0000950149-95-000594.txt : 19950918
0000950149-95-000594.hdr.sgml : 19950918
ACCESSION NUMBER: 0000950149-95-000594
CONFORMED SUBMISSION TYPE: DEF 14A
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 19950915
FILED AS OF DATE: 19950915
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: NELLCOR INC /DE/
CENTRAL INDEX KEY: 0000799290
STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845]
IRS NUMBER: 942789249
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: DEF 14A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-14980
FILM NUMBER: 95574178
BUSINESS ADDRESS:
STREET 1: 4280 HACIENDA DRIVE
CITY: PLEASANTON
STATE: CA
ZIP: 94588
BUSINESS PHONE: 4158875858
MAIL ADDRESS:
STREET 1: 4280 HACIENDA DRIVE
CITY: PLEASANTON
STATE: CA
ZIP: 94588
FORMER COMPANY:
FORMER CONFORMED NAME: NELLCOR DELAWARE INC
DATE OF NAME CHANGE: 19860929
DEF 14A
1
DEFINITIVE PROXY STATEMENT DATED 9-15-95
1
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 sec.240.14a-11(c) or sec.240.14a-12
NELLCOR PURITAN BENNETT INCORPORATED
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
NELLCOR PURITAN BENNETT INCORPORATED
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act
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 transaction 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:(1)
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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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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2
(LOGO)
Nellcor Puritan Bennett Incorporated
Executive Offices
Pleasanton, California 94588
(510) 463-4000
September 15, 1995
Dear Stockholder:
It is our pleasure to invite you to the 1995 Annual Meeting of Stockholders of
Nellcor Puritan Bennett Incorporated (the "Company") at 10:00 a.m. on Thursday,
October 19, 1995, 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 19, 1995
The 1995 Annual Meeting of Stockholders of Nellcor Puritan Bennett Incorporated,
a Delaware corporation (the "Company"), will be held on Thursday, October 19,
1995, 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 approval of the Company's 1995 Employee
Stock Participation Plan, which authorizes the issuance of up to 500,000
shares of the Company's Common Stock for purchase by Company employees, as
set forth in Exhibit A to the accompanying Proxy Statement;
3. To consider and vote upon the proposed ratification of the
selection of Price Waterhouse as the Company's independent public
accountants for fiscal year 1996; and
4. 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 1, 1995 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 ended July 2, 1995,
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 15, 1995
4
PROXY STATEMENT
TABLE OF CONTENTS
SUBJECT PAGE
------- ----
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
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
OF 1934............................................................................... 8
EXECUTIVE COMPENSATION.................................................................. 9
NOMINATING AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION.......................................................................... 14
COMPANY STOCK PRICE PERFORMANCE......................................................... 19
PROPOSAL TWO--APPROVAL OF THE COMPANY'S 1995 EMPLOYEE STOCK
PARTICIPATION PLAN.................................................................... 20
PROPOSAL THREE--RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS.......................... 23
OTHER BUSINESS.......................................................................... 24
STOCKHOLDER PROPOSALS FOR 1996 ANNUAL MEETING........................................... 24
EXHIBIT A--1995 EMPLOYEE STOCK PARTICIPATION PLAN
i
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 1995 Annual Meeting of Stockholders
of the Company to be held on Thursday, October 19, 1995, 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 28,358,496 shares were
outstanding at the close of business on September 1, 1995. Only holders of
record at the close of business on September 1, 1995 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.
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 (nine) 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
Proposals Two and Three.
This Proxy Statement and the enclosed Proxy are first being sent to
stockholders on or about September 15, 1995.
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 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,
1
6
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, the approval of the Company's 1995 Employee
Stock Participation Plan and the ratification of the selection of Price
Waterhouse as the Company's independent public accountants are the three
matters on the agenda for the 1995 Annual Meeting of Stockholders of the
Company.
PROPOSAL ONE--ELECTION OF DIRECTORS
At the 1995 Annual Meeting of Stockholders, nine individuals will be
elected as Directors for a one-year term. The Board of Directors has
nominated the nine individuals listed below for election at the Annual
Meeting. Mr. Burton A. Dole, Jr. and Mr. Thomas A. McDonnell were appointed
to the Board of Directors of the Company in August 1995 and are being
nominated for re-election to the Board pursuant to the Agreement and Plan
of Merger, as amended, between the Company and Puritan-Bennett Corporation.
The Agreement and Plan of Merger also provided for an increase in the size
of the Board of Directors to nine members. 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 beginning August 25,
1995. Dr. Risa J. Lavizzo-Mourey is also being nominated for election to
the Board of Directors pursuant to the terms of the Agreement and Plan of
Merger, as amended, between the Company and Puritan-Bennett Corporation.
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 nine 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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NAME, PRINCIPAL OCCUPATION AND DIRECTOR
OTHER INFORMATION SINCE
---------------------------------------------------------------------------------------------
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 and the Health
Industries Manufacturers Association. In December 1994, Mr. Dole completed a
three-year term as Chairman of the Board of the Federal Reserve Bank of Kansas
City. Age: 57
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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: 76
---------------------------------------------------------------------------------------------
FREDERICK M. GRAFTON Management Consultant to Several Technology Companies. 1988
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: 69
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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. Age: 68
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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 Heart Technology, Inc. and Ventritex, Inc. Age: 47
---------------------------------------------------------------------------------------------
RISA J. LAVIZZO-MOUREY, M.D. Associate Professor of Medicine and Healthcare Nominee
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 major universities, Harvard University Medical School and Temple University
Medical School. She is a director of Medicus Systems Corporation and Beverly
Enterprises, Inc. Age: 40
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8
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NAME, PRINCIPAL OCCUPATION AND DIRECTOR
OTHER INFORMATION SINCE
---------------------------------------------------------------------------------------------
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 Vice Chairman of the Board and 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 its Treasurer since 1973. Mr. McDonnell has been Executive Vice
President of Kansas City Southern Industries, Inc. ("KCSI"), a holding company
and parent of DST Systems, Inc., since February 1987, and a member of the Office
of the Chief Executive of KCSI since 1989. He is a director of KCSI, Informix
Software, Inc., The Continuum Corporation, BHA Group, Inc. and First of Michigan
Capital Corp. Age: 49
---------------------------------------------------------------------------------------------
WALTER J. MCNERNEY Professor of Health Policy at the Kellogg Graduate School of 1991
Management at Northwestern University and Chairman of McNerney Associates.
Mr. McNerney is a Professor of Health Policy at the Kellogg Graduate School of
Management at Northwestern University, a post he has held since 1982, and has
served as Chairman of Walter J. McNerney Associates, a health care management
consulting firm, since 1983. Previously, Mr. McNerney was President of the Blue
Cross/Blue Shield Associations from 1978 to 1981, and President of the Blue Cross
Association from 1961 to 1978. He is a Director of American Health Properties,
Hanger Orthopedics, Inc., Medicus, Osteo Tech, Stanley Works, Value Health, Inc.
and Ventritex, Inc. Age: 70
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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 and Mid-
Peninsula Bank. Age: 71
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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. The
Nominating and Compensation Committee consists 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 1995.
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.
The Audit Committee consists of 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 2 meetings in fiscal year
1995.
The Board of Directors held 7 meetings during fiscal year 1995. 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 $10,000 for fiscal
year 1995 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. Beginning fiscal
year 1995, 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 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, Messrs. Glaser and Grafton received $248 and $3,713,
respectively, in consulting fees during fiscal year 1995 pursuant to
consulting agreements with the Company which provide for compensation at
$150 per hour for consulting services rendered to the Company.
Non-employee Directors also receive non-discretionary stock option grants
under the Company's 1988 Stock Option Plan for Non-Employee Directors, as
amended (the "Directors' Plan"). In May 1994, the Board amended the
Directors' Plan to reduce the stock option grants to non-employee
Directors. Effective fiscal year 1995, 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 10,000 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 (beginning fiscal year 1995), will be
5
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automatically granted an option under the Directors' Plan to purchase 5,000
shares, vesting over one year. Prior to amendment, the Directors' Plan
provided for a non-discretionary stock option grant of 20,000 shares upon a
non-employee Director's initial election to the Board and thereafter yearly
stock option grants of 10,000 shares.
The following table sets forth as to all non-employee Directors for fiscal
year 1995 (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 1995
--------------------------------------------------
OPTIONS GRANTED OPTIONS EXERCISED
--------------------- ------------------------
NUMBER EXERCISE NUMBER NET VALUE
NAME OF SHARES PRICE OF SHARES REALIZED(1)
---- --------- -------- --------- -----------
Robert J. Glaser, M.D........................ 5,000 $26.50 27,500 $ 427,813
Frederick M. Grafton......................... 5,000 26.50 10,000 145,000
Donald L. Hammond............................ 5,000 26.50 17,500 253,125
Walter J. McNerney........................... 5,000 26.50 0 0
Edwin E. van Bronkhorst...................... 5,000 26.50 0 0
--------------------
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 June 30, 1995 was $45.00.
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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11
BENEFICIAL OWNERS OF VOTING SECURITIES
The following table sets forth, as of September 1, 1995, 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
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2) PERCENT OF CLASS
------------------------ ----------------- ----------------
Laureen DeBuono, Executive Vice President, Human Resources,
General Counsel and Secretary.............................. 28,850 .10%
Burton A. Dole, Jr., Director and Nominee, Chairman of the
Board...................................................... 196,471 .69%
Michael P. Downey, Executive Vice President, Chief Financial
Officer.................................................... 59,125 .21%
Robert J . Glaser, M.D., Director and Nominee................ 31,500 .11%
Frederick M. Grafton, Director and Nominee................... 35,000 .12%
Donald L. Hammond, Director and Nominee...................... 40,000 .14%
David J. Illingworth, Vice President, Field Operations,
Marketing and Service...................................... 43,375 .15%
C. Raymond Larkin, Jr., Director and Nominee, President and
Chief Executive Officer.................................... 338,784 1.19%
Risa J. Lavizzo-Mourey, M.D., Nominee........................ 0 0%
Thomas A. McDonnell, Director and Nominee.................... 2,200 .01%
Walter J. McNerney, Director and Nominee..................... 55,300 .20%
David B. Swedlow, M.D., Vice President, Medical Affairs and
Technology Development..................................... 100,563 .35%
Edwin E. van Bronkhorst, Director and Nominee................ 56,000 .20%
All Directors and Executive Officers as a group
(20 persons)(3)............................................ 1,174,578 4.14%
---------------
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 56 shares held
by an immediate family member.
(2) Includes for Directors and named executive officers listed in the
table: (i) in the cases of Messrs. Glaser, Grafton, Hammond, McNerney
and van Bronkhorst, options to purchase 27,500, 30,000, 25,000, 55,000
and 25,000 shares of Common Stock, respectively, granted under the
Directors' Plan described on page 5 above, (ii) in the case of Mr.
Dole, options to purchase 132,337 shares of Common Stock granted under
the 1995 Merger Incentive Plan described on page 10 below and (iii) in
the cases of Ms. DeBuono and Messrs. Downey, Illingworth, Larkin, and
Swedlow, options to purchase 28,250, 58,125, 43,375, 237,750, and
66,563 shares of Common Stock, respectively, granted under the
Company's 1991 Equity Incentive Plan, as amended, and 1994 Equity
Incentive Plan, as amended, described on page 10 below, all of which
options are exercisable within 60 days of September 1, 1995. Also
includes for all Directors and executive officers as a group options to
purchase 883,325 shares of Common Stock which are exercisable within 60
days of September 1, 1995.
(3) Executive Officers include the Chief Executive Officer and all
Executive Vice Presidents and Vice Presidents of the Company.
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The following table sets forth, as of September 1, 1995, 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 BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS
------------------------------------ ----------------- ----------------
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109................................ 3,068,912 10.82%
---------------
Notes:
(1) Information regarding FMR Corp.'s beneficial ownership of Company
Common Stock has been obtained from FMR Corp. and the Schedule 13G
filed by FMR Corp. with the Securities and Exchange Commission on June
8, 1995.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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 no Forms 5 are required, the
Company believes that, during the fiscal year ended July 2, 1995, 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 2, 1995, July
3, 1994 and July 4, 1993:
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................. 1995 $ 321,057 $ 417,390 53,000 $ 400
President and Chief 1994 302,171 178,000 54,000 0
Executive Officer 1993 284,530 199,171 50,000 0
David B. Swedlow, M.D................. 1995 $ 274,210 $ 198,015 20,000 $ 800
Vice President, Medical 1994 253,920 102,025 20,000 800
Affairs and Technology 1993 240,128 100,800 22,500 800
Development
Michael P. Downey..................... 1995 $ 217,041 $ 190,181 20,000 $ 800
Executive Vice President, 1994 181,001 73,347 20,000 800
Chief Financial Officer 1993 168,840 81,043 17,500 800
Laureen DeBuono....................... 1995 $ 212,712 $ 186,116 20,000 $ 800
Executive Vice President, 1994 169,478 75,106 20,000 800
Human Resources, General 1993 150,000 73,200 0 400
Counsel and Secretary
David J. Illingworth.................. 1995 $ 168,107 $ 133,000 18,000 $ 800
Vice President, Field 1994 154,590 57,708 20,000 800
Operations, Marketing and 1993 76,154 31,365 0 87,000
Service
--------------------
Notes:
(1) Except with respect to Mr. Illingworth in 1993, 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 11 below. With respect to Mr. Illingworth in 1993, the amount
reported as All Other Compensation represents a sign-on bonus of
$20,000, a guaranteed bonus of $60,000 payable in two installments
($30,000 paid on the initial date of employment and $30,000 paid on
March 1, 1993) in lieu of a 1992 bonus from his former employer
forfeited by Mr. Illingworth and an interest free loan of $7,000 with
principal forgiven over four years at the rate of 25% per year.
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 14 through 18 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")
and the 1995 Merger Incentive Plan (the "Merger Incentive Plan"). 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 1, 1995,
there remained 2,633,198 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. Replacement options issued to Puritan-Bennett employees under the
Merger Incentive Plan will have the same terms and conditions as the
options they replace, except that Puritan-Bennett options subject to
accelerated vesting as a result of the merger will be replaced with Company
options having the original vesting schedule of the options replaced. 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.
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.
The following table contains information concerning stock option grants in
fiscal year 1995 to the named executive officers:
OPTION GRANTS IN FISCAL YEAR 1995
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS/SARS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION
OPTIONS/SARS EMPLOYEES IN EXERCISE FOR OPTION TERM
GRANTED FISCAL YEAR PRICE EXPIRATION ---------------------
NAME (#)(1) 1995 ($/SH)(2) DATE 5%($)(3) 10%($)(3)
---- ------------ ------------ --------- ---------- -------- ----------
C. Raymond Larkin, Jr....... 53,000 6.30 $ 27.00 7/26/04 $899,948 $2,280,645
Laureen DeBuono............. 20,000 2.38 27.00 7/26/04 339,603 860,621
Michael P. Downey........... 20,000 2.38 27.00 7/26/04 339,603 860,621
David J. Illingworth........ 18,000 2.14 27.00 7/26/04 305,643 774,559
David B. Swedlow, M.D....... 20,000 2.38 27.00 7/26/04 339,603 860,621
10
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---------------
Notes:
(1) These stock options were granted to each of the named executive officers on
July 27, 1994. 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. The Nominating and
Compensation Committee of the Board of Directors also has the discretion to
reprice outstanding options by canceling them and granting replacement
options with an exercise price equal to the lower fair market value of the
Company's Common Stock on the regrant date. The Company to date has not
repriced options granted pursuant to any of its employee stock option plans.
(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
$27.00 reflect a 1% decrease (@ 5%) and a 57% increase (@ 10%) in the value
of the Company's Common Stock over the 1995 fiscal year-end market price of
$44.63, the average of the high and low prices as reported by the Nasdaq
National Market on June 30, 1995. There is no assurance that the actual
stock price appreciation over the term of the option will be at the assumed
5% or 10% levels or at any other level. Unless the market price of the stock
does in fact appreciate over the option term, no value will be realized from
option grants.
STOCK OPTION EXERCISES AND HOLDINGS
The following table provides information concerning the exercise of stock
options by the named executive officers during fiscal year 1995 and the
unexercised options held by such officers as of the end of fiscal year
1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
ACQUIRED OPTIONS/SARS THE-MONEY OPTIONS/SARS
ON VALUE AT FISCAL YEAR END(#)(1) AT FISCAL YEAR END($)(2)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
C. Raymond Larkin, Jr.... 0 0 221,688 95,312 $5,365,540 $ 1,840,460
Laureen DeBuono.......... 19,250 179,813 23,250 37,500 453,375 732,188
Michael P. Downey........ 30,000 511,305 53,281 34,219 1,214,410 656,215
David J. Illingworth..... 0 0 38,375 41,625 625,125 732,375
David B. Swedlow, M.D.... 0 0 61,406 36,094 1,402,769 676,606
-------------------
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 1995
fiscal year end ($45.00) 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
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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 2,
1995, 733 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.
The Company provides matching contributions equal to 100% of each
participant's contribution, up to $500 semi-annually. Company contributions
to the named executive officers for each of the 1995, 1994 and 1993 fiscal
years are included in All Other Compensation listed on the Summary
Compensation Table on page 9 above.
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 1995, 1994 and 1993 fiscal years is set
forth in the Summary Compensation Table on page 9 above.
SEVERANCE ARRANGEMENTS
During the second quarter of fiscal 1995, the Company entered into
severance agreements (the "Severance Agreements") with the named executive
officers set forth in the Summary Compensation Table on page 9 above and
certain other executive officers 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.
12
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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", 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.
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).
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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 1995.
LARGEST
AMOUNT OF
PRINCIPAL PRINCIPAL
AMOUNT OUTSTANDING
OUTSTANDING AT DURING
NAME OF INDIVIDUAL DATE OF NOTE SEPTEMBER 1, 1995 7/4/94-7/2/95
------------------ ------------ ----------------- -------------
David J. Illingworth(1)............. February 18, 1993 $ 250,000 $ 250,000
Kenneth Sumner(2)................... November 16, 1994 $ 125,000 $ 125,000
---------------
Notes:
(1) Mr. Illingworth, the Company's Vice President, Field Operations,
Marketing and Service, 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 semiannual installments over a
period of 10 years, with the first payment made on August 18, 1993. An
amount equal to each interest installment, as 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. Sumner, the Company's Vice President, Regulatory/Clinical 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 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 revenue growth, 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
values by the encouragement of consistent, long-term Company growth.
14
19
- 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.
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 1995, 27 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
1995 has been approximately 5.0% for Northern California (Bay Area) based
on survey data. As a result, executive officers who met performance
objectives generally received a 5.2% base salary merit increase effective
August 1, 1995, 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 1995 fiscal year were to be earned by the
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
15
20
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 the Chief Operating Officer and the Chief Executive
Officer, zero to 100% of base salary for the Chief Operating Officer, 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 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 the Chief Operating Officer and the Chief
Executive Officer, 50% of Base Salary for the Chief Operating Officer, 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 threshhold. In fiscal year
1995, the Company exceeded its operating income plan and revenue plan, and
revenue growth for fiscal year 1995 exceeded the revenue growth threshhold
established by the supplemental revenue plan. As a result, the funding
targets described above were increased 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 1995 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 Equity Incentive Plan and the 1994 Equity
Incentive 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 has designed the stock option component of executive compensation
to target the 75th percentile of the competitive industry and geographic
market.
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
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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.
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 exceeded his 1995 fiscal year
performance objectives:
- That the Company had a robust financial performance for fiscal year 1995
and exceeded market expectations in all financial benchmarks;
- 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 strategic objectives of the Company with
regard to the acquisitions of Pierre Medical, S.A., Melville Software,
Ltd. and Puritan-Bennett Corporation.
As a result of exceeding his 1995 fiscal year performance objectives and
the increase in responsibilities as a result of the merger of the Company
and Puritan-Bennett Corporation, Mr. Larkin received a base salary increase
from $321,000 to $411,000 and an annual cash (short-term) incentive of
$417,374, which represented 128% of Mr. Larkin's base salary. The long-term
component of Mr. Larkin's compensation consisted of a July 1995 stock
option grant of 60,000 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
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of long-term incentive (stock-based) compensation, the Company has adopted
and the stockholders have 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, 1990
through June 30, 1995.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG NELLCOR INC., THE S&P 500 INDEX AND THE S&P HEALTH CARE COMPOSITE INDEX
MEASUREMENT PERIOD S&P 500 S&P HEALTH
(FISCAL YEAR COVERED) NELLCOR INC. INDEX CARE INDEX
6/90 100 100 100
6/91 93 107 124
6/92 120 122 134
6/93 109 138 117
6/94 128 140 117
6/95 216 177 171
* Assumes $100 invested on 6/30/90 in stock or index - including reinvestment
of dividends. Fiscal Year ending June 30.
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PROPOSAL TWO--APPROVAL OF THE COMPANY'S 1995 EMPLOYEE STOCK PARTICIPATION
PLAN
A proposal to approve the Company's 1995 Employee Stock Participation Plan
(the "ESP Plan"), will be presented to stockholders at the Annual Meeting.
On June 19, 1995, the Board of Directors of the Company, subject to
stockholder approval, approved the ESP Plan which authorizes 500,000 shares
of Company Common Stock for issuance thereunder. The ESP Plan will replace
the Company's 1986 Employee Stock Participation Plan, as amended, which
terminates in August 1996. As of July 2, 1995, 829 employees would have
been eligible to participate in the ESP Plan. The ESP Plan is intended to
qualify under Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code").
The goal of the Company is to recruit the best available talent in what it
believes to be one of the most competitive labor markets in the United
States. Equity incentives are a fundamental tool used by the Company to
recruit and retain employees. Consequently, the Board of Directors
considers the ESP Plan necessary to achieving these goals, especially in
light of the termination of the Company's current 1986 Employee Stock
Participation Plan in August 1996.
Approval of the adoption of the ESP Plan requires 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF THE
FOLLOWING RESOLUTION WHICH WILL BE PRESENTED AT THE MEETING:
RESOLVED, that the stockholders of Nellcor Puritan Bennett Incorporated
hereby approve the Nellcor Puritan Bennett Incorporated 1995 Employee
Stock Participation Plan, which authorizes the issuance thereunder of up
to 500,000 shares of Company Common Stock, as set forth in Exhibit "A"
hereto.
The persons designated in the enclosed Proxy will vote your shares FOR
approval unless instructions to the contrary are indicated in the Proxy.
The essential features of the ESP Plan are discussed below.
PURPOSE
The purposes of the ESP Plan are to provide an opportunity for employees of
the Company and its affiliates to purchase stock in the Company, to assist
in retaining the services of such employees and to provide incentives for
employees to exert maximum efforts for the success of the Company.
ADMINISTRATION
The ESP Plan will be administered by the Board of Directors of the Company.
The interpretation and construction of the ESP Plan by the Board will be
final and binding.
AMENDMENT AND TERMINATION
The Board of Directors may at any time amend or terminate the ESP Plan,
provided, however, that no amendment or termination may be made without a
participant's written consent, if such amendment or termination would
impair the rights of such participant under any rights to purchase stock
granted thereunder. In addition, the Company shall obtain stockholder
approval of any amendment to the ESP Plan in such a manner and to the
extent necessary to comply with applicable law or regulation. Unless sooner
terminated, the ESP Plan will terminate on June 19, 2005.
ELIGIBILITY
Under the ESP Plan, any person who is employed by the Company or any
affiliate at least 20 hours per week and five months per calendar year on
the first day of each Purchase Period, as defined below, is eligible to
participate, provided that such person has been an employee of the Company
for at least six
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months. Directors and executive officers of the Company are not eligible to
participate in the ESP Plan. Notwithstanding the foregoing, no employee is
eligible for the grant of any rights under the ESP Plan if, immediately
after such grant, such employee would own stock possessing 5% or more of
the total combined voting power or value of all classes of stock of the
Company or any affiliate (including any stock which such employee may
purchase under all outstanding rights and options), and no employee can be
granted rights under the ESP Plan which would permit that employee to buy
more than $25,000 worth of stock (determined at the fair market value of
the shares at the time such rights are granted) under all employee stock
plans of the Company or any affiliate in any calendar year.
STOCK SUBJECT TO THE ESP PLAN
The number of shares of Company Common Stock that may be sold to
participating employees pursuant to the ESP Plan shall not exceed 500,000
shares in the aggregate.
TERMS OF RIGHTS UNDER THE ESP PLAN
The Board of Directors has the power from time to time to grant or provide
for the grant of rights to purchase Common Stock of the Company under the
ESP Plan to eligible employees (an "Offering") on a date or dates (the
"Offering Date(s)") selected by the Board. Each Offering will be in such
form and will contain such terms and conditions as the Board deems
appropriate, except that each Offering must include the substance of the
required provisions of the ESP Plan, which are described below. The
provisions of separate Offerings need not be identical. Each Offering can
be no longer than 27 months (the "Purchase Period"). Purchase Periods have
generally been, and are expected to continue to be, six months long.
Participation. An eligible employee becomes a participant in an Offering
by delivering an agreement to the Company, within the time specified in
each Offering, authorizing payroll deductions of up to 15% of the
participant's compensation during the Purchase Period. All payroll
deductions made for a participant are credited to the participant's account
under the ESP Plan and are deposited with the general funds of the Company.
The purchase price of the shares of Common Stock is accumulated through
payroll deductions over the Purchase Period. At any time during the
Purchase Period, a participant may terminate the payroll deductions, but a
participant may increase, reduce or begin payroll deductions after the
beginning of any Purchase Period only as provided for in the Offering.
Number of Shares in an Offering. With each Offering, the Board of
Directors will specify the maximum number of shares of Common Stock that
any participant may be granted the right to purchase and the maximum
aggregate number of shares of Common Stock which may be purchased pursuant
to the Offering by all participants. If the aggregate number of shares to
be purchased in an Offering exceeds the maximum aggregate number of shares
provided for by the Board, the Board will make a pro rata allocation of the
available shares in as nearly a uniform manner as practicable and as it
shall deem to be equitable. Unless an employee's participation is
discontinued (see "Withdrawal" below), that employee's right to purchase
shares will be exercised automatically on a date or dates specified in each
Offering (an "Exercise Date") at the purchase price specified in the ESP
Plan (see "Purchase Price" below). Exercise Dates have occurred, and it is
expected that they will continue to occur, on the last day of the Company's
second and fourth fiscal quarters.
Purchase of Stock. On each Exercise Date, the balance in each
participant's account will be applied to the purchase of whole shares of
Company Common Stock. No fractional shares shall be issued upon the
exercise of rights granted under the ESP Plan. Any amount remaining in a
participant's account after the purchase of shares on the Exercise Date,
which is less than what would have been required to purchase one share of
Common Stock on the Exercise Date, shall be held in such participant's
account for the purchase of shares at the next Offering under the ESP Plan,
unless such participant withdraws from the next Offering or is no longer
eligible to be granted rights under the ESP Plan, in which case such amount
remaining in the account will be distributed to the participant after the
Exercise Date, without interest.
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Any amount remaining in a participant's account after the purchase of
shares on the Exercise Date which is equal to or greater than what would
have been required to purchase one or more whole shares of Common Stock on
the Exercise Date shall be distributed in full to the participant after the
Exercise Date, without interest.
Purchase Price. The purchase price per share of Common Stock acquired
pursuant to the exercise of rights granted under the ESP Plan will not be
less than the lesser of (i) an amount equal to 85% of the fair market value
of a share of the Company's Common Stock on the Offering Date; or (ii) an
amount equal to 85% of the fair market value of a share of Common Stock on
the Exercise Date.
Withdrawal. A participant may withdraw from an Offering by terminating the
participant's payroll deductions and delivering to the Company a notice of
withdrawal from the Offering. A participant may elect to withdraw at any
time prior to the end of the applicable Purchase Period. Upon any
withdrawal from an Offering by a participant, the Company will distribute
to the employee the employee's accumulated payroll deductions (reduced for
prior purchases), without interest, and the employee's interest in the
Offering will be automatically terminated. The employee is not entitled to
participate again in that Offering. An employee's withdrawal from an
Offering will not have any effect upon the employee's eligibility to
participate in subsequent Offerings under the ESP Plan upon submission of a
new participation agreement.
Termination of Employment. Rights granted pursuant to any Offering under
the ESP Plan shall terminate immediately upon cessation of a participant's
employment with the Company or any affiliate for any reason, and the
Company shall distribute to such participant all accumulated payroll
deductions (reduced for prior purchases), without interest, provided,
however, that, should a participant's employment terminate during a
Purchase Period but within three months of the next Exercise Date, the
balance in such participant's account will be held for the purchase of
shares of Common Stock on the next Exercise Date, unless the participant
elects to withdraw the balance from the account.
Nontransferability. Rights granted under the ESP Plan are not transferable
and can only be exercised by the person to whom such rights are granted.
Adjustment Provisions. If any change is made in the stock subject to the
ESP Plan or subject to any rights granted under the ESP Plan (through
merger, consolidation, reorganization, recapitalization, stock dividend,
dividend in property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate structure or
otherwise), the Board of Directors shall make appropriate adjustments in
the classes of stock and maximum number of shares subject to the ESP Plan
and the classes, number of shares and price per share of stock subject to
outstanding rights.
In the event of: (i) a dissolution or liquidation of the Company; (ii) a
merger or consolidation in which the Company is not the surviving
corporation; (iii) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or
(iv) any other capital reorganization in which more than 50% of the shares
of the Company entitled to vote are exchanged, then, as determined by the
Board of Directors in its sole discretion, any surviving corporation shall
assume outstanding rights or substitute similar rights for those under the
ESP Plan, such rights shall continue in full force and effect, or such
rights shall be exercised immediately prior to such event.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE ESP PLAN
Participation in the ESP Plan is intended to qualify for the favorable
federal income tax treatment accorded employee stock purchase plans under
Section 423 of the Code. Under these provisions, no income related to the
purchase of shares under the ESP Plan will be taxable to a participant
until disposition of the shares acquired.
If the stock acquired under the ESP Plan is disposed of more than two years
after the beginning of the Offering period and more than one year after the
stock is transferred to the participant, then the lesser of
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(i) the excess of the fair market value of the stock at the time of such
disposition over the exercise price or (ii) the excess of the fair market
value of the stock as of the beginning of the Offering period over the
exercise price (determined as of the beginning of the Offering period) will
be treated as compensation income. Any further gain or any loss will be
taxed as a long-term capital gain or loss.
If the stock acquired under the ESP Plan is sold or disposed of before the
expiration of either of the holding periods described above, then the
excess of the fair market value of the stock on the Exercise Date over the
purchase price will be treated as compensation income at the time of such
disposition, and the Company may, in the future, be required to withhold
income and employment taxes relating to such compensation income from other
payments made to the participant. The balance of any gain will be treated
as capital gain. Even if the stock is disposed of for less than its fair
market value on the Exercise Date, the same amount of compensation income
is attributed to the participant, and a capital loss is recognized equal to
the difference between the sales price and the fair market value of the
stock on such Exercise Date. Any capital gain or loss will be long or
short-term depending on whether the stock has been held for more than one
year.
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the ESP Plan. The Company is entitled
to a deduction for amounts taxed as compensation income to a participant
upon disposition by a participant of stock before the expiration of the
holding periods described above (subject to the requirement of
reasonableness and perhaps, in the future, the satisfaction of a
withholding obligation).
Other Tax Consequences. The foregoing discussion is not a complete
description of the federal income tax aspects of the ESP Plan. In addition,
administrative and judicial interpretations of the application of the
federal income tax laws are subject to change. Furthermore, no information
is given herein with respect to state, local or employment taxes that may
be applicable.
Participants in the ESP Plan who are residents of or are employed in a
country other than the United States may be subject to taxation in
accordance with the tax laws of that particular country in addition to or
in lieu of United States federal income taxes.
PARTICIPATION IN THE ESP PLAN
Participation in the ESP Plan is voluntary and dependent on each eligible
employee's election to participate and such employee's determination as to
the level of payroll deductions. Accordingly, future purchases under the
ESP Plan are not determinable. Directors and executive officers of the
Company are not eligible to participate in the ESP Plan.
PROPOSAL THREE--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 7, 1996. The
firm has been so engaged since November 14, 1989. During fiscal year 1995,
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).
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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 7, 1996.
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 1996 ANNUAL MEETING
Stockholders who may wish to present proposals for inclusion in the
Company's proxy materials and for consideration at the 1996 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 18, 1996.
By Order of the Board of Directors
Laureen DeBuono
Executive Vice President, Human
Resources, General Counsel and
Secretary
Pleasanton, California
September 15, 1995
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EXHIBIT A
NELLCOR PURITAN BENNETT INCORPORATED
1995 EMPLOYEE STOCK PARTICIPATION PLAN
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which employees of
Nellcor Puritan Bennett Incorporated, a Delaware corporation (the "Company"),
and its Affiliates, as defined in subparagraph 1(b), which are designated as
provided in subparagraph 2(b), may be given an opportunity to purchase Common
Stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(d) The Company intends that the rights to purchase Common Stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the Company
(the "Board") unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine when and how rights to purchase Common Stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under it
and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan in a manner and to the extent
it shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than three (3) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
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3. SHARES SUBJECT TO THE PLAN.
Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the Common Stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate Five Hundred Thousand (500,000)
shares of the Company's common stock, $.001 par value (the "Common Stock"). If
any right granted under the Plan shall for any reason terminate without having
been exercised, the Common Stock not purchased under such right shall again
become available for the Plan.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for the
grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate. If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices) will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised. The provisions of
separate Offerings need not be identical, but each Offering shall include
(through incorporation of the provisions of this Plan by reference in the
Offering or otherwise) the substance of the provisions contained in paragraphs 5
through 8, inclusive.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the Board
or the Committee may designate as provided in subparagraph 2(b), to employees of
any Affiliate of the Company. Except as provided in subparagraph 5(b), an
employee of the Company or any Affiliate shall not be eligible to be granted
rights under the Plan unless, on the Offering Date, such employee has been in
the employ of the Company or any Affiliate for such continuous period preceding
such grant as the Board or the Committee may require, but in no event shall the
required period of continuous employment be equal to or greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee,
no employee of the Company or any Affiliate shall be eligible to be granted
rights under the Plan unless, on the Offering Date, such employee's customary
employment with the Company or such Affiliate is at least twenty (20) hours per
week and at least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during the
course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the Purchase Period (as defined below) for such right shall begin
on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person first
becomes an eligible employee within a specified period of time before the
end of the Purchase Period (as defined below) for such Offering, he or she
will not receive any right under that Offering.
(c) Directors and officers of the Company or an Affiliate who are highly
compensated employees within the meaning of Code Section 423(b)(4)(D) are not
eligible to be granted rights under the Plan.
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(d) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(d), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(e) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's rights to purchase stock of the Company
or any Affiliate to accrue at a rate which exceeds twenty-five thousand dollars
($25,000) of fair market value of such stock (determined at the time such rights
are granted) for each calendar year in which such rights are outstanding at any
time.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase the number of shares
of Common Stock of the Company purchasable with up to fifteen percent (15%) of
such employee's Compensation (as defined in Section 7(a)) during the period
which begins on the Offering Date (or such later date as the Board determines
for a particular Offering) and ends on the date stated in the Offering, which
date shall be no more than twenty-seven (27) months after the Offering Date (the
"Purchase Period"). In connection with each Offering made under this Plan, the
Board or the Committee shall specify a maximum number of shares which may be
purchased by any employee as well as a maximum aggregate number of shares which
may be purchased by all eligible employees pursuant to such Offering. In
addition, in connection with each such Offering, the Board or the Committee may
specify a maximum aggregate number of shares which may be purchased by all
eligible employees on any given Exercise Date (as defined in the Offering) under
the Offering. If the aggregate purchase of shares upon exercise of rights
granted under the Offering would exceed any such maximum aggregate number, the
Board or the Committee shall make a pro rata allocation of the shares available
in as nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(b) The purchase price of Common Stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the Common Stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the Common Stock on the Exercise Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in an Offering by
delivering an agreement to the Company within the time specified in the Offering
in such form as the Company provides. Each such agreement shall authorize
payroll deductions of up to fifteen percent (15%) of such employee's
Compensation during the Purchase Period. Compensation is defined as total cash
compensation, including commissions, bonuses, overtime and other cash
compensation and amounts elected to be deferred by the employee (that would
otherwise have been paid) under the Company's Voluntary Investment Plus Plan.
The payroll deductions made for each participant shall be credited to an account
for such participant under the Plan and shall be deposited with the general
funds of the Company. At any time during the Purchase Period, a participant may
terminate his or her payroll deductions. A participant may reduce, increase or
begin such payroll deductions after the beginning of any Purchase Period only as
provided for in the Offering. A participant may not make any additional payments
into his or her account.
(b) If a participant terminates his or her payroll deductions, such
participant may withdraw from the Offering by delivering to the Company a notice
of withdrawal in such form as the Company provides. Such
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32
withdrawal may be elected at any time prior to the end of the Purchase Period.
Upon such withdrawal from the Offering by a participant, the Company shall
distribute to such participant all of his or her accumulated payroll deductions
(reduced to the extent, if any, such deductions have been used to acquire Common
Stock for the participant) under the Offering, without interest, and such
participant's interest in that Offering shall be automatically terminated. A
participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan,
but such participant will be required to deliver a new participation agreement
in order to participate in other Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating employee's employment with the
Company or an Affiliate for any reason, and the Company shall distribute to such
terminated employee all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire Common Stock for
the terminated employee), without interest; provided, however, that subject to
the right of the terminated employee to withdraw from the Offering and receive a
distribution of his or her accumulated payroll deductions (as described in
paragraph 7(b)), in the event that a participating employee's employment ceases
within three (3) months of the next Exercise Date, the balance in such
employee's account shall be held and used to purchase Common Stock for the
terminated employee on such Exercise Date pursuant to the terms of the ongoing
Offering.
(d) Rights granted under the Plan shall not be transferable and shall be
exercisable only by the person to whom such rights are granted.
8. EXERCISE.
(a) On each exercise date, as defined in the relevant Offering (an
"Exercise Date"), each participant's accumulated payroll deductions (without any
increase for interest) will be applied to the purchase of whole shares of Common
Stock of the Company, up to the maximum number of shares permitted pursuant to
the terms of the Plan and the applicable Offering, at the purchase price
specified in the Offering. No fractional shares shall be issued upon the
exercise of rights granted under the Plan. The amount, if any, of accumulated
payroll deductions remaining in each participant's account after the purchase of
shares which is less than the amount required to purchase one share of Common
Stock on the final Exercise Date of an Offering shall be held in each such
participant's account for the purchase of shares under the next Offering under
the Plan unless such participant withdraws from such next Offering, as provided
in subparagraph 7(b), or is no longer eligible to be granted rights under the
Plan, as provided in paragraph 5, in which case such amount shall be distributed
to such participant after such Exercise Date, without interest. The amount, if
any, of accumulated payroll deductions remaining in any participant's account
after the purchase of shares which is equal to the amount required to purchase
whole shares of stock on the final Exercise Date of an Offering shall be
distributed in full to such participant after such Exercise Date, without
interest.
(b) No rights granted under the Plan may be exercised to any extent unless
the Plan (including rights granted thereunder) is covered by an effective
registration statement pursuant to the Securities Act of 1933, as amended (the
"Securities Act"). If, on an Exercise Date of any Offering hereunder, the Plan
is not so registered, no rights granted under the Plan or any Offering shall be
exercised and all payroll deductions accumulated during the purchase period
shall be distributed to the participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such rights.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of Common Stock upon exercise of the rights granted under
the Plan. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of Common Stock under the Plan,
the Company shall be relieved from any liability for
A-4
33
failure to issue and sell Common Stock upon exercise of such rights unless and
until such authority is obtained.
10. USE OF PROCEEDS FROM COMMON STOCK.
Proceeds from the sale of Common Stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until certificates representing such shares shall have
been issued.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK.
(a) If any change is made in the Common Stock subject to the Plan or
subject to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Board shall make
appropriate adjustments in the maximum number of shares subject to the Plan and
the number of shares and price per share of stock subject to outstanding rights.
(b) In the event of: (1) a dissolution or liquidation of the Company; (2) a
merger or consolidation in which the Company is not the surviving corporation;
(3) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) any other capital reorganization
in which more than fifty percent (50%) of the shares of the Company entitled to
vote are exchanged, then, as determined by the Board in its sole discretion, (i)
any surviving corporation shall assume outstanding rights or substitute similar
rights for those under the Plan; (ii) such rights shall continue in full force
and effect; or (iii) such rights shall be exercised immediately prior to such
event.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within 12 months before or after the adoption of the amendment where
the amendment will:
(i) Increase the number of shares reserved for rights under the Plan;
(ii) Modify the provisions as to eligibility for participation in the
Plan (to the extent such modification requires stockholder approval in
order for the Plan to obtain employee stock purchase plan treatment under
Section 423 of the Code); or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code. It is expressly
contemplated that the Board may amend the Plan in any respect the Board
deems necessary or advisable to provide eligible employees with the maximum
benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase
plans and/or to bring the Plan and/or rights granted under it into
compliance therewith.
(b) Rights and obligations under any rights granted before amendment of the
Plan shall not be altered or impaired by any amendment of the Plan except with
the consent of the person to whom such rights were granted.
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34
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate ten (10) years from the date the Plan is
adopted by the Board or approved by the stockholders of the Company, whichever
is earlier. No rights may be granted under the Plan while the Plan is suspended
or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the Plan
except with the consent of the person to whom such rights were granted.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no rights
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company and, if required, an appropriate
permit has been issued by the Commissioner of Corporations of the State of
California.
16. RULE 16B-3 LIMITATIONS.
The terms and conditions of rights granted hereunder to, and the purchase
of shares by, persons subject to Section 16 of the Securities Exchange Act of
1934 (the "Exchange Act") shall comply with the applicable provisions of Rule
16b-3. This Plan shall be deemed to contain, such rights shall contain, and the
shares issued upon exercise thereof shall be subject to, such additional
conditions and restrictions as may be required by Rule 16b-3 to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
17. NO EMPLOYMENT RIGHTS.
The Plan does not, directly or indirectly, create any right for the benefit
of any employee or class of employees to purchase any shares under the Plan, or
create in any employee or class of employees any right with respect to
continuation of employment by the Company and its Affiliates, and it shall not
be deemed to interfere in any way with the Company's (or it's Affiliate's) right
to terminate, or otherwise modify, an employee's employment at any time.
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35
PROXY
NELLCOR PURITAN BENNETT INCORPORATED
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS -- OCTOBER 19, 1995
C. Raymond Larkin, Jr. and Laureen DaBuono, 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 19, 1995, 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 PROPOSALS
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 PROPOSALS
LISTED ON THE REVERSE SIDE.
-----------
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
-----------
36
PLEASE MARK
/ X / 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 nine 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, Walter J. McNerney, Edwin E. van Bronkhorst.
FOR WITHHELD
/ / ALL / / FROM ALL
NOMINEES NOMINEES
MARK HERE
/ / FOR ADDRESS / /
------------------------------------------ CHANGE AND
For all nominees except as noted above NOTE BELOW
2. To approve the 1995 Employee Stock Participation Plan.
FOR AGAINST ABSTAIN
/ / / / / /
3. To ratify the selection of Price Waterhouse LLP as the Company's independent
public accountants for fiscal year 1996.
FOR AGAINST ABSTAIN
/ / / / / /
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
POSTPAID ENVELOPE.
Please sign exactly as signer'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:
------------------------------------- -------------------