stock options were granted to each of the named executive officers on
July 26, 1995. The grants of stock options were made pursuant to the
standard terms of the 1991 Plan as described above. These stock options have
a ten-year term, vest on a quarterly basis over a four-year period beginning
the date of grant and have exercise prices equal to 100% of the fair market
value of the Company's Common Stock on the date of grant. The Company has
not granted Stock Appreciation Rights ("SARs") pursuant to any of its
employee stock option plans to any past or present employee of the Company,
including any executive officer.
(2) The exercise price may be paid in cash, in shares of common stock valued at
fair market value on the exercise date or through a cashless exercise
involving a same-day sale of the purchased shares.
(3) These columns reflect the potential realizable value of each stock option
grant assuming that the market value of the Company's Common Stock
appreciates at 5% and 10% annually from the date of grant over the term of
the option. The potential values of the options with an exercise price of
$26.00 reflect a 78% increase (@ 5%) and a 184% increase (@ 10%) in the
value of the Company's Common Stock over the 1996 fiscal year-end market
price of $23.75, the average of the high and low prices as reported by the
Nasdaq National Market on July 5, 1996. There is no assurance that the
actual stock price appreciation over the term of the option will be at the
assumed 5% or 10% levels or at any other level. Unless the market price of
the stock does in fact appreciate over the option term, no value will be
realized from option grants.
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STOCK OPTION EXERCISES AND HOLDINGS
The following table provides information concerning the exercise of stock
options by the named executive officers during fiscal year 1996 and the
unexercised options held by such officers as of the end of fiscal year
1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
SHARES VALUE OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS
ON VALUE FISCAL YEAR END (#)(1) AT FISCAL YEAR END ($)(2)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------------ ----------- ----------- ------------- ----------- -------------
C. Raymond Larkin, Jr.... -- -- 556,875 197,125 6,986,328 1,091,422
Laureen DeBuono.......... 59,000 1,040,160 35,750 70,750 298,438 386,563
Michael P. Downey........ 20,000 448,750 126,063 72,937 1,367,661 407,339
Russell D. Hays.......... -- -- 25,000 75,000 18,750 56,250
David B. Swedlow, M.D.... 70,000 1,383,252 94,063 70,937 889,770 415,855
- ---------------
Notes:
(1) The Company has not granted Stock Appreciation Rights ("SARs") pursuant
to any of its employee stock option plans to any past or present
employee of the Company, including any executive officer.
(2) Amounts in this column are calculated using the per share closing price
on the Nasdaq National Market of the Company's Common Stock at 1996
fiscal year end ($23.875) less the exercise price.
VOLUNTARY INVESTMENT PLUS PLAN
Pursuant to the Nellcor Puritan Bennett Voluntary Investment Plus Plan, as
amended and restated (the "VIP Plan"), employees of the Company and certain
subsidiaries, including executive officers, approved by the Board of
Directors may defer compensation for income tax purposes under Sections
401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the
"Code"). All employees of the Company who regularly work 30 hours or more
per week are eligible to participate in the VIP Plan at the beginning of
their employment with the Company. In addition, all employees who complete
1,000 hours or more in their first 12 months of service or in any
subsequent calendar year are eligible to participate in the VIP Plan. As of
July 5, 1996, 2,762 employees other than executive officers were
participating in the VIP Plan. Eligible participants may contribute to
their accounts, through payroll deductions, between 1% and 15% of their
compensation on a "pre-tax" basis. Compensation for purposes of the VIP
Plan includes base salary, cash profit sharing, bonuses, commissions and
overtime pay. Pursuant to Section 401(k) of the Code, participants will not
be taxed on the pre-tax amounts they contribute to their accounts until the
accounts are distributed on death, disability, normal retirement or other
termination of employment. Contributed amounts may also be withdrawn from
the VIP Plan in cases of demonstrable hardship or if a participant has
attained at least 59 1/2 years of age. All contributions are held by a
trustee and participants are able to direct the investment of their
accounts among various investment alternatives, including Company Common
Stock beginning January 1997.
The Company provides matching contributions equal to 100% of each
participant's contribution, up to $500 per participant semi-annually.
Company contributions to the named executive officers for each of the 1996,
1995 and 1994 fiscal years are included in All Other Compensation listed on
the Summary Compensation Table on page 9 above.
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DEFERRED COMPENSATION PLAN
The Company has established a deferred compensation plan for executive
officers and director-level employees that was approved by the Board of
Directors on July 16, 1992 ("the Deferred Plan"). Eligibility for
participation is based on achievement of a certain employment level at the
Company. Under the terms of the Deferred Plan, an eligible participant may
elect to defer all or part of the participant's annual base salary and/or
bonus award. Amounts deferred under the Deferred Plan are credited to a
separate bookkeeping account for each participant and are commingled with
the general assets of the Company. Interest on the amounts deferred is
calculated on a quarterly basis using an interest rate equal to the average
pre-tax rate earned on the Company's Marketable Securities Portfolio during
the same quarter. This rate, published monthly by the Marketable Securities
Portfolio Manager, will be weighted to achieve a quarterly average pre-tax
rate. The time and method of payment of deferred compensation and other
terms and conditions are set forth in deferred compensation elections made
prior to deferral by each participant. The Deferred Plan is not separately
funded, and the undistributed balance of deferred compensation constitutes
an unsecured contractual obligation of the Company to the participants in
accordance with the terms of the plan. Deferred compensation by the named
executive officers for each of the 1996, 1995 and 1994 fiscal years is set
forth in the Summary Compensation Table on page 9 above.
SEVERANCE ARRANGEMENTS
The Company has entered into severance agreements (the "Severance
Agreements") with certain executive officers, including the named executive
officers listed in the Summary Compensation Table on page 9, and key
employees (each of such individuals being hereinafter referred to as the
"Executive" or collectively as the "Executives").
Each Severance Agreement has a twenty-four month term, with an automatic
one year extension on each anniversary date thereafter, unless the Company
or the Executive gives written notice to the other that the term of the
Severance Agreement shall not be extended. However, in no event will a
Severance Agreement expire prior to the expiration of twenty four months
after the occurrence of a "change in control", as defined below.
Under the Severance Agreements, if an Executive's employment with the
Company is terminated by the Company for "cause" (as defined below),
disability or death, or by the Executive other than for "good reason" (as
defined below) during the term of the Severance Agreement and within two
years following a "change in control", the Executive shall be entitled to
accrued but unpaid compensation and, if such termination is other than by
the Company for "cause", a prorated bonus.
If an Executive's employment with the Company is terminated by the Company
without "cause" or by the Executive for "good reason" during the term of
the Severance Agreement and within two years following a "change in
control" (as defined below), the Executive shall be entitled to: (i) a
lump-sum severance payment equal to three times base salary plus bonus in
the case of the chief executive officer, two times base salary plus bonus
in the case of other executive officers and one time base salary plus bonus
in the case of certain key employees; (ii) accrued but unpaid compensation
and a prorated bonus for the year in which the Executive is terminated;
(iii) medical and insurance benefits for the Executive and the Executive's
dependents for three years in the case of the chief executive officer, two
years in the case of other executive officers and one year in the case of
certain key employees, such benefits to be limited to the extent that the
Executive obtains comparable benefits pursuant to a subsequent employment;
(iii) the immediate vesting of, and lapsing of restrictions on, all
outstanding equity incentive awards held by the Executive, including stock
options and restricted stock; and (iv) outplacement and career counseling
services.
Each Severance Agreement provides that if any amounts due to an Executive
thereunder become subject to the "golden parachute" rules set forth in
Section 280G of the Internal Revenue Code, then such amounts will be
reduced to the extent necessary to avoid the application of such rules.
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A termination of employment is for "cause" under the Severance Agreements
if the basis of the termination is fraud, misappropriation, embezzlement or
willful engagement by the Executive in misconduct which is demonstrably and
materially injurious to the Company and its subsidiaries taken as a whole.
"Good reason" includes, among other things, (i) an adverse change in the
Executive's status, title, position, duties or responsibilities; (ii) a
reduction in the Executive's base compensation or benefits; (iii) the
relocation of the Executive; (iv) the discontinuance by the Company of any
material compensation or employee benefit plan in which the Executive
participates; (v) the insolvency or the filing of a petition for bankruptcy
of the Company; (vi) breach by the Company of the Severance Agreement; and
(vii) failure or refusal of any successor to the Company to assume and
perform the Severance Agreement.
Pursuant to the Severance Agreements, a "change in control" shall be deemed
to have occurred (i) upon the acquisition by any person, entity or group of
beneficial ownership of twenty-five percent or more of the combined voting
power of the Company's then outstanding voting securities; (ii) if the
individuals who constitute the Board of Directors of the Company as of the
date that the Severance Agreements are approved by the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board, provided that any new director approved by a vote of at least
two-thirds of the Incumbent Board shall be considered a member of the
Incumbent Board (other than an individual initially assuming office as a
result of either an actual or threatened election contest or other actual
or threatened solicitation of proxies or consents by or on behalf of a
person, entity or group other than the Incumbent Board); (iii) upon
approval by the stockholders of the Company of a merger, consolidation or
reorganization involving the Company, unless (A) the stockholders of the
Company immediately before such merger, consolidation or reorganization own
immediately thereafter at least fifty one percent of the combined voting
power of the outstanding voting securities of the surviving corporation in
substantially the same proportion as their ownership of securities
immediately before any such transaction; (B) the individuals constituting
the Incumbent Board immediately prior to such merger, consolidation or
reorganization constitute at least a majority of the board of the surviving
corporation; and (C) no person, entity or group (other than the Company
and/or certain affiliated entities) has beneficial ownership of twenty-five
percent or more of the combined voting power of the surviving corporation's
then outstanding voting securities; (iv) upon a complete liquidation or
dissolution of the Company; or (v) upon an agreement for the sale or other
disposition of all or substantially all of the assets of the Company to any
person, entity or group (other than a transfer to a Company subsidiary).
INDEBTEDNESS OF MANAGEMENT
The following table sets forth information with regard to promissory notes
from any current executive officers of the Company who have had amounts of
$60,000 or more outstanding at any time during fiscal year 1996.
LARGEST
AMOUNT OF
PRINCIPAL PRINCIPAL
AMOUNT OUTSTANDING
OUTSTANDING AT DURING
NAME OF INDIVIDUAL DATE OF NOTE SEPTEMBER 3, 1996 7/2/95-7/7/96
------------------------------------- ------------------ ----------------- -------------
David J. Illingworth(1).............. February 18, 1993 $ 250,000 $ 250,000
Russell D. Hays(2)................... October 5, 1995 $ 350,000 $ 350,000
Kenneth Sumner(3).................... November 16, 1994 $ 125,000 $ 125,000
- ---------------
Notes:
(1) Mr. Illingworth, the Company's Executive Vice President, President,
Home Care Business, joined the Company in November 1992. In connection
with his employment by the Company, Mr. Illingworth received an
interest-bearing loan of $250,000 with which to repay an outstanding
relocation loan with his former employer. Mr. Illingworth's loan with
the Company is secured by his primary residence with a second mortgage.
Payment of interest on the loan, which accrues at an annual interest
rate of 7.64%, is to be made in 20 semi-annual installments over a
period of 10 years, with the first payment made on August 18, 1993. An
amount equal to each interest installment, as
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made, is added to Mr. Illingworth's base salary compensation. The
principal amount of the loan is due upon the earlier of the sale of the
residence, termination of employment with the Company, or February 18,
2003.
(2) Mr. Hays, the Company's Executive Vice President, President, Hospital
Business, joined the Company in June 1995. In connection with his
employment by the Company, Mr. Hays received an interest-bearing loan
of $350,000 with which to purchase his primary residence in California.
Mr. Hays' loan with the Company is secured by his primary residence
with a second mortgage. Payment of interest on the loan, which accrues
at an annual interest rate of 6.56%, is to be made in 10 annual
installments over a period of 10 years, with the first payment to be
made on December 1, 1996. An amount equal to each interest installment,
as made, is added to Mr. Hays' base salary compensation. The principal
amount of the loan is due upon the earlier of the sale of the
residence, termination of employment with the Company, or December 1,
2005.
(3) Mr. Sumner, the Company's Vice President, Regulatory Affairs and
Quality Assurance, joined the Company in September 1994. In connection
with his employment by the Company, Mr. Sumner received an
interest-bearing loan of $125,000 with which to purchase his primary
residence in California. Mr. Sumner's loan with the Company is secured
by his primary residence with a second mortgage. Payment of interest on
the loan, which accrues at an annual interest rate of 7.55%, is to be
made in 20 semi-annual installments over a period of 10 years, with the
first payment made on May 16, 1995. An amount equal to each interest
installment, as made, is added to Mr. Sumner's base salary
compensation. The principal amount of the loan is due upon the earlier
of the sale of the residence, termination of employment with the
Company, or November 16, 2004.
NOMINATING AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
INTRODUCTION
The Nominating and Compensation Committee of the Board of Directors of the
Company is responsible for the administration of the Company's executive
officer compensation programs. These programs have been designed to ensure
that the compensation paid to the executive officers is substantially
linked to both Company and individual performance. Accordingly, a
substantial portion of the compensation paid to each executive officer may
be comprised of variable components based upon individual achievement and
Company performance measures, such as income from operations, net income,
earnings per share and the attainment of predetermined goals.
EXECUTIVE COMPENSATION PRINCIPLES
The design and implementation of the Company's executive compensation
programs are based on a series of guiding principles derived from the
Company's values, norms and credos, business strategy and management
requirements. These principles may be summarized as follows:
- Align the interests of management and stockholders to build stockholder
value by the encouragement of consistent, long-term Company growth.
- Attract and retain key executive officers essential to the long-term
success of the Company.
- Reward executive officers for long-term corporate success by facilitating
their ability to acquire an ownership interest in the Company.
- Provide direct linkage between the compensation payable to executive
officers and the Company's attainment of annual and long-term financial
goals and targets.
- Emphasize reward for performance at the individual, team, business unit
and corporate level.
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COMPONENTS OF EXECUTIVE COMPENSATION
The components of the Company's executive compensation programs may be
listed as follows, with a detailed summary provided below:
- Base Salary
- Annual Cash (Short-Term) Incentives
- Long-Term Incentives
- Benefits and Perquisites
Each component is calibrated to a competitive market position, with market
information provided by compensation surveys prepared by independent
consulting firms and compensation information collected from companies
selected by the Company's Board of Directors as appropriate financial
comparator companies. For fiscal year 1996, 41 comparator companies were
surveyed. The criteria for selection of these comparator companies include
one or more of the following: excellence in producing quality products and
services; manufacturer of high technology or health care products; an
employee profile similar to that of the Company; and an industry or
geographic competitor.
BASE SALARY
The base salary for each executive officer is determined on the basis of
individual performance, the functions performed by the executive officer
and the scope of the executive officer's ongoing responsibilities, and the
salary levels in effect for comparable positions based on information
provided by the compensation surveys referenced above and comparator
company information. The weight given to each of these factors varies from
individual to individual. In general, base salary is designed primarily to
be competitive within the relevant industry and geographic market at the
50th percentile. The average increase in executive officer base salary in
1996 has been approximately 5.1% for Northern California (Bay Area) based
on survey data. As a result, executive officers who met performance
objectives generally received a 5.1% base salary merit increase effective
July 29, 1996, adjusted for the individual factors referenced above;
certain executive officers received additional increases to their base
salaries to reflect necessary adjustments to market or as a result of
taking on additional management responsibilities.
Each executive officer's base salary is reviewed annually to ensure
appropriateness, and increases to base salary are made to reflect
competitive market increases and individual factors. Company performance
does not play a significant role in the determination of base salary.
ANNUAL CASH (SHORT-TERM) INCENTIVES
Annual cash bonuses for the 1996 fiscal year were to be earned by each
executive officer pursuant to a structured formula that considered the
factors described below, and were designed to be competitive within the
relevant industry and geographic market at the 50th percentile:
- Company Financial Performance
Each fiscal year, the Board of Directors approves an annual cash bonus
program that is currently contingent on the Company's achievement of
specific revenue and operating income levels. The Company's performance
against these goals is measured by the Nominating and Compensation
Committee at the close of each fiscal year and assessed against an
established scale to determine the relevant cash bonus. The scale is
nonlinear and provides the maximum award for above target performance while
reducing or potentially eliminating the award for performance below the
target. This component of executive compensation can range from zero to 80%
of base salary for executive officers excluding Executive Vice Presidents
and the Chief Executive Officer, zero to 100% of base salary for Executive
Vice Presidents, and zero to 120% of base salary for the Chief Executive
Officer. If the Company does not achieve at least 85% of its operating
income plan, then no cash bonus is paid. The maximum funding level is
attained if the Company achieves 125% of operating income plan. At 100% of
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operating income plan achievement, the funding target for full
accomplishment of all objectives, including the individual objectives
discussed below, is 40% of base salary for executive officers, excluding
Executive Vice Presidents and the Chief Executive Officer, 50% of Base
Salary for Executive Vice Presidents, and 60% of base salary for the Chief
Executive Officer. Effective fiscal year 1995, the Board of Directors
approved a supplemental revenue plan to provide additional bonus
opportunity in the event and to the extent that Company revenue growth
exceeds an established threshold. In fiscal year 1996, the Company's
operating income was slightly below plan, however, the revenue growth for
fiscal year 1996 exceeded the revenue growth threshold established by the
supplemental revenue plan. As a result, the funding targets described above
were adjusted accordingly, with adjustments for individual performance
described below.
- Individual Performance
Each executive officer's individual performance is measured against goals
established for that executive officer. Leadership, planning, management
and innovation are considered in addition to goal achievement, and the
weight assigned to each of these additional factors will vary from
individual to individual.
Overall individual performance is then determined and that determination
may qualify him or her for an adjustment upward or downward from the target
levels described above.
The foregoing Company and individual performance factors were the
principal, although not the sole, elements taken into account in
determining whether cash bonuses were to be awarded for the 1996 fiscal
year. The Committee may in its discretion apply entirely different factors,
such as different measures of Company or individual performance, in setting
cash bonus levels for executive officers in future fiscal years.
LONG-TERM INCENTIVES
Long-term incentives are provided through annual stock option grants
pursuant to the Company's 1991 Plan and the 1994 Plan. These option grants
are intended to motivate the executive officers to manage the business to
improve long-term Company performance. Historically, all option grants have
been made with exercise prices equal to the market price of the shares on
the date of grant and will be of no value unless the market price of the
Company's outstanding common shares appreciates, thereby aligning a
substantial part of the executive officer's compensation package with the
return realized by the stockholders. The Company currently has designed the
stock option component of executive compensation to target the 75th
percentile of the competitive industry and geographic market. The Company
is reviewing proposed changes to its long-term incentives to target the
60th percentile of the competitive industry and geographic market beginning
in fiscal year 1997.
The size of each annual option grant is designed to create a meaningful
opportunity for stock ownership and is based upon several factors,
including relevant information contained in the compensation surveys
described above, an assessment of the option grants of comparator
companies, and the individual performance of each executive officer. The
Committee has established certain guidelines in making option grants to the
executive officers in an attempt to target a fixed number of unvested
option shares for distribution to each executive officer. However, the
Committee does not adhere strictly to these guidelines and will
occasionally vary the size of the option grant made to each executive
officer as circumstances warrant.
Each option grant allows the executive officer to acquire shares of the
Company's Common Stock at a fixed price per share over a specified period
of time (usually ten years). The option generally vests in equal
installments over a period of four years, contingent upon the executive
officer's continued employment with the Company. Accordingly, the option
will provide a return to the executive officer only if the executive
officer remains employed by the Company and the market price of the
underlying shares appreciates over the option term.
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BENEFITS AND PERQUISITES
The benefits and perquisites component of executive compensation is
generally similar to that offered to all of the Company's domestic
employees.
CHIEF EXECUTIVE OFFICER (CEO) COMPENSATION
In setting the compensation payable to the Chief Executive Officer, C.
Raymond Larkin, Jr., the goal is to provide compensation competitive with
other companies in the industry while at the same time making a significant
percentage of his earnings subject to consistent, positive, long-term
Company performance. In general, the factors utilized in determining Mr.
Larkin's compensation were similar to those applied to the other executive
officers in the manner described in the preceding paragraphs. Additionally,
the Nominating and Compensation Committee utilized other factors as
described below to conclude that Mr. Larkin generally achieved his 1996
fiscal year performance objectives:
- That Mr. Larkin lead the integration efforts to combine the Company,
Puritan-Bennett, Pierre Medical, S.A. and Melville Software, Ltd. into
one fully-integrated company, and completed the consolidation of the
worldwide sales force and distribution channels;
- That Mr. Larkin continued to assert visible leadership in the medical
device industry with regard to regulatory issues and health care
consolidation issues;
- That Mr. Larkin was successful in moderating expenses as a percentage of
net revenues; and
- That Mr. Larkin achieved certain additional strategic objectives of the
Company with regard to the acquisition of Infrasonics, Inc.
As a result of meeting his 1996 fiscal year performance objectives and the
increase in responsibilities as a result of the merger of the Company and
Puritan-Bennett, Mr. Larkin received a base salary increase from $411,000
to $520,400, effective July 29, 1996, and an annual cash (short-term)
incentive of $246,600, which represented 60% of Mr. Larkin's then current
base salary. The long-term component of Mr. Larkin's compensation consisted
of a July 1995 stock option grant of 120,000 shares.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) enacted in 1993, generally disallows a deduction to public
companies for compensation over $1 million paid or accrued during a tax
year to the Company's Chief Executive Officer and the four other most
highly compensated executive officers ("covered employees"). Qualifying
performance-based compensation will not be subject to the deduction limit.
With regard to base salary and short-term (cash) incentive compensation, as
described above, it has not been and is not anticipated by the Company to
be of such magnitude so as to cause the total compensation of a covered
employee to exceed $1 million. Thus, the Company does not anticipate that
its base salary or short-term (cash) incentive programs will require
stockholder approval in order to preserve the Company's tax position.
With regard to long-term incentive (stock-based) compensation, prior to the
enactment of Section 162(m), the Company's stockholders approved the 1991
Plan. It has been and is anticipated by the Company that long-term
(stock-based) compensation could be of such magnitude so as to cause the
total compensation of a covered employee to exceed $1 million. Grants of
stock option awards under the 1991 Plan, while performance-based, do not
satisfy the stockholder approval requirements for performance-based
compensation under Section 162(m). However, the transitional provisions
under Section 162(m) preserve the tax deductibility of long-term incentive
(stock-based) compensation to covered employees arising from the exercise
of options issued under the 1991 Plan. Although the transitional relief
lapses in the fall of 1997, it is the expectation of the Company that
options representing all shares of Company Common Stock available under the
1991 Plan will have been issued by that time. To cover future grants of
long-term incentive (stock-based) compensation, the Company has adopted and
the stockholders have
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approved the 1994 Equity Incentive Plan, which is intended to satisfy the
requirements for performance-based compensation under Section 162(m).
CONCLUSION
The Nominating and Compensation Committee believes that long-term
stockholder value is enhanced by individual and Company performance
achievements. Through the programs described above, a significant portion
of the Company's executive compensation is based on individual and Company
performance, as well as industry and geographic competitive pay practices.
The Committee further believes that long-term compensation, currently in
the form of stock options, is vital to the long-term success of the
Company. The Company remains committed to this policy, recognizing the
competitive market for talented executives and that changes and challenges
to the business may result in variable executive compensation for a
particular time period.
NOMINATING AND COMPENSATION COMMITTEE MEMBERS:
Robert J. Glaser, M.D.
Frederick M. Grafton
Donald L. Hammond, Chairman
Walter J. McNerney
Edwin E. van Bronkhorst
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COMPANY STOCK PRICE PERFORMANCE
The following graph depicts a five-year comparison of cumulative total
stockholder returns for the Company, the Standard & Poor's 500 Stock Index
and the Standard & Poor's Health Care Composite Index from June 30, 1991
through June 30, 1996.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG NELLCOR PURITAN BENNETT INC., THE S & P 500 INDEX
AND THE S & P HEALTH CARE COMPOSITE INDEX
MEASUREMENT PERIOD NELLCOR PURITAN S & P HEALTH
(FISCAL YEAR COVERED) BENNETT INC. S & P 500 CARE COMPOSITE
6/91 100 100 100
6/92 128 113 108
6/93 117 129 95
6/94 137 131 95
6/95 231 165 138
6/96 249 208 192
* $100 INVESTED ON 06/30/91 IN STOCK OR INDEX--INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING JUNE 30.
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PROPOSAL TWO -- RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors has recommended, and the
Board of Directors has selected, Price Waterhouse as independent public
accountants for the Company for the fiscal year ending July 6, 1997. The
firm has been so engaged since November 14, 1989. During fiscal year 1996,
Price Waterhouse examined the Company's consolidated financial statements,
made limited reviews of the interim financial reports, reviewed filings
with the Securities and Exchange Commission and provided general advice
regarding related accounting matters.
Ratification of the selection of Price Waterhouse is not required by law.
However, as a matter of policy such selection is being submitted to the
stockholders for ratification by the affirmative vote of the holders of
record of a majority of the shares present, or represented, and entitled to
vote at the Annual Meeting (and it is the present intention of the Board of
Directors to continue this policy).
THE BOARD OF DIRECTORS RECOMMENDS THE ADOPTION OF THE FOLLOWING
RESOLUTION WHICH WILL BE PRESENTED TO THE MEETING:
RESOLVED, that the stockholders of Nellcor Puritan Bennett Incorporated
hereby ratify the selection of Price Waterhouse as independent public
accountants for the fiscal year ending July 6, 1997.
The persons designated in the enclosed Proxy will vote your shares FOR
ratification unless instructions to the contrary are indicated in the
enclosed Proxy. If the stockholders fail to ratify the selection of this
firm, the Board of Directors will reconsider this matter.
Representatives of Price Waterhouse are expected to be present at the
Annual Meeting of Stockholders, to respond to appropriate questions and to
make a statement should they desire to do so.
OTHER BUSINESS
The Board of Directors is not aware of any other matters to come before the
Annual Meeting. If any matter not mentioned herein is properly brought
before the meeting, the persons named in the enclosed Proxy will have
discretionary authority to vote all Proxies with respect thereto in
accordance with their judgment.
STOCKHOLDER PROPOSALS FOR THE 1997 ANNUAL MEETING
Stockholders who may wish to present proposals for inclusion in the
Company's proxy materials and for consideration at the 1997 Annual Meeting
of Stockholders must submit such proposals in writing to the Secretary at
the address shown on the top of page 1 above not later than May 19, 1997.
By Order of the Board of Directors
LAUREEN DEBUONO
Executive Vice President, Human
Resources,
General Counsel and Secretary
Pleasanton, California
September 16, 1996
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NELLCOR PURITAN BENNETT INCORPORATED
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS -- OCTOBER 17, 1996
C. Raymond Larkin, Jr. and Laureen DeBuono, or either of them, each
with the power of substitution and revocation, are hereby authorized to
represent the undersigned, with all powers which the undersigned would
possess if personally present, to vote the Common Stock of the
undersigned at the Annual Meeting of Stockholders of NELLCOR PURITAN
BENNETT INCORPORATED (the "Company"), to be held at the Company's
offices at 4280 Hacienda Drive, Pleasanton, California 94588 at 10:00
a.m. on Thursday, October 17, 1996, or any adjournment or postponement
thereof, as set forth on the reverse side.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES
FOR DIRECTOR LISTED ON THE REVERSE SIDE AND FOR APPROVAL OF THE OTHER
PROPOSAL LISTED ON THE REVERSE SIDE.
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS
SPECIFIED, WILL BE VOTED FOR THE ELECTION OF THE NOMINEES NAMED AND FOR
THE OTHER PROPOSAL LISTED ON THE REVERSE SIDE.
----------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
----------------
P
27
/x/ Please mark votes as in this example.
THIS PROXY ALSO GRANTS TO THE PROXYHOLDERS THE DISCRETIONARY POWER TO VOTE THE
SHARES REPRESENTED CUMULATIVELY FOR ONE OR MORE OF THE NOMINEES OTHER THAN THOSE
(IF ANY) FOR WHOM AUTHORITY TO VOTE IS WITHHELD BELOW.
1. To elect eight directors to serve until the next Annual Meeting of
Stockholders and until their successors are elected and qualified.
NOMINEES: Burton A. Dole, Jr., Robert J. Glaser, M.D., Frederick M. Grafton,
Donald L. Hammond, C. Raymond Larkin, Jr., Risa J. Lavizzo-Mourey, M.D., Thomas
A. McDonnell, Edwin E. van Bronkhorst.
/ / FOR ALL NOMINEES / / WITHHELD FROM ALL NOMINEES
- --------------------------------------------------------------------------------
/ / FOR ALL NOMINEES EXCEPT AS NOTED ABOVE
2. To ratify the selection of Price Waterhouse LLP as the Company's independent
public accountants for fiscal year 1997.
/ / FOR / / AGAINST / / ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE
AT LEFT / /
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED POSTPAID ENVELOPE.
Please sign exactly as signor's name appears above. Executors,
administrators, trustees, guardians, attorneys-in-fact, etc. should give
their full titles. If signer is a corporation, please give full corporate
name and have a duly authorized officer sign, stating title. If a
partnership, please sign in partnership name by authorized person. If stock
is registered in two names, both should sign.
Signature ______________________________________ Date __________________
Signature ______________________________________ Date __________________