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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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DEPUY, INC.
(NAME OF SUBJECT COMPANY)
DEPUY, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
249726 10 0
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
JAMES A. LENT
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DEPUY, INC.
700 ORTHOPAEDIC DRIVE
WARSAW, INDIANA 46580
TELEPHONE: (219) 267-8143
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
COPIES TO:
JEFFREY E. COHEN, ESQ.
COUDERT BROTHERS
1114 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 626-4400
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is DePuy, Inc., a Delaware corporation
("DePuy" or the "Company"), and the address of the principal executive office of
the Company is 700 Orthopaedic Drive, Warsaw, Indiana 46580.
The title of the class of equity securities to which this statement relates
is the Common Stock, par value $.01 per share (the "Shares"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER.
The tender offer to which this statement relates is the offer disclosed in
a statement on Schedule 14D-1 (as amended or supplemented, the "Schedule 14D-1")
dated July 27, 1998 of LIB Acquisition Corp., a Delaware corporation
("Purchaser") and wholly owned subsidiary of Johnson & Johnson, a New Jersey
corporation ("Parent"), to purchase for cash all the outstanding Shares at a
price (the "Offer Price") of $35 per Share net to the seller in cash, without
interest, upon the terms and subject to the conditions set forth in the Offer to
Purchase (the "Offer to Purchase") dated July 27, 1998 and in the related Letter
of Transmittal (which, together with any supplements or amendments thereto,
collectively constitute the "Offer"). According to the Schedule 14D-1, the
address of the principal executive offices of Purchaser and Parent is One
Johnson & Johnson Plaza, New Brunswick, New Jersey 08933.
The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of July 21, 1998 (the "Merger Agreement") among Parent, Purchaser and the
Company. A copy of the Merger Agreement is filed as Exhibit (c)(1) to the
Schedule 14D-1 and is incorporated herein by reference. The Merger Agreement
provides that, among other things, following the consummation of the Offer and
the satisfaction or waiver of certain conditions, Purchaser will be merged with
and into the Company, with the Company as the surviving corporation (as such,
the "Surviving Corporation") to be a wholly owned subsidiary of Parent, and each
then outstanding Share not tendered in the Offer (other than Shares owned by the
Company as treasury stock or by Parent, Purchaser or any other direct or
indirect wholly owned subsidiary of Parent or by stockholders, if any, who are
entitled to and who properly exercise dissenters' rights under Delaware law)
will be converted into the right to receive the Offer Price in cash, without
interest.
Parent and Purchaser also entered into a Stockholder Agreement dated as of
July 21, 1998 (the "Stockholder Agreement") with certain stockholders of the
Company (the "Stockholders") who own 83,000,000 Shares in the aggregate. Each of
the Stockholders is an indirect wholly owned subsidiary of Roche Holding Ltd
("Roche"). Under the Stockholder Agreement, the Stockholders have agreed to
sell, and the Purchaser has agreed to purchase, all Shares owned by them,
representing approximately 84.0% of the outstanding Shares (approximately 82.2%
on a fully diluted basis), as well as any Shares subsequently acquired by the
Stockholders through the exercise of options or otherwise, at a price per Share
equal to the Offer Price. Accordingly, after accepting such Shares for payment
pursuant to the Offer, Purchaser will be able to elect a majority of the members
of DePuy's Board of Directors and to effect the Merger without the affirmative
vote of any other stockholder.
The Merger Agreement and the Stockholder Agreement are further described in
Section 12 of the Offer to Purchase and such description is incorporated herein
by reference.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above, which information is
incorporated herein by reference.
(b) Certain contracts, agreements, arrangements and understandings between
the Company and certain of its directors and executive officers are described in
the Information Statement dated July 27, 1998 included as Schedule I to this
statement and incorporated herein by reference. Other such contracts,
arrangements and understandings known to the Company are described below or are
summarized in Section 12 of the Offer to Purchase.
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Parent is currently in negotiations with each of James A. Lent, the
Chairman and Chief Executive Officer of the Company, and Michael J. Dormer, the
President and Chief Operating Officer of the Company, with respect to their
continued employment with the Company or Parent following the Merger. It is
currently anticipated that, subject to the successful consummation of such
negotiations, and subject to the consummation of the Offer, Mr. Lent would
become a Company Group Chairman of Parent with responsibility for Parent's
orthopaedic business and Mr. Dormer would become President of the Company, which
would include most of the current orthopaedic businesses of the Company and
Parent.
Both of Messrs. Lent and Dormer participated in negotiating the terms of
the Merger Agreement and participated in the Board's discussion of, and voted to
approve, the Offer, the Merger and the Merger Agreement. Further, pursuant to
the Merger Agreement, they will each serve as directors of the Surviving
Corporation after the Merger and, pursuant to their respective employment
contracts with the Company, if the Purchaser accepts a majority of the
outstanding Shares pursuant to the Offer, the Company will be deemed to have met
the target performance goals set under the DePuy, Inc. Senior Executive
Incentive Compensation Plan (the "Incentive Plan") for 1998 with respect to
Messrs. Lent and Dormer and each will, accordingly, receive cash bonuses under
the Incentive Plan.
During the 60 days following the Merger, each of Steven L. Artusi, the
Company's Senior Vice President, General Counsel and Secretary, Thomas J.
Oberhausen, the Company's Senior Vice President, Chief Financial Officer and
Treasurer, and G. Taylor Seward, the Company's Senior Vice President, Personnel,
will have the right, in accordance with their existing employment agreements
with the Company and the Merger Agreement, to declare that he has been
"constructively terminated" (as defined in his employment agreement with the
Company) and to discontinue his duties with the Company, whereupon the
"Company's Notice Period" (as defined in his employment agreement) will be
deemed to have commenced, and such employee will be entitled to continue
receiving salary and benefits thereafter as set forth in such employment
agreements.
The information contained in the Information Statement attached hereto as
Schedule I and under the caption "Purpose of the Offer; The Merger Agreement and
The Stockholder Agreement" in Section 12 of the Offer to Purchase is
incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) AT A MEETING HELD ON JULY 20, 1998 AT WHICH REPRESENTATIVES OF BEAR,
STEARNS & CO. INC. ("BEAR STEARNS") WERE PRESENT, THE BOARD OF DIRECTORS OF THE
COMPANY APPROVED AND FOUND ADVISABLE THE OFFER, THE MERGER, THE MERGER AGREEMENT
AND THE STOCKHOLDER AGREEMENT AND DETERMINED THAT THE TERMS OF THE OFFER AND THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF DEPUY. THE
BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS OF DEPUY ACCEPT
THE OFFER AND TENDER THEIR SHARES.
The events preceding this action are described under the caption "Contacts
with the Company; Background of the Offer" in Section 11 of the Offer to
Purchase and such description, insofar as it relates to contacts with the
Company, is incorporated herein by reference.
(b) In reaching its conclusions and recommendations, the Board of Directors
considered a number of factors, principally the following:
(i) The fact that the Stockholders were entering into the Stockholder
Agreement and the Board's determination that it was not consistent with
Roche's business plans to meaningfully support expansion of the business of
the Company if the Company remained under Roche's control.
(ii) The belief that the Stockholders were unlikely to enter into any
agreement with respect to the Company on terms more favorable to the
Company's stockholders than those of the Offer.
(iii) The belief, based on negotiations, that Parent was likewise
unlikely to enter into an agreement with the Company on terms more
favorable to the Company's stockholders than those of the Offer.
(iv) The financial analysis and presentation of Bear Stearns to the
Board on July 20, 1998 and the opinion of Bear Stearns rendered to the
Board that the consideration to be received by the DePuy
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stockholders (other than the Stockholders) in the Offer and the Merger is
fair to such stockholders from a financial point of view. The full text of
this opinion dated July 20, 1998 is attached hereto as Exhibit 5.
(v) The $35 per Share purchase price to be paid pursuant to the Offer,
which represents a premium of 11% over the $31.50 closing price of the
Shares immediately before the Board made its decision, as well as the fact
that the Offer and Merger are not conditioned on the availability of
financing.
(vi) Current financial market conditions, and historical market
prices, volatility and trading information with respect to the Shares in
the public market and financial information relative to selected companies
in the industry.
(vii) The terms and conditions of the contemplated transactions as
reviewed by and discussed with the Company's management, legal counsel and
Bear Stearns.
(viii) The business, financial condition, results of operations and
competitive position of the Company, on both a historical and a prospective
basis, as well as the current conditions in the Company's industry, the
strategic objectives of the Company and the risks involved in achieving
those objectives, the amount of capital needed to expand the Company's
business, the environment for financing expansion of the Company's
business, and the possible benefits to the Company of an alliance with
Parent, given Parent's experience, financial condition and reputation.
(ix) The effect of the Offer and the Merger on the Company's
relationships with its clients and employees.
(x) Alternative courses of action available to the Company.
In reaching its decision, the Board did not find it practicable to, and did
not, quantify or otherwise assign precise relative weights to the individual
items described above. The two representatives of Roche on the Company's Board
of Directors, following the presentation by Bear Stearns and after answering
questions from other Members of the Board, excused themselves from the meeting
and did not participate in the Board's discussion of the Offer, the Merger, the
Merger Agreement and the Stockholder Agreement or the vote of the Board on such
matters.
THE FULL TEXT OF THE WRITTEN FAIRNESS OPINION OF BEAR STEARNS IS FILED AS
EXHIBIT 5 TO THIS SCHEDULE. STOCKHOLDERS ARE URGED TO, AND SHOULD, READ
SUCH OPINION IN ITS ENTIRETY. SUCH OPINION WAS PRESENTED FOR THE
INFORMATION OF THE BOARD IN CONNECTION WITH ITS CONSIDERATION OF THE MERGER
AGREEMENT AND IS DIRECTED ONLY TO THE FAIRNESS (FROM A FINANCIAL POINT OF
VIEW) OF THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF SHARES (OTHER THAN
THE STOCKHOLDERS) PURSUANT TO THE OFFER AND THE MERGER. SUCH OPINION DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER
SHARES IN THE OFFER OR TO VOTE WITH RESPECT TO THE MERGER.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained Bear Stearns to render an opinion on the fairness of
the consideration to be received by the DePuy stockholders (other than the
Stockholders) in the Offer and the Merger. Bear Stearns is an internationally
recognized investment banking firm which, as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. Bear Stearns will receive customary compensation in connection
with rendering its opinion. In addition, the Company agreed to reimburse all
reasonable out-of-pocket expenses incurred by Bear Stearns (including reasonable
fees and disbursements of counsel, and of other consultants and advisors
retained by Bear Stearns) in connection with its engagement. The Company will
also indemnify Bear Stearns against certain liabilities, including liabilities
arising out of U.S. federal securities laws.
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Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any person to make solicitations or
recommendations to stockholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as specifically disclosed in this statement, during the past 60
days, neither the Company nor any subsidiary of the Company nor, to the best of
the Company's knowledge, any executive officer, director or affiliate of the
Company has effected a transaction in the Shares.
(b) To the best of the Company's knowledge, all directors and executive
officers of the Company presently intend to tender all Shares beneficially held
by them into the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as specifically set forth in this statement, no negotiation is
being undertaken or is underway by the Company in response to the Offer which
relates to or would result in:
(1) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any of its subsidiaries;
(2) a purchase, sale or transfer of a material amount of assets by the
Company or any of its subsidiaries;
(3) a tender offer for or other acquisition of securities by or of the
Company; or
(4) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described in Item 3(b), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred to
in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C> <C>
Exhibit 1 -- Offer to Purchase dated July 27, 1998 (incorporated by
reference to Exhibit (a)(1) to the Schedule 14D-1).
Exhibit 2 -- Letter of Transmittal (incorporated by reference to Exhibit
(a)(2) to the Schedule 14D-1).
Exhibit 3 -- Form of Summary Advertisement dated July 27, 1998
(incorporated by reference to Exhibit (a)(7) to the Schedule
14D-1).
Exhibit 4 -- Text of Joint Press Release dated July 21, 1998, issued by
the Company, Parent and Roche Holding Ltd (incorporated by
reference to Exhibit (a)(8) to the Schedule 14D-1).
Exhibit 5 -- Opinion of Bear Stearns dated July 20, 1998.*
Exhibit 6 -- Letter to Stockholders dated July 27, 1998 from James A.
Lent, Chairman and Chief Executive Officer of the Company.*
Exhibit 7 -- Agreement and Plan of Merger dated as of July 21, 1998,
among Parent, the Purchaser and the Company (incorporated by
reference to Exhibit (c)(1) to the Schedule 14D-1).
Exhibit 8 -- Stockholder Agreement dated as of July 21, 1998, among
Parent, the Purchaser and certain stockholders of the
Company (incorporated by reference to Exhibit (c)(2) to the
Schedule 14D-1).
</TABLE>
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* Included in copies mailed to stockholders.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
DEPUY, INC.
By: /s/ J. A. LENT
--------------------------------------
Name: James A. Lent
Title: Chairman and Chief
Executive Officer
Dated: July 27, 1998
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SCHEDULE I
DEPUY, INC.
700 ORTHOPAEDIC DRIVE
WARSAW, INDIANA 46580
INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
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NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS IS
REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT. NO
PROXIES ARE BEING SOLICITED AND YOU ARE REQUESTED NOT TO SEND
THE COMPANY A PROXY.
------------------------
This Information Statement is being mailed on or about July 27, 1998 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") to holders of the Shares of the Company. Capitalized terms
used and not otherwise defined herein shall have the meaning set forth in the
Schedule 14D-9. You are receiving this Information Statement in connection with
the possible election of persons designated by Purchaser to a majority of the
seats on the Board of Directors of the Company (the "Board").
Pursuant to the Merger Agreement, on July 27, 1998, the Purchaser commenced
the Offer. The Offer is scheduled to expire at midnight, New York City time, on
Friday, August 21, 1998, unless extended.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14f-1 thereunder. You are urged to read this
Information Statement carefully. You are not, however, required to take any
action.
The information contained in this Information Statement (including
information incorporated by reference) concerning Parent and Purchaser and the
Designees (as defined herein) has been furnished to the Company by Parent and
Purchaser, and the Company assumes no responsibility for the accuracy or
completeness of such information.
BACKGROUND OF TRANSACTION AND CHANGE IN CONTROL
As announced on July 21, 1998, the Company, Parent and Purchaser have
executed the Merger Agreement pursuant to which Purchaser will seek to acquire
all outstanding shares of DePuy by a tender offer for all of the Shares at a
price of $35 per share in cash. Following the successful completion of the
tender offer, upon approval by the required stockholder vote, Purchaser will be
merged with the Company and all Shares not purchased in the tender offer will be
converted into the right to receive $35 per share in cash.
The Merger Agreement provides that promptly upon the acceptance for payment
of, and payment for, any Shares by Purchaser pursuant to and subject to the
conditions (including the condition with respect to the Stockholder Agreement
and the tender or the delivery by the Stockholders to Purchaser of the Shares
subject thereto, which condition may not be waived by Purchaser) of the Offer,
Purchaser shall be entitled to designate such number of the directors of the
Board such that Purchaser will control a majority of such directors, and the
Company and its Board shall, at such time, take all such action needed to cause
Purchaser's designees to be appointed to the Board; provided, however, that in
the event that Purchaser's designees are elected to the Board, until the
effective time of the Merger, the Board shall have at least two directors who
are directors of the Company on July 21, 1998 and who are not officers of the
Company or any of its subsidiaries. In connection with the foregoing, the
Company must promptly, at the option of Parent, either increase the size of the
Company's Board or use its best efforts to obtain the resignation of such number
of its directors as is necessary to enable Purchaser's designees to be elected
or appointed to, and to constitute a majority of, the
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Company's Board. Additionally, pursuant to the Merger, the directors of
Purchaser immediately prior to the effective time of the Merger, and James A.
Lent, the Company's Chairman and Chief Executive Officer, and Michael J. Dormer,
the Company's President and Chief Operating Officer, will be the directors of
the Surviving Corporation until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
GENERAL INFORMATION REGARDING THE COMPANY
GENERAL
The Shares of Common Stock of the Company are the only class of voting
securities of the Company outstanding. As of June 30, 1998, there were
98,816,286 Shares of Common Stock outstanding. Holders of shares of Common Stock
are entitled to one vote for each Share registered in their respective names.
Cumulative voting is not permitted.
DESIGNEES
Purchaser has informed the Company that it will choose its designees to the
Board (the "Designees") from the persons listed in the section herein entitled
"Information With Respect to Designees." Purchaser has informed the Company that
each person listed in such section has consented to act as a director, if so
designated.
CHANGE IN CONTROL AND SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
PRIOR CHANGE IN CONTROL
On March 5, 1998, Roche Healthcare Limited, a Bermuda company ("RHL") and
an indirect wholly owned subsidiary of Roche Holding Ltd ("Roche"), completed
the purchase of all of the outstanding capital stock of Corange Limited
("Corange"). Corange, Corange International Limited, Corange International
Holdings B.V. and Pharminvest S.A., all indirect wholly owned subsidiaries of
Roche, presently own in the aggregate 83,000,000 Shares of the Company's Common
Stock, representing approximately 82.2% of the outstanding Shares of Common
Stock on a fully diluted basis.
The purchase of Corange was consummated pursuant to a Stock Purchase
Agreement dated May 24, 1997 with the former shareholders of Corange. Prior to
the sale to RHL, the Shares of Corange were beneficially owned by four family
branches (individually or through trusts and their investment vehicles) who are
descended from the founders of the Boehringer Mannheim companies in Germany. The
family of Curt Engelhorn beneficially owned approximately 37.3% of the Shares,
the family of Peter Engelhorn beneficially owned approximately 22.3% of the
Shares, the family of Christof Engelhorn beneficially owned approximately 22.3%
of the Shares and Christa Gelpke beneficially owned approximately 18.0% of the
Shares.
SECURITY OWNERSHIP
The following table sets forth certain information as of June 30, 1998 with
respect to the number of Shares of Common Stock beneficially owned by each
person who is known to the Company to own beneficially more than 5% of the
Common Stock, the number of Shares of Common Stock beneficially owned by each
director of the Company and certain executive officers of the Company, and the
number of Shares of Common Stock beneficially owned by all directors and
executive officers of the Company as a group. Except as
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otherwise indicated, each such stockholder has sole voting and investment power
with respect to the Shares beneficially owned by such stockholder.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF COMMON
NAME AND ADDRESS BENEFICIAL OWNERSHIP STOCK OUTSTANDING
- ---------------- -------------------- -----------------
<S> <C> <C>
Corange Limited(1)...................................... 3,168,745 3.21
Church & Parliament Sts.
Hamilton, HM12
Bermuda
Corange International Limited(1)........................ 528,247 0.53
Church & Parliament Sts.
Hamilton, HM12
Bermuda
Corange International Holdings B.V.(1).................. 13,272,193 13.43
c/o Roche Nederland B.V.
Nijverheidsweg 38
NL-3641 AA Mijdrecht
The Netherlands
Pharminvest S.A.(1)..................................... 66,030,815 66.82
145 Rue de Treves
L-2630 Luxembourg
James A. Lent........................................... 350,550 (2) *
Michael J. Dormer....................................... 183,676 (3) *
R. Michael McCaffrey.................................... 86,086.63(4) *
William E. Tidmore, Jr.................................. 67,023.45(5) *
Robert E. Morel......................................... 62,936.71(6) *
Richard C. Bolesky...................................... 21,000 (7) *
Dr. h.c. Fritz Gerber................................... -- (8) --
Richard A. Gilleland.................................... 22,000 (7) *
Gerald C. Hanes......................................... 21,000 (7) *
Dr. Franz Humer......................................... -- (9) --
M.L. Lowenkron.......................................... 23,000 (7) *
Robert Volz, M.D........................................ 25,000 (7) *
Anthony Williams........................................ 22,829 (7) *
Directors and executive officers as a group (15
persons).............................................. 1,253,669.44(10) 1.25
</TABLE>
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* less than one percent
(1) Corange Limited, Corange International Limited, Corange International
Holdings B.V. and Pharminvest S.A. are each indirect wholly owned
subsidiaries of Roche.
(2) Includes 350,000 vested stock options granted under the Company's 1996
Equity Incentive Plan. Also includes 550 Shares registered in the name of
Mr. Lent's wife, as to which Shares Mr. Lent disclaims beneficial ownership.
(3) Includes 175,000 vested stock options granted under the Company's 1996
Equity Incentive Plan.
(4) Includes 80,000 vested stock options granted under the Company's 1996 Equity
Incentive Plan and 1,206.626 Shares held in Mr. McCaffrey's account under
the Company's Employee Stock Option/ Purchase Plan.
(5) Includes 60,000 vested stock options granted under the Company's 1996 Equity
Incentive Plan and 1,190.452 Shares held in Mr. Tidmore's account under the
Company's Employee Stock Option/Purchase Plan. Also includes 50 Shares held
by Mr. Tidmore's minor children, as to which Shares Mr. Tidmore disclaims
beneficial ownership.
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(6) Includes 60,000 vested stock options granted under the Company's 1996
Equity Incentive Plan and 1,200.705 Shares held in Mr. Morel's account
under the Company's Employee Stock Option/Purchase Plan. Also includes 20
Shares held by Mr. Morel's son, as to which Shares Mr. Morel disclaims
beneficial ownership.
(7) Includes 20,000 vested stock options granted to each non-employee director
under the Company's 1996 Equity Incentive Plan.
(8) Dr. Gerber is the Executive Chairman of the Board of Directors of Roche.
Certain indirect wholly owned subsidiaries of Roche identified in note (1)
above own an aggregate of 83,000,000 Shares, constituting approximately
84.0% of the Shares outstanding.
(9) Dr. Humer is the Chief Executive Officer and a Director of Roche and the
head of the Pharmaceutical Division. Certain indirect wholly owned
subsidiaries of Roche identified in note (1) above own an aggregate of
83,000,000 Shares, constituting approximately 84.0% of the Shares
outstanding.
(10) Includes an aggregate of 1,194,000 vested stock options granted under the
Company's 1996 Equity Incentive Plan held by directors and executive
officers, 4,590.441 Shares held by executive officers in their accounts
under the Company's Employee Stock Option/Purchase Plan and 670 Shares held
by spouses or children of executive officers or other persons residing in
an executive officer's home as to which beneficial ownership is disclaimed.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS OF THE COMPANY
The Company's Certificate of Incorporation provides for the classification
of the Board of Directors into three classes, Class I, Class II and Class III,
with terms expiring at the annual meeting of stockholders in 2000, 2001 and
1999, respectively. The names of the current directors, their ages as of July
27, 1998 and certain other information about them are set forth below.
CLASS I DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE SINCE
--------------- ---- --------
<S> <C> <C>
Michael J. Dormer........................................... 47 1997
Richard A. Gilleland........................................ 54 1996
Dr. Franz Humer............................................. 52 1998
M.L. Lowenkron.............................................. 67 1996
</TABLE>
CLASS II DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE SINCE
--------------- ---- --------
<S> <C> <C>
Richard C. Bolesky.......................................... 66 1996
Gerald C. Hanes............................................. 61 1996
Robert Volz, M.D............................................ 66 1996
</TABLE>
CLASS III DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE SINCE
--------------- ---- --------
<S> <C> <C>
James A. Lent............................................... 55 1996
Dr. h.c. Fritz Gerber....................................... 69 1998
Anthony Williams............................................ 52 1996
</TABLE>
James A. Lent has been Chairman and Chief Executive Officer of DePuy since
1991, having served as President from 1985 to 1991. Prior to joining DePuy, Mr.
Lent worked for Johnson & Johnson from 1967 to 1985, serving as President of J&J
Orthopaedics from 1982 to 1985. Mr. Lent is also a Director of Spectranetics
Inc., a cardiovascular device company.
Richard C. Bolesky served as Vice President, Research and Development of
DePuy from 1982 until 1990. From 1990 until his retirement in 1994, he was
Senior Vice President, Technology. Since retiring in 1994, Mr. Bolesky has
served as a consultant to DePuy.
Michael J. Dormer has been President and Chief Operating Officer of the
Company since August 1996. Prior to that, he served as President of DePuy
International Ltd. since 1993 and Executive Vice President from 1992 until 1993.
Dr. h.c. Fritz Gerber has been Executive Chairman of the Board of Directors
of Roche since 1998 and served as Chairman of the Board of Directors (since
1977) and Chief Executive Officer (since 1978) of Roche through 1997.
Richard A. Gilleland is Chairman and Chief Executive Officer of Physicians
Resource Group, Inc. He served as President and Chief Executive Officer of AMSCO
International, Inc. from 1995 to 1996. He served from 1990 until 1995 as
Chairman, President and Chief Executive Officer of Kendall International, Inc.,
a medical supplies manufacturer. Mr. Gilleland is a Director of Tyco
International, Ltd., and Remington Arms Co., Inc.
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Gerald C. Hanes has been President of Personal Investment Consultants, Inc.
since 1988.
Dr. Franz Humer has been the Chief Executive Officer of Roche since 1998
and served as Chief Operating Officer of Roche from 1996 through 1997. He has
served as a Member of the Board of Roche and Head of the Pharmaceuticals
Division since 1995. He served as Chief Operating Officer (from 1993 to 1995)
and as a Director (from 1989 to 1993) of Glaxo Holdings plc.
M.L. Lowenkron was President and Chief Executive Officer of G. Heileman
Brewing Company, Inc. from 1995 until June 1996, and a Director from 1994. Mr.
Lowenkron was Chief Executive Officer of A&W Brands, Inc. from 1980 until 1993
and Chairman from 1991 to 1995. He also serves as a Director of International
Home Foods, Inc., a food products manufacturer and marketer.
Robert Volz, M.D. is a Professor Emeritus at the University of Arizona,
Health Services Center and served as Chief of Orthopaedic Surgery from 1985 to
1992. Dr. Volz is on the staff at Tucson Veterans' Administration Hospital,
Tucson Medical Center and Tucson General Hospital. Dr. Volz served as a design
consultant to DePuy since 1986 and is President of Robert G. Volz & Co., which
provided services to the Company through July 1997 for which the Company paid
$973,136 in royalty and other fees in 1997.
Anthony Williams is a partner at the law firm of Coudert Brothers, which
provides legal services to the Company.
The Board of Directors met five times during 1997. In 1997, no director
attended fewer than 75 percent of the total number of meetings of the Board of
Directors and committees of the Board of Directors on which he served.
BOARD COMMITTEES
The Board of Directors has a Compensation Committee and an Audit Committee.
Audit Committee. The Audit Committee meets with the Company's independent
public accountants to discuss the scope and results of their examination of the
books and records of the Company. It also meets with the independent public
accountants to discuss the adequacy of the Company's accounting and control
systems. The Committee reviews the audit schedule and considers any issues
raised by any member of the Committee, the independent public accountants, the
internal audit staff, the legal staff or management. Each year it recommends to
the full Board of Directors the name of an accounting firm to audit the
financial statements of the Company. The Audit Committee consists of Messrs.
Lowenkron (Chairman), Gilleland and Volz. The Audit Committee met two times
during 1997.
Compensation Committee. The Compensation Committee establishes overall
employee compensation policies and recommends to the Board of Directors major
compensation programs. The Compensation Committee reviews the performance of
corporate officers and reviews and approves compensation of directors and
corporate officers, including bonus compensation and stock options and other
stock awards, except that the Stock Option and Bonus Subcommittee of the
Compensation Committee (the "Compensation Subcommittee") administers the DePuy,
Inc. Employee Stock Option/Purchase Plan (the "Stock Option/Purchase Plan"), the
DePuy, Inc. 1996 Equity Incentive Plan (the "Equity Incentive Plan"), and the
DePuy, Inc. Senior Executive Incentive Compensation Plan (the "Incentive Plan")
and will review and approve certain other compensation of corporate officers to
the extent necessary for such compensation to be deductible by the Company
pursuant to the Internal Revenue Code of 1986, as amended (the "Code"). The
Compensation Committee consists of Messrs. Gilleland (Chairman), Hanes and
Williams and the Compensation Subcommittee consists of Messrs. Gilleland and
Hanes. The Compensation Committee met two times, and the Compensation
Subcommittee met three times, during 1997.
DIRECTORS' COMPENSATION
Directors receive no annual retainer for services provided in that capacity
but, except for any director who is also an employee of the Company, receive a
meeting fee of $3,000 plus expenses for each meeting (including telephone
meetings) of the Board of Directors attended and a meeting fee of $1,000 plus
expenses
6
<PAGE> 13
for each meeting (including telephone meetings) attended as a member of a Board
of Directors committee at a time other than immediately before or after a
regular Board of Directors meeting. In addition, the Equity Incentive Plan
provides for one-time formula-based grants of options to purchase 20,000 Shares
of Common Stock to each non-employee director.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the names, ages, positions and (with respect to those
who are not also directors) a brief description of the Company's current
executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James A. Lent................................... 55 Chairman of the Board and Chief Executive
Officer
Michael J. Dormer............................... 47 President and Chief Operating Officer
Robert E. Morel................................. 61 President, DePuy ACE Medical Company
James M. Taylor................................. 42 President, DePuy International Limited
William E. Tidmore, Jr.......................... 55 President, DePuy Motech AcroMed, Inc.
Steven L. Artusi................................ 53 Senior Vice President, General Counsel and
Secretary
R. Michael McCaffrey............................ 56 President, DePuy Development, Inc.
Thomas J. Oberhausen............................ 46 Senior Vice President, Chief Financial
Officer and Treasurer
G. Taylor Seward................................ 52 Senior Vice President, Personnel
</TABLE>
Robert E. Morel has served as President and Chief Executive Officer of
DePuy ACE since May 1996. From 1993 until 1996, he served as Senior Vice
President, Operations for DePuy. From 1985, when he originally joined DePuy,
until 1993, he was Vice President, Operations. Pursuant to an arrangement
between Mr. Morel and the Company, Mr. Morel's employment with the Company will
end not later than January 1, 2000.
James M. Taylor has been President of DePuy International since August
1996. He joined DePuy in July 1994 as Vice President, Operations. From June 1993
until April 1994, Mr. Taylor was the Chief Executive Officer of MSS Group in the
U.K. From 1989 to June 1993, Mr. Taylor was employed by Chloride Industrial
Batteries Ltd., as Operations Director.
William E. Tidmore, Jr. has served as President of DePuy Motech since
August 1996. Prior to that, he served as President of DePuy Orthopaedics, a
division of DePuy, from 1994 to 1996, as Executive Vice President of DePuy from
1993 to 1994, as President of DePuy International from 1992 to 1993 and as Vice
President, International of DePuy Inc. from 1988 until 1992. Mr. Tidmore joined
DePuy in 1986.
Steven L. Artusi has served as the Company's Senior Vice President, General
Counsel and Secretary since 1992. Mr. Artusi served as Vice President, Legal and
Regulatory Affairs for DePuy, Division of Boehringer Mannheim Corporation from
1987 to 1992 and as Corporate Counsel of Boehringer Mannheim Corporation ("BMC")
from 1985 to 1987.
R. Michael McCaffrey became President of DePuy Development, Inc., which is
engaged in business development for the DePuy worldwide group, in August 1996.
Prior to that, from 1994 until 1996, he was President of DePuy Motech, from 1990
until 1994 he was President of DePuy, and from 1985 until 1990 held various
positions at DePuy in management, marketing and sales.
Thomas J. Oberhausen has served as Senior Vice President and Chief
Financial Officer of DePuy since 1992 and from 1993 to 1995, he also served as
the Finance Director for DePuy International. He joined Bio-Dynamics, Inc., a
subsidiary of BMC, in 1980.
G. Taylor Seward has served as Senior Vice President, Personnel of DePuy
since 1990. Mr. Seward joined DePuy in 1978 and prior to 1990 held various
positions in DePuy's human resources department, including Personnel Manager,
Director of Personnel and Vice President, Personnel.
7
<PAGE> 14
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate cash compensation paid to the
Company's chief executive officer and four other most highly compensated
executive officers (the "Named Officers") by the Company or its subsidiaries
during the fiscal years 1995, 1996 and 1997.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
--------------------------------- ----------------------------------
PAYOUTS
(PAYMENT
OTHER OF VESTED ALL
ANNUAL PRIOR SECURITIES OTHER
COMPEN- AWARDS) AWARDS(1) UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) ($)(1) ($) OPTIONS # SATION($)
- --------------------------- ---- --------- -------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James A. Lent............... 1997 625,000 450,000 -- -- -- 200,000 15,711(7)
Chairman of the Board and 1996 580,000 320,000 -- 271,966 260,348 150,000 8,360
Chief Executive Officer 1995 529,038 300,000(2) 192,758 229,770 -- 8,648
Michael J. Dormer(3)(4)..... 1997 365,000 150,000 58,134(6) 113,678 -- 100,000 93,310(7)
President and Chief 1996 287,794 150,000 -- 101,887 135,083 75,000 --
Operating Officer 1995 231,161 119,861 -- 41,442 116,155 -- --
R. Michael McCaffrey........ 1997 289,000 140,000 -- 108,255 -- 40,000 10,551(7)
President, DePuy 1996 275,158 100,000 -- 185,524 113,247 40,000 8,761
Development, Inc. 1995 264,575 102,000 -- 137,414 144,552 -- 8,745
William E. Tidmore, Jr. .... 1997 222,500 80,000 -- 76,325 -- 20,000 14,180(7)
President, DePuy 1996 216,000 80,000 -- 144,242 75,498 40,000 12,634
Motech, Inc. 1995 211,045 85,000 -- 44,364 94,712 -- 12,594
Robert E. Morel(5).......... 1997 265,000 100,000 74,643(6) 107,290 -- 20,000 87,527(7)
President, DePuy ACE 1996 237,966 70,000 111,422(6) 102,909 82,814 40,000 112,538
Medical Company 1995 173,442 70,000 -- 75,112 80,936 -- 12,890
</TABLE>
- ---------------
(1) Payments of awards under long term incentive plans.
(2) Mr. Lent's 1995 compensation includes $75,000 of additional compensation
paid for serving as chief spokesperson for the Corange Group.
(3) All of Mr. Dormer's compensation in 1995 and a portion of such compensation
in 1996 and 1997 was paid to him in the United Kingdom. All of such
compensation paid to Mr. Dormer in the United Kingdom has been converted
into U.S. dollars based on the Noon Buying Rate in New York for cable
transfers payable in foreign currencies as of December 31, 1996 or, for 1997
payments, December 31, 1997, as certified for customs purposes by the
Federal Reserve Bank of New York (the "Federal Reserve Rate"). The 1997
Federal Reserve Rate was $1.7123 per British Pound and the 1996 Federal
Reserve Rate was $1.6427 per British pound. The Average Noon Buying Rate
quoted by the Federal Reserve Bank of New York for 1997 was $1.6376 per
British pound and for 1996 was $1.5607 per British pound.
(4) Mr. Dormer's compensation for 1995 and part of 1996 reflects his prior
position as President of DePuy International Ltd. ("DePuy International").
Mr. Dormer was appointed President and Chief Operating Officer of the
Company, effective August 5, 1996, at a salary of $350,000.
(5) Mr. Morel's compensation for 1995 and part of 1996 reflects his prior
position as Senior Vice President, Operations of the Company. Mr. Morel was
appointed President of DePuy ACE Medical Company, effective May 1996, at a
salary of $250,000.
(6) Includes reimbursement for taxes in connection with relocation costs, in the
amount of $58,134 for Mr. Dormer in 1997 and in the amounts of $74,643 and
$100,059 for Mr. Morel in 1997 and 1996, respectively.
(7) Includes contributions for 1997 by the Company to the DePuy, Inc. Retirement
Income Plan and to the DePuy, Inc. Cash Accumulation Plan in the amounts of
$9,231, $6,400, $10,551, $14,180 and $13,964 for Messrs. Lent, Dormer,
McCaffrey, Tidmore and Morel, respectively. Also included for Mr. Lent is
$6,480, representing the term insurance cost of premiums paid on behalf of
Mr. Lent in 1997 to purchase life insurance and $86,910 and $73,563 for
Messrs. Dormer and Morel, respectively, representing relocation costs.
8
<PAGE> 15
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
- ----------------------------------------------------------------------------- VALUE AT ASSUMED
(b) (c) ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS OPTION TERM(2)
UNDERLYING GRANTED TO (d) (e) -----------------------------
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION 5% 10%
NAME GRANTED FISCAL YEAR PRICE DATE $ $
- ---- ---------- ------------ -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
James A. Lent............. 200,000 20 $25.625 10/31/07 3,223,000 8,168,000
Michael J. Dormer......... 100,000 10 25.625 10/31/07 1,611,500 4,084,000
R. Michael McCaffrey...... 40,000 4 25.625 10/31/07 644,600 1,633,600
William E. Tidmore, Jr.... 20,000 2 25.625 10/31/07 322,300 816,800
Robert E. Morel........... 20,000 2 25.625 10/31/07 322,300 816,800
All Stockholders(3)....... 1,784,190,600 4,521,494,900
</TABLE>
- ---------------
(1) The options described above are non-qualified options that were granted on
October 31, 1997 and became exercisable, under the terms of the Equity
Incentive Plan, on March 5, 1998 as a result of the purchase of Corange by
RHL. The exercise price of the options may be paid in cash or in Shares of
Common Stock.
(2) The dollar amounts are the result of calculations at the 5% and 10% growth
rates set by the Securities and Exchange Commission (the "Commission"). The
rates are not intended to forecast or reflect actual future price
appreciation. A zero rate of growth would result in zero gain to the
optionees.
(3) These dollar amounts are included for comparative purposes to show the gain
that would be achieved by the holders of the outstanding Common Stock on
December 31, 1997 at the assumed stock price appreciation rate at the end of
the 10-year term of the options granted in 1997.
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT VALUE OF UNEXERCISED
SHARES DECEMBER 31, 1997(1) IN-THE-MONEY
ACQUIRED ---------------------------- OPTIONS AT
ON VALUE FISCAL YEAR-END $
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE ----------------------------
NAME # $ # # EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James A. Lent..................... 0 0 50,000 300,000 562,500 1,750,000
Michael J. Dormer................. 0 0 25,000 150,000 281,250 875,000
R. Michael McCaffrey.............. 0 0 13,333 66,667 149,996 425,004
William E. Tidmore, Jr............ 0 0 13,333 46,667 149,996 362,504
Robert E. Morel................... 0 0 13,333 46,667 149,996 362,504
</TABLE>
- ---------------
(1) All options described above that were unexercisable as of December 31, 1997
became exercisable, under the terms of the Equity Incentive Plan, on March
5, 1998 as a result of the purchase of Corange by RHL. If such options had
been exercisable at December 31, 1997, the number of securities underlying
unexercised options at December 31, 1997 and the value of unexercised
in-the-money options at fiscal year-end, would have been, respectively,
350,000 and $2,312,500 for Mr. Lent, 175,000 and $1,156,250 for Mr. Dormer,
80,000 and $575,000 for Mr. McCaffrey, and 60,000 and $512,500 each for
Messrs. Tidmore and Morel.
PENSION PLANS
The Company maintains the DePuy, Inc. Retirement Income Plan (the "RIP"), a
tax-qualified target benefit plan under which the Company is required to make a
prescribed annual contribution to the plan, up to statutorily prescribed limits,
in an amount determined necessary to meet the projected targeted benefit under
the RIP when all of such contributions and earnings thereon (at an assumed rate
of return specified in the
9
<PAGE> 16
plan) are accumulated to the participant's attainment of age 65, the normal
retirement date under the plan. The targeted benefit with respect to any
participant is equal to the product of 30% of the participant's average
compensation (determined with respect to the three calendar years out of the
most recent five calendar years in which the participant received the largest
amount of compensation) and the amount of the participant's credited service
(determined in months, up to a maximum of 360) divided by 360. A separate
account is established with respect to each participant under the plan. Amounts
contributed under the RIP are invested by the plan's trustee, currently Scudder
Trust Company, and the benefit which is payable under the RIP is the amount
which can be provided from the assets accumulated in the participant's account
under the plan. Thus, there is no guaranty under the RIP that the amount
available at retirement will be sufficient to provide the targeted benefit.
Retirement before age 65 can be elected under certain conditions. Benefits under
the plan are generally payable in the form of a 50% joint and survivor annuity
with the participant's spouse as the joint annuitant, although a participant may
elect, with the consent of his or her spouse in the case of a married
participant, to receive a single lump sum payment or certain other forms of
annuity payments. A participant generally vests 100% in the Company
contributions made to the RIP upon completing five years of service.
The Company also maintains the DePuy, Inc. Retirement Excess Plan (the
"Excess Plan") which is intended to offset the limitations under the Code that
are placed on benefits under the RIP by providing eligible employees benefits in
excess of those available to such employees under the RIP. Employees are
eligible to participate in the Excess Plan in the year following the year in
which the amounts allocable to their accounts under the RIP are limited by the
limit imposed under the Code. Under the unfunded Excess Plan, a recordkeeping
account is established on behalf of each participant which is credited,
annually, with the difference between the amount of the employer contribution
that would have been credited to the participant under the RIP had the Code
limit not applied and the amount of the employer contribution that actually was
credited to the participant under the RIP because of such limit, provided that
no more than $10,000 may be credited to a participant's account for any single
calendar year. A participant's benefit under the Excess Plan becomes 100% vested
and nonforfeitable after five years of service with the Company and becomes
payable, in a single lump sum payment, at the time that the participant becomes
eligible to receive benefits under the RIP. In the event of a participant's
death, the benefit credited to his or her account is payable as a death benefit
to the participant's beneficiary.
The Company also maintains the DePuy, Inc. Supplemental Retirement Plan
(Plan No. 1) (the "SERP I") and the DePuy, Inc. Supplemental Retirement Plan
(Plan No. 2) (the "SERP II"). Plan participants are selected by the Board of
Directors of the Company from the senior executives of the Company and its
subsidiaries. Upon reaching the normal retirement date under the plan (defined
as the last day of the Company's pay period immediately following a
participant's 65th birthday) while employed by the Company or any of its
affiliates, a participant is eligible for supplemental retirement benefits under
the plan in an annual amount, payable for the participant's lifetime, equal to
60% of the participant's "final average income", reduced by the sum of the
participant's retirement income from sources other than the Company, the benefit
payable to the participant under any defined benefit payable to the participant
under the RIP, any benefit payable to the participant under any defined benefit
retirement arrangement maintained by Corange or by any non-U.S. based affiliate
of Corange and by one-half of the participant's primary social security
benefits. For purposes of the plan, the participant's "final average income" is
determined as the annual average of the 36-month period ending on the date of
the participant's termination of employment and includes, with respect to a
fiscal year, base salary, one-half of the annual cash bonus paid to the
participant by the Company, participant deferrals pursuant to a 401(k) plan
maintained by the Company, salary or bonus amounts deferred under any Company
nonqualified deferred compensation arrangement and amounts excluded from wages
pursuant to a cafeteria plan maintained by the Company. The plan also provides
for reduced supplemental early retirement, disability and death benefits. A
participant forfeits benefits under the plan if the participant's employment is
terminated for cause or, if terminated upon death or disability, before
completing 5 years of service or reaching age 60 or, if terminated other than
upon retirement, death or disability, before completing 10 years of service with
the Company. In addition, a participant's continuing right to receive benefits
is conditioned on the participant's compliance with certain noncompetition,
nonsolicitation and confidentiality plan requirements. Currently, the SERP I
covers Mr. Lent. The SERP II covers certain executives not covered by the SERP I
who are selected by the Chief Executive Officer of the Company. The SERP II
10
<PAGE> 17
provides the same level of benefits provided in the SERP I and generally
contains the same provisions. However, for purposes of determining the
participant's "final average income", any annual cash bonus paid to the
participant with respect to a fiscal year or any bonus amount which is deferred
under any nonqualified deferred compensation arrangement is not taken into
account. Currently, the SERP II covers Messrs. Tidmore, McCaffrey and other
senior executives of the Company and its participating affiliates.
If Messrs. Lent, McCaffrey, Tidmore and Morel continue in the positions
identified above and retire at their respective normal retirement dates set
forth under the RIP and the SERP I or the SERP II, as the case may be, the
estimated annual pension amounts payable under the RIP and the SERP I or the
SERP II, as the case may be, would be, respectively, with respect to Mr. Lent,
$36,800 and $465,244, with respect to Mr. McCaffrey, $36,800 and $128,644 and
with respect to Mr. Tidmore, $33,600 and $91,944. With respect to Mr. Morel,
such amounts would be $27,200 and 0 (Mr. Morel does not participate in the SERP
I or the SERP II) and an additional estimated annual pension amount of $1,410,
stated as a single life annuity amount attributable to his participation in the
Excess Plan. As described above, the actual benefit under the RIP is the amount
actually accumulated in the participant's account as of the payment date. The
amount stated herein is the targeted single life annuity benefit amount. The
amount stated for the SERP I or the SERP II, as applicable, is expressed as a
joint and 50% survivor annuity amount.
DePuy International maintains the DePuy International Ltd. Pension and Life
Assurance Scheme (the "UK Pension Plan") for the benefit of the permanent
salaried staff employees and employees at the director level of DePuy
International who are at least age 18, are not age 60 at the time that
participation commences and who elect to participate in the plan. Currently, Mr.
Dormer is the only Named Officer in the UK Pension Plan. Participants in the
plan are required to contribute 5% of their basic salaries plus specified
allowances to the UK Pension Plan, except that employees who are at the director
level contribute at a 6% rate. Under the UK Pension Plan, a participating
employee who retires at age 65 (age 60 for employees at the director level), the
normal retirement date specified in the plan, will receive a pension calculated
as follows: 1/60th (other amounts may be applicable with respect to participants
who joined the plan before 1978) multiplied by the employee's final pensionable
salary (as defined below) multiplied by the employee's pensionable service (as
defined below). The pension with respect to a plan participant who is at the
director level accrues at the rate of 1/30th of final pensionable salary for
each year of pensionable service, to a maximum benefit equal to two-thirds of
such salary. For purposes of the plan, an employee's pensionable salary is his
or her basic annual salary and the final pensionable salary is the average of
the three highest consecutive years of pensionable salaries during the ten-year
period preceding normal retirement or earlier date of termination of
participation in the plan. Pensionable service, for purposes of the UK Pension
Plan, generally is an employee's consecutive years and months of participation
in the plan. Participants who retire may elect to receive a portion of their
benefits in the form of a tax-free lump sum payment, in which event benefits
remaining to be paid under the plan will be reduced.
Pensions payable under the plan are increased annually to reflect cost of
living increases. Pension benefits are guaranteed for five years and provide for
surviving spouse benefits payable on a joint and 50% survivor annuity basis. If
a participant dies while working for the company, a lump sum life assurance
benefit and refund of the accumulated value of contributions made by the
participant will be paid pursuant to the direction of the plan's trustees and a
lifetime pension under the plan will be payable to the participant's spouse.
Participants who have attained age 50 may elect to receive a reduced early
retirement pension. The reduction may be waived by the plan's trustees if the
retirement is due to the serious ill health of the participant. Participants can
elect to make additional voluntary contributions under the plan in order to
provide additional pension benefits. Participants who leave the employ of the
company after they have completed two or more years of plan membership are
eligible to receive a deferred vested pension or to have the value of their
accrued benefits transferred to another plan. Participants who terminate their
employment prior to completing two years of plan membership will receive a
refund of their accumulated contributions. Participants in the plan also receive
long-term disability insurance benefits.
DePuy International also maintains the DePuy International Executive
Retirement Benefits Scheme (the "UK Serp"), in which Mr. Dormer is the only
participant. Under the UK Serp, DePuy International contributes an amount which
is actuarially determined each year as necessary to provide the projected
11
<PAGE> 18
targeted annual benefit under the plan. The targeted benefit is two-thirds of
the participant's final pensionable salary (as such term is defined above) when
the benefits under the UK Serp are added to the benefits under the UK Pension
Plan. A separate account is established with respect to each participant in the
plan. Amounts under the UK Serp are invested and the benefit which is payable
under the plan is the amount which can be provided from the assets accumulated
in the participant's account under the plan. Thus, there is no guaranty under
the UK Serp that the amount available at retirement will be sufficient to
provide the targeted benefit. In the event of Mr. Dormer's death, a lump sum
death benefit is also payable under the plan. The actuary with respect to the UK
Serp has determined that the contribution with respect to Mr. Dormer should be
approximately 39% of his pensionable salary. The targeted benefit under the UK
Serp with respect to Mr. Dormer is $226,692 (inclusive of the benefit of $91,991
expected to be payable to him under the UK Pension Plan).
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has entered into employment agreements with the Named Officers.
Each agreement requires the Company to provide the executive with 24 months'
advance notice (36 months, in the case of Mr. Lent) if the Company terminates
his employment for any reason other than for cause, as defined in the agreement,
or constructively terminates the executive's employment as also defined in the
agreement. Pursuant to an arrangement between Mr. Morel and the Company, Mr.
Morel's notice period is in effect and will expire on January 1, 2000. An
executive may terminate his employment with the Company upon 6 months' advance
notice. During the applicable notice period, following notice given by either
the Company or the executive, during which the Company may discontinue its use
of the executive's services, the executive will receive continuation of his
salary, a prorated bonus with respect to such period, continuation of his car
allowance and continuation of participation in the 401(k) Plan, the RIP (except
for Mr. Dormer who does not participate in the RIP), the SERP I or the SERP II,
as applicable (except for Messrs. Dormer and Morel who do not participate in the
SERP I or the SERP II), any successor stock plans, and the Company's medical
plans (under certain conditions, certain Named Officers may be entitled to
medical coverage for life). In addition, the employment agreements with respect
to Messrs. Lent, McCaffrey and Tidmore provide for acceleration of eligibility
to receive benefits under the applicable SERP at age 55 if the executive's
notice period is in effect and, if the Company's notice period is in effect, the
Company will make such funding as necessary to provide the executive with
enhanced benefits under the applicable SERP equal to the amount that the
executive would have received under the RIP and the applicable SERP had he been
employed by the Company for three years past the last day of the Company's
notice period. During the 60 day period following the Merger, each of Messrs.
Artusi, Oberhausen and Seward will have the right to declare that, as a result
of the Merger, the Company has constructively terminated his employment, as a
result of which the executive may discontinue his duties with the Company and
the Company's notice period, as described above, will be deemed to have
commenced, and he will be entitled to continue receiving salary and benefits for
a period of two years thereafter.
Pursuant to Mr. Dormer's agreement, the Company will continue contributions
on his behalf to the UK Pension Plan and the UK Serp, at the rate effective on
the date notice is given, through the applicable notice period. In addition, the
Company will contribute to the UK Serp on Mr. Dormer's behalf a sum equal to two
years' contributions.
In addition, each of the Equity Incentive Plan, the Stock Option/Purchase
Plan and the Incentive Plan includes certain provisions that become effective in
the event of a change of control of the Company. Such provisions became
effective on March 5, 1998 as a result of the purchase of Corange by Roche,
except that such provisions of the Incentive Plan did not become effective with
respect to Messrs. Lent and Dormer. It is expected that such provisions of the
Incentive Plan will become effective with respect to Messrs. Lent and Dormer as
a result of the Merger, and they will be entitled to receive cash bonuses under
the Incentive Plan. Pursuant to the Merger Agreement, the Equity Incentive Plan
and the Stock Option/Purchase Plan will be terminated and participants will
receive cash payments in lieu of any Shares of Common Stock which they were
entitled to receive under such plans.
12
<PAGE> 19
Parent is currently in negotiations with each of Messrs. Lent and Dormer
with respect to their continued employment with the Company or Parent following
the Merger. It is currently anticipated that, subject to the successful
consummation of such negotiations and to the consummation of the Offer, Mr. Lent
would become a company group chairman of Parent with responsibility for Parent's
orthopaedic business and Mr. Dormer would become president of the Company, which
would include most of the current orthopaedic businesses of the Company and
Parent. Further, pursuant to their respective employment contracts with the
Company, if the Purchaser accepts a majority of the outstanding Shares pursuant
to the Offer, the Company will be deemed to have met the target performance
goals set under the Incentive Plan for 1998 with respect to Messrs. Lent and
Dormer and each will, accordingly, receive cash bonuses under the Incentive
Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors and officers file reports of ownership and changes of
ownership of the Company's Common Stock with the Commission and the New York
Stock Exchange. Based solely on a review of filings made with the Commission and
furnished to the Company and of written representations made to the Company, the
Company believes that all directors, officers and beneficial owners of over 10%
of the Company's Common Stock filed on a timely basis all such reports required
of them during 1997, except that in May 1998 James M. Taylor, President of DePuy
International Limited, filed an amended Form 5 for 1996 to correct the number of
shares that he purchased in the Company's Initial Public Offering, which was
over-reported in 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until March 1998, Mr. Lent served as a director of Corange, whose Vice
Chairman, until March 1998, was Anthony Williams, a member of DePuy's
Compensation Committee. Otherwise, during 1997, no executive officer of the
Company (i) served as a member of the compensation committee (or other board
committee performing similar functions or, in the absence of any such committee,
the entire board of directors) of another entity, one of whose executive
officers served on the Company's Compensation Committee; (ii) served as a
director of another entity, one of whose executive officers served on the
Company's Compensation Committee; or (iii) served as a member of the
compensation committee (or other board committee performing similar functions
or, in the absence of any such committee, the entire board of directors) of
another entity, one of whose executive officers served as a director of the
Company.
The members of the Company's Compensation Committee were identified under
the heading "Board Committees" above. No member of the Compensation Committee or
Subcommittee (i) served, during 1997, as an officer or employee of the Company
or of any of its subsidiaries, (ii) was formerly an officer of the Company or
any of its subsidiaries, or (iii) had any relationship with the Company
requiring disclosure by the Company herein pursuant to Item 404 of Regulation
S-K under the Securities Exchange Act of 1934, except that Mr. Williams, a
member of the Compensation Committee, is a partner in the law firm of Coudert
Brothers, which provided legal services to the Company during 1997 and continues
to provide such services in 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until any consummation of the Offer, the Company and the Boehringer
Mannheim group of companies will remain under the common control of Corange and
other subsidiaries of Roche, which beneficially own in the aggregate
approximately 84.0% of the outstanding shares of Common Stock of the Company and
100% of the Boehringer Mannheim companies.
Corange is party to a Note Purchase Deed dated December 22, 1993, as
amended (the "Debt Facility"). The Debt Facility, which is unsecured, requires
Corange to retain direct or indirect ownership of at least 65% of the Company's
voting stock. The Debt Facility contains covenants which limit aggregate
borrowings by all entities within the Corange group, absent a consent from the
lenders under the facility. All borrowings by Corange and its direct and
indirect subsidiaries, including the Boehringer Mannheim companies and the DePuy
companies, would be aggregated for purposes of determining whether such
aggregate limit on
13
<PAGE> 20
borrowings has been exceeded. The notes issued under the Debt Facility have
varying maturity dates, ranging from the year 2003 to the year 2008. Corange may
repay such notes at any time, subject to certain conditions. The covenants
contained in the Debt Facility will continue to apply as long as any notes
remain outstanding under the Debt Facility.
Various subsidiaries of the Company had issued promissory notes in favor of
non-DePuy entities in the Corange group. Those notes call for the payment of
various rates of interest. Such notes involve an aggregate indebtedness of $45.7
million. Of such amount, a total of $44.2 million in principal amount was paid
in 1997. The remaining $1.5 million was paid in 1998.
Until January 1998, the Company funded, pursuant to an oral arrangement,
research conducted by BMC relating to orthobiologic materials that might be used
in regeneration of human bone and cartilage, cell therapies and tissue
engineering. DePuy received exclusive rights to all intellectual property
developed from the research. From the beginning of this project in 1992 through
its termination, the Company funded approximately $3.2 million in the aggregate.
The Company has a tax allocation and indemnity agreement with Corange and
BMC which, among other things, requires Corange and BMC to indemnify the Company
with respect to tax liabilities of the Corange group for periods prior to the
consummation of the Company's initial public offering in 1996 (except for tax
liabilities of the Company and other DePuy group entities), and requires Corange
to indemnify the Company with respect to tax liabilities arising as a result of
the reorganization of the DePuy group prior to the Company's initial public
offering (the "pre-offering reorganization"). Under the agreement, the Company
is generally responsible for taxes imposed on the Company and other DePuy group
entities in cases where separate tax returns have been, or will be, filed and
for the Company's allocable share of tax liabilities in cases where
consolidated, combined or unitary tax returns have been, or will be, filed with
the Corange group (except for tax liabilities arising as a result of the DePuy
group pre-offering reorganization, which are subject to indemnification by
Corange, as discussed above). The agreement provides Corange and BMC certain
rights with respect to the filing of tax returns and, generally, the right to
control tax contests which involve, in whole or in part, taxes for which Corange
and BMC are obligated to indemnify the Company.
The Company is party to a Registration Rights Agreement, pursuant to which
the Stockholders have the right to require the Company to file one or more
registration statements with the Commission registering, for resale to the
public, the shares of Common Stock held by them.
INFORMATION WITH RESPECT TO DESIGNEES
The Merger Agreement provides that promptly upon the acceptance for payment
of, and payment for, any Shares by Purchaser pursuant to and subject to the
conditions (including the condition with respect to the Stockholder Agreement
and the tender or the delivery by the Stockholders to Purchaser of the Shares
subject thereto, which condition may not be waived by Purchaser) of the Offer,
Purchaser shall be entitled to designate such number of the directors of the
Board that Purchaser will control a majority of such directors, and the Company
and its Board shall, at such time, take all such action needed to ensure
Purchaser's designees to be appointed to the Board; provided, however, that in
the event that Purchaser's designees are elected to the Board, until the
effective time of the Merger, the Board shall have at least two directors who
are directors of the Company on July 21, 1998 and who are not officers of the
Company or any of its subsidiaries. In connection with the foregoing, the
Company must promptly, at the option of Parent, either increase the size of the
Company's Board or use its best efforts to obtain the resignation of such number
of its directors as is necessary to enable Purchaser's designees to be elected
or appointed to, and to constitute a majority of, the Company's Board.
Additionally, pursuant to the Merger, the directors of Purchaser immediately
prior to the effective time of the Merger, and James A. Lent, the Company's
Chairman and Chief Executive Officer, and Michael J. Dormer, the Company's
President and Chief Operating Officer, will be the directors of the Surviving
Corporation until the earlier of their resignations or removal or until their
respective successors are duly elected and qualified, as the case may be.
14
<PAGE> 21
The Company has been advised by Purchaser that none of the Designees (a) is
currently a director of, or holds any position with, the Company, (b) has a
familial relationship with any of the directors or executive officers of the
Company or (c) to the best knowledge of Purchaser, beneficially owns any
securities (or rights to acquire any securities) of the Company. The Company has
been advised by Purchaser that, to the best of Purchaser's knowledge, none of
the Designees has been involved in any transactions with the Company or any of
its directors, executive officers or affiliates which are required to be
disclosed pursuant to the rules and regulations of the Commission, except as may
be disclosed herein or in the Schedule 14D-9.
Purchaser has informed the Company that it will choose the Designees from
Purchaser's directors and executive officers listed below. Purchaser has
informed the Company that each of the Designees has consented to act as a
director, if so designated. The names of the Designees, their ages as of July
27, 1998, and certain other information provided by Purchaser about the
Designees are set forth below. The Company has been advised by Purchaser that
all of the Designees are executive officers and directors of Purchaser and the
business address of each such executive officer and director is One Johnson &
Johnson Plaza, New Brunswick, New Jersey 08933.
Unless otherwise indicated below, each occupation set forth opposite an
individual's name refers to employment with Parent.
<TABLE>
<CAPTION>
NAME OF THE PURCHASER DESIGNEE AGE PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- ------------------------------ --- -----------------------------------------------
<S> <C> <C>
Peter S. Galloway............................... 55 Director and Vice President of Purchaser since
July of 1998. Associate General Counsel since
1988; Secretary since 1994.
James R. Hilton................................. 52 Director and Vice President, Secretary and
Treasurer of Purchaser since July of 1998.
Associate General Counsel since March of 1998.
Assistant General Counsel 1990 to 1998.
James R. Utaski................................. 58 Director and President of Purchaser since July
of 1998. Corporate Vice President, Business
Development since 1990.
</TABLE>
15
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C> <C>
Exhibit 1 -- Offer to Purchase dated July 27, 1998 (incorporated by
reference to Exhibit (a)(1) to the Schedule 14D-1).
Exhibit 2 -- Letter of Transmittal (incorporated by reference to Exhibit
(a)(2) to the Schedule 14D-1).
Exhibit 3 -- Form of Summary Advertisement dated July 27, 1998
(incorporated by reference to Exhibit (a)(7) to the Schedule
14D-1).
Exhibit 4 -- Text of Joint Press Release dated July 21, 1998, issued by
the Company, Parent and Roche Holding Ltd (incorporated by
reference to Exhibit (a)(8) to the Schedule 14D-1).
Exhibit 5 -- Opinion of Bear Stearns dated July 20, 1998.*
Exhibit 6 -- Letter to Stockholders dated July 27, 1998 from James A.
Lent, Chairman and Chief Executive Officer of the Company.*
Exhibit 7 -- Agreement and Plan of Merger dated as of July 21, 1998,
among Parent, Purchaser and the Company (incorporated by
reference to Exhibit (c)(1) to the Schedule 14D-1).
Exhibit 8 -- Stockholder Agreement dated as of July 21, 1998, among
Parent, Purchaser and certain stockholders of the Company
(incorporated by reference to Exhibit (c)(2) to the Schedule
14D-1).
</TABLE>
- ---------------
* Included in copies mailed to stockholders.
16
<PAGE> 1
LOGO
BEAR, STEARNS & CO. INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
(212) 272-2000
ATLANTA - BOSTON
CHICAGO - DALLAS - LOS ANGELES
NEW YORK - SAN FRANCISCO
GENEVA - HONG KONG
LONDON - PARIS - TOKYO
July 20, 1998
Board of Directors
DePuy, Inc.
700 Orthopaedic Drive
Warsaw, IN 46581-0988
Attention: James A. Lent
Chairman and Chief Executive Officer
Members of the Board:
We understand that Roche Holdings Ltd ("Roche"), which through wholly-owned
subsidiary, Corange Limited ("Corange"), owns approximately 84% of the
outstanding shares of common stock of DePuy, Inc. ("DePuy"), has indicated an
interest in selling its shares in DePuy to Johnson & Johnson ("J&J") at a
purchase price per share of $35.00. We further understand that DePuy has
received an offer from J&J to acquire all of the outstanding shares of the
common stock of DePuy (the "Shares") at that purchase price. You have provided
us with the Agreement and Plan of Merger in substantially final form (the
"Merger Agreement") among DePuy, J&J and a wholly-owned subsidiary of J&J
("Subsidiary"). As more fully described in the Merger Agreement, Subsidiary (i)
would promptly commence a tender offer to purchase all Shares for $35.00 per
share in cash and (ii) as promptly thereafter as practicable, would merge with
DePuy and each outstanding Share not previously tendered would be converted into
the right to receive $35.00 per share in cash (collectively, the "Transaction").
You have asked us to render our opinion as to whether the consideration to be
received by the "public shareholders" of DePuy (defined as shareholders of DePuy
other than Roche and Corange) in the Transaction is fair, from a financial point
of view, to the public shareholders of DePuy. Bear Stearns has not been retained
as financial advisor to DePuy or Roche with respect to the Transaction, nor have
we been authorized to conduct any solicitation of any third party offers for
DePuy.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Merger Agreement;
2. reviewed DePuy's Annual Reports to Shareholders and Annual Reports
on Form 10-K for the fiscal years ended December 31, 1996 through
1997, and its Quarterly Report on Form 10-Q for the period ended
March 31, 1998;
3. reviewed certain operating and financial information, including
projections, provided to us by management relating to DePuy's
business and prospects;
<PAGE> 2
DePuy, Inc.
July 20, 1998
Page 2
4. discussed the operations, historical financial statements and
future prospects of DePuy with certain members of DePuy's senior
management;
5. reviewed the historical prices and trading volume of the common
shares of DePuy;
6. reviewed publicly available financial data and stock market
performance data of companies which we deemed generally comparable
to DePuy;
7. reviewed the terms of recent acquisitions of companies which we
deemed generally comparable to DePuy;
8. conducted such other studies, analyses, and inquiries as we deemed
appropriate; and
9. reviewed the Stockholder Agreement and the Guarantee Agreement
(the "Stockholder Agreement") between J&J and the stockholders
listed on the signature pages thereto (the "Stockholders") and
have received the representations of Roche that there are no other
agreements or understandings between Roche (and its affiliates) on
the one hand and J&J (and its affiliates) on the other hand, other
than the Stockholder Agreement and the Merger Agreement, with
respect to the consideration to be received by the stockholders
for their shares in DePuy.
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by DePuy.
With respect to DePuy's projected financial results, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of DePuy as to its expected future
performance. We have not assumed any responsibility for the information or
projections provided to us and we have further relied upon the assurances of the
management of DePuy that it is unaware of any facts that would make the
information or projections provided to us incomplete or misleading. In arriving
at our opinion, we have not performed or obtained any independent appraisal of
the assets or liabilities of DePuy. Our opinion is necessarily based on
economic, market and other conditions, and the information made available to us,
as of the date hereof.
Based on the foregoing, it is our opinion that the consideration to be received
by the public shareholders of DePuy in the Transaction is fair, from a financial
point of view, to the public shareholders of DePuy.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: Brian A. McCarthy
------------------------------------
Senior Managing Director
<PAGE> 1
DePuy Logo
July 27, 1998
To the Stockholders of DePuy, Inc.:
As announced on July 21, 1998, DePuy, Inc. ("DePuy"), Johnson & Johnson
("J&J"), the world's most comprehensive and broadly-based manufacturer of health
care products, and LIB Acquisition Corp. ("Purchaser"), a wholly owned
subsidiary of J&J, have executed an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which Purchaser will seek to acquire all outstanding
shares of DePuy (the "Shares") by a tender offer for all of the Shares at a
price of $35 per Share in cash (the "Offer"). Following the successful
completion of the tender offer, upon approval by the required stockholder vote,
Purchaser will be merged with DePuy (the "Merger") and all Shares not purchased
in the tender offer will be converted into the right to receive $35 per share in
cash.
On July 21, 1998, J&J and Purchaser also entered into a Stockholder
Agreement with certain stockholders of the Company (the "Stockholders") pursuant
to which each Stockholder has agreed to sell all the Shares that such
Stockholder owns for $35 per Share in cash if Purchaser accepts any Shares for
payment under the Offer. The Stockholders have agreed to tender their Shares
into the Offer. These Shares collectively represent approximately 82.2% of the
outstanding Shares on a fully diluted basis and, after accepting such Shares for
payment pursuant to the Offer, Purchaser will be able to elect a majority of the
members of DePuy's Board of Directors and to effect the Merger without the
affirmative vote of any other stockholder.
YOUR BOARD OF DIRECTORS HAS APPROVED AND FOUND ADVISABLE THE OFFER, THE
MERGER, THE MERGER AGREEMENT AND THE STOCKHOLDER AGREEMENT, DETERMINED THAT THE
TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE
STOCKHOLDERS OF DEPUY, AND RECOMMENDS THAT STOCKHOLDERS OF DEPUY ACCEPT THE
OFFER AND TENDER THEIR SHARES.
Accompanying this letter is a copy of DePuy's Solicitation/Recommendation
Statement on Schedule 14D-9 and DePuy's Information Statement pursuant to
Section 14(f). Also enclosed are the Offer to Purchase and related materials of
J&J, including a Letter of Transmittal for use in tendering shares. We urge you
to read all of the enclosed materials carefully.
Bear, Stearns & Co. Inc. has rendered its opinion that the consideration to
be received by the DePuy stockholders (other than the Stockholders) in the Offer
and the Merger is fair to such stockholders from a financial point of view. This
opinion is attached as an exhibit to the enclosed materials.
The management and directors thank you for the support you have given
DePuy.
Sincerely,
/s/ J. A. Lent
--------------
James A. Lent
Chairman and Chief Executive Officer
