<PAGE>
As filed with the Securities and Exchange Commission on January 21, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10/A-1
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
----------------
Edwards Lifesciences Corporation
formerly known as CVG Controlled Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-4316614
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17221 Red Hill Avenue
Irvine, California 92614
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code:
(949) 250-2500
----------------
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which
to be registered each class is to be registered
------------------- ------------------------------
<S> <C>
Common Stock, par value $1.00 New York Stock Exchange
Series A Junior Participating Preferred New York Stock Exchange
Stock Purchase Rights (currently traded
with Common Stock)
</TABLE>
----------------
Securities to be registered pursuant to Section 12(g) of the Act: None.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ANNEX I
THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT IS SUBJECT TO
COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO EDWARDS
LIFESCIENCES CORPORATION'S COMMON STOCK HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. THESE SECURITIES WILL NOT BE ISSUED BEFORE THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS INFORMATION STATEMENT SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THESE
SECURITIES.
<PAGE>
EXPLANATORY NOTE
This Registration Statement on Form 10 has been prepared on a prospective
basis on the assumption that, among other things, the distribution and the
related transactions contemplated to occur prior to or contemporaneously with
the distribution will be consummated as contemplated by the information
statement which is a part of this Registration Statement. There can be no
assurance, however, that any or all of such transactions will occur or will
occur as so contemplated. Any significant modifications or variations in the
transactions contemplated will be reflected in an amendment or supplement to
this Registration Statement.
<PAGE>
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
847.948.2000
[ ], 2000
To all Baxter International Inc. Stockholders:
I am pleased to inform you that on [ ], 2000, Baxter's board of directors
declared a stock dividend to achieve a distribution of all of the outstanding
shares of common stock of Edwards Lifesciences Corporation to all Baxter
stockholders of record on [ ], 2000.
Edwards Lifesciences is a new company, formed initially as a wholly owned
subsidiary of Baxter, and is comprised of Baxter's CardioVascular business.
Edwards Lifesciences is a leader in providing a comprehensive line of products
and services to treat late-stage cardiovascular disease. The distribution is
expected to make both Baxter and Edwards Lifesciences more competitive, giving
each company more financial flexibility to invest and grow. We believe the
combined value of two separate, but stronger companies will be greater than
the value of Baxter as a whole today.
Following the distribution, Baxter will continue to focus on providing
critical medical therapies that improve the lives of millions of people
worldwide. We intend to invest more resources in our Blood Therapies, I.V.
Systems/Medical Products and Renal businesses. These investments will further
enhance our ability to bring new products to market and to expand globally. If
you are a Baxter stockholder of record at the close of business on [ ], 2000,
the record date for the distribution, you will receive one share of Edwards
Lifesciences common stock for every [six] shares of Baxter common stock you
own on that date. Edwards Lifesciences stock certificates will be distributed
beginning [ ], 2000. No action is required on your part to receive your
Edwards Lifesciences stock.
The attached information statement, which is being mailed to all Baxter
stockholders, describes the distribution in detail and contains important
information about Edwards Lifesciences, including financial statements.
Sincerely,
Harry M. Jansen Kraemer, Jr.
Chairman and Chief Executive Officer
<PAGE>
[Edwards Lifesciences Corporation letterhead]
[ ], 2000
Dear Edwards Lifesciences Corporation Stockholder:
It is my pleasure to welcome you as a stockholder of Edwards Lifesciences
Corporation. We are a leader in providing a comprehensive line of therapies
and services to treat late-stage cardiovascular disease, and a significant
portion of our current products and services occupy market-leading positions.
Edwards Lifesciences operates in four main product lines: cardiac surgery,
critical care, vascular and perfusion products and services.
I invite you to learn more about Edwards Lifesciences in the attached
information statement. We expect that operating as an independent company
focused on late-stage cardiovascular disease therapy will accelerate the speed
of innovation of our business. We also expect that it will allow us to
significantly expand our product development pipeline, and pursue attractive
opportunities to expand our offerings and operations through acquisitions and
strategic alliances. Ultimately, we anticipate that this will lead to
innovative, diversified and improved treatment options for patients suffering
from late-stage cardiovascular disease. As a more aggressive competitor, we
believe that we can accelerate our future growth rate.
In 1998, we achieved net revenues of $865 million, an amount that will make
us the largest company focused exclusively on the late-stage cardiovascular
disease market. We expect that Edwards Lifesciences' common stock will be
listed and traded on the New York Stock Exchange and that its stock symbol
will be "EW ".
Our management team is eager to distinguish Edwards Lifesciences through
continued strong leadership and solid financial performance. We are pleased
that you, as a stockholder of Edwards Lifesciences, will participate in our
mission.
Sincerely,
Michael A. Mussallem
Chairman and Chief Executive Officer
<PAGE>
Information Contained Herein is Subject to Completion or Amendment
Preliminary Copy Dated January , 2000
INFORMATION STATEMENT
[LOGO]
Edwards Lifesciences Corporation
Common Stock
We are providing this information statement
to you as a stockholder of Baxter
International Inc. in connection with the
distribution by Baxter to its stockholders of
all of the outstanding shares of Edwards
Lifesciences common stock. Edwards
Lifesciences will conduct the business
currently performed by Baxter's
CardioVascular group.
Consider carefully the
risk factors beginning
on page 7 of this
information statement.
Stockholder approval
of the distribution of
Edwards Lifesciences
common stock is not
required. We are not
asking you for a proxy
and we request that
you do not send us a
proxy. Also, you are
not required to make
any payment for the
shares of Edwards
Lifesciences common
stock that you will
receive.
It is expected that the distribution will be
made on [ ], 2000, to holders of record
of Baxter common stock on [ ], 2000. If
you are a Baxter stockholder at the close of
business on the record date, you will receive
one share of Edwards Lifesciences common
stock for every [six] shares of Baxter common
stock you hold on that date. Certificates for
the shares will be mailed to you, or your
brokerage account will be credited for the
shares, on or about [ ], 2000.
Fractional shares will not be issued and you
will receive a check or a credit to your
brokerage account for the cash equivalent of
any fractional shares you otherwise would
have received in the distribution. You will
not be required to pay anything for the
shares of Edwards Lifesciences common stock
to be distributed to you, nor will you be
required to surrender or exchange your shares
of Baxter common stock or take any other
action in order to receive Edwards
Lifesciences common stock.
This information
statement is not an
offer to sell, or a
solicitation of any
offer to buy, any
securities of Edwards
Lifesciences
Corporation or Baxter
International Inc.
Application has been made to list the Edwards
Lifesciences common stock on the New York
Stock Exchange under the symbol "EW."
The information contained in this information statement is subject to
completion or amendment. A registration statement on Form 10 relating to
Edwards Lifesciences' common stock has been filed with the Securities and
Exchange Commission. These securities will not be issued before the
registration statement becomes effective.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the Edwards Lifesciences common stock,
or determined that this information statement is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this information statement is [ ], 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
SUMMARY.................................................................... 1
Edwards Lifesciences' Business........................................... 1
Questions and Answers About Edwards Lifesciences and the Distribution.... 2
Summary Historical Financial Data........................................ 5
Summary Unaudited Pro Forma Financial Data............................... 6
RISK FACTORS............................................................... 7
Risks Related to Edwards Lifesciences' Business.......................... 7
Risks Related to the Health Care Industry................................ 11
Risks Related to Edwards Lifesciences' Separation from Baxter............ 13
Risks Related to Ownership of Edwards Lifesciences' Common Stock......... 14
FORWARD-LOOKING STATEMENTS................................................. 15
EDWARDS LIFESCIENCES' BUSINESS............................................. 16
Overview................................................................. 16
Business Strategy........................................................ 16
Edwards Lifesciences' Product and Service Offerings...................... 17
Cardiac Surgery.......................................................... 17
Critical Care............................................................ 19
Vascular................................................................. 20
Perfusion Products and Services.......................................... 20
Competition.............................................................. 21
Sales and Marketing...................................................... 21
Raw Materials and Manufacturing.......................................... 22
Quality Assurance........................................................ 22
Research and Development................................................. 23
Proprietary Technology................................................... 23
Government Regulation and Other Matters.................................. 24
Properties............................................................... 26
Employees................................................................ 26
EDWARDS LIFESCIENCES' RELATIONSHIP WITH BAXTER AFTER THE DISTRIBUTION...... 27
General.................................................................. 27
Reorganization Agreement................................................. 27
Tax Sharing Agreement.................................................... 29
Distribution Agreements.................................................. 29
Services and Other Agreements............................................ 29
THE DISTRIBUTION........................................................... 31
Background and Reasons for the Distribution.............................. 31
Manner of Effecting the Distribution..................................... 31
Accounting Treatment of Plan of Reorganization........................... 32
Important Federal Income Tax Consequences................................ 32
Market for Edwards Lifesciences Common Stock............................. 33
Dividend Policy.......................................................... 34
Distribution Conditions and Termination.................................. 34
Opinions of Financial Advisors........................................... 35
SELECTED FINANCIAL DATA OF EDWARDS LIFESCIENCES............................ 36
EDWARDS LIFESCIENCES' UNAUDITED PRO FORMA FINANCIAL DATA................... 37
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
EDWARDS LIFESCIENCES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................... 41
Overview................................................................ 41
Results of Operations................................................... 42
Liquidity and Capital Resources......................................... 45
Euro Conversion......................................................... 46
New Accounting and Disclosure Standard.................................. 46
Currency Risk........................................................... 46
EDWARDS LIFESCIENCES MANAGEMENT........................................... 47
Board of Directors...................................................... 47
Committees of the Board of Directors.................................... 48
Compensation of Directors............................................... 48
Executive Officers...................................................... 48
EDWARDS LIFESCIENCES EXECUTIVE COMPENSATION............................... 50
1999 Compensation of Executive Officers................................. 50
Stock Option Grants..................................................... 51
Stock Option Exercises.................................................. 52
Pension Plan and Excess Pension Plan.................................... 52
Baxter Common Stock Held by Edwards Lifesciences Employees.............. 53
Future Compensation of Executive Officers............................... 53
2000 Incentive Compensation Program..................................... 54
Edwards Lifesciences Change of Control Plan............................. 56
Edwards Lifesciences Retirement Plan for United States Employees........ 57
Employee Stock Purchase Plan for United States Employees................ 58
Transition Options for Salaried Exempt Employees........................ 59
Initial Stock Option Grant for Salaried Employees Worldwide............. 59
Employee Stock Purchase Plan for Employees Outside the United States.... 59
Initial Stock Grant for Hourly Employees Outside the United States...... 59
Other Retirement Plans for Employees Outside the United States.......... 59
SECURITY OWNERSHIP OF EDWARDS LIFESCIENCES................................ 60
DESCRIPTION OF EDWARDS LIFESCIENCES CAPITAL STOCK......................... 61
Authorized Capital Stock................................................ 61
Edwards Lifesciences Common Stock....................................... 61
Edwards Lifesciences Preferred Stock.................................... 61
Edwards Lifesciences Rights Agreement................................... 61
CERTAIN ANTI-TAKEOVER EFFECTS OF PROVISIONS OF EDWARDS LIFESCIENCES'
CERTIFICATE OF INCORPORATION AND BYLAWS AND OF DELAWARE LAW.............. 63
Certificate of Incorporation and Bylaws................................. 63
Delaware Law............................................................ 65
LIMITATION OF LIABILITY AND INDEMNIFICATIONOF EDWARDS LIFESCIENCES
DIRECTORS AND OFFICERS................................................... 66
Limitation of Liability of Directors.................................... 66
Indemnification of Directors and Officers............................... 66
EDWARDS LIFESCIENCES 2001 ANNUAL MEETING OF STOCKHOLDERS.................. 67
ADDITIONAL INFORMATION.................................................... 67
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE....................... F-1
</TABLE>
ii
<PAGE>
SUMMARY
This summary highlights selected information from this information
statement, but does not contain all details concerning the distribution of the
Edwards Lifesciences common stock to Baxter stockholders, including information
that may be important to you. To better understand the distribution, and the
business and financial position of Edwards Lifesciences, you should carefully
review this entire document. References in this information statement to
"Edwards Lifesciences" mean Edwards Lifesciences Corporation, a Delaware
corporation, and its subsidiaries and affiliates following the distribution.
References in this information statement to the CardioVascular business mean
the CardioVascular business as conducted by Baxter for periods prior to the
distribution date. References in this information statement to "Baxter" mean
Baxter International Inc., a Delaware corporation, and its subsidiaries and
affiliates.
Edwards Lifesciences' Business
Edwards Lifesciences designs, develops, manufactures and markets a
comprehensive line of products and services to treat late-stage cardiovascular
disease. Edwards Lifesciences is the worldwide leader in the development,
marketing and sale of both tissue replacement heart valves and heart valve
repair products. Edwards Lifesciences' product lines are grouped into four
general areas: cardiac surgery, critical care, vascular and perfusion products
and services. Edwards Lifesciences also offers a diverse grouping of other
product lines comprised mostly of pharmaceuticals and select distributed
products. Edwards Lifesciences supplies its products and services to customers
in more than 80 countries, both through direct sales and distribution
relationships, and reported annual sales in 1998 of $865 million.
Edwards Lifesciences' cardiac surgery product lines include products
relating to heart valve therapy, a left ventricular assist device, as well as
cannulae and cardioplegia products used during open heart surgery. Edwards
Lifesciences' critical care product offerings include hemodynamic monitoring
devices for measuring heart pressure and output during surgical procedures and
in post-surgical intensive care settings. Edwards Lifesciences has been a world
leader in this area since the development of its Swan-Ganz catheter more than
30 years ago. Edwards Lifesciences' vascular products include a line of
balloon-tipped, catheter-based products, surgical clips and inserts, angioscopy
equipment and artificial implantable grafts. The perfusion products offered by
Edwards Lifesciences include a diverse line of disposable and hardware products
used during cardiopulmonary bypass procedures, including oxygenators, blood
containers, filters and related devices and heart-lung machines. Edwards
Lifesciences also is the world's leading provider of contract perfusion
services with a staff of more than 400 clinical perfusionists who perform an
aggregate of more than 50,000 perfusion cases for open heart surgery per year.
Edwards Lifesciences employs over 5,000 people and its products are
manufactured throughout the world, including Brazil, the Dominican Republic,
Japan, The Netherlands, Puerto Rico, Switzerland and the United States. Edwards
Lifesciences' headquarters are located at 17221 Red Hill Avenue, Irvine,
California 92614 and its telephone number is 949.250.2500. Edwards Lifesciences
was incorporated in Delaware in 1999.
As of the distribution date, Baxter will have transferred its CardioVascular
business to Edwards Lifesciences, a newly formed Delaware corporation. Baxter
will distribute the shares of Edwards Lifesciences common stock to Baxter
stockholders on a proportionate basis beginning on [ ], 2000.
The distribution of the shares of Edwards Lifesciences common stock will be
effective on the distribution date. No vote of Baxter's stockholders is
required to approve the distribution of the Edwards Lifesciences common stock.
1
<PAGE>
Questions and Answers about Edwards Lifesciences and the Distribution
Why is Baxter separating
Edwards Lifesciences?
Baxter is creating an independent, publicly traded
company for its CardioVascular business because its
management believes that the combined value of two
separate companies will be greater than the value
of Baxter as a whole today. Edwards Lifesciences
expects that the distribution will allow it to
compete more effectively in the intensely
competitive and rapidly consolidating
cardiovascular device industry. Edwards
Lifesciences believes that as an independent
company, it will increase the level of funding of,
and commitment to, intense research and development
with a focus on enhancing its number and diversity
of new products. Edwards Lifesciences also expects
that it will be more aggressive in pursuing
acquisition and strategic alliance opportunities as
an independent company with the ability to use its
stock as currency. Having a publicly traded equity
security will also enable Edwards Lifesciences to
better attract and retain key employees by more
directly linking its employees' compensation with
Edwards Lifesciences' performance.
Following the distribution, Baxter intends to
invest more resources in its remaining core
businesses, which it expects will further enhance
its ability to successfully commercialize new
products and to expand its global markets.
What will the After the distribution, Baxter and Edwards
relationship be between Lifesciences will be separate, publicly owned
Edwards Lifesciences and companies. Baxter and Edwards Lifesciences will
Baxter after the enter into certain agreements to define their
distribution? ongoing relationship after the distribution. These
agreements also will allocate responsibility for
obligations both before and after the distribution
date. See "Edwards Lifesciences' Relationship With
Baxter After The Distribution" beginning on page
29.
How will Edwards
Lifesciences be managed?
Edwards Lifesciences' management team will be
essentially the same operating management team as
Baxter's CardioVascular business had during the
period prior to the distribution. Michael A.
Mussallem will be the Chairman of the Board and
Chief Executive Officer of Edwards Lifesciences.
Mr. Mussallem has extensive experience in the
medical products and services industry, having been
with Baxter for over twenty years. Mr. Mussallem
will be supported by an experienced management team
that will include Stuart L. Foster and Anita B.
Bessler, who together have spent in excess of 45
collective years in the industry. See "Edwards
Lifesciences Management--Executive Officers"
beginning on page 51.
The Edwards Lifesciences board of directors is
expected to initially consist of seven persons,
including Mr. Mussallem and six independent
directors who will be designated prior to or
promptly following the distribution. See "Edwards
Lifesciences Management--Board of Directors"
beginning on page 50.
2
<PAGE>
When will the
distribution happen? [ ], 2000. Baxter will distribute the shares
of Edwards Lifesciences common stock on the
distribution date, which will be on or about
[ ], 2000, to holders of Baxter common stock
on the record date.
What is the record date [ ], 2000
for the distribution?
What do I have to do to
participate in the Nothing. You are not required to take any action to
distribution? receive Edwards Lifesciences common stock in the
distribution. No proxy or vote is necessary for the
distribution. If you own Baxter common stock as of
the close of business on the record date, shares of
Edwards Lifesciences common stock will be mailed to
you or credited to your brokerage account on [ ],
2000. You do not need to mail in Baxter common
stock certificates to receive Edwards Lifesciences
common stock certificates. The number of shares of
Baxter common stock you own will not change as a
result of the distribution.
How many shares of
Edwards Lifesciences
common stock will I
receive? Baxter will distribute one share of Edwards
Lifesciences common stock, along with associated
preferred stock purchase rights, for every [six]
shares of Baxter common stock you own as of the
close of business on the record date. For example,
if you own [150] shares of Baxter common stock on
the record date, you will receive [25] shares of
Edwards Lifesciences common stock in the
distribution. Based on approximately [291,708,000]
shares of Baxter common stock that we expect to be
outstanding on the record date for the
distribution, Baxter will distribute a total of
approximately [48,618,000] shares of Edwards
Lifesciences common stock.
Will Baxter distribute
fractional shares? No. Baxter will not distribute any fractional
shares of Edwards Lifesciences common stock. You
will receive a check or a credit to your brokerage
account for the cash equivalent of any fractional
shares you otherwise would have received in the
distribution, less applicable taxes. The amount of
the cash payment will depend upon the prices at
which the fractional shares are sold in the open
market on or about the distribution date.
Is the distribution
taxable for United States The distribution is conditioned on Baxter receiving
federal income tax a ruling from the United States Internal Revenue
purposes? Service substantially to the effect that the
distribution will be tax-free to Baxter and to
Baxter's United States stockholders, except with
respect to cash paid in lieu of fractional shares
of Edwards Lifesciences common stock. See "The
Distribution--Important Federal Income Tax
Consequences" beginning on page 34, for a more
complete discussion of the United States federal
income tax consequences of the distribution to
holders of Baxter common stock.
Will I be paid any
dividends on the Edwards
Lifesciences common Edwards Lifesciences has no current plans to pay
stock? dividends following the distribution. Edwards
Lifesciences will pay dividends on Edwards
Lifesciences common stock only if declared by the
Edwards
3
<PAGE>
Lifesciences board of directors in its sole
discretion following the distribution. The payment
and level of cash dividends, if any, will be based
upon a number of factors, including the operating
results, cash flow and financial requirements of
Edwards Lifesciences. See "The Distribution--
Dividend Policy" beginning on page 35.
Where will my shares of Edwards Lifesciences expects that its common stock
Edwards Lifesciences will be listed on the New York Stock Exchange under
common stock trade? the symbol "EW". See "The Distribution--Market for
Edwards Lifesciences Common Stock" beginning on
page 35.
What will happen to the Nothing. Baxter common stock will continue to be
listing of Baxter's listed on the NYSE under the symbol "BAX."
shares on the New York
Stock Exchange?
Will the distribution
affect the trading price Yes. After the distribution, the trading price of
of my Baxter common Baxter common stock is likely to be lower than the
stock? trading price immediately prior to the
distribution. Moreover, the trading price of Baxter
common stock may fluctuate after the distribution
as the market evaluates the operations of Baxter
without the business of Edwards Lifesciences. Until
the market has fully analyzed Edwards Lifesciences'
business, the prices at which the Edwards
Lifesciences common stock trades may fluctuate
significantly. The combined market value of Baxter
common stock and Edwards Lifesciences common stock
may be less than, equal to or greater than the
market value of Baxter common stock prior to the
distribution. See "The Distribution--Market for
Edwards Lifesciences Common Stock" beginning on
page 35.
Before the distribution, you should direct
Who do I contact for inquiries relating to the distribution to:
information regarding the
distribution and Edwards
Lifesciences?
Baxter International Inc.
One Baxter Parkway
Deerfield, IL 60015
Attention: Investor Relations
847.948.2000
After the distribution, you should direct inquiries
relating to an investment in Edwards Lifesciences
common stock to:
Edwards Lifesciences
17221 Red Hill Avenue
Irvine, California 92614
Attention: Investor Relations
949.250.2500
After the distribution, the transfer agent and
registrar for the Edwards Lifesciences common stock
will be:
[To be selected]
4
<PAGE>
Summary Historical Financial Data
The following table sets forth summary historical combined financial data
for Edwards Lifesciences. The historical combined financial data of Edwards
Lifesciences are derived from the "Combined Financial Statements," which are
included elsewhere in this information statement. See Note 3 to "Combined
Financial Statements" and "Edwards Lifesciences Management's Discussion and
Analysis of Financial Condition and Results of Operations" for discussions of
the effect of Edwards Lifesciences certain acquisitions on Edwards
Lifesciences' revenues, expenses and financial position.
<TABLE>
<CAPTION>
For the nine
months ended For the years ended
September 30, December 31,
-------------- ----------------------
1999 1998 1998 1997 1996
------ ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net sales........................ $ 672 $ 639 $ 865 $ 879 $ 837
Gross profit..................... $ 328 $ 300 $ 399 $ 416 $ 395
Net income (loss) (a)............ $ 62 $ 47 $ 62 $ (52) $ 87
Balance Sheet and Cash Flow Data
Cash flow provided from
operations...................... $ 107 $ 113 $ 176 $ 163 $ 185
Cash flow from investment
transactions, net............... $ (38) $ (40) $ (52) $ (58) $ (155)
Cash flow from financing
transactions, net............... $ (69) $ (73) $ (124) $ (105) $ (30)
Total assets..................... $1,465 $1,483 $1,483 $1,526 $1,473
Other Data
EBITDA (a)(b).................... $ 150 $ 131 $ 175 $ 197 $ 206
</TABLE>
- -------
(a) See Note 3 to "Combined Financial Statements" and "Edwards Lifesciences
Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional information regarding the $132 million in-
process research and development charge in 1997 relating to the
acquisition of Research Medical, Inc.
(b) EBITDA, or earnings before interest, income taxes, depreciation and
amortization, is presented because it is a widely accepted financial
indicator used by certain investors and analysts to compare and analyze
companies on the basis of operating performance. We believe a presentation
of earnings before certain noncash charges may enhance an investor's
comparisons of competitor companies that have historically used different
methods of accounting for business combinations. EBITDA in 1997 excludes
the $132 million in-process research and development charge relating to
the acquisition of Research Medical, Inc.
EBITDA is not intended to represent cash flows for the period, nor is it
presented as an alternative to operating income or as an indicator of
operating performance. It should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
accounting principles generally accepted in the United States (GAAP).
Disclosure regarding cash flows from operating, investing and financing
transactions is presented in "Edwards Lifesciences Management's Discussion
and Analysis of Financial Condition and Results of Operations". Further,
EBITDA is not indicative of operating income or cash flow from operations
as determined under GAAP. Items excluded from EBITDA are significant
components in understanding and assessing financial performance. Our method
of computation may or may not be comparable to other similarly titled
measures of other companies.
5
<PAGE>
Summary Unaudited Pro Forma Financial Data
The following table sets forth summary unaudited pro forma financial data.
This data presents the combined results of Edwards Lifesciences assuming that
the transactions contemplated by the distribution had been completed as of
January 1, 1998. See page 39 for computation of pro forma amounts, including
descriptions of the pro forma adjustments.
We have prepared the summary unaudited pro forma information utilizing the
historical combined financial statements of Edwards Lifesciences. You should
read this information in conjunction with the historical combined financial
statements and notes to those statements, included elsewhere in this
information statement. The summary unaudited pro forma financial data does not
purport to be indicative of the results of Edwards Lifesciences in the future
or what the financial position and results of operations would have been had
Edwards Lifesciences been a separate, stand-alone entity during the periods
shown. Pro forma cash flows are not presented as such amounts would not be
factually supportable.
<TABLE>
<CAPTION>
For the
nine
months
ended
September For the year ended
30, December 31,
--------- ------------------
1999 1998 1998
---- ---- ------------------
(in millions)
<S> <C> <C> <C>
Net sales.................................... $672 $639 $865
Gross profit................................. $326 $298 $396
Net income................................... $ 32 $ 21 $ 27
EBITDA (a)................................... $130 $111 $147
</TABLE>
- --------
(a) EBITDA, or earnings before interest, income taxes, depreciation and
amortization, is not a measure defined by generally accepted accounting
principles. Refer to footnote (b) of "Summary Historical Financial Data"
for a discussion of the EBITDA measure.
6
<PAGE>
RISK FACTORS
Consider carefully all of the information contained in this information
statement and, in particular, the following factors:
Risks Related to Edwards Lifesciences' Business
If Edwards Lifesciences does not introduce new products in a timely manner,
its products may become obsolete, and its operating results may suffer.
The cardiovascular products industry is characterized by rapid
technological changes, frequent new product introductions and evolving
industry standards. Without the timely introduction of new products and
enhancements, Edwards Lifesciences' products will likely become
technologically obsolete over time, in which case Edwards Lifesciences'
revenue and operating results would suffer. The success of Edwards
Lifesciences' new product offerings will depend on several factors, including
its ability to:
. properly identify and anticipate customer needs;
. innovate and develop new technologies and applications;
. successfully commercialize new technologies in a timely manner;
. manufacture and deliver products in sufficient volumes on time;
. differentiate Edwards Lifesciences' offerings from competitors offerings;
and
. price products competitively.
In addition, new technologies that Edwards Lifesciences develops may not be
accepted quickly because of industry-specific factors, such as the need for
regulatory clearance, unanticipated restrictions imposed on approved
indications, entrenched patterns of clinical practice, uncertainty over third-
party reimbursement and clinicians' fears of malpractice suits.
Moreover, significant technical innovations generally will require a
substantial investment before Edwards Lifesciences can determine the
commercial viability of these innovations. Edwards Lifesciences may not have
the financial resources necessary to fund these technical innovations. In
addition, even if Edwards Lifesciences is able to successfully develop
enhancements or new generations of its products, these enhancements or new
generations of products may not produce revenue in excess of the costs of
development, and they may be quickly rendered obsolete by changing customer
preferences or the introduction by Edwards Lifesciences' competitors of
products embodying new technologies or features.
Edwards Lifesciences may incur product liability and professional liability
losses and insurance coverage may be inadequate or unavailable to cover these
losses.
Edwards Lifesciences' business exposes it to potential product liability
risks that are inherent in the design, manufacture and marketing of medical
devices. Edwards Lifesciences' products are often used in surgical and
intensive care settings with seriously ill patients. In addition, some of the
medical devices manufactured and sold by Edwards Lifesciences are designed to
be implanted in the human body for long periods of time. Edwards Lifesciences
could be the subject of product liability suits alleging that component
failures, manufacturing flaws, design defects or inadequate disclosure of
product-related risks or product-related information could result in an unsafe
condition or injury to patients. Product liability lawsuits and claims, safety
alerts or product recalls in the future, regardless of their ultimate outcome,
could have a material adverse effect on Edwards Lifesciences' business and
reputation and on its ability to attract and retain customers. In addition,
Edwards Lifesciences' perfusion services subsidiaries expose it to medical
malpractice risks. In recent years, physicians, hospitals and other medical-
service providers have become subject to an increasing number of lawsuits
alleging medical malpractice. Medical malpractice suits often involve large
claims and substantial defense costs.
Upon the distribution, Edwards Lifesciences will assume the defense of
litigation involving claims related to the CardioVascular business and will
indemnify Baxter for all related losses, costs and expenses. As part of its
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risk management policies, Edwards Lifesciences intends to seek third-party
product liability and professional liability insurance coverage. However,
Edwards Lifesciences is not certain that it will be able to obtain product
liability and professional liability insurance on commercially reasonable
terms, if at all. Furthermore, product liability claims against Edwards
Lifesciences may exceed the coverage limits of any insurance policies or cause
Edwards Lifesciences to record a self-insured loss. Edwards Lifesciences
maintains professional liability insurance coverage for individuals employed
by the subsidiary who perform perfusion services, although the amount of that
coverage may not be sufficient. Further, even if any product liability or
professional liability losses are covered by an Edwards Lifesciences insurance
policy, these policies may have substantial retentions or deductibles that
provide that Edwards Lifesciences will not receive insurance proceeds until
the losses incurred by Edwards Lifesciences exceed the amount of those
retentions or deductibles. To the extent that any losses are below these
retentions or deductibles, Edwards Lifesciences will be responsible for paying
these losses. A product liability or professional liability claim in an amount
in excess of applicable insurance could have a material adverse effect on
Edwards Lifesciences.
Edwards Lifesciences may experience supply interruptions that could harm its
ability to manufacture products.
Edwards Lifesciences uses a diverse and broad range of raw materials and
other items in the design and manufacture of its products. Edwards
Lifesciences' non-implantable products are manufactured from man-made raw
materials including resins, chemicals, electronics and metals. Edwards
Lifesciences' heart valve therapy products are manufactured from natural
animal tissue and man-made materials. Edwards Lifesciences purchases certain
of the materials and components used in the manufacture of its products from
external suppliers. In addition, Edwards Lifesciences purchases certain
supplies from single sources for reasons of quality assurance, sole source
availability, cost-effectiveness or constraints resulting from regulatory
requirements. Edwards Lifesciences works closely with its suppliers to assure
continuity of supply while maintaining high quality and reliability. Edwards
Lifesciences uses a diverse and broad range of raw and organic materials in
the design, development and manufacture of its products. Edwards Lifesciences
purchases certain of the materials and components used in manufacturing its
products from external suppliers. In addition, Edwards Lifesciences purchases
certain supplies from single sources for reasons of quality assurance, cost
effectiveness or constraints resulting from regulatory requirements. Edwards
Lifesciences works closely with its suppliers to assure continuity of supply
while maintaining high quality and reliability. Alternative supplier options
are generally considered and identified, although Edwards Lifesciences does
not typically pursue regulatory qualification of alternative sources due to
the strength of its existing supplier relationships and the time and expense
associated with the regulatory process. Although a change in suppliers could
require significant effort or investment by Edwards Lifesciences in
circumstances where the items supplied are integral to the performance of
Edwards Lifesciences' products or incorporate unique technology, management
does not believe that the loss of any existing supply contract would have a
material adverse effect on the company.
In an effort to reduce potential product liability exposure, certain
suppliers have announced that they intend to limit or terminate sales of
certain materials and parts to companies that manufacture implantable medical
devices. In the past, Baxter has been required in specific instances to
indemnify certain suppliers for its CardioVascular business for product
liability expenses. There can be no assurance that an indemnity from Edwards
Lifesciences will be satisfactory to these suppliers. If Edwards Lifesciences
is unable to obtain these raw materials or there is a significant increase in
the price of materials or components, its business could be harmed.
Edwards Lifesciences may not successfully identify and complete acquisitions
or strategic alliances on favorable terms or achieve anticipated synergies
relating to any acquisitions or alliances; Edwards Lifesciences may be
required to incur additional indebtedness to fund any acquisitions.
As part of Edwards Lifesciences' growth strategy, Edwards Lifesciences
intends to aggressively seek to acquire complementary businesses,
technologies, services or products and to enter into strategic alliances.
Edwards Lifesciences may be unable to find suitable acquisition candidates.
Even if Edwards Lifesciences
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identifies appropriate acquisition or alliance candidates, Edwards
Lifesciences may be unable to complete such acquisitions on favorable terms,
if at all. In addition, the process of integrating an acquired business,
technology, service or product into Edwards Lifesciences' existing business
and operations may result in unforeseen operating difficulties and
expenditures. Integration of an acquired company also may require significant
management resources that otherwise would be available for ongoing development
of Edwards Lifesciences' business. Moreover, Edwards Lifesciences may not
realize the anticipated benefits of any acquisition. Future acquisitions could
also require issuances of equity securities, the incurrence of debt,
contingent liabilities or amortization expenses related to goodwill and other
intangible assets, any of which could harm Edwards Lifesciences' business.
Edwards Lifesciences currently does not have any current understandings,
commitments or agreements with respect to any material acquisition.
Edwards Lifesciences also intends to pursue strategic alliances with third
parties. Edwards Lifesciences may not identify appropriate partners with whom
to form partnerships or strategic alliances. Any alliances may not generate
anticipated financial results.
Edwards Lifesciences' business is subject to economic, political and other
risks associated with international sales and operations.
Because Edwards Lifesciences sells its products in a number of foreign
countries, its business is subject to risks associated with doing business
internationally. Edwards Lifesciences' net revenue originating outside of the
United States, as a percentage of Edwards Lifesciences' total net revenue, was
41% in fiscal year 1998 and 43% for the nine months ended September 30, 1999.
Edwards Lifesciences anticipates that revenue from international operations
will continue to represent a substantial portion of its total revenue. In
addition, many of Edwards Lifesciences' manufacturing facilities and suppliers
are located outside of the United States. Edwards Lifesciences management
expects to increase its sales efforts internationally, which could expose it
to greater risks associated with international sales and operations.
Accordingly, Edwards Lifesciences' future results could be harmed by a variety
of factors, including:
. changes in foreign medical reimbursement policies and programs;
. unexpected changes in foreign regulatory requirements;
. changes in foreign currency exchange rates;
. changes in a specific country's or region's political or economic
conditions, particularly in emerging regions;
. trade protection measures and import or export licensing requirements;
. potentially negative consequences from changes in tax laws;
. difficulty in staffing and managing foreign operations;
. differing labor regulations; and
. differing protection of intellectual property.
Edwards Lifesciences will be subject to risks arising from currency exchange
rate fluctuations.
Approximately 43% of Edwards Lifesciences' revenues for the nine months
ended September 30, 1999 were generated from outside of the United States.
Measured in local currency, a substantial portion of Edwards Lifesciences
foreign-generated revenues were generated in Europe (and primarily denominated
in the Euro) and in Japan. The United States dollar value of Edwards
Lifesciences foreign-generated revenues varies with currency exchange rate
fluctuations. Significant increases in the value of the United States dollar
relative to the Euro or the Japanese Yen, as well as other currencies, could
have a material adverse effect on Edwards Lifesciences' results of operations.
The CardioVascular business has historically been considered in Baxter's
overall risk management strategy. As part of this strategy, Baxter has used
financial instruments to reduce its exposure to adverse movements in currency
exchange rates. As an independent company, Edwards Lifesciences
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plans to implement a hedging policy which will attempt to manage currency
exchange rate risks to an acceptable level based on management's judgment of
the appropriate trade-off between risk, opportunity and cost; however this
hedging policy may not successfully eliminate the effects of currency exchange
rate fluctuations.
The conversion to the Euro has required Edwards Lifesciences to modify its
business operations and if these modifications are not successful or if there
are any negative economic developments in the European Union, Edwards
Lifesciences' business may be negatively affected.
On January 1, 1999, eleven member countries of the European Union
established fixed conversion rates between their existing currencies and one
common currency, the Euro. Uncertainties exist as to the effects the Euro may
have on Edwards Lifesciences' European customers, as well as the impact of the
Euro conversion on the economies of the participating countries. Approximately
43% of Edwards Lifesciences' revenues for the nine months ended September 30,
1999 were derived from outside the United States, a significant portion of
which were generated in Europe and primarily denominated in currencies linked
to the Euro since January 1, 1999. Any negative economic developments that
occur in the combined European Union economy and the possible devaluation of
the Euro could have a material negative impact on Edwards Lifesciences'
business.
Potential effects on Edwards Lifesciences' operations include:
. the need to modify business systems to recognize the Euro as a functional
currency; and
. the competitive impact of cross-border price transparency, which may make
it more difficult for a business to charge different prices for the same
products on a country-by-country basis, particularly once the Euro
currency begins circulation in 2002.
Edwards Lifesciences will continue to evaluate the impact of the
introduction of the Euro as Edwards Lifesciences continues to expand its
operations throughout Europe.
Fluctuations in Edwards Lifesciences' quarterly operating results may cause
Edwards Lifesciences' stock price to decline.
Edwards Lifesciences' revenue and operating results may vary significantly
from quarter to quarter. A high proportion of Edwards Lifesciences' costs are
fixed, due in part to significant sales, research and development and
manufacturing costs. Thus, small declines in revenue could disproportionately
affect operating results in a quarter, and the price of Edwards Lifesciences
common stock may fall. Other factors that could affect quarterly operating
results include:
. demand for and clinical acceptance of products;
. the timing and execution of customer contracts, particularly large
contracts that would materially affect Edwards Lifesciences' operating
results in a given quarter;
. the timing of sales of products;
. changes in foreign currency exchange rates;
. unanticipated delays or problems in introducing new products;
. competitors' announcements of new products, services or technological
innovations;
. changes in Edwards Lifesciences' pricing policies or the pricing policies
of its competitors;
. increased expenses, whether related to sales and marketing, raw materials
or supplies, product development or administration;
. adverse changes in the level of economic activity in the United States
and other major regions in which Edwards Lifesciences does business;
. costs related to possible acquisitions of technologies or businesses;
. Edwards Lifesciences' ability to expand its operations; and
. the amount and timing of expenditures related to expansion of Edwards
Lifesciences' operations.
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Edwards Lifesciences' inability to protect its intellectual property could
have a material adverse effect on its business.
Edwards Lifesciences' success and competitive position are dependent, in
part, upon its proprietary intellectual property. Edwards Lifesciences relies
on a combination of patents, trade secrets and nondisclosure agreements to
protect its proprietary intellectual property, and will continue to do so.
Although Edwards Lifesciences seeks to protect its proprietary rights through
a variety of means, Edwards Lifesciences cannot guarantee that the protective
steps it has taken are adequate to protect these rights. Patents issued to or
licensed by Edwards Lifesciences in the past or in the future may be
challenged and held invalid or not infringed by third parties. Competitors may
also challenge Edwards Lifesciences' patents.
Edwards Lifesciences will also rely on confidentiality agreements with
certain employees, consultants and other parties to protect, in part, trade
secrets and other proprietary information. These agreements could be breached
and Edwards Lifesciences may not have adequate remedies for any breach. In
addition, others may independently develop substantially equivalent
proprietary information or gain access to Edwards Lifesciences' trade secrets
or proprietary information.
Edwards Lifesciences will be required to spend significant resources to
monitor and enforce its intellectual property rights. Edwards Lifesciences may
not be able to detect infringement and may lose its competitive position in
the industry. In addition, competitors may design around Edwards Lifesciences'
technology or develop competing technologies. Intellectual property rights may
also be unavailable or limited in some foreign countries, which could make it
easier for competitors to capture increased market position.
Third parties may claim Edwards Lifesciences is infringing their intellectual
property, and Edwards Lifesciences could suffer significant litigation or
licensing expenses or be prevented from selling products.
During recent years, Baxter's competitors have been involved in substantial
litigation regarding patent and other intellectual property rights in the
medical device industry generally. In the future, Edwards Lifesciences may be
forced to defend itself against claims and legal actions alleging infringement
of the intellectual property rights of others. Because intellectual property
litigation can be costly and time consuming, Edwards Lifesciences'
intellectual property litigation expenses could be significant in the future.
Adverse determinations in any such litigation could subject Edwards
Lifesciences to significant liabilities to third parties, could require
Edwards Lifesciences to seek licenses from third parties and could, if such
licenses are not available, prevent Edwards Lifesciences from manufacturing,
selling or using certain of its products, any one of which could have a
material adverse effect on Edwards Lifesciences.
Third parties could also obtain patents that may require Edwards
Lifesciences to either re-design its products or, if possible, negotiate
licenses to conduct its business. If Edwards Lifesciences is unable to re-
design its products or obtain a license, Edwards Lifesciences may have to exit
a particular product offering.
Edwards Lifesciences has not previously operated as an independent company.
Edwards Lifesciences does not have an operating history as an independent
public company and Edwards Lifesciences' management has no experience, as a
group, in operating Edwards Lifesciences as a stand-alone business. While
Edwards Lifesciences has been profitable as a part of Baxter, there is no
assurance that as a stand-alone company revenues and profits will continue at
the same level. For more information, see "Combined Financial Statements."
The agreements governing Edwards Lifesciences' indebtedness will contain
restrictive covenants that may limit Edwards Lifesciences' future financial
flexibility.
In connection with the distribution, Edwards Lifesciences will borrow
approximately $[550] million. This indebtedness is reflected in the pro forma
financial information presented elsewhere in this information statement.
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The debt agreements relating to this indebtedness will contain restrictive
covenants which may limit or prohibit certain actions by Edwards Lifesciences.
For more information, see "Edwards Lifesciences Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Edwards Lifesciences' Unaudited Pro Forma Financial
Data."
Risks Related to the Health Care Industry
Edwards Lifesciences faces intense competition and consolidation within its
industry, and if Edwards Lifesciences does not compete effectively, its
business will be harmed.
The cardiovascular medical products industry is highly competitive. Edwards
Lifesciences competes with many companies, some of which have longer operating
histories, better brand or name recognition and greater access to financial
and other resources than Edwards Lifesciences. Furthermore, the industry is
characterized by intensive development efforts and rapidly advancing
technology. Edwards Lifesciences' present and future products could be
rendered obsolete or uneconomical by technological advances by one or more of
Edwards Lifesciences' current or future competitors or by alternative
therapies, including drug therapies. The future success of Edwards
Lifesciences will depend, in large part, on its ability to anticipate
technology advances and keep pace with other developers of cardiovascular
therapies and services. In addition, the medical devices industry has been
consolidating and as a result, transactions with customers are larger, more
complex and tend to involve more long-term contracts. The enhanced purchasing
power of these larger Edwards Lifesciences customers may also increase
downward pressure on product pricing. Competitive market forces may also
adversely affect the prices at which Edwards Lifesciences sells its products.
Many existing and potential customers for Edwards Lifesciences' products
have combined to form group purchasing organizations (GPOs). GPOs negotiate
pricing arrangements with medical supply manufacturers and distributors and
these negotiated prices are made available to a GPO's affiliated hospitals. If
Edwards Lifesciences is not one of the providers selected by a GPO, Edwards
Lifesciences may be precluded from making sales to members of a GPO for
several years. Even if Edwards Lifesciences is one of the selected providers,
Edwards Lifesciences may be at a disadvantage relative to other selected
providers that are able to offer volume discounts based on purchases of a
broader range of medical equipment and supplies. Further, Edwards Lifesciences
may be required to commit to pricing that has a material adverse effect on
sales and profit margins, the business, financial condition, and results of
operations of Edwards Lifesciences.
Edwards Lifesciences and its customers are subject to various governmental
regulations, and Edwards Lifesciences may incur significant expenses to
comply with these regulations and develop its products to be compatible with
these regulations.
The medical devices manufactured and marketed by Edwards Lifesciences are
subject to rigorous regulation by the FDA and numerous other federal, state
and foreign governmental authorities. The process of obtaining regulatory
approvals to market a medical device, particularly from the FDA and certain
foreign governmental authorities, can be costly and time consuming, and
approvals might not be granted for future products on a timely basis, if at
all. Delays in receipt of, or failure to obtain, approvals for future products
could result in delayed realization of product revenues or in substantial
additional costs which could have material adverse effects on Edwards
Lifesciences' business or results of operations. In addition, there can be no
assurance that Edwards Lifesciences will be or will continue to be in
compliance with applicable FDA and other material regulatory requirements. If
the FDA were to conclude that Edwards Lifesciences was not in compliance with
applicable laws or regulations, it could institute proceedings to detain or
seize Edwards Lifesciences' products, issue a recall, impose operating
restrictions, enjoin future violations and assess civil penalties against
Edwards Lifesciences, its officers or its employees and could recommend
criminal prosecution to the Department of Justice. Moreover, the FDA could
proceed to ban, or request recall, repair, replacement or refund of the cost
of, any device or product manufactured or distributed by Edwards Lifesciences.
Furthermore, both the FDA and foreign government regulators have become
increasingly stringent, and Edwards Lifesciences may be subject to more
rigorous regulation by governmental authorities in the future.
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If third-party payors decline to reimburse Edwards Lifesciences customers for
Edwards Lifesciences products or reduce reimbursement levels, Edwards
Lifesciences' ability to profitably sell its products will be harmed.
Edwards Lifesciences sells its products and services to hospitals, doctors
and other health care providers, all of which receive reimbursement for the
health care services provided to their patients from third-party payors, such
as government programs (both domestic and international), private insurance
plans and managed care programs. These third-party payors may deny
reimbursement if they determine that a device used in a procedure was not used
in accordance with cost-effective treatment methods, as determined by such
third-party payor, or was used for an unapproved indication. Third-party
payors may also decline to reimburse for experimental procedures and devices.
Many of Edwards Lifesciences' existing and future products are cost-effective
because they are intended to reduce overall health care costs over a long
period of time. Edwards Lifesciences cannot be certain whether these third-
party payors will recognize these cost savings or will merely focus on the
lower initial costs associated with competing therapies. If Edwards
Lifesciences' products are not considered cost-effective by third-party
payors, Edwards Lifesciences' customers may not be reimbursed for Edwards
Lifesciences' products.
In addition, third-party payors are increasingly attempting to contain
health care costs by limiting both coverage and the level of reimbursement for
medical products and services. There can be no assurance that levels of
reimbursement, if any, will not be decreased in the future, or that future
legislation, regulation or reimbursement policies of third-party payors will
not otherwise adversely affect the demand for and price levels of Edwards
Lifesciences' products. In Japan, Edwards Lifesciences' customers are
reimbursed for Edwards Lifesciences products under a government-operated
insurance system. Under this system, the Japanese government annually reviews
the reimbursement levels for products. If the Japanese government decides to
reduce reimbursement levels for Edwards Lifesciences' products, Edwards
Lifesciences' product pricing may be adversely affected.
Risks Related to Edwards Lifesciences' Separation from Baxter
The distribution may become a taxable event as a result of subsequent actions
or events undertaken by Edwards Lifesciences.
Although the distribution is expected to be free from United States federal
income tax as of the distribution date, it could be rendered taxable as a
result of subsequent actions or events. Edwards Lifesciences has agreed not to
undertake specified actions and has agreed that under particular circumstances
it will indemnify Baxter for taxes, liabilities and associated expenses
incurred as a result of any such actions or events. For more information, see
"Edwards Lifesciences' Relationship With Baxter After the Distribution--
Reorganization Agreement."
After Edwards Lifesciences' separation from Baxter, Edwards Lifesciences may
experience increased costs resulting from decreased purchasing power, which
could decrease its profitability overall.
Prior to Edwards Lifesciences' separation from Baxter, Edwards Lifesciences
was able to take advantage of Baxter's size and purchasing power in procuring
goods, services and technology, such as computer software licenses. As a
separate, stand-alone entity, Edwards Lifesciences may be unable to obtain
goods, services and technology at prices and on terms as favorable as those it
obtained prior to the distribution.
Edwards Lifesciences' new name is not yet recognized as a brand in the
marketplace, and as a result its product sales could suffer.
The loss of the "Baxter" brand name may hinder Edwards Lifesciences'
ability to establish new relationships. In addition, Edwards Lifesciences'
current customers, suppliers and partners may react negatively to the
separation from Baxter. In connection with Edwards Lifesciences' separation
from Baxter, Edwards Lifesciences will change the brand name and some
associated trademarks and trade names under which Edwards Lifesciences
conducts its business. This transition to a new name will occur rapidly in
certain geographic regions and over specified periods of time in other
regions. Edwards Lifesciences believes that sales of its products have
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benefited from the use of the "Baxter" brand name. In addition, although
Edwards Lifesciences believes that it will have all necessary rights to use
its new brand name, Edwards Lifesciences' rights to use the name may be
challenged by others.
Edwards Lifesciences will need to fund its future capital requirements
internally or obtain third-party financing.
Edwards Lifesciences believes that its capital requirements will vary
greatly from quarter to quarter, depending on, among other things, capital
expenditures, fluctuations in Edwards Lifesciences' operating results,
financing activities and build-up of inventories. In the past, Edwards
Lifesciences' working capital requirements have been met from internally-
generated cash flow. Edwards Lifesciences believes that the planned initial
debt financing, along with its future cash flow from operations, will be
sufficient to satisfy its working capital, capital expenditure and research
and development requirements for the foreseeable future. However, Edwards
Lifesciences may be required or choose to obtain additional debt or equity
financing in the future, especially for significant acquisitions. Future
equity financings could be dilutive to the existing holders of Edwards
Lifesciences' common stock. Future debt financings could involve restrictive
covenants that limit Edwards Lifesciences' ability to take certain actions. To
the extent Edwards Lifesciences must obtain financing, Edwards Lifesciences
cannot guarantee that financing will be available on favorable terms and any
financing may not be at interest rates as favorable as those historically
enjoyed by Baxter. See "Edwards Lifesciences Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The transitional services being provided to Edwards Lifesciences by Baxter
may be difficult to replace without operational problems.
Baxter has agreed to provide certain administrative services to Edwards
Lifesciences in various countries around the world. These services include
information systems and telecommunications, human resources, finance and
accounting and other administrative services. In most cases, either party will
have the right after 21 months to terminate these arrangements either in whole
or in part. If these arrangements are terminated, Edwards Lifesciences will
need to seek alternative providers of these services. Edwards Lifesciences may
experience operational problems if it is not able to immediately replace these
services or as Edwards Lifesciences transitions to another provider's systems.
In addition, since the prices charged to Edwards Lifesciences under these
arrangements are intended to approximate the costs of providing the services,
the costs of obtaining services from third parties upon any termination could
be in excess of the costs payable by Edwards Lifesciences to Baxter.
Risks Related to Ownership of Edwards Lifesciences' Common Stock
Edwards Lifesciences' common stock has no prior market, and Edwards
Lifesciences cannot guarantee that Edwards Lifesciences' stock price will not
decline after the distribution.
There has been no prior trading market for Edwards Lifesciences' stock and
there can be no assurance as to the prices at which Edwards Lifesciences'
stock will trade before or after the date of the distribution. Until the
Edwards Lifesciences common stock is fully distributed and an orderly market
develops, the prices at which the Edwards Lifesciences common stock trades may
fluctuate significantly. Prices for the Edwards Lifesciences common stock will
be determined in the trading markets and may be influenced by many factors,
including:
. the depth and liquidity of the market for Edwards Lifesciences' stock;
. developments generally affecting the cardiovascular products market;
. investor perceptions of Edwards Lifesciences and its business;
. the financial results of Edwards Lifesciences;
. Edwards Lifesciences' dividend policy; and
. general economic and industry conditions.
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For more information, see "The Distribution--Market for Edwards
Lifesciences Common Stock."
In addition, the stock market, in general, frequently experiences extreme
volatility that is often seemingly unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
trading price of Edwards Lifesciences common stock. In the past, securities
class action litigation often has been instituted against companies following
periods of volatility in the market price of their securities. Such litigation
could result in substantial costs and a diversion of management's attention
and resources.
Edwards Lifesciences' charter documents and Delaware law contain provisions
that may discourage takeover attempts which could preclude Edwards
Lifesciences' stockholders from receiving a change of control premium.
Edwards Lifesciences' certificate of incorporation and bylaws and Delaware
law contain anti-takeover provisions that could have the effect of delaying or
preventing changes in control that a stockholder may consider favorable. The
provisions in Edwards Lifesciences' charter documents include the following:
. a classified board of directors with three-year staggered terms;
. the ability of Edwards Lifesciences' board of directors to issue shares
of preferred stock and to determine the price and other terms, including
preferences and voting rights, of those shares without stockholder
approval;
. stockholder action to be taken only at a special or regular meeting;
. advance notice procedures for nominating candidates to Edwards
Lifesciences' board of directors or presenting matters at stockholder
meetings;
. removal of directors only for cause; and
. super-majority voting requirements to amend the charter.
The foregoing could have the effect of delaying, deferring or preventing a
change in control of Edwards Lifesciences, discouraging bids for Edwards
Lifesciences' common stock at a premium over the market price or harming the
market price of, and the voting and other rights of the holders of, Edwards
Lifesciences' common stock. Edwards Lifesciences also is subject to Delaware
laws that could have similar effects. One of these laws prohibits Edwards
Lifesciences from engaging in a business combination with any significant
stockholder for a period of three years from the date the person became a
significant stockholder unless specific conditions are met. In addition,
Edwards Lifesciences has adopted a stockholder rights plan. The preferred
stock purchase rights under this plan, if triggered, would cause substantial
dilution to any person or group who attempts to acquire a significant interest
in Edwards Lifesciences without advance approval of Edwards Lifesciences'
board of directors. For more information, see "Description of Edwards
Lifesciences Capital Stock" and "Certain Anti-Takeover Effects of Provisions
of Edwards Lifesciences' Certificate of Incorporation and Bylaws and of
Delaware Law."
FORWARD-LOOKING STATEMENTS
This information statement and other materials filed or to be filed by
Edwards Lifesciences with the SEC (as well as information included in oral
statements or other written statements made, or to be made, by Edwards
Lifesciences) contain, or will contain, disclosures which are "forward-looking
statements." Forward-looking statements include all statements that do not
relate solely to historical or current facts, and can generally be identified
by the use of words such as "may," "believe," "will," "expect," "project,"
"estimate," "anticipate," "plan" or "continue." These forward-looking
statements address, among other things, strategic objectives and the
anticipated effects of the distribution. These forward-looking statements are
based on the current plans and expectations of the management of Edwards
Lifesciences and are subject to a number of uncertainties and risks that could
significantly affect current plans and expectations and the future financial
condition and results of Edwards Lifesciences. These factors include, but are
not limited to:
. the highly competitive nature of the health care industry;
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. the efforts of insurers, health care providers and others to contain
health care costs;
. possible changes in United States or foreign programs that may further
limit reimbursements to health care providers and insurers;
. changes in federal, state or local regulation affecting the health care
industry;
. the possible enactment of federal or state health care reform;
. the departure of key executive officers from Edwards Lifesciences;
. claims and legal actions relating to product liability;
. fluctuations in the market value of Edwards Lifesciences common stock;
. changes in accounting practices;
. changes in general economic conditions and foreign currency
fluctuations;
. product demand and risks associated with industry acceptance;
. new product development and commercialization; and
. other risk factors described above.
As a consequence, current plans, anticipated actions and future financial
conditions and results may materially differ from those expressed in any
forward-looking statements made by or on behalf of Edwards Lifesciences. You
are cautioned not to unduly rely on such forward-looking statements when
evaluating the information presented in this information statement.
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EDWARDS LIFESCIENCES' BUSINESS
Overview
Edwards Lifesciences provides a comprehensive line of products and services
to treat late-stage cardiovascular disease. Edwards Lifesciences is the
worldwide leader in the design, development, manufacture and marketing of
tissue heart valves and heart valve repair products. Many products
manufactured by Edwards Lifesciences occupy leading positions around the
world. Edwards Lifesciences' engineers and scientists work closely with many
leading clinicians, which has allowed Edwards Lifesciences to develop and
commercialize new products and to pioneer new treatment techniques. Edwards
Lifesciences' sales are categorized in four main product areas: cardiac
surgery, critical care, vascular and perfusion products and services. Edwards
Lifesciences is headquartered in Irvine, California, and supplies its products
and services to customers in more than 80 countries, both through direct sales
and distributor relationships. In 1998, Edwards Lifesciences reported sales of
$865 million. Edwards Lifesciences' products are manufactured in locations
throughout the world, including Brazil, the Dominican Republic, Japan, The
Netherlands, Puerto Rico, Switzerland and the United States.
Cardiovascular disease is the number one cause of death in the world, and
is among the top three diseases in terms of health care spending in nearly
every country in the world. We believe that around the world, more than $200
billion is spent each year for the treatment of cardiovascular disease.
Cardiovascular disease is both progressive and pervasive; progressive, in that
it tends to worsen over time, and pervasive because it often affects an
individual's entire circulatory system. In its later stages, surgery
frequently becomes the preferred treatment option. In 1999, approximately one
million open heart surgeries were performed worldwide; of these, approximately
64% were coronary artery bypass graft (CABG) procedures, approximately 24%
were heart valve replacement or repair procedures, and approximately 12% were
related to the repair of congenital heart defects.
Edwards Lifesciences expects the following factors to contribute to the
growth in the number of patients being treated for advanced late-stage
cardiovascular disease:
. an increasing and aging population;
. the progressive nature of the disease; and
. continued economic development around the world, which permits more
resources to be dedicated to treating chronic health conditions.
Patients undergoing surgical treatment for cardiovascular disease are
likely to encounter a variety of Edwards Lifesciences' products and services.
For example, an individual with a heart valve disorder may have a faulty valve
re-shaped and repaired with an Edwards Lifesciences annuloplasty ring, or the
surgeon may elect to remove the valve altogether and replace it with one of
Edwards Lifesciences' handcrafted bioprosthetic heart valves, which can be
made of bovine or porcine tissue. If a patient undergoes other types of open
heart surgery, such as a CABG procedure, the functions of their heart and
lungs may be managed through the use of disposable products and equipment
offered in Edwards Lifesciences' perfusion products line. The perfusion
process may be performed by a clinical perfusionist employed by Edwards
Lifesciences' perfusion services, the largest organization of contract
perfusionists in the world. A patient with end-stage cardiovascular disease
who is awaiting a heart transplant may receive treatment from Edwards
Lifesciences' mechanical cardiac assist system. If the circulatory problems
are in the limbs rather than in the heart, the patients' procedure may involve
some of Edwards Lifesciences' vascular products, which include various types
of balloon-tipped catheters that are used to remove blood clots. Finally,
virtually all high-risk patients in the operating room or cardiac-care unit
are candidates for having their cardiac function monitored by Edwards
Lifesciences' critical care products.
Business Strategy
Treatment of cardiovascular disease represents a significant, growing
opportunity. Edwards Lifesciences' strategy is to develop, manufacture and
market products that result in improved therapeutic outcomes for patients with
late-stage cardiovascular disease. Edwards Lifesciences plans to aggressively
expand its leading product
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offerings and develop new products and therapies that improve the quality of
patient care and reduce overall treatment costs. The key aspects of Edwards
Lifesciences' strategy include:
Focus on Late-Stage Cardiovascular Disease Therapy. Cardiovascular
disease is the leading cause of death in the world. Edwards Lifesciences
has differentiated itself from other competitors by focusing primarily on
late-stage treatments, which tend to rely more heavily on the use of
devices and implantables and less on behavior-modification or drug therapy.
Edwards Lifesciences believes there will be significant opportunity for
growth as the aging global population increases and new technologies are
developed.
Invest in Technological Innovation. Clinical performance historically
has been the primary driver of commercial success for products used to
treat cardiovascular disease. Edwards Lifesciences' product portfolio
includes many leading technologies, and Edwards Lifesciences has been
credited with pioneering a variety of new treatment techniques. Edwards
Lifesciences plans to increase investment in research and development to
enhance existing technologies and to develop and commercialize new products
and therapies.
Expand Global Sales. Continuing economic development around the world
and expanded global adoption of established medical procedures will provide
attractive growth opportunities for Edwards Lifesciences. Edwards
Lifesciences expects to broaden its sales, service and distribution
channels globally to take advantage of these opportunities. Currently, an
estimated 43% of Edwards Lifesciences' sales are derived from outside of
the United States.
Evaluate Attractive Investment Opportunities. Edwards Lifesciences'
operations generate significant operating cash flow, some of which Edwards
Lifesciences plans to reinvest to accelerate growth and maximize long-term
return to its stockholders. Edwards Lifesciences plans to evaluate
investment opportunities based on the incremental return on invested
capital in excess of Edwards Lifesciences' weighted average cost of
capital. Edwards Lifesciences believes that its stockholders will recognize
the greatest appreciation in value through investments which generate the
highest incremental return.
Improve Existing Cost Structure. As an independent company, Edwards
Lifesciences will be required to anticipate and react to market changes and
eliminate inefficient processes and unnecessary costs. Edwards Lifesciences
is already pursuing a number of opportunities to improve its existing cost
structure and plans to continue identifying and implementing additional
cost-savings initiatives.
Pursue Strategic Opportunities. The cardiovascular medical products
industry is undergoing significant consolidation. Edwards Lifesciences
plans to continue pursuing attractive opportunities to expand its product
offerings and operations through acquisition. Possible acquisition
candidates will have innovative technology positions or well-established
product franchises. In addition, Edwards Lifesciences will continue to
critically assess all of its product lines and offerings to ensure that
each is contributing a return on invested capital that meets Edwards
Lifesciences' short-term and long-term objectives.
Edwards Lifesciences' Product and Service Offerings
Edwards Lifesciences' comprehensive line of cardiovascular products and
services are categorized into four main areas:
. Cardiac Surgery, encompassing heart valve therapy products, mechanical
cardiac assist systems, and cannulae and cardioplegia;
. Critical Care, featuring cardiac monitoring systems and disposables used
to evaluate cardiac output and measure blood pressure;
. Vascular, which includes products used in peripheral vascular surgery,
surgical accessories, implantable grafts, and endovascular graft systems
for treating aortic aneurysms; and
. Perfusion Products and Services, comprised of oxygenators and related
disposables used during cardiopulmonary bypass, cardiopulmonary bypass
hardware and perfusion services.
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Cardiac Surgery
Heart Valve Therapy
Edwards Lifesciences is the world's leading manufacturer of tissue heart
valves and valve repair products, which are used to replace or repair a
patient's diseased or defective heart valve. Edwards Lifesciences operates two
world-class manufacturing facilities in Irvine, California, and Horw,
Switzerland, producing pericardial and porcine valves from biologically inert
animal tissue sewn onto proprietary wireforms or stents.
An estimated 270,000 patients worldwide will have heart valve surgery in
2000. The procedure can extend lives and provide a higher quality of life than
many patients have experienced in years. Depending on a patient's valve
condition as well as other factors such as overall health, age and physical
activity level, a surgeon may elect to replace a malfunctioning valve with a
prosthetic heart valve made either of metal or tissue, or may perform a
surgical repair of the heart valve, a procedure known as an annuloplasty.
Edwards Lifesciences expects the number of valve procedures to continue to
grow due, in part, to an aging population; the high incidence in developing
nations of rheumatic fever, which often leads to valvular problems; and the
global growth of cardiovascular disease. Increased health care spending around
the world, and improved diagnostic techniques that allow physicians to detect
valve problems sooner, also are expected to contribute to an increasing number
of heart valve procedures. Edwards Lifesciences has been a pioneer in the
development and commercialization of tissue valves and repair products and is
the world's leader in these areas.
Although patients of any age may require valve surgery, younger patients
are more likely to receive a human-donated hemograft, mechanical valve or
repair product, while older patients are more frequently candidates for tissue
valves. Tissue valves can offer considerable lifestyle advantages over
mechanical valves, in that mechanical valve patients must maintain a life-long
regimen of blood-thinning medications. These medications increase the
likelihood of bleeding and related complications, potentially impairing their
physical activity levels or impacting other health conditions. Implantation
rates for tissue valves are exceeding overall valve procedure growth, as
surgeons continue to demonstrate their preference for tissue valves for
certain types of patients.
The core of Edwards Lifesciences' tissue product line is the Carpentier-
Edwards pericardial valve, made from the tissue that surrounds a cow's heart.
The most widely prescribed tissue heart valve due to its proven durability and
performance is the Carpentier-Edwards pericardial valve and is the only
pericardial valve available in the United States.
While stented tissue valves represent the vast majority of tissue implants
and the greatest opportunity for growth, some physicians may choose an
unstented porcine tissue valve for select patients. Edwards Lifesciences
introduced the Prima Plus, the first stentless valve, nearly a decade ago and
continues to offer this product outside of the United States. Edwards
Lifesciences also offers mechanical valves, including the Edwards MIRA bi-
leaflet mechanical valve, and the Starr-Edwards silastic ball valve which
Edwards Lifesciences launched in the 1960s as the first commercially available
artificial heart valve. The Prima Plus valve is currently in clinical trials
in the United States as part of the FDA approval process and Edwards
Lifesciences is awaiting approval to commence clinical trials of the Edwards
MIRA valve in the United States.
In addition to its replacement valves, Edwards Lifesciences is the
worldwide leader in heart valve repair products. Through extended product
development, training and promotion, Edwards Lifesciences has been a major
force in the rapid acceptance of heart valve repair procedures, also known as
annuloplasty, as an alternative to heart valve replacement. Through its
Carpentier-Edwards and Cosgrove-Edwards annuloplasty systems, Edwards
Lifesciences offers the broadest offering of heart valve repair products in
the industry.
Mechanical Cardiac Assist
While tens of thousands of patients worldwide need heart transplants each
year, only a fraction--about 4,000 individuals--actually receive a donor
organ. The others must rely on continuous medication therapy or mechanical
assist while they wait for an organ.
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Edwards Lifesciences' Novacor Left Ventricular Assist System (LVAS) is a
small, electromechanical pump that takes over the hearts pumping function for
end-stage heart disease patients requiring a heart transplant. The device,
which is implanted in the abdomen and surgically attached to the heart's left
ventricle, is regulated by an external controller and battery pack that
automatically responds to a patient's changing heartbeat and circulatory
demands. The LVAS has been shown to add months, and in some cases years, to
patients' lives while they await their donor hearts.
To date, more than 1,000 patients worldwide have received the Novacor LVAS.
Approved in Europe since 1994 as both a "bridge" for patients awaiting
transplant, as well as a permanent "alternative" to transplant, the Novacor
LVAS was approved in 1998 by the FDA for the "bridge" application only.
Although Edwards Lifesciences considers the achievement of the "bridge"
approval in the United States to be a critical milestone toward gaining
broader clinical acceptance of mechanical assist systems, it recognizes the
significantly greater patient need in the "alternative" indication and
continues to focus its resources on pursuing this opportunity.
Cannulae and Cardioplegia
Edwards Lifesciences, through the 1997 acquisition of Research Medical,
Inc., is a leading manufacturer of cannulae and cardioplegia products used
during cardiac surgery. Cannulae are various types of specialized tubing that
are used in the surgical field to transport blood from the heart to the
cardiopulmonary pump and oxygenator and to return the blood to the circulatory
system. While there are standard configurations of cannulae, many are custom-
designed to suit individual surgeons' requirements. Edwards Lifesciences
offers more than 1,200 types of cannulae and accessories to facilitate the
perfusion process.
Edwards Lifesciences also offers cardioplegia products that are used to
preserve the heart muscle tissue during open heart surgery. Preservation is
necessary because during traditional open heart surgery, the heart is
disconnected from the body's circulatory system and unless some form of
preservation or heart cooling is employed, the heart tissue will be damaged.
Through its close work with clinicians, Edwards Lifesciences helped pioneer a
new methodology for administering cardioplegia through a retrograde approach
that delivers cardioplegia solutions to the coronary sinus and venous side of
the heart, thereby bypassing the blocked coronary arteries.
Edwards Lifesciences' more recent developments include a line of cannulae
to facilitate vacuum-assisted venous drainage during perfusion, and dispersion
aortic cannulae, which are used to reduce the pressure of blood flow returning
to the body in the wall of the aorta. Edwards Lifesciences also has introduced
a number of products to facilitate coronary artery bypass surgery when it is
performed on a beating heart. Included among these products is the AnastaFlo
coronary shunt, which is used to redirect blood away from the suturing site,
and the VisuFlo humidifying blower, which keeps the surgical site dry and
optimizes the surgeon's visual field during a procedure.
Critical Care
Edwards Lifesciences is also a world leader in hemodynamic monitoring
systems that are used to measure a patient's heart function in surgical and
intensive care settings. Hemodynamic monitoring enables a clinician to balance
the oxygen supply and demand of a critically ill patient. Failure to
appropriately manage a patient's hemodynamic needs can cause organ injury,
organ failure, or death. Edwards Lifesciences' systems provide important added
clinical value by serving as a diagnostic tool that prompts clinicians to act
when a patient's hemodynamic balance becomes disrupted.
In addition, hemodynamic monitoring plays an important role in assuring
that the heart function of millions of patients who have pre-existing
cardiovascular conditions or other critical illnesses is optimized before they
undergo a surgical procedure. The vast majority of high-risk patients
undergoing open heart, major vascular, major abdominal, neurological, and
orthopedic procedures are candidates for Edwards Lifesciences' bedside
monitoring technologies, which are often deployed before, during, and after
surgery.
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Edwards Lifesciences is credited with pioneering the practice of
hemodynamic monitoring with the launch of the original Swan-Ganz catheter in
the 1970s. Today, we believe that Edwards Lifesciences' extensive line of
monitoring catheters and bedside patient monitoring equipment continue to be
considered the standard in critical care medicine. Edwards Lifesciences has
played a major role in evolving critical care monitoring technologies, selling
more than 20 million catheters and monitors worldwide, with new generations of
products performing increasingly sophisticated functions.
Edwards Lifesciences also is a global leader in the broader field of
disposable pressure monitoring devices and has introduced a line of innovative
products enabling closed-loop arterial blood sampling to protect both patients
and clinicians from the risk of infection.
Recently Edwards Lifesciences initiated the European launch of Vantex, the
first anti-microbial central venous catheter, manufactured from a patented,
antimicrobial material. Central venous catheters are the primary route for
fluid and medication delivery to patients undergoing major surgical procedures
and/or intensive care. Bloodstream infections related to central venous
catheters have increased significantly over the past 10 years, and addressing
this life-threatening and costly problem is another example of Edwards
Lifesciences' leadership in critical care.
Edwards Lifesciences recognizes that assessing a patient's physiological
balance and minimizing the risk of infection will remain fundamental
requirements for successful treatment of critically ill patients. Edwards
Lifesciences will continue to leverage its strength in this area and explore
further opportunities in the diagnostics and therapeutic delivery areas.
Vascular
The pervasive nature of cardiovascular disease means that the conditions
that occur inside of the heart are often duplicated elsewhere in a patient's
body. Outside of the heart, the network of veins and arteries are collectively
referred to as the body's vascular system. Atherosclerotic disease is one
common circulatory condition which involves the thickening of blood-carrying
vessels and the formation of circulation-restricting plaque, clots, and other
substances, and often occurs concurrently in the vascular system as well as in
the heart. When the abdomen, arms or legs are impacted, the diagnosis is
usually peripheral vascular disease (PVD), which occurs in millions of
patients worldwide, and in very advanced cases, may lead to amputation of
patients' limbs.
Edwards Lifesciences manufactures and sells a variety of products used to
treat PVD, including a line of balloon-tipped, catheter-based products, as
well as surgical clips and inserts, angioscopy equipment, and artificial
implantable grafts. Edwards Lifesciences' Fogarty line of embolectomy
catheters has been an industry standard for removing blood clots from
peripheral blood vessels for more than 30 years.
Edwards Lifesciences is also working on a number of new innovative
technologies to treat PVD. For example, Edwards Lifesciences' Side Branch
Occlusion system was launched in 1998 to help surgeons restore circulation in
the legs. By working within the saphenous veins, the system eliminates the
traditional incision along the entire length of the leg and the extensive
complications usually associated with this procedure.
Another significant area of interest and investment has been the
development of endovascular grafts. Edwards Lifesciences has developed the
Lifepath AAA System to treat potentially life-threatening abdominal aortic
aneurysms (AAA) with an endovascular approach. An abdominal aortic aneurysm
can form in the aorta, the body's main circulatory channel, when a portion of
the aortic wall becomes weakened and begins bulging outward. Often, the
aneurysm grows until it poses a life-threatening risk of rupturing. The
Lifepath AAA System treats abdominal aortic aneurysm by inserting an
endovascular graft which replaces the wall of the aorta in the damaged area.
By accessing and repairing the aneurysm from within the aorta, rather than
making a major incision that exposes most of the body's internal organs, the
endovascular procedure is less traumatic and invasive than standard aortic
repair surgery. The Lifepath AAA is approved for commercial sale in Europe and
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Australia. It remains in clinical trials in the United States, with an
anticipated commercial approval within the next two years.
Perfusion Products and Services
During the majority of open heart surgical procedures, a patient's heart is
stopped, and the body's blood flow and oxygenation needs are managed through a
series of pumps, tubing and filters attached to a cardiopulmonary bypass
machine. After the surgery is completed, the heart is revived after the normal
blood flow through the heart and lung is restored. The practice of bypassing
the heart and lungs externally during surgery is known as extracorporeal
circulation.
Edwards Lifesciences develops, manufactures and markets a diverse line of
disposable products used during extracorporeal circulation, including
oxygenators, blood containers, filters and related devices. Many of the
disposable products in Edwards Lifesciences' perfusion product line are coated
with Edwards Lifesciences' patented Duraflo heparin treatment, which has been
shown to improve the compatibility of medical devices used in cardiopulmonary
bypass procedures with a patient's blood.
Edwards Lifesciences recently expanded its offering of perfusion products
to include hardware with the acquisition of the COBE Century Heart Lung
Machine business, one of the most popular heart-lung machine systems for
cardiopulmonary bypass. Edwards Lifesciences also recently acquired and now
offers the Metaplus Blood Pump System, a next-generation cardiopulmonary
bypass circuit.
Although Edwards Lifesciences had been manufacturing and distributing
perfusion products for years, it did not become active in the service side of
the perfusion business until 1996, when it merged two previously acquired
contract perfusion service companies, PSICOR, Inc. and SETA, Inc., into one
company operating as an indirect, wholly owned subsidiary of Edwards
Lifesciences. Through this subsidiary, coupled with the addition of several
smaller regional perfusion service providers in the United States and Europe,
Edwards Lifesciences now owns or operates the world's largest practice of
contract perfusionists, employing more than 400 clinical perfusionists who
perform an aggregate of more than 50,000 perfusion cases for open heart
surgery per year in the United States. In all but one state, Edwards
Lifesciences' perfusion services allow hospitals to purchase perfusion
supplies and capital equipment as well as contract for highly trained
personnel who perform perfusion during open heart and transplant surgeries,
blood salvage, and intra-aortic balloon pumping procedures.
Competition
The medical devices industry is highly competitive. Edwards Lifesciences
competes with many companies ranging from small start-up enterprises to
companies that are larger and more established than Edwards Lifesciences with
access to significant financial resources. Furthermore, rapid product
development and technological change characterize the market in which Edwards
Lifesciences competes. The present or future products of Edwards Lifesciences
could be rendered obsolete or uneconomical by technological advances by one or
more of Edwards Lifesciences' present or future competitors or by other
therapies, including drug therapies. Edwards Lifesciences must continue to
develop and acquire new products and technologies to remain competitive in the
cardiovascular medical devices industry.
Edwards Lifesciences believes that it competes primarily on the basis of
product reliability and performance, product features that enhance patient
benefit, customer and sales support, and cost-effectiveness.
The cardiovascular segment of the medical device industry is dynamic and
currently undergoing significant change due to cost-of-care considerations,
regulatory reform, industry and customer consolidation, and evolving patient
needs. The ability to provide cost-effective products and services that
improve clinical outcomes is becoming increasingly important for medical
device manufacturers.
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Edwards Lifesciences' products and services face substantial competition
from a number of companies. In cardiac surgery, the primary competitors
include St. Jude Medical, Inc., Medtronic, Inc., and Sulzer Medica, Ltd. In
critical care, Edwards Lifesciences' principal competitors include Abbott
Laboratories Inc. and Arrow International, Inc., as well as a number of
smaller companies. In vascular, Edwards Lifesciences' primary competitors
include W.L. Gore and Associates, Inc. and Applied Medical Resources
Corporation. In perfusion products, Edwards Lifesciences' major competitors
include Medtronic, Inc., Sorin Biomedica Ltd. and Terumo Corporation. In
addition, while Edwards Lifesciences is also the leading contract supplier of
perfusion services in the United States, there are many small regional
contract service providers who compete with Edwards Lifesciences for contracts
in those hospitals that outsource perfusion services.
Sales and Marketing
Edwards Lifesciences has a number of broad product lines which require a
sales and marketing strategy that is tailored to its customers in order to
deliver high quality, cost-effective products and services to all of its
customers worldwide. We believe that Edwards Lifesciences' portfolio includes
some of the most respected product brands in cardiovascular devices today,
including Carpentier-Edwards, Cosgrove-Edwards, Duraflo, Fogarty, Starr-
Edwards and Swan-Ganz. Because of the diverse global needs of the population
that Edwards Lifesciences serves, Edwards Lifesciences' distribution system
includes a direct sales force and independent distributors. For the period
ended September 30, 1999, approximately 12% of Edwards Lifesciences' net sales
were from sales to Allegiance Corporation, which serves as a distributor of
Edwards Lifesciences products in the United States. The Allegiance
distribution agreement extends until December 31, 2000 and provides for
distribution of Edwards Lifesciences' products by Allegiance on a generally
non-exclusive basis for a percentage of the price paid to Edwards Lifesciences
by Allegiance for the products. Allegiance distributes Edwards Lifesciences
products to a variety of customers, including hospitals, surgical centers and
other health care institutions. Edwards Lifesciences is not dependent on any
single end-user customer and no single end-user customer accounted for more
than 10% of Edwards Lifesciences' net sales in the period ended September 30,
1999.
Sales personnel work closely with the primary decision makers who purchase
Edwards Lifesciences' products, whether they are physicians, material
managers, nurses, biomedical staff, hospital administrators or purchasing
managers. Additionally, Edwards Lifesciences' sales force actively pursues
approval of Edwards Lifesciences as a qualified supplier for hospital group
purchasing organizations that negotiate contracts with suppliers of medical
products. Edwards Lifesciences already has contracts with a number of national
buying groups and is working with a growing number of regional buying groups
that are emerging in response to cost containment pressures and health care
reform in the United States.
United States
In the United States, Edwards Lifesciences sells substantially all of its
products through its direct sales force. Substantially all of its direct sales
force consists of employees of Edwards Lifesciences. For the period ended
September 30, 1999, 57% of Edwards Lifesciences' sales were derived from sales
to customers in the United States.
International
For the period ended September 30, 1999, 43% of Edwards Lifesciences' sales
were derived internationally through its direct sales force and independent
distributors. Edwards Lifesciences sells its products in more than 80
countries. Major international countries in which Edwards Lifesciences'
products are sold include: Australia, Belgium, Canada, France, Germany, Italy,
Japan, The Netherlands, Spain and the United Kingdom. The sales and marketing
approach in international geographies varies depending on each country's size
and state of development. See "Edwards Lifesciences' Relationship with Baxter
After the Distribution--Distribution Agreements."
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Raw Materials and Manufacturing
Edwards Lifesciences uses a diverse and broad range of raw and organic
materials in the design, development and manufacture of its products. Edwards
Lifesciences purchases certain of the materials and components used in
manufacturing its products from external suppliers. In addition, Edwards
Lifesciences purchases certain supplies from single sources for reasons of
quality assurance, sole source availability, cost effectiveness or constraints
resulting from regulatory requirements. Edwards Lifesciences works closely
with its suppliers to assure continuity of supply while maintaining high
quality and reliability. Edwards Lifesciences uses a diverse and broad range
of raw and organic materials in the design, development and manufacture of its
products. Edwards Lifesciences purchases certain of the materials and
components used in manufacturing its products from external suppliers. In
addition, Edwards Lifesciences purchases certain supplies from single sources
for reasons of quality assurance, cost effectiveness or constraints resulting
from regulatory requirements. Edwards Lifesciences works closely with its
suppliers to assure continuity of supply while maintaining high quality and
reliability. Alternative supplier options are generally considered and
identified, although Edwards Lifesciences does not typically pursue regulatory
qualification of alternative sources due to the strength of its existing
supplier relationships and the time and expense associated with the regulatory
process. Although a change in suppliers could require significant effort or
investment by Edwards Lifesciences in circumstances where the items supplied
are integral to the performance of Edwards Lifesciences' products or
incorporate unique technology, management does not believe that the loss of
any existing supply contract would have a material adverse effect on the
Company.
Edwards Lifesciences' non-implantable products are manufactured from man-
made raw materials including resins, chemicals, electronics and metal. Most of
Edwards Lifesciences' heart valve therapy products are manufactured from
natural tissues harvested from animal tissue, as well as man-made materials.
In an effort to reduce potential product liability exposure, certain suppliers
have announced that they intend to limit or terminate sales of certain
materials and parts to companies that manufacture implantable medical devices.
In 1998, Congress enacted the Biomaterials Access Assurance Act to help
ensure a continued supply of raw materials and component parts essential to
the manufacture of medical devices by allowing for rapid dismissal of claims
against suppliers in product liability lawsuits if certain facts and
circumstances exist. This law has not yet had a material impact, and it is not
possible to assess the long-term impact it will have, on the continued
availability of raw materials. The inability to develop satisfactory
alternatives, if required, or a reduction or interruption in supply or a
significant increase in the price of materials or components could have a
material adverse effect on Edwards Lifesciences' business.
Quality Assurance
Edwards Lifesciences is committed to providing high quality products to its
customers. To meet this commitment, Edwards Lifesciences has implemented
modern quality systems and concepts throughout the organization. The quality
system starts with the initial product specification and continues through the
design of the product, component specification processes and the
manufacturing, sales and servicing of the product. The quality system is
designed to build in quality and to utilize continuous improvement concepts
throughout the product life.
Edwards Lifesciences' operations are certified under the applicable
international quality systems standards, such as ISO 9001, ISO 9002, EN46001
and EN46002. ISO 9001 and 9002 require, among other items, an implemented
quality system that applies to component quality, supplier control and
manufacturing operations. In addition, ISO 9001 and EN46001 require an
implemented quality system that applies to product design. These
certifications can be obtained only after a complete audit of a company's
quality system has been conducted by an independent outside auditor. These
certifications require that Edwards Lifesciences' facilities undergo periodic
reexamination.
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Research and Development
Edwards Lifesciences is engaged in ongoing research and development to
introduce clinically advanced new products, to enhance the effectiveness, ease
of use, safety and reliability of its existing products and to expand the
applications of its products as appropriate. Edwards Lifesciences is dedicated
to developing novel technologies that will furnish health care providers with
a more complete line of products to treat late-stage cardiovascular disease.
Edwards Lifesciences' research and development activities are carried out
primarily in facilities located in the United States. Edwards Lifesciences'
research and development staff is focused on product design and development,
quality, clinical research and regulatory compliance. To pursue primary
research efforts, Edwards Lifesciences has developed alliances with several
leading research institutions and universities. Edwards Lifesciences also
works with leading clinicians around the world in conducting scientific
studies on Edwards Lifesciences' existing and developing products. These
studies include clinical trials which provide data for use in regulatory
submissions and post-market approval studies involving applications of Edwards
Lifesciences' products.
Edwards Lifesciences spent $38 million on research and development (6% of
total sales) during the nine months ended September 30, 1999, approximately
$56 million (7% of total sales) in 1998 and approximately $53 million (6% of
total sales) in 1997. These funds have been used primarily to develop new
products and to improve and expand the applications for existing products.
Proprietary Technology
Patents and other proprietary rights are important to the success of
Edwards Lifesciences' business. Edwards Lifesciences also relies upon trade
secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position. All employees
and consultants that have access to confidential and proprietary information,
or that are employed to perform duties or services that are likely to result
in inventions, are required to sign either our standard employment agreement
or our standard consulting agreement. In addition, all third parties that are
given access to confidential and proprietary information are required to sign
our standard outgoing confidentiality agreement. Edwards Lifesciences reviews
third-party patents and patent applications in an effort to develop an
effective patent strategy, identify licensing opportunities and monitor the
patent claims of others.
The medical device industry has been engaged in substantial litigation in
recent years regarding patent and other intellectual property rights in the
medical device industry. From time to time, Edwards Lifesciences may be
subject to claims of, and legal actions alleging, infringement of the patent
rights of others. While Edwards Lifesciences has taken numerous steps to
continuously review the patents of others with regard to its products, there
can be no assurance that all pertinent third-party patents have been
identified. An adverse outcome with respect to any one or more of these claims
or actions could have a material adverse effect on Edwards Lifesciences.
Edwards Lifesciences owns or has licensed approximately 1,400 U.S. and
foreign patents and patent applications that relate to aspects of the
technology incorporated in many of Edwards Lifesciences' products. This
proprietary protection often affords Edwards Lifesciences the opportunity to
enhance its position in the marketplace by precluding its competitors from
using or otherwise exploiting Edwards Lifesciences' technology. Most of
Edwards Lifesciences' products are protected in some way by issued patents
and/or pending patent applications. Although some of these patents are due to
expire within the next five years, Edwards Lifesciences' patent strategy is to
file improvement patent applications and, in some cases, additional patent
applications covering new aspects or modifications of the affected products,
or line extensions of these products. As a result, the duration of the patents
covering Edwards Lifesciences' products can extend up to twenty years from the
date of filing of the patent application. Edwards Lifesciences management does
not believe that the expiration of any one or more of its patents that are due
to expire in the next five years will cause a material adverse effect on the
sales of Edwards Lifesciences' products. In addition, Edwards Lifesciences is
a party to several license agreements with unrelated third parties pursuant to
which it has obtained, for varying terms, the exclusive or non-exclusive
rights to certain patents held by such third parties in consideration for
cross-licensing rights or
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royalty payments. Edwards Lifesciences has also granted various rights in its
own patents to others under license agreements. There can be no assurance that
pending patent applications will result in issued patents. Competitors may
challenge the validity and enforceability of, or circumvent these patents
issued to or licensed by Edwards Lifesciences. Such patents may also be found
to be not infringed and thus insufficiently broad to provide Edwards
Lifesciences with a competitive advantage.
Edwards Lifesciences actively monitors the products of its competitors for
possible infringement of Edwards Lifesciences' owned and/or licensed patents.
Historically, litigation has been necessary to enforce certain patent rights
held by Edwards Lifesciences and Edwards Lifesciences plans to continue to
defend and prosecute its rights with respect to such patents. However, Edwards
Lifesciences' efforts in this regard may not be successful. In addition,
patent litigation could result in substantial cost to and diversion of effort
by Edwards Lifesciences. Edwards Lifesciences also relies upon trade secrets
for protection of its confidential and proprietary information. Others may
independently develop substantially equivalent proprietary information and
techniques, and third parties may otherwise gain access to Edwards
Lifesciences' trade secrets.
It is Edwards Lifesciences' policy to require certain of its employees,
consultants and other parties to execute confidentiality and invention
assignment agreements upon the commencement of employment, consulting or other
relationships with Edwards Lifesciences. However, these agreements may not
provide meaningful protection against, or adequate remedies for, the
unauthorized use or disclosure of Edwards Lifesciences' trade secrets.
Edwards Lifesciences has the following registered trademarks and non-
registered trademarks that are referred to in this information statement:
Registered trademarks:
AnastaFlo(R) Duraflo(R) Novacor(R)
Bentley(R) Edwards MIRA(R) Starr-Edwards(R)
Carpentier-Edwards(R) Fogarty(R) Swan-Ganz(R)
Cosgrove-Edwards(R) Lifepath AAA(R) SystemVantex(R)
Non-registered trademarks:
Century(TM) Metaplus(TM)
Edwards Prima Plus(TM) Side Branch Occlusion(TM)
Edwards Prima(TM) Plus System
Many of these trademarks have also been registered for use in certain
foreign countries where registration is available and Edwards Lifesciences has
determined it is commercially advantageous to do so.
Government Regulation and Other Matters
Regulatory Approvals
In the United States, the FDA, among other government agencies, is
responsible for regulating the introduction of new medical devices. The FDA
regulates laboratory and manufacturing practices, labeling and record keeping
for medical devices, and review of required manufacturers' reports of adverse
experience to identify potential problems with marketed medical devices. Many
of the devices that Edwards Lifesciences develops and markets are in a
category for which the FDA has implemented stringent clinical investigation
and pre-market approval requirements. The process of obtaining FDA approval to
market a product can be resource-intensive, lengthy and costly. FDA review may
involve substantial delays that adversely affect the marketing and sale of
Edwards Lifesciences' products. Any delay or acceleration experienced by
Edwards Lifesciences in obtaining regulatory approvals to conduct clinical
trials or in obtaining required market clearances (especially with respect to
significant products in the regulatory process that have been discussed in
public announcements) may affect Edwards Lifesciences' operations or the
market's expectations for the timing of such events and, consequently, the
market price for Edwards Lifesciences' common stock.
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The FDA has the authority to halt the distribution of certain medical
devices, detain or seize adulterated or misbranded medical devices, or order
the repair, replacement or refund of the costs of such devices. The FDA may
also require notification of health professionals and others with regard to
medical devices that present unreasonable risks of substantial harm to the
public health. The FDA may enjoin and restrain certain violations of the Food,
Drug and Cosmetic Act and the Safe Medical Devices Act pertaining to medical
devices, or initiate action for criminal prosecution of such violations.
Moreover, the FDA administers certain controls over the export of medical
devices from the United States and the importation of devices into the United
States.
Medical device laws are also in effect in the other countries in which
Edwards Lifesciences does business outside of the United States. These range
from comprehensive device approval requirements for some or all of Edwards
Lifesciences' medical device products to requests for product data or
certifications. The number and scope of these requirements are increasing.
Health Care Initiatives
Government and private sector initiatives to limit the growth of health
care costs, including price regulation and competitive pricing, are continuing
in many countries where Edwards Lifesciences does business, including the
United States. As a result of these changes, the marketplace has placed
increased emphasis on the delivery of more cost-effective medical therapies.
Although Edwards Lifesciences believes it is well positioned to respond to
changes resulting from this worldwide trend toward cost containment, proposed
legislation and/or changes in the marketplace could have an adverse impact on
future operating results.
Diagnostic-related groups' reimbursement schedules regulate the amount the
United States government, through the United States Health Care Financing
Administration, will reimburse hospitals and doctors for the in-patient care
of persons covered by Medicare. In response to rising Medicare and Medicaid
costs, several legislative proposals in the United States have been advanced
which would restrict future funding increases for these programs. While
Edwards Lifesciences has been unaware of significant domestic price resistance
directly as a result of the reimbursement policies of diagnostic-related
groups, changes in these reimbursement levels and processes could have an
adverse effect on Edwards Lifesciences' domestic pricing flexibility.
In keeping with the increased emphasis on cost-effectiveness in health care
delivery, the current trend among hospitals and other customers of medical
device manufacturers is to consolidate into larger purchasing groups to
enhance purchasing power. The medical device industry has also experienced
some consolidation, partly in order to offer a broader range of products to
large purchasers. As a result, transactions with customers are larger, more
complex and tend to involve more long-term contracts than in the past. The
enhanced purchasing power of these larger customers may also increase the
pressure on product pricing, although management is unable to estimate the
potential impact at this time.
Legal Matters
Edwards Lifesciences operates in an industry susceptible to significant
product liability claims. In recent years, there has been an increased public
interest in product liability claims for implanted or other medical devices.
These claims may be brought by individuals seeking relief for themselves or,
increasingly, by groups seeking to represent a class. In addition, product
liability claims may be asserted against Edwards Lifesciences in the future
arising out of events not known to management at the present time. Management
believes that Edwards Lifesciences' risk management practices, including
insurance coverage, are adequate to protect against potential product and
professional liability losses.
Baxter is a defendant, along with other companies, in The Working Group on
Carcinogens and Immune Suppressing Chemicals v. Baxter International Inc. et.
al. This lawsuit was originally filed in the Superior Court of San Francisco
County in December, 1997 with an amended complaint filed in June, 1999 and a
further amended compliant filed in August, 1999. This lawsuit arises under
Proposition 65, a regulation which requires a manufacturer to warn consumers
of a product containing a substance known to the state to cause cancer. The
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lawsuit alleges that Baxter failed to provide an adequate and reasonable
warning that certain of its products contain di-2-ethylhexylphthalate (DEHP),
which has been listed by the state of California as a carcinogen. DEHP is the
plasticizer which makes polyvinyl chloride tubing flexible. Baxter is
aggressively defending this action. Some of Edwards Lifesciences' products may
be the subject of this action.
In 1996, government authorities in Germany began an investigation into
certain business and accounting practices by heart valve manufacturers. As a
part of this investigation, documents were seized from Edwards Lifesciences
and certain other manufacturers. Based upon currently available information,
Edwards Lifesciences does not expect these investigations to have a materially
adverse impact on the company's financial position, results of operations or
liquidity.
Edwards Lifesciences is also subject to various environmental laws and
regulations both within and outside of the United States. The operations of
Edwards Lifesciences, like those of other medical device companies, involve
the use of substances regulated under environmental laws, primarily in
manufacturing and sterilization processes. While it is difficult to quantify
the potential impact of compliance with environmental protection laws,
management believes that such compliance will not have a material impact on
Edwards Lifesciences' financial position, results of operations or liquidity.
Properties
The locations and uses of the major properties of Edwards Lifesciences are
as follows:
<TABLE>
<C> <C> <S>
North America
Irvine, California (1) Headquarters, Research and Development,
Regulatory and Clinical Affairs and
Manufacturing
Oakland, California (2) Administrative, Research and Development,
Regulatory and Clinical Affairs and
Manufacturing
San Diego, California (2) Administrative, Service Center and Warehouse
Memphis, Tennessee (1) Distribution and Logistics
Midvale, Utah (1) Administrative, Research and Development,
Regulatory Affairs and Manufacturing
Haina, the Dominican Republic (2) Manufacturing
Anasco, Puerto Rico (2) Manufacturing
Europe
Uden, The Netherlands (1) Warehouse, Distribution, Manufacturing and
Offices
Horw, Switzerland (2) Manufacturing
Lausanne, Switzerland (2) European Headquarters
South America
Sao Paulo, Brazil (2) Manufacturing
</TABLE>
- --------
(1) Owned property.
(2) Leased property.
The leases for the leased properties set forth above generally expire
within eight years. The Oakland, California lease expires in 2002; the San
Diego, California lease expires in 2006; the Dominican Republic lease expires
in 2006; the Puerto Rico lease expires in 2008; and the Horw, Switzerland
lease expires in 2001. The Lausanne, Switzerland and Sao Paulo, Brazil leases
will be entered into prior to the distribution date. The leased properties
range in size from approximately 19,000 square feet to 46,000 square feet with
rents ranging from approximately $1.00 to $4.00 per square foot. These leases
generally are not renewable. Each of the existing leases listed above will
require the consent of the landlord for Baxter to assign or sublease the
property to Edwards Lifesciences.
Employees
Edwards Lifesciences employs over 5,000 employees worldwide, the majority
of whom are located at the company's headquarters in Irvine, California, and
at its manufacturing facility in Puerto Rico. Other major
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concentrations of employees are located in Europe and Brazil. Edwards
Lifesciences emphasizes competitive compensation, benefits, equity
participation and work environment policies in its efforts to attract and
retain qualified personnel. None of Edwards Lifesciences' North American
employees is represented by a labor union. In various countries outside of
North America, there are a limited number of employees who have relationships
with works councils or trade unions. Edwards Lifesciences considers its
relations with its employees to be good.
EDWARDS LIFESCIENCES' RELATIONSHIP WITH BAXTER AFTER THE DISTRIBUTION
General
Immediately prior to the distribution, Edwards Lifesciences will be a
wholly-owned subsidiary of Baxter. After the distribution, Baxter will not
have any ownership interest in the common stock of Edwards Lifesciences, which
will be an independent, publicly traded company and no Baxter directors will
also be Edwards Lifesciences directors.
Immediately prior to the distribution, Baxter and Edwards Lifesciences will
enter into certain agreements to define their ongoing relationship after the
distribution and to allocate tax, employee benefits and certain other
liabilities and obligations arising from periods prior to the distribution
date. These agreements are being entered into between Baxter and Edwards
Lifesciences while Edwards Lifesciences is still a wholly owned subsidiary of
Baxter, and certain terms of these agreements are not the same as would have
been obtained through negotiations with an unaffiliated third party.
Reorganization Agreement
Baxter and Edwards Lifesciences will enter into an Agreement and Plan of
Reorganization (the reorganization agreement) providing for, among other
things, the principal corporate transactions required to effect the separation
of the CardioVascular business from the remaining Baxter businesses and the
distribution, and certain other agreements governing the relationship between
Baxter and Edwards Lifesciences after the distribution. The following
description is intended as a summary of all material terms of the
reorganization agreement. We encourage you to read, in its entirety, the
reorganization agreement, which is included as an exhibit to the registration
statement of which this information statement is a part.
Pursuant to the reorganization agreement, Baxter will transfer to Edwards
Lifesciences substantially all of the assets, and Edwards Lifesciences will
assume substantially all of the corresponding liabilities, of the
CardioVascular business. See "Edwards Lifesciences' Business." The assets of
the CardioVascular business will be transferred to Edwards Lifesciences on an
"as is, where is" basis and no representations or warranties will be made by
Baxter with respect to the assets other than certain product-related
indemnities.
Subject to certain exceptions, the reorganization agreement will provide
for cross-indemnities principally designed to place financial responsibility
for the obligations and liabilities of the CardioVascular business with
Edwards Lifesciences and financial responsibility for the obligations and
liabilities of Baxter's retained businesses and its other subsidiaries with
Baxter. Specifically, Edwards Lifesciences has agreed to assume liability for,
and to indemnify Baxter against, any and all liabilities associated with the
CardioVascular business, including any litigation, proceedings or claims
relating to the products and operations of the transferred business whether or
not the underlying basis for such litigation, proceeding or claim arose prior
to or after the distribution date. See "Edwards Lifesciences' Business--
Government Regulation and Other Matters." Baxter has agreed to indemnify
Edwards Lifesciences against any and all liabilities associated with Baxter's
retained businesses and its other subsidiaries.
The reorganization agreement will also provide that Edwards Lifesciences
will assume and indemnify Baxter for all environmental liabilities that arise
from or are attributable to the operations of the CardioVascular business
regardless of when these liabilities arose. This includes, but is not limited
to, off-site waste disposal liabilities, except that Baxter will retain the
liabilities relating to two off-site disposal locations. In addition,
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Baxter has agreed to indemnify Edwards Lifesciences against any and all
environmental liabilities associated with the retained Baxter businesses and
its other subsidiaries.
The reorganization agreement will also provide, among other things, that,
in order to avoid potentially adverse tax consequences relating to the
distribution, for a period of two years after the distribution, Edwards
Lifesciences will not:
(1) cease to engage in an active trade or business within the meaning of
the Internal Revenue Code of 1986, as amended;
(2) issue or redeem any share of stock of Edwards Lifesciences, except for
certain issuances and redemptions for the benefit of Edwards
Lifesciences' employees, or to effect acquisitions by Edwards
Lifesciences in the ordinary course of business, or in connection with
the issuance of any convertible debt by Edwards Lifesciences, or in
accordance with the requirements for permitted purchases of Edwards
Lifesciences common stock as set forth in Section 4.05(1)(b) of Revenue
Procedure 96-30 issued by the IRS; or
(3) liquidate or merge with any other corporation;
unless, with respect to (1), (2) or (3) above, either (a) an opinion is
obtained from counsel to Baxter, or (b) a ruling is obtained from the IRS, in
either case to the effect that such act or event will not adversely affect the
federal income tax consequences of the distribution to Baxter or its
stockholders who receive Edwards Lifesciences stock. Edwards Lifesciences
believes that these limitations will not significantly constrain its
activities or its ability to respond to unanticipated developments. See "The
Distribution--Important Federal Income Tax Consequences."
The reorganization agreement will also provide that if, as a result of
certain transactions occurring after the distribution date involving either
the stock or assets of either Edwards Lifesciences or any of its subsidiaries,
or any combination thereof, the distribution fails to qualify as tax-free
under the provisions of Section 355 of the United States tax code, Edwards
Lifesciences will indemnify Baxter for all taxes, liabilities and associated
expenses, including penalties and interest, incurred as a result of such
failure of the distribution to qualify under Section 355 of the tax code. The
reorganization agreement will further provide that if the distribution fails
to qualify as tax-free under the provisions of Section 355 of the tax code,
other than as a result of a transaction occurring after the distribution date
involving either the stock or assets of Edwards Lifesciences or any of its
subsidiaries, or any combination of stock or assets, then Edwards Lifesciences
will not be liable for those taxes, liabilities or expenses. See "The
Distribution--Important Federal Income Tax Consequences."
The reorganization agreement will also provide for the allocation of
benefits between Baxter and Edwards Lifesciences under existing insurance
policies after the distribution date for claims made or occurrences prior to
the distribution date. The reorganization agreement also sets forth procedures
for the administration of insured claims. In addition, the reorganization
agreement provides that Baxter will use its reasonable efforts to maintain
directors' and officers' insurance at substantially the level of Baxter's
current directors' and officers' insurance policy for a period of three years
with respect to the directors and officers of Baxter who will become directors
and officers of Edwards Lifesciences as of the distribution date for acts
relating to periods prior to the distribution date.
The reorganization agreement will provide that prior to the distribution
date the certificate of incorporation and bylaws of Edwards Lifesciences will
be substantially in the forms attached as exhibits to the registration
statement of which this information statement is a part and that as of the
distribution date the directors of Edwards Lifesciences will be the persons
named in "Edwards Lifesciences Management--Board of Directors."
The reorganization agreement will also provide that each of Baxter and
Edwards Lifesciences will be granted access to certain records and information
in the possession of the other. In addition, the reorganization agreement
requires Baxter and Edwards Lifesciences to retain for a period of ten years
following the distribution the information in its possession relating to the
other. After the ten year period, Baxter and Edwards Lifesciences must give
prior notice to the other of their intention to dispose of such information.
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The reorganization agreement will also address the treatment of employee
benefit matters and other compensation arrangements for certain former and
current Edwards Lifesciences employees and their beneficiaries and dependents,
as well as certain former employees of certain former CardioVascular
businesses and their beneficiaries and dependents (we refer to these persons
collectively as the Edwards Lifesciences Participants). These provisions of
the reorganization agreement contemplate that Edwards Lifesciences will
establish certain profit sharing, retirement savings and welfare plans
effective on the distribution date. The reorganization agreement will provide
that the account balances (including outstanding loans) of all Edwards
Lifesciences Participants in the Baxter International Inc. and Subsidiaries
Incentive Investment Plan, and the plan assets related to these liabilities,
will be transferred to Edwards Lifesciences' new retirement savings plan. The
reorganization agreement will also generally provide that, after the
distribution date, Edwards Lifesciences will assume all liabilities for
benefits under any welfare plans related to Edwards Lifesciences Participants,
other than certain claims incurred on or before the distribution date.
Moreover, the reorganization agreement will provide that, effective as of the
distribution date, Edwards Lifesciences will become responsible for all other
liabilities to Edwards Lifesciences Participants (including unfunded
supplemental retirement benefits), other than certain accruals under the
Baxter Defined Benefit Excess Plan.
The reorganization agreement also provides that as of the distribution
date, neither Baxter nor Edwards Lifesciences will have entered into, and
within the first six months following the distribution date, neither Baxter
nor Edwards Lifesciences will enter into any agreements, understandings,
arrangements or substantial negotiations that would result, individually or
collectively, in a change of ownership of 50% or more of either within the
meaning of Section 355(e) of the tax code.
Finally, the reorganization agreement will provide that the distribution
will not be made until specified conditions are satisfied or waived by the
Baxter board of directors in its sole discretion. Even if all of the
conditions are satisfied, the reorganization agreement may be terminated and
the distribution abandoned by the Baxter board of directors, in its sole
discretion, without the approval of the Baxter stockholders, at any time prior
to the distribution date. See "The Distribution--Distribution Conditions and
Termination."
Tax Sharing Agreement
Baxter and Edwards Lifesciences will enter into a tax sharing agreement
that will:
1. allocate responsibility for federal, state and foreign tax liabilities
of the Edwards Lifesciences business attributable to periods including,
or ending on or before, the distribution date;
2. allocate liability for transfer taxes arising under the distribution or
related transactions;
3. provide for the allocation of tax attributes in accordance with US
Treasury Regulations or other applicable authorities;
4. allocate responsibility for tax return filings, records retention, the
payment of tax liabilities and the administration of tax audits which
relate to the Edwards Lifesciences business;
5. allocate responsibility for property considered abandoned under state
law as of the distribution date; and
6. allocate deductions related to stock acquired under employee
compensation plans prior to, or as a result of, the distribution.
Distribution Agreements
Baxter and Edwards Lifesciences will enter into a number of distribution
agreements, to be effective as of the distribution date, pursuant to which
Baxter will serve as the distributor of Edwards Lifesciences products in
Argentina, Australia, Greece, Ireland, New Zealand and in certain Nordic
countries. In most European countries, as well as in India, Baxter's services
will be limited to various physical distribution services. In the other
countries, Baxter will provide more extensive sales and marketing assistance
and will take legal title to products
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before resale to the end customers. Baxter may also contract with third-party
distributors for the distribution of Edwards Lifesciences products. In
addition, in Russia and the Czech Republic, Baxter will provide certain sales
and marketing support services to Edwards Lifesciences but will not provide
physical distribution services and will not take title to products.
The initial term of the distribution agreements is generally less than two
years. The distribution agreements may be renewed upon the mutual agreement of
the parties. In the event of a change in control of one of the parties to the
distribution agreements, the other party to the agreement will have the right,
subject to certain notice periods and other restrictions, to terminate such
agreement prior to its normal expiration.
Under certain distribution agreements, Edwards Lifesciences is required
within the applicable territories to distribute all covered products through
Baxter, subject to certain exceptions. In addition, in certain jurisdictions,
Baxter may not market, promote or solicit orders for any product that competes
with any covered product. Baxter may, however, take orders for, stock and sell
competing products in response to customer requests.
The compensation received by Baxter under the distribution agreements
generally will approximate or be based upon Baxter's direct and indirect costs
of distribution, plus, in the case of those territories where Baxter performs
more than mere physical distribution services, a margin comparable to the
amounts reflected in the pro forma financial statement of Edwards Lifesciences
contained elsewhere in this document. See "Edwards Lifesciences' Unaudited Pro
Forma Financial Data" on page 39.
Services and Other Agreements
Baxter and Edwards Lifesciences will enter into several services
agreements, to be effective from and after the distribution date, pursuant to
which Baxter will provide to Edwards Lifesciences certain administrative
services that may be necessary for Edwards Lifesciences to conduct its
business. Baxter will provide a variety of services to Edwards Lifesciences,
including information systems and telecommunications, human resources, finance
and accounting and other administrative services. These agreements will be for
varying terms and, subject to certain exceptions, are generally terminable by
either party prior to the date that is four months before the expiration date.
Under certain circumstances involving a change in control, Edwards
Lifesciences and Baxter may terminate the agreements within a shorter
timeframe. The agreements may be renewed upon expiration by mutual agreement
of the parties. The prices at which Baxter will provide these services
generally will be equal to or based on the actual cost of rendering these
services.
The CardioVascular business in Japan, including certain manufacturing
operations, will not be transferred to Edwards Lifesciences at the time of the
distribution due to Japanese regulatory requirements and business culture
considerations. It will be operated pursuant to a joint venture under which a
Japanese subsidiary of Baxter will retain ownership of the business assets,
but a subsidiary of Edwards Lifesciences will hold a 90% profit interest.
Edwards Lifesciences will have an option to purchase the Japanese business
assets, which option may be exercised no earlier than 26 months following the
distribution date and no later than 60 months following the distribution date.
In addition, Edwards Lifesciences and Baxter will have the opportunity to
terminate the joint venture in the event of the occurrence of certain change
of control events with respect to the other. Edwards Lifesciences will
consolidate the joint venture in its financial statements since it will have
effective control over the joint venture.
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THE DISTRIBUTION
Background and Reasons for the Distribution
Baxter is creating an independent, publicly traded company for its
CardioVascular business because it believes that the combined value of two
separate companies will be greater than the value of Baxter as a whole today.
Edwards Lifesciences expects that the distribution will allow it to compete
more effectively in the intensely competitive and rapidly consolidating
cardiovascular medical device industry. Following the distribution, Baxter
will have the ability to invest more resources in its remaining core
businesses, which it expects will further enhance its ability to bring new
products to market and to expand in global markets.
Improved Ability to Compete in Cardiovascular Medical Device Industry
Edwards Lifesciences will benefit from focusing on treating late-stage
cardiovascular disease. While Edwards Lifesciences has developed leadership
positions in several niche segments of the cardiovascular medical device
industry, its competitive position is being challenged by larger and more
focused "pure play" competitors. As size, breadth and access to emerging
technologies become more important in the rapidly evolving and consolidating
cardiovascular medical device industry, Edwards Lifesciences intends to
accelerate its rate of innovation, and make a significant contribution to its
product development pipeline. Edwards Lifesciences expects this strategy to
ultimately lead to the commercialization of more and improved treatment
options for Edwards Lifesciences' customers and their patients. In addition,
Edwards Lifesciences expects that it will increase funding of internal
development and be more aggressive in pursuing acquisition and strategic
alliance opportunities. The distribution will provide Edwards Lifesciences
with a publicly traded equity security that can be used to provide it with
more flexibility in making acquisitions.
Attraction and Retention of Key Employees
Edwards Lifesciences' management believes that having a publicly traded
equity security will create a highly effective incentive tool for motivating
senior management and attracting and retaining talented employees at all
levels of the company. Following the distribution, the stock price of Edwards
Lifesciences will be heavily influenced by the operational and financial
performance of Edwards Lifesciences. This direct link between performance and
stock price appreciation should create an effective incentive system and
should serve to enhance the levels of dedication, commitment and productivity
of the management and employees of Edwards Lifesciences. The impact of this
form of incentive system on Edwards Lifesciences' performance will grow as
management and employee ownership in the company increases through the use of
stock options and participation in stock incentive programs.
Capital Structure and Dividend Policy Optimization
The distribution will provide both Baxter and Edwards Lifesciences the
opportunity to create capital structures and adopt dividend policies that best
reflect the cash flow, investment requirements, competitive landscape,
stockholder expectations and corporate strategy and business objectives of
each company. By appropriately tailoring the capital structures of Baxter and
Edwards Lifesciences, each should be better able to pursue their strategic
objectives while achieving the lowest overall cost of capital consistent with
the risk profiles and competitive factors inherent in each business.
Manner of Effecting the Distribution
The general terms and conditions relating to the distribution are set forth
in the reorganization agreement between Baxter and Edwards Lifesciences. See
"Edwards Lifesciences' Relationship With Baxter After The Distribution--
Reorganization Agreement."
On the distribution date, Baxter will effect the distribution by delivering
all of the outstanding shares of Edwards Lifesciences common stock to First
Chicago Trust Company of New York, a division of EquiServe, as
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distribution agent, for distribution to the holders of record of Baxter common
stock at the close of business on the record date. The distribution will be
made on the basis of one share of Edwards Lifesciences common stock for every
[six] shares of Baxter common stock.
The actual number of shares of Edwards Lifesciences common stock that will
be distributed will depend on the number of shares of Baxter common stock
outstanding on the record date. The shares of Edwards Lifesciences common
stock will be validly issued, fully paid and nonassessable, and the holders of
such shares will not be entitled to preemptive rights. See "Description of
Edwards Lifesciences Capital Stock." It is expected that certificates
representing shares of Edwards Lifesciences common stock will be mailed to
Baxter stockholders on or about [ ], 2000.
Certificates or script representing fractional shares of Edwards
Lifesciences common stock will not be issued to Baxter stockholders as part of
the distribution. Instead, each holder of Baxter common stock who would
otherwise be entitled to receive a fractional share will receive cash for
those fractional interests less applicable taxes. The distribution agent will,
on or after the distribution date, aggregate and sell all those fractional
interests on the open market at then market prices and distribute the
aggregate proceeds ratably to Baxter stockholders otherwise entitled to those
fractional interests. Baxter will pay all brokers' fees and commissions in
connection with the sale of fractional interests. See "The Distribution--
Important Federal Income Tax Consequences" for a discussion of the United
States federal income tax treatment of proceeds from fractional share
interests.
Accounting Treatment of Plan of Reorganization
The distribution will be accounted for on a historical cost basis and no
gain or loss will be recorded.
Important Federal Income Tax Consequences
The distribution is conditioned on Baxter receiving a ruling from the IRS
substantially to the effect that, among other things, the distribution should
qualify as a tax-free spin-off to Baxter and to Baxter's United States
stockholders under the tax-free spin-off provisions (Section 355) of the
Internal Revenue Code of 1986, as amended. Baxter's board of directors may
waive this condition.
The ruling is based on current provisions of the Internal Revenue Code,
existing regulations under the tax code and current administrative rulings and
court decisions, all of which are subject to change. We have not attempted to
comment on all federal income tax consequences of the distribution that may be
relevant to particular holders, including holders that are subject to special
tax rules such as dealers in securities, foreign persons, mutual funds,
insurance companies, tax-exempt entities, stockholders who acquire their
Edwards Lifesciences common stock pursuant to the exercise of employee stock
options or otherwise as compensation and holders who do not hold their Baxter
common stock as capital assets. We urge holders of Baxter common stock to
consult their own tax advisors regarding the federal income tax consequences
of the distribution in light of their personal circumstances and the
consequences under applicable state, local and foreign tax laws.
Provided that the distribution qualifies as a tax-free distribution under
the tax-free spin-off provisions of the tax code, as expected based on the IRS
ruling, a Baxter stockholder will not recognize any income, gain or loss as a
result of the distribution, except, as described below, in connection with
fractional share proceeds from the deemed receipt and sale of any Edwards
Lifesciences common stock:
1. A Baxter stockholder's aggregate tax basis for Baxter common stock on
which Edwards Lifesciences common stock is distributed and the Edwards
Lifesciences common stock received by such stockholder in the
distribution (including any fractional shares of Edwards Lifesciences
common stock to which such stockholder may be entitled) will be the same
as the basis of Baxter common stock held by such stockholder immediately
prior to the distribution;
2. A Baxter stockholder's aggregate tax basis will be allocated between his
or her Baxter common stock and Edwards Lifesciences common stock
received in the distribution (including any fractional shares of Edwards
Lifesciences common stock deemed received) in proportion to the fair
market value of both the Baxter common stock and Edwards Lifesciences
common stock on the distribution date;
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3. A Baxter stockholder's holding period for the Edwards Lifesciences
common stock received in the distribution (including any fractional
shares of Edwards Lifesciences common stock to which such stockholder
may be entitled) will include the holding period of the Baxter common
stock on which the distribution is made, provided that such Baxter
common stock is held as a capital asset by such stockholder on the
distribution date;
4. A Baxter stockholder who receives fractional share proceeds as a result
of the sale of shares of Edwards Lifesciences common stock by the
distribution agent will be treated as if such fractional share had been
received by the stockholder as part of the distribution and then sold by
such stockholder. Accordingly, such stockholder will recognize gain or
loss equal to the difference between the cash so received and the
portion of the tax basis in Edwards Lifesciences common stock that is
allocable to such fractional share. Such gain or loss will be capital
gain or loss, provided that such fractional share was held by such
stockholder as a capital asset at the time of the distribution; and
5. Baxter will not recognize any gain or loss on the distribution.
If for any reason the distribution does not qualify as a tax-free spin-off
under Section 355 of the tax code, Baxter would be required to recognize gain
equal to the excess of the fair market value of the Edwards Lifesciences
common stock distributed to its stockholders over Baxter's basis in the
Edwards Lifesciences common stock. Baxter has agreed to indemnify Edwards
Lifesciences for any tax liability imposed on Edwards Lifesciences or any of
its subsidiaries as a result of the distribution being determined to be a
taxable transaction other than due to any act or failure to act of Edwards
Lifesciences or any of its subsidiaries. In addition, if the distribution
fails to qualify as a tax-free spin-off under Section 355 of the tax code,
each Baxter stockholder would be generally treated as if such stockholder had
received a taxable dividend in an amount equal to the fair market value of the
Edwards Lifesciences common stock received.
Current United States Treasury Regulations require each Baxter stockholder
who receives Edwards Lifesciences common stock pursuant to the distribution to
attach to his or her federal income tax return for the year in which the
distribution occurs a detailed statement setting forth data as may be
appropriate in order to show the applicability under Section 355 of the tax
code to the distribution. Baxter will provide the appropriate information to
each stockholder of record as of the record date.
Under the tax code, a holder of Baxter common stock may be subject, under
certain circumstances, to backup withholding at a rate of 31% with respect to
the amount of cash, if any, received as a result of the sale of fractional
share interests unless the holder provides proof of an applicable exemption or
correct taxpayer identification number, and otherwise complies with applicable
requirements of the backup withholding rules. Any amounts withheld under the
backup withholding rules are not additional tax and may be refunded or
credited against the holder's federal income tax liability, provided the
required information is furnished to the IRS.
Market for Edwards Lifesciences Common Stock
There is no existing market for Edwards Lifesciences common stock. Edwards
Lifesciences is seeking to list its common stock on the NYSE. If the shares
are accepted for listing, a "when-issued" trading market for Edwards
Lifesciences common stock is expected to develop on or shortly before the
record date. The term "when-issued" means that shares can be traded prior to
the time certificates are actually available or issued. We cannot predict the
trading prices for Edwards Lifesciences common stock before or after the
distribution date. Until the common stock is fully distributed and an orderly
market develops, the trading prices for Edwards Lifesciences' common stock may
fluctuate. Prices for Edwards Lifesciences common stock will be determined in
the trading markets and may be influenced by many factors, including:
. the depth and liquidity of the market for Edwards Lifesciences common
stock;
. developments generally affecting Edwards Lifesciences' business;
. the impact of the factors referred to in "Risk Factors" beginning on page
7;
. investor perceptions of Edwards Lifesciences and its business;
35
<PAGE>
. the financial results of Edwards Lifesciences;
. the dividend policy of Edwards Lifesciences; and
. general economic and market conditions.
We anticipate that Edwards Lifesciences common stock will be traded on the
NYSE under the symbol "EW." The transfer agent and registrar for the Edwards
Lifesciences common stock will be [ ].
As of November 1, 1999, Baxter had 59,360 stockholders of record. Except
for those stockholders who would be entitled to receive less than one share of
Edwards Lifesciences common stock, and assuming that each stockholder is a
stockholder of record on the record date, each stockholder will become a
stockholder of record of Edwards Lifesciences. For certain information
regarding options and other equity-based awards involving Edwards Lifesciences
common stock which may become outstanding after the distribution, see "Edwards
Lifesciences Executive Compensation." Shares of Edwards Lifesciences common
stock distributed to Baxter stockholders in the distribution will be freely
transferable under the Securities Act of 1933, except for shares of Edwards
Lifesciences common stock received by persons who may be deemed to be
affiliates of Edwards Lifesciences. Persons who may be deemed to be affiliates
of Edwards Lifesciences after the distribution generally include individuals
or entities that control, are controlled by or are under common control with
Edwards Lifesciences and may include certain officers and directors, or
principal stockholders, of Edwards Lifesciences. After Edwards Lifesciences
becomes a publicly traded company, securities held by persons who are its
affiliates will be subject to resale restrictions under the Securities Act.
Affiliates of Edwards Lifesciences will be permitted to sell shares of the
entity of which such persons are affiliates only pursuant to an effective
registration statement or an exemption from the registration requirements of
the Securities Act, such as the exemption afforded by Rule 144 under the
Securities Act.
Dividend Policy
Edwards Lifesciences has no current plans to pay dividends following the
distribution. Dividends will be paid on Edwards Lifesciences common stock only
if declared by the Edwards Lifesciences board of directors in its sole
discretion following the distribution. The payment and level of cash
dividends, if any, will be based upon a number of factors, including the
operating results, cash flow and financial requirements of Edwards
Lifesciences. The actual amount and timing of dividends, if any, will depend
on Edwards Lifesciences' financial condition, results of operations, business
prospects, capital requirements and any other matters as Edwards Lifesciences'
board of directors may deem relevant.
Distribution Conditions and Termination
We expect that the distribution will be effective on the distribution date,
[ ], 2000, provided that, among other things:
1. the SEC has declared effective the registration statement on Form 10
under the Exchange Act, as amended, filed by Edwards Lifesciences and no
stop order relating to the registration statement is in effect;
2. Baxter and Edwards Lifesciences have received all necessary permits,
registrations and consents required under the securities or blue sky
laws of states or other political subdivisions of the United States in
connection with the distribution or these permits, registrations and
consents have become effective;
3. Baxter and Edwards Lifesciences have received the favorable tax ruling
from the IRS and the ruling has not been revoked or modified in any
material respect;
4. the NYSE has approved the Edwards Lifesciences common stock for listing
on the NYSE, subject to official notice of issuance;
5. Baxter has completed the transfers of assets and liabilities to Edwards
Lifesciences required to constitute Edwards Lifesciences as described in
this information statement;
36
<PAGE>
6. no order, injunction or decree issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing
consummation of the distribution or any of the transactions related
thereto (including the transfers of assets and liabilities contemplated
by the reorganization agreement) is in effect; and
7. Baxter's board of directors has received opinions of its financial
advisors regarding the fairness of the distribution to stockholders of
Baxter.
The fulfillment of the foregoing conditions will not create any obligation
on the part of Baxter to effect the distribution, and Baxter's board of
directors has reserved the right to amend, modify or abandon the distribution
and the related transactions at any time prior to the distribution date.
Baxter's board of directors may also waive any of these conditions.
Opinions of Financial Advisors
Baxter has engaged Credit Suisse First Boston Corporation (CSFB) and J.P.
Morgan as financial advisors in connection with the distribution. We expect
that the Baxter board of directors will rely, in part, upon the receipt of the
opinions described below in deciding to formally declare the distribution
dividend. The receipt of these opinions is a condition to the distribution.
Baxter's board of directors may waive this condition.
We expect CSFB and J.P. Morgan to deliver to the Baxter board of directors
their written opinions, each dated [ ], 2000, regarding the fairness of
the distribution to stockholders of Baxter.
Each of CSFB and J.P. Morgan will receive customary fees, including
reimbursement of expenses, for its services as financial advisor related to
the distribution, a portion of which is contingent upon the consummation of
the distribution. Baxter also has agreed to indemnify each of CSFB and J.P.
Morgan against certain liabilities and expenses in connection with its
services as financial advisor.
CSFB and J.P. Morgan and their respective affiliates have acted, and may in
the future act, as underwriters for, and have participated as members of
underwriting syndicates with respect to, offerings of Baxter securities. CSFB
and J.P. Morgan have effected securities transactions for Baxter and performed
financial advisory services in connection with certain acquisitions and
dispositions by Baxter. CSFB and J.P. Morgan have received fees from Baxter in
the past for these services and may receive such fees in the future. Each of
CSFB and J.P. Morgan may in the future serve as an underwriter of Edwards
Lifesciences securities.
37
<PAGE>
SELECTED FINANCIAL DATA OF EDWARDS LIFESCIENCES
The following table sets forth selected financial information with respect
to Edwards Lifesciences. The information, relating to each of the years ended
December 31, 1994 through 1998, has been derived from annual financial
statements and related notes found elsewhere in this information statement.
The data for the nine months ended September 30, 1999 and 1998 have been
derived from unaudited financial statements also appearing in this information
statement. This financial information for the nine months ended September 30,
1999 and 1998 includes all adjustments, consisting only of normal, recurring
accruals that are considered necessary for a fair presentation of combined
operating results for such interim periods. Results are not necessarily
indicative of Edwards Lifesciences' performance as an independent company. The
information set forth below should be read in conjunction with "Edwards
Lifesciences Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the "Combined Financial Statements" and related
notes to the financial statements found elsewhere in this information
statement. Historical per share data for net income and dividends have not
been presented because Edwards Lifesciences was not incorporated until
September 1999. Pro forma net income per share data is presented elsewhere in
this information statement. See Note 3 to the "Combined Financial Statements"
and "Edwards Lifesciences Management's Discussion and Analysis of Financial
Condition and Results of Operations" for discussions of the effect of certain
acquisitions on Edwards Lifesciences' revenues, expenses and financial
position.
Selected Historical Financial Data
<TABLE>
<CAPTION>
As of or for
the nine
months ended As of or for the years ended
September 30, December 31,
------------- -----------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Net sales.............. $ 672 $ 639 $ 865 $ 879 $ 837 $ 730 $ 632
Gross profit........... $ 328 $ 300 $ 399 $ 416 $ 395 $ 366 $ 306
Net income (a)......... $ 62 $ 47 $ 62 $ (52) $ 87 $ 66 $ 40
Balance Sheet Data
Total Assets........... $1,465 $1,483 $1,483 $1,526 $1,473 $1,390 $1,351
</TABLE>
- --------
(a) See Note 3 to the "Combined Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for additional information regarding the $132 million in-process research
and development charge in 1997 relating to the acquisition of Research
Medical, Inc.
38
<PAGE>
EDWARDS LIFESCIENCES' UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined statements of income and
unaudited combined condensed balance sheet present the combined results of
Edwards Lifesciences and its financial position, assuming that the
transactions contemplated by the distribution had been completed as of January
1, 1998 for income statement purposes and as of September 30, 1999 for balance
sheet purposes.
The unaudited pro forma information has been prepared utilizing the
historical combined financial statements of Edwards Lifesciences. You should
read this information in conjunction with the historical combined financial
statements and related notes included on pages F-1 to F-17 of this information
statement. We have included the unaudited pro forma financial data as required
by the rules and regulations of the SEC and it is for comparative purposes
only. The unaudited pro forma financial data does not purport to be indicative
of the results of Edwards Lifesciences in the future or what the financial
position and results of operations would have been had Edwards Lifesciences
been a separate, stand-alone entity during the periods shown.
Unaudited Pro Forma Combined Statement of Income
(in millions, except shares and per share information)
<TABLE>
<CAPTION>
Nine months ended September 30, 1999
-----------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
------------ ------------- ----------------
<S> <C> <C> <C>
Net sales....................... $ 672 $-- $ 672
Costs and expenses
Cost of goods sold............ 339 2 (a) 341
Cost of goods sold--
transactions with Baxter..... 5 -- 5
Marketing and administrative
expenses..................... 143 18 (b) 161
Marketing and administrative
expenses--transactions with
Baxter....................... 33 -- 33
Research and development
expenses..................... 28 -- 28
Research and development
expenses--transactions with
Baxter....................... 10 -- 10
Interest, net................. -- 22 (c) 22
Goodwill amortization......... 26 -- 26
Other expense................. 3 -- 3
--------- --------- ----------------
Total costs and expenses........ 587 42 629
--------- --------- ----------------
Income (loss) before income
taxes.......................... 85 (42) 43
Income tax expense (benefit).... 23 (12)(d) 11
--------- --------- ----------------
Net income (loss)............... $ 62 $ ( 30) $ 32
--------- --------- ----------------
Share information
Shares to be issued (e)....... 48,618,206
================
Net income per share (e)...... $ 0.66
================
</TABLE>
Pro Forma Adjustments
(a) To reflect estimated incremental costs resulting from new or revised
distribution agreements with Baxter in certain foreign locations
subsequent to the distribution. While such distribution agreements are in
the process of being finalized, based on an analysis of the current
intercompany charges, it is anticipated that the draft revised agreements
will result in increased costs to Edwards Lifesciences on a stand-alone
basis.
(b) To reflect estimated incremental costs associated with being an
independent public company, including costs associated with corporate
administrative services such as accounting, tax, treasury, risk
management, insurance, legal, stockholder relations and human resources.
The company's historical combined financial statements include all costs
incurred by the parent company on behalf of the company. However, there
will be
39
<PAGE>
incremental and continuing costs directly attributable to the planned spin-
off, as there will be a loss of certain synergies and benefits of economies
of scale that existed while Edwards Lifesciences was part of Baxter.
Management estimated such incremental costs utilizing the parent company's
historical headcount and cost analyses, and the company's organizational
chart, which has been finalized. Management also utilized knowledge and
expertise obtained from executing similar spin-off transactions in the
past, and knowledge of the approximate headcount and cost structures of the
company's competitor companies. The following is a summary of the estimated
incremental costs by significant function (in millions):
<TABLE>
<S> <C>
. Accounting, tax and legal $ 6
. Insurance and risk management 3
. Human resources 5
. Treasury, stockholder relations and other costs 4
---
Total $18
===
</TABLE>
(c) To reflect the estimated interest expense which would have been incurred
by Edwards Lifesciences based on the incurrence of $[550] million of debt
at a weighted-average interest rate of 5.3%. The company's debt facilities
are not yet finalized. The weighted-average interest rate was estimated by
management based on the assumed mix of debt balances for Edwards
Lifesciences, by country, and the risk-free interest rate coupled with the
company's anticipated credit spread in each applicable country. An
increase or decrease of 0.125 points in the weighted average interest rate
would result in an increase or decrease in interest expense of
approximately $1 million.
(d) To reflect the estimated tax impact at statutory rates, for pro forma
adjustments (a) through (c), as well as the estimated impact of different
tax rates available to Edwards Lifesciences as a stand-alone company. It
is anticipated that Edwards Lifesciences will have different tax rates as
a stand-alone company due to the different tax and legal structures it
will have as a stand-alone company subsequent to spin-off date.
(e) Pro forma net income (loss) per share is computed as if the [48,618,206]
common shares of Edwards Lifesciences, estimated to be issuable in the
distribution, based on an assumed exchange ratio of one to [six], had been
outstanding for the periods presented.
40
<PAGE>
Unaudited Pro Forma Combined Statement of Income
(in millions, except shares and per share information)
<TABLE>
<CAPTION>
Year ended December 31, 1998
----------------------------------
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ----------
<S> <C> <C> <C>
Net sales................................... $865 $-- $ 865
Costs and expenses
Cost of goods sold........................ 455 3 (a) 458
Cost of goods sold--transactions with
Baxter................................... 11 -- 11
Marketing and administrative expenses..... 187 25 (b) 212
Marketing and administrative expenses--
transactions with Baxter................. 35 -- 35
Research and development expenses......... 40 -- 40
Research and development expenses--
transactions with Baxter................. 16 -- 16
Interest, net............................. -- 29 (c) 29
Goodwill amortization..................... 34 -- 34
Other income.............................. (6) -- (6)
---- ---- ----------
Total costs and expenses.................... 772 57 829
---- ---- ----------
Income (loss) before income taxes........... 93 (57) 36
Income tax expense (benefit)................ 31 (16)(d) 15
---- ---- ----------
Net income (loss)........................... $ 62 $(41) $ 21
==== ==== ==========
Share information
Shares to be issued (e)................... 48,618,206
==========
Net income per share (e).................. $ 0.43
==========
</TABLE>
Pro Forma Adjustments
(a) To reflect estimated incremental costs resulting from new or revised
distribution agreements with Baxter in certain foreign locations
subsequent to the distribution. While such distribution agreements are in
the process of being finalized, based on an analysis of the current
intercompany charges, it is anticipated that the draft revised agreements
will result in increased costs to Edwards Lifesciences on a stand-alone
basis.
(b) To reflect estimated incremental costs associated with being an
independent public company, including costs associated with corporate
administrative services such as accounting, tax, treasury, risk
management, insurance, legal, stockholder relations and human resources.
The company's historical combined financial statements include all costs
incurred by the parent company on behalf of the company. However, there
will be incremental and continuing costs directly attributable to the
planned spin-off, as there will be a loss of certain synergies and
benefits of economies of scale that existed while Edwards Lifesciences was
part of Baxter. Management estimated such incremental costs utilizing the
parent company's historical headcount and cost analyses, and the company's
organizational chart, which has been finalized. Management also utilized
knowledge and expertise obtained from executing similar spin-off
transactions in the past, and knowledge of the approximate headcount and
cost structures of the company's competitor companies. The following is a
summary of the estimated annual incremental costs by significant function
(in millions):
<TABLE>
<S> <C>
. Accounting, tax and legal............................................ $ 8
. Insurance and risk management........................................ 4
. Human resources...................................................... 7
. Treasury, stockholder relations and other costs...................... 6
---
Total.............................................................. $25
===
</TABLE>
(c) To reflect the estimated interest expense which would have been incurred
by Edwards Lifesciences based on the incurrence of $[550] million of debt
at a weighted-average interest rate of 5.3%. The company's debt facilities
are not yet finalized. The weighted-average interest rate was estimated by
management based on the assumed mix of debt balances by country, and the
risk-free interest rate coupled with the company's anticipated credit
spread in each applicable country. An increase or decrease of 0.125 points
in the weighted average interest rate would result in an increase or
decrease in interest expense of approximately $1 million.
(d) To reflect the estimated tax impact at statutory rates, for pro forma
adjustments (a) through (c), as well as the estimated impact of different
tax rates available to Edwards Lifesciences as a stand-alone company. It
is anticipated that Edwards Lifesciences will have different tax rates as
a stand-alone company due to the different tax and legal structures it
will have as a stand-alone company subsequent to spin-off date.
(e) Pro forma net income per share is computed as if the [48,618,206] common
shares of Edwards Lifesciences, estimated to be issuable in the
distribution, based on an assumed exchange ratio of one to [six], had been
outstanding for the periods presented.
41
<PAGE>
Unaudited Pro Forma Combined Balance Sheet
(in millions, except shares and per share information)
<TABLE>
<CAPTION>
September 30, 1999
------------------------------
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- ------
<S> <C> <C> <C>
Current Assets
Accounts receivable, net of allowances of $8
million at September 30, 1999................ $ 133 $-- $ 133
Other receivables............................. 27 -- 27
Inventories................................... 188 -- 188
Short-term deferred income taxes.............. 14 -- 14
Prepaid expenses.............................. 10 -- 10
------ ---- ------
Total current assets........................ 372 -- 372
------ ---- ------
Property, plant and equipment
Property, plant and equipment................. 493 -- 493
Accumulated depreciation and amortization..... (270) -- (270)
------ ---- ------
Net property, plant and equipment........... 223 -- 223
------ ---- ------
Other assets
Goodwill and other intangibles................ 854 -- 854
Other......................................... 16 -- 16
------ ---- ------
Total other assets.......................... 870 -- 870
------ ---- ------
Total assets.............................. $1,465 $-- $1,465
====== ==== ======
Current liabilities
Accounts payable and accrued liabilities...... $ 151 $ 2 $ 153
------ ---- ------
Total current liabilities................... 151 2 153
------ ---- ------
Long-term debt.................................. -- 550 (a) 550
------ ---- ------
Other non-current liabilities................... 52 -- 52
------ ---- ------
Stockholders' Equity
Investment by and advances from Baxter
International Inc............................ 1,289 (550)(a)
(739)(b) --
Common stock, $1 par value, authorized
[400,000,000] shares, outstanding
[48,618,206] shares.......................... -- 49 (b) 49
Other equity.................................. -- 688 (b) 688
Accumulated other comprehensive income (loss). (27) -- (27)
------ ---- ------
Total liabilities and stockholders' equity.... $1,465 $-- $1,465
====== ==== ======
</TABLE>
Pro Forma Adjustments
(a) To record the planned incurrence of an estimated $[550] million of debt.
This adjustment represents an estimate based on available information. The
company's debt agreements are in the process of being finalized.
(b) To reflect the anticipated distribution of [48,618,206] shares of common
stock at $1.00 par value share (at an assumed distribution ratio of one
share of Edwards Lifesciences common stock for every [six] shares of
Baxter common stock held on the record date) and the elimination of
Baxter's equity investment effected by the anticipated distribution of all
outstanding shares of Edwards Lifesciences stock to Baxter stockholders.
(c) To reflect the anticipated initial contribution of cash to hourly
employees worldwide to be held in a special stock account under the
Edwards Lifesciences Retirement Plan. See further discussion on pages 60
and 63.
42
<PAGE>
EDWARDS LIFESCIENCES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis presents the factors that had a
material effect on the results of operations of Edwards Lifesciences during
the years ended December 31, 1998, 1997 and 1996, and during the nine-month
periods ended September 30, 1999 and 1998. Also discussed is Edwards
Lifesciences' financial position as of December 31, 1998 and 1997, and
September 30, 1999. You should read this discussion in conjunction with the
historical and unaudited pro forma combined financial statements and related
notes to the financial statements included elsewhere in this information
statement.
Overview
Edwards Lifesciences provides a comprehensive line of products and services
to treat late-stage cardiovascular disease. Edwards Lifesciences is the
world's leader, and has been a pioneer in the development and
commercialization of, tissue valves and repair products used to replace or
repair a patient's diseased or defective heart valve. Edwards Lifesciences'
sales are categorized in four main product areas: cardiac surgery, critical
care, vascular, and perfusion products and services. See "Edwards
Lifesciences' Product and Service Offerings" elsewhere in this information
statement. In addition, Edwards Lifesciences also offers a diverse grouping of
product lines comprised mostly of select distributed products that are sold in
international markets, and miscellaneous pharmaceutical products. Edwards
Lifesciences is headquartered in Irvine, California, and supplies its products
and services to customers in more than 80 countries, both through direct sales
and distributor relationships. Edwards Lifesciences' products are manufactured
in locations throughout the world, including Brazil, the Dominican Republic,
Japan, The Netherlands, Puerto Rico, Switzerland and the United States.
Edwards Lifesciences' cardiac surgery portfolio is comprised of products
relating to heart valve therapy, mechanical cardiac assist, and cannulae and
cardioplegia products used during open heart surgery. In the critical care
area, Edwards Lifesciences is a world leader in hemodynamic monitoring systems
that are used to measure a patient's heart function in surgical and intensive
care settings. Edwards Lifesciences' vascular product lines include a line of
balloon-tipped, catheter-based products, surgical clips and inserts,
angioscopy equipment and artificial implantable grafts, as well as an
endovascular system that is used to treat less invasively life-threatening
abdominal aortic aneurysms. In the perfusion products and services category,
Edwards Lifesciences designs, develops, manufactures and markets a diverse
line of disposable products used during cardiopulmonary bypass procedures,
including oxygenators, blood containers, filters and related devices, as well
as bypass equipment. Edwards Lifesciences also is the world's leading provider
of perfusion services, employing more than 400 certified perfusionists who
perform an aggregate of more than 50,000 perfusion cases for open heart
surgery per year.
Cardiovascular disease is the leading cause of death in the world. Edwards
Lifesciences believes that there is a continual and growing need for the
treatment of cardiovascular disease primarily due to the aging population, the
progressive nature of the disease, and the continued economic development of
countries around the world that allows for additional funds to be allocated
for the treatment of chronic health conditions. Edwards Lifesciences' business
strategy is to develop, manufacture and market products and services that
result in improved therapeutic outcomes for patients with late-stage
cardiovascular disease. Edwards Lifesciences plans to aggressively expand its
leading product offerings and develop new products and therapies that improve
the quality of patient care and reduce overall treatment costs.
The health care marketplace continues to be competitive. There has been
consolidation in Edwards Lifesciences' customer base and among its
competitors, which has resulted in pricing and market share pressures. Edwards
Lifesciences has experienced increases in its labor and material costs, which
are primarily influenced by general inflationary trends. Competitive market
conditions have minimized inflation's impact on the selling prices of Edwards
Lifesciences' products and services. Management expects these trends to
continue. Edwards Lifesciences will continue to manage these factors by
capitalizing on its existing leading positions, developing new products and
services through further commitment to internal research and development
activities, investing
43
<PAGE>
capital and human resources to upgrade and expand facilities, leveraging its
cost structure and pursuing acquisitions and strategic alliances.
Results of Operations
Net Sales Trends
The following is a summary of domestic and international net sales:
<TABLE>
<CAPTION>
Nine months
ended Year ended
September 30, December 31,
------------- ------------------ -------
1999 1998 1998 1997 1996
------ ------ ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
United States................... $380 $378 $508 $515 $456
% increase/(decrease)......... 1% (1%) 13%
International................... 292 261 357 364 381
% increase/(decrease)......... 12% (2%) (4%)
------ ------ ---- ---- ----
Total net sales................. $672 $639 $865 $879 $837
% increase/(decrease)......... 5% (2%) 5%
====== ====== ==== ==== ====
</TABLE>
Fluctuations in net sales were primarily due to increases in sales of
cardiac surgery products offset by a decline in perfusion product sales and
perfusion service revenues as well as fluctuations in foreign currency
exchange rates. The fluctuations in foreign currency exchange rates were
primarily related to the movement of the U.S. dollar against the Euro and the
Japanese Yen. Excluding the effects of foreign currency exchange rate
fluctuations, Edwards Lifesciences' net sales worldwide increased 3% in the
period ended September 30, 1999, increased 1% in the year ended December 31,
1998 and increased 9% in the year ended December 31, 1997.
The impact of foreign currency exchange rate fluctuations on net sales is
not necessarily indicative of the impact on net income due to the
corresponding effect of foreign currency exchange rate fluctuations on
operating costs and expenses and Edwards Lifesciences' hedging activities. For
more information, see "Currency Risk" below.
The following is a summary of net sales by product line:
<TABLE>
<CAPTION>
Nine months
ended Year ended
September 30, December 31,
--------------- ------------------
1999 1998 1998 1997 1996
------ ------ ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Cardiac surgery....................... $230 $ 202 $273 $247 $199
% increase/(decrease)............... 14% 11% 24%
Critical care......................... 176 161 221 227 241
% increase/(decrease)............... 9% (3%) (6%)
Vascular.............................. 45 44 60 57 59
% increase/(decrease)............... 2% 5% (3%)
Perfusion products and services....... 181 202 269 289 285
% increase/(decrease)............... (10%) (7%) 1%
Other................................. 40 30 42 59 53
% increase/(decrease)............... 33% (29%) 11%
------ ------ ---- ---- ----
Total net sales....................... $672 $ 639 $865 $879 $837
% increase/(decrease)............... 5% (2%) 5%
====== ====== ==== ==== ====
</TABLE>
Cardiac Surgery
Net sales of Cardiac Surgery products increased 13% in the period ended
September 30, 1999, increased 13% in the year ended December 31, 1998, and
increased 29% in the year ended December 31, 1997, excluding the impact of
foreign currency exchange fluctuations.
44
<PAGE>
Increased demand for Edwards Lifesciences' heart valve therapy products is
the primary reason for the growth in sales for all periods presented. Sales
growth in 1997 also benefited from the acquisition of Research Medical, Inc.,
as discussed below. Management expects that its heart valve therapy products
will continue to serve as the key driver of sales growth.
In March 1997, Edwards Lifesciences acquired Research Medical, a leading
manufacturer of cannulae and cardioplegia products used during open heart
procedures. Edwards Lifesciences now offers more than 1,200 types of cannulae
and accessories. The acquisition of Research Medical accounted for
approximately half of the total sales growth of cardiac surgery products for
the year ended December 31, 1997. For more information, see Note 3 to the
"Combined Financial Statements."
Critical Care
Net sales of Critical Care products increased 6.3% in the period ended
September 30, 1999, increased 2% in the year ended December 31, 1998, and
decreased 1% in the year ended December 31, 1997, excluding the impact of
foreign currency exchange rate fluctuations.
The growth in 1999 was due primarily to an increased demand for disposable
pressure monitoring devices and the recent European launch of the first anti-
microbial central venous catheter. Although critical care products have been,
and are expected to continue to be, significant contributors to Edwards
Lifesciences' total sales, Edwards Lifesciences management believes that
future sales growth could be impacted by global pricing pressures and
potential reimbursement decreases in Japan.
Vascular
Net sales of Vascular products were flat in the period ended September 30,
1999, increased 7% in the year ended December 31, 1998, and increased 2% in
the year ended December 31, 1997, excluding the impact of foreign currency
exchange rate fluctuations.
The sales growth in 1998 was due to new revenues generated from a third-
party arrangement involving Edwards Lifesciences' proprietary PTFE (synthetic
material) technology and an increase in sales of Edwards Lifesciences' Side
Branch Occlusion System that was introduced in July 1997. The Side Branch
Occlusion System is an innovative technology that helps vascular surgeons
efficiently restore circulation in the saphenous vein (a critical vein within
the blood circulatory system located in the legs) by effectively removing
clots and other blockages within the vein itself.
Edwards Lifesciences has made a significant commitment to the development
of endovascular grafts which are used to treat potentially life-threatening
abdominal aortic aneurysms (AAA) through a minimally invasive approach. In
1999, Edwards Lifesciences commercially launched its Lifepath AAA endovascular
graft in Europe and Australia which is expected to add to future sales growth.
Edwards Lifesciences is pursuing clinical trials in the United States and
expects to obtain FDA regulatory approval within the next two years.
Perfusion Products and Services
Net sales of Perfusion products and services decreased 11% in the period
ended September 30, 1999, decreased 6% in the year ended December 31, 1998,
and increased 4% in the year ended December 31, 1997, excluding the impact of
foreign currency exchange rate fluctuations.
Management believes that the decrease in sales of perfusion products and
services was due primarily to a continued slowing in the number of coronary
artery bypass graft procedures on a worldwide basis as well as significant
continuing pricing pressures. Management believes that the slowdown in the
number of traditional coronary artery bypass graft procedures has been caused
by increased acceptance of newer, less-invasive procedures such as coronary
stenting, which often eliminates or defers the need for cardiac surgery.
Additionally,
45
<PAGE>
there has been an increase in the number of heart surgeries performed "off-
pump" (the surgery is performed on a beating heart without cardiopulmonary
bypass) and this trend has reduced the need for perfusion services and the use
of many traditional perfusion products manufactured and sold by Edwards
Lifesciences. Also, perfusion products and services sales declined when
Edwards Lifesciences ceased distributing certain perfusion products in the
United States on behalf of Haemonetics, Inc. effective January 1, 1999. Net
sales of product distributed on behalf of Haemonetics, Inc. were approximately
$20 million for the year ended December 31, 1998.
Other
Other net sales increased 21% in the period ended September 30, 1999,
decreased 26% in the year ended December 31, 1998, and increased 27% in the
year ended December 31, 1997, excluding the impact of foreign currency
exchange rate fluctuations. Other sales include a diverse grouping of product
lines comprised primarily of select distributed products that are sold in
international regions, and miscellaneous pharmaceutical products. This
category of sales, which generally represents less than ten percent of Edwards
Lifesciences' total sales, has fluctuated based on the timing of new
distribution agreements or the termination of existing distribution
agreements, foreign currency exchange rate fluctuations, and other factors and
events.
Gross Margin
<TABLE>
<CAPTION>
Nine months
ended
September 30, Year ended December 31,
-------------- -------------------------
1999 1998 1998 1997 1996
-------- ----- ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Gross margin percentage.......... 48.8% 46.9% 46.1% 47.3% 47.2%
Increase/(decrease)............ 1.9 pts. (1.2 pts.) 0.1 pts.
</TABLE>
The gross margin percentage increased 1.7 points in the period ended
September 30, 1999, increased 1.7 points in the year ended December 31, 1998
and increased 1.1 points in the year ended December 31, 1997, excluding the
impact of foreign currency exchange rate fluctuations. The increase in the
gross margin percentage in the period ended September 30, 1999 and the year
ended December 31, 1998 was due to increased sales of higher-margin cardiac
surgery products offset by a reduction in sales of lower-margin perfusion
products and services. The increase in the year ended December 31, 1997 was a
result of price increases in sales of cardiac surgery products.
Marketing and Administrative Expenses
<TABLE>
<CAPTION>
Nine months
ended
September 30, Year ended December 31,
-------------- -----------------------
1999 1998 1998 1997 1996
-------- ----- -------- -------- -----
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Marketing & administrative
expenses as a percentage of
sales........................... 26.2% 25.7% 25.7% 24.0% 23.2%
Increase....................... 0.5 pts. 1.7 pts. 0.8 pts.
</TABLE>
Marketing and administrative expenses increased as a percentage of sales in
the period ended September 30, 1999 due principally to costs associated with
increases in the number of dedicated sales representatives around the world
focused on the sale of cardiac surgery products. For the year ended December
31, 1998 the impact of foreign currency exchange rate fluctuations increased
marketing and administrative expenses as a percentage of sales by one point.
The remaining increase was due to an increased investment in Edwards
Lifesciences' direct United States field-sales force as a result of
discontinuing sales of Research Medical products through outside distributors
following the acquisition of Research Medical in March 1997. The increase in
1997 was driven by additional variable compensation expense related to sales
of cardiac surgery products.
46
<PAGE>
Research and Development Expenses
<TABLE>
<CAPTION>
Nine months
ended Year ended
September 30, December 31,
-------------- --------------
1999 1998 1998 1997 1996
------ ------- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Research and development expenses.......... $ 38 $ 40 $ 56 $ 53 $ 49
% increase/(decrease).................... (5%) 6% 8%
Research and development expenses as a
percentage of sales....................... 5.7% 6.3% 6.5% 6.0% 5.9%
</TABLE>
Research and development expenses presented above exclude the in-process
research and development charge relating to the acquisition of Research
Medical in 1997, which is discussed in more detail in Note 3 to the "Combined
Financial Statements." As a percentage of sales, these expenses have remained
relatively constant over the periods presented.
Edwards Lifesciences is engaged in ongoing research and development to
introduce clinically advanced new products, to maximize the effectiveness,
ease of use, safety and reliability of its existing products and to expand the
applications of its products as appropriate. Edwards Lifesciences has a strong
commitment to bolster its research and development activities in the future
with the goal of developing and commercializing new innovative products and
therapies that enhance performance and patient quality of life and address
cost-containment issues.
Goodwill Amortization
Goodwill amortization remained constant in the periods ended September 30,
1999 and December 31, 1998. Goodwill amortization increased 13% in the year
ended December 31, 1997 as a result of Edwards Lifesciences' acquisition of
Research Medical in March 1997. For more information, see Note 3 to the
"Combined Financial Statements."
Other Income and Expense
Other income in 1998 principally consisted of $13 million in net insurance
proceeds associated with hurricane damage at one of the company's
manufacturing facilities, net of a $3 million loss associated with the
impairment of a minority equity investment. Other income in 1996 consisted
principally of an $18 million legal settlement related to a past patent
infringement, net of losses associated with the impairment of certain minority
equity investments.
Income before Taxes
As a result of the factors discussed above, excluding the charge for in-
process research and development in 1997, income before taxes increased 21% in
the nine-month period ended September 30, 1999, decreased 21% in the year
ended December 31, 1998 and decreased 8% in the year ended December 31, 1997.
Income Taxes
The effective income tax rate for Edwards Lifesciences was approximately
27% in the nine-month period ended September 30, 1999, 33% in the year ended
December 31, 1998, 32% in the year ended December 31, 1997 (excluding the 1997
charge for in-process research and development) and 31% for the year ended
December 31, 1996. The reduction in the tax rate for the nine months ended
September 30, 1999 was due primarily to more favorable tax grants in certain
jurisdictions.
Net Income
Net income increased 32% in the nine months ended September 30, 1999,
decreased 23% in the year ended December 31, 1998 and decreased 8% in the year
ended December 31, 1997 (excluding the charge for in-process
47
<PAGE>
research and development in 1997). These changes are consistent with the
changes in income before taxes and the changes in Edwards Lifesciences'
effective income tax rate, each as discussed above.
Liquidity and Capital Resources
Edwards Lifesciences management will assess Edwards Lifesciences' liquidity
in terms of its overall ability to mobilize cash to support ongoing business
levels and to fund its growth. Historically, Edwards Lifesciences has
generated sufficient cash to satisfy its normal operating cash and capital
requirements and is expected to continue to do so in the future.
Cash flow provided by operations for the first nine months of 1999
decreased approximately 5% due primarily to higher inventory levels, partially
offset by increased earnings and improved accounts receivable collections.
Cash flows provided by operations for 1998 increased approximately 8% due
primarily to improved accounts receivable collections, liability management,
partially offset by lower earnings. In addition, included in cash flows
provided from operations for 1998 was approximately $22 million in proceeds
relating to the sale of certain trade receivables in Japan to an independent
financial institution. An insignificant loss was recognized on the sale. The
decrease in cash flow provided by operations of approximately 12% in 1997 was
consistent with the decrease in earnings for the same period, with changes in
accounts receivable collections and liability and other accounts management
also impacting the operating cash flow results.
Uses of cash for investing activities included the acquisition of property,
plant and equipment and acquisitions. Capital expenditures have remained
fairly constant for all periods presented. Acquisition spending in 1998 and
1997 related primarily to the acquisition of Research Medical. Net cash
outflows for acquisitions in 1996 related principally to the acquisition of
certain perfusion services businesses, especially PSICOR, Inc., as further
discussed in Note 3 to the "Combined Financial Statements."
As of the distribution date, Edwards Lifesciences expects to have revolving
credit facilities in place amounting to a minimum of $[550] million which will
be used to repay intercompany debt to Baxter, satisfy initial working capital
requirements and fund distributions from Edwards Lifesciences' foreign
operations to Baxter. Assuming a debt level of $[550] million, Edwards
Lifesciences' debt as a percent of total capital would have been 43.5% at
September 30, 1999.
In addition to this short-term facility, Edwards Lifesciences management
believes that it has sufficient cash flow from operations and financial
flexibility to attract long-term capital to fund short-term and long-term
growth objectives. However, no assurances can be given that such long-term
capital will be available to Edwards Lifesciences on favorable terms or at
all.
Euro Conversion
On January 1, 1999, the European Economic and Monetary Union created and
introduced the Euro, the official single eurocurrency for the eleven
participating member countries. A transition period is currently in effect
which began January 1, 1999, and will continue through December 31, 2001,
during which period transactions will be executed in both the Euro and the
member country's individual currencies. Effective January 1, 2002, Euro bank
notes will be introduced and as of July 1, 2002, the Euro will be the sole
legal tender of the European Economic and Monetary Union countries.
Edwards Lifesciences has appointed a team of individuals to address all
issues associated with the conversion to the Euro and expects to be prepared
for such conversion as of the designated dates. At the time Edwards
Lifesciences switches to using the Euro as the sole functional currency for
the affected regions, Edwards Lifesciences
will be required to make certain modifications that are primarily related to
information systems. The costs associated with preparing for the conversion
and continued use of the Euro will be expensed as incurred and are not
expected to be material to Edwards Lifesciences' financial position, results
of operations or cash flows. The ultimate impact on Edwards Lifesciences'
business, including the impact on the competitive environment in which Edwards
Lifesciences operates, is currently unknown.
48
<PAGE>
New Accounting and Disclosure Standard
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
effective for all quarters of fiscal years beginning after June 15, 2000. This
statement requires that all derivatives be recorded in the balance sheet as
either assets or liabilities and be measured at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. Management is in the process of
evaluating this standard and has not yet determined the future impact on
Edwards Lifesciences' combined financial statements.
Currency Risk
Edwards Lifesciences operates on a global basis and therefore is subject to
the exposure resulting from foreign currency exchange rate fluctuations. This
exposure arises from transactions denominated in foreign currencies, primarily
from the translation of results of operations from outside the United States.
Additionally, this exposure may change over time as the percentage of sales to
various countries and the currency exchange rate in those countries fluctuate.
For all periods presented, Edwards Lifesciences has been considered in
Baxter's overall risk management strategy. As part of this strategy, Baxter
managed its foreign currency exchange rate risk to an acceptable level based
on management's judgment of the appropriate trade-off between risk,
opportunity and costs. With respect to Edwards Lifesciences' currency risks,
Baxter primarily utilized options to hedge these exposures.
As a stand-alone company, Edwards Lifesciences' objective will be to manage
its exposure to foreign currency fluctuations to minimize the earnings and
cash flow volatility associated with foreign exchange rate changes. In order
to reduce the risk of foreign currency exchange rate fluctuations, Edwards
Lifesciences expects to establish a policy of hedging a substantial portion of
its expected foreign currency denominated cash flow from operations. The
instruments that Edwards Lifesciences expects to use for hedging will be
readily marketable traded forward contracts and options with financial
institutions. Edwards Lifesciences expects that the changes in fair value of
such contracts will have a high correlation to the price changes in the
related hedged cash flow. Edwards Lifesciences does not expect that the risk
of transaction gains or losses from changes in the fair value of Edwards
Lifesciences' foreign exchange position will be material because most
transactions will occur in either the functional currency or in a currency
that has a high correlation to the functional currency. The principal
currencies that Edwards Lifesciences expects to hedge, which are the
currencies of the markets that present the primary risk of loss to Edwards
Lifesciences, are the Japanese Yen and the Euro. Any gains and losses on the
hedge contracts are expected to offset changes in the value of the related
exposures. Edwards Lifesciences expects to enter into foreign currency
transactions only to the extent that foreign currency exposure exists. Edwards
Lifesciences does not plan on entering into foreign currency transactions for
speculative purposes. A sensitivity analysis of changes in the fair value of
foreign currency exchange contracts outstanding at December 31, 1998 indicates
that, if the U.S. dollar uniformly weakened by 10% against all currencies, the
fair value of these contracts would decrease by $5 million.
49
<PAGE>
EDWARDS LIFESCIENCES MANAGEMENT
Board of Directors
Immediately after the distribution date, Edwards Lifesciences expects that
the Edwards Lifesciences board of directors will consist of the individuals
named in the table below. The Edwards Lifesciences board of directors will be
divided into three classes. Each director will serve for a term expiring at
the annual meeting of stockholders in the year indicated below. For more
information see "Certain Anti-Takeover Effects of Provisions of Edwards
Lifesciences' Certificate of Incorporation and Bylaws and of Delaware Law."
Edwards Lifesciences will be managed under the direction of its board of
directors. The Edwards Lifesciences board of directors will meet on a regular
basis to review Edwards Lifesciences' operations, strategic and business
plans, acquisitions and dispositions, and other significant developments
affecting Edwards Lifesciences, and to act on matters requiring Edwards
Lifesciences board approval. It will also hold special meetings when important
matters require Edwards Lifesciences board action between scheduled meetings.
Members of senior management will be invited to Edwards Lifesciences board
meetings to discuss the progress of and future plans relating to their areas
of responsibility.
<TABLE>
<CAPTION>
Name/Age Term as Director Background
-------- ---------------- ----------
<C> <C> <S>
Michael A. Mussallem Expires [ ] Mr. Mussallem will be the Chairman of
Age 47 the Board and Chief Executive Officer of
Edwards Lifesciences. He first joined
Baxter in 1979 and has been the Group
Vice President of Baxter's
CardioVascular business since 1994 and
Group Vice President of Baxter's
Biopharmaceutical business since 1998.
Vernon R. Loucks Jr. Expires [ ] Mr. Loucks served as a director of
Age 65 Baxter from 1975 through December 1999,
including chairman of the Board since
1987. He was Chief Executive Officer of
Baxter from 1980 through 1998 and was
first elected as an officer of Baxter in
1975. Mr. Loucks is also a director of
Affymetrix Inc., Anheuser-Busch
Companies, Inc., Emerson Electric Co.,
GeneSoft, Inc. and The Quaker Oats
Company.
Philip M. Neal Expires [ ] Mr. Neal is President and Chief
Age 59 Executive Officer and a director of
Avery Dennison Corporation, a multi-
billion dollar Fortune 500 company that
manufactures and markets a wide range of
products for consumer and industrial
markets, including Avery-brand office
supplies and Fasson-brand self-adhesive
materials. Mr. Neal joined Avery
Dennison in 1974, served as President
and Chief Operating Officer from 1990
through April 1998, at which time he was
elected CEO. Mr. Neal serves as a
director of Independent Colleges of
Southern California and the Los Angeles
Area Chamber of Commerce, a trustee of
Pomona College and a Member of the Board
of Governors of Town Hall of California.
David E.I. Pyott Expires [ ] Mr. Pyott is President and Chief
Age 46 Executive Officer and a director of
Allergan, Inc., a global health care
company that provides eye care and
specialty pharmaceutical products
worldwide. Prior to joining Allergan in
1998, he was a division president of
Novartis AG, and before 1996 he held
various positions with Sandoz
International AG and Sandoz Nutrition
Corporation. He is also a member of the
board of directors of Avery Dennison
Corporation and the California
Healthcare Institute, serves on the
Executive Board of the Pharmaceutical
Research & Manufacturers of America and
is on the Executive Council of the
University of California-Irvine Graduate
School of Management.
</TABLE>
50
<PAGE>
Committees of the Board of Directors
To facilitate independent director review, and to make the most effective
use of the directors' time and capabilities, the Edwards Lifesciences bylaws
establish the committees described below. The Edwards Lifesciences board is
permitted to establish other committees from time to time as it deems
appropriate.
The Audit and Public Policy Committee
The Audit and Public Policy Committee will review the scope of the audit by
the independent auditors, inquire into the effectiveness of Edwards
Lifesciences' accounting and internal control functions, and recommend to the
Edwards Lifesciences board any changes in the appointment of independent
auditors which the committee may deem to be in the best interests of Edwards
Lifesciences and its stockholders. The committee will also assist the Edwards
Lifesciences board in establishing and monitoring compliance with the ethical
standards of Edwards Lifesciences. The Audit and Public Policy Committee will
also review the policies of Edwards Lifesciences to assure they are consistent
with its social responsibility to employees, customers and society, including
policies relating to health and safety and ethics. The committee will consist
solely of directors who are independent of management. Members of this
committee are expected to be: [ ]
The Compensation and Planning Committee
The Compensation and Planning Committee will determine the compensation of
officers and outside directors, other than the Chairman of the Board and Chief
Executive Officer (which will be determined by the Edwards Lifesciences
board), exercise the authority of the Edwards Lifesciences board concerning
employee benefit plans and advise the Edwards Lifesciences board on other
compensation and employee benefit matters. In addition, the committee will
make recommendations to the Edwards Lifesciences board regarding candidates
for election as directors of Edwards Lifesciences. The committee will also
advise the board on board committee structure and membership and corporate
governance matters. The committee will consist solely of directors who are
independent of management. Members of this committee are expected to be:
[ ]
Compensation of Directors
Cash compensation of non-employee directors will consist of a $20,000
annual retainer. Chairpersons of committees will receive an additional annual
retainer of $5,000. Employee directors are not compensated separately for
their board or committee activities.
In addition, to align the directors' interests more closely with the
interest of all of Edwards Lifesciences' stockholders, each non-employee
director will receive an additional annual retainer in the form of [ ]
options to purchase Edwards Lifesciences common stock. All non-employee
directors, serving as such on the distribution date, will also receive a one-
time restricted common stock grant equal to [ ] shares of Edwards
Lifesciences common stock. The common stock will remain restricted until the
first anniversary of their election to the Edwards Lifesciences board of
directors when it will vest entirely, if they remain on the board on such
anniversary date. Subsequent to the distribution date, each non-employee
director will receive [ ] options annually. [Terms of options to come]
Executive Officers
Set forth below is information with respect to those individuals who
Edwards Lifesciences expects to serve as executive officers of Edwards
Lifesciences immediately following the distribution. Those individuals named
below who are currently officers or employees of Baxter will resign from all
positions with Baxter prior to or as of the distribution date.
Michael A. Mussallem, age 47. Mr. Mussallem will be the Chairman of the
Board and Chief Executive Officer of Edwards Lifesciences. Mr. Mussallem
joined Baxter in 1979 and has been the Group Vice President of Baxter's
CardioVascular business since 1994 and Group Vice President of Baxter's
Biopharmaceutical business since 1998. During his tenure at Baxter, Mr.
Mussallem has held a variety positions with increased responsibility in
engineering, product development and senior management. He was appointed
General Manager of Access Products in 1984, Vice President and General Manager
of Pharmaceuticals in 1986, President of the
51
<PAGE>
Perfusion Products business in 1988 and President of the Critical Care
business in 1993. In 1994, Mr. Mussallem was named Group Vice President for
Baxter's Surgical Group. From 1996 until 1998, he was the Chairman of Baxter's
Asia Pacific Board overseeing Baxter operations throughout Asia. Mr. Mussallem
received his Bachelor of Science degree in chemical engineering from Rose-
Hulman Institute of Technology and was conferred an honorary doctorate by his
alma mater in 1999.
Stuart L. Foster, age 49. Mr. Foster will be the Corporate Vice President,
Global Operations of Edwards Lifesciences. Mr. Foster joined Baxter's
CardioVascular Group in 1994 as President of the Vascular business, and
continues to hold that position today. In 1997, his responsibilities increased
to include global oversight responsibilities for the Critical Care business.
He is also currently responsible for all international operations of the
CardioVascular business and leads the CardioVascular business' Technology
Innovation Team. Prior to joining Baxter, Mr. Foster was Chief Executive
Officer and President of Intramed Laboratories, which was acquired by Baxter
in 1994. Prior to that, he was an executive with SensorMedics Corporation, a
medical device company that he co-founded. Mr. Foster received his Bachelor of
Science degree in biomedical engineering from Rensselaer Polytechnic Institute
and earned his masters degree from the University of Southern California.
Anita B. Bessler, age 52. Ms. Bessler will be the Corporate Vice President,
Cardiac Surgery of Edwards Lifesciences. Ms. Bessler joined Baxter in 1988 as
Vice President and General Manger of Sales and Marketing for Baxter's Hyland
division. Prior to her tenure with Baxter, from 1986 until 1988 she was Senior
Executive Vice President with the USV/Armour Pharmaceutical Division of Rhone
Poulenc Rohrer. From 1976 until 1986, Ms. Bessler held senior management
positions with Revlon's Healthcare Group. She is a member of the External
Advisory Board of the Department of Biomedical Engineering of the Cleveland
Clinic Research Institute. She is a graduate of Indiana University, where she
earned a Bachelor of Science degree in marketing and economics.
Bruce J. Bentcover, age 45. Mr. Bentcover will be the Corporate Vice
President and Chief Financial Officer of Edwards Lifesciences. Mr. Bentcover
joined Edwards Lifesciences in January 2000. From 1997 through 1998 Mr.
Bentcover was Chief Operating and Financial Officer of the Women's Healthcare
Management Group, a private physician practice management company that he co-
founded. Prior to that he was Senior Vice President and Chief Financial
Officer of Resort Condominiums International; Vice President--Finance and
Treasurer of Hallmark Cards Inc.; Vice President and Treasurer and then Vice
President--Controller of Ecolab Inc. Mr. Bentcover earned his Bachelor of Arts
degree in political science from Eastern Illinois University and received his
MBA from the University of Chicago.
Richard L. Miller, age 51. Mr. Miller will be the Corporate Vice President,
Critical Care of Edwards Lifesciences. Mr. Miller joined American Hospital
Supply Corporation in 1971, which was later acquired by Baxter, as a sales
representative for Scientific Products. Prior to his appointment as President
of the Critical Care business in 1999, he was President of Baxter's Health
Systems from 1994 through 1997 and President, Corporate Health Systems, from
1997 through 1998. During that time, Mr. Miller was a member of Baxter's North
American Board and also led Baxter's North American Sales and Marketing
Taskforce. Mr. Miller received a Bachelor of Arts in biology and chemistry
from the University of Colorado and earned an MBA from Portland University. He
also served in the United States Army Reserve from 1970 until 1976.
Robert C. Reindl, age 45. Mr. Reindl will be the Corporate Vice President,
Human Resources of Edwards Lifesciences. From 1993 through 1997, Mr. Reindl
was Vice President of Baxter's Institute for Training and Development. In
1997, he became the Vice President, Human Resources, for Baxter's
CardioVascular business. From 1987 until 1993, Mr. Reindl was a manager with
Arthur Andersen & Co., where he consulted on a variety of human resource and
organizational development issues, as well as designed training programs
focusing on time management, communication, team building and interviewing.
Prior to this, he was a communications instructor at Marietta College and Ohio
University. Mr. Reindl earned his Bachelor of Science degree in communication
from the University of Wisconsin-Stevens Point and his masters degree from
Bowling Green State University in Ohio.
52
<PAGE>
John H. Kehl, Jr., age 46. Mr. Kehl will be the Corporate Vice President,
Strategy & Business Development of Edwards Lifesciences. Mr. Kehl has held
various positions of increasing responsibility at Baxter since joining its
treasury department in 1975. In 1980, he was promoted to Manager of Investor
Relations and Communications and in 1985, assumed responsibility for directing
all aspects of Baxter's external communications. Mr. Kehl was appointed Vice
President, Controller for Baxter's CardioVascular business in 1988 with
responsibility for finance, information systems and business planning. He
became Vice President of Business Development in 1995, a position he continues
to hold today. In his current capacity, he leads all business development
initiatives, including strategy development and acquisition and divestiture
activities. Mr. Kehl has also served on Baxter's Japan Board that oversees all
operations in Japan. He earned his Bachelor of Arts degree in business and
economics from Loras College and received his MBA from Loyola University in
Chicago.
53
<PAGE>
EDWARDS LIFESCIENCES EXECUTIVE COMPENSATION
1999 Compensation of Executive Officers
The following table shows the 1999 compensation for services rendered by
the Chairman of the Board and Chief Executive Officer of Edwards Lifesciences
and the individuals who are expected to be the next four most highly
compensated executive officers of Edwards Lifesciences (collectively, referred
to as the "named executive officers") based on their 1999 Baxter compensation,
if any. The compensation shown in this table was paid by Baxter or its
subsidiaries for services rendered to Baxter and its subsidiaries. References
to "restricted stock" and "stock options" mean restricted shares of Baxter
common stock and options to purchase Baxter common stock. Amounts shown are
for each individual in his or her last position with Baxter, and do not
necessarily reflect the compensation which these five individuals will earn in
their new capacities as executive officers of Edwards Lifesciences.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------------------
Annual Compensation Awards Payouts
---------------------- --------------------- -------
Restricted All
Stock Securities LTIP Other
Name and Principal Salary Bonus Other Award(s) Underlying Payouts Compensation
Position Year ($)(1) ($)(1) ($)(2) ($)(3) Options(4) ($)(5) ($)(6)
- ------------------ ---- ------- ------- ------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael A. Mussallem.... 1999 410,000 310,000 -- -0- 118,900 [ ] 16,788
Chairman of the Board &
Chief Executive Officer
Anita B. Bessler........ 1999 237,442 96,000 -- -0- 50,800 [ ] 6,914
Group Vice President
Stuart L. Foster........ 1999 236,231 96,000 -- -0- 50,800 [ ] 7,332
Group Vice President
Officer #4.............. 1999
Officer #5.............. 1999
</TABLE>
- --------
(1) Amounts shown include cash compensation earned by the named executive
officers during 1999, including amounts deferred at the election of those
officers. Bonuses are paid in the year following the year during which
they are earned. The bonuses shown for the named executive officers are
their target bonuses for 1999.
(2) As permitted by the SEC's rules, this column excludes perquisites and
other personal benefits for the named executive officer if the total
incremental cost in 1999 did not exceed the lesser of $50,000 or 10% of
the total of annual salary and bonus reported for the named executive
officer for 1999.
(3) Based on the $[ ] closing price of Baxter common stock on December
31, 1999, the number and value of the aggregate restricted stock holdings
of the named executive officers on that date are as follows: Mr.
Mussallem--15,918 shares $[ ]; Ms. Bessler--5,295 shares $[ ];
Mr. Foster--3,800 shares $[ ]; Officer #4--[ ] shares $[ ];
and Officer #5--[ ] shares $[ ]. No new grants of restricted
stock were made during 1999. Dividends are payable on all outstanding
shares of restricted stock held by all Baxter executives at the same rate
and time and in the same form in which dividends are payable on all
outstanding shares of Baxter common stock.
(4) No Stock Appreciation Rights (SARs) were granted by Baxter in 1999, and
there are no outstanding SARs held by any employee or director of Edwards
Lifesciences. The number of options granted in 1999 includes the options
granted and exercised pursuant to Baxter's Shared Investment Plan, as
described below in footnote 4, to the "Option Grants Table" on page 51.
(5) Amounts shown represent the market value of earned restricted stock which
vested under Baxter's Long- Term Incentive Plan on December 31, 1999. The
vested shares were earned as of December 31, 1998.
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<PAGE>
(6) Amounts shown represent matching contributions made under the Baxter
International Inc. and Subsidiaries Incentive Investment Plan (Baxter
Incentive Investment Plan), a tax-qualified section 401(k) profit sharing
plan, additional matching contributions in Baxter's deferred compensation
plan and the dollar value of split-dollar life insurance benefits. Those
three amounts, expressed in the same order as identified above, for the
named executive officers are as follows: Mr. Mussallem--$4,800, $11,988,
and $[ ]; Ms. Bessler--$4,800, $2,114, and $[ ]; Mr. Foster--
$4,800, $2,532, and $[ ]; Officer #4--$[ ], $[ ], and
[ ]; and Officer #5--$[ ], $[ ], and [ ].
Stock Option Grants
The following table contains information relating to the Baxter stock
option grants made in 1999 to the named executive officers.
Option Grants Table
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
------------------------------------------- ----------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration 5% 10%
Name Granted (#) Fiscal Year (%)(1) ($/Sh)(2)(3) Date 0% ($) ($)(4)(5)(6) ($)(4)(5)(6)
---- ----------- ------------------ ------------ ---------- ------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mr. Mussallem........... 18,900 1.4 67.6875 2/13/09 -0- $ 2,083,835 $ 3,318,159
100,000 63.6250 5/3/99 -0- -- --
Ms. Bessler............. 10,800 .6 67.6875 2/13/09 -0- $ 1,190,763 $ 1,896,091
40,000 63.6250 5/3/99 -0- -- --
Mr. Foster.............. 10,800 .6 67.6875 2/13/09 -0- $ 1,190,763 $ 1,896,091
40,000 63.6250 5/3/99 -0- -- --
Officer #4..............
Officer #5..............
All Stockholders........ N/A N/A N/A N/A
All Optionees........... 8,600,000 100 Various Various -0- $948,199,923 $1,509,849,908
Optionee Gain as % of
All Stockholders' Gain. N/A N/A N/A N/A
</TABLE>
- --------
(1) In 1999, Baxter granted options on approximately 8.6 million shares of
Baxter common stock to approximately 3,700 employees at various exercise
prices at different times during the year.
(2) The exercise prices shown for the named executive officers are the closing
prices of Baxter common stock on the dates of the grants, which were
February 15, 1999 and May 3, 1999.
(3) The options shown in this table as granted to the named executive officers
at the exercise price of $67.6875 become exercisable three years from the
date of grant. The exercise price of the options may be paid in cash or in
shares of Baxter common stock. If specified corporate control changes
occur, all outstanding options will become exercisable immediately. The
options shown in this table as granted to the named executive officers at
the exercise price of $63.6250 were granted on May 3, 1999 pursuant to
Baxter's Shared Investment Plan. Under the Shared Investment Plan, the
named executive officers and 139 other Baxter executives exercised a one
day stock option to purchase a significant amount of Baxter common stock.
The stock option exercises were financed through full-recourse, personal
loans made by commercial banks. The loans are guaranteed by Baxter. More
information on the Shared Investment Plan is contained in Baxter's proxy
statement dated March [ ], 2000.
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<PAGE>
(4) Potential realizable values are calculated net of the option exercise
price but before taxes associated with exercise. The assumed rates of
stock price appreciation are set by rules of the SEC governing proxy
statement disclosure and are not intended to forecast the future
appreciation of Baxter common stock.
(5) The potential realizable values for all stockholders were calculated on
the [ ] shares of Baxter stock outstanding on December 31, 1999. The
potential realizable values were calculated assuming the stockholders
purchased Baxter stock at $67.6875, the closing price on February 15,
1999. Because the Shared Investment Plan options were granted and
exercised at the closing price of Baxter stock on May 3, 1999, there was
no potential realizable value for the option term.
(6) The potential realizable values for all optionees were calculated based on
the approximately [] million options that were granted to employees of
Baxter at various exercise prices at different times during the year. The
potential realizable values were calculated assuming that all of the
options were granted at the $67.6875 exercise price.
Stock Option Exercises
The following table contains information relating to the exercise of Baxter
common stock options by the named executive officers in 1999, as well as the
number and value of their unexercised Baxter common stock options as of
December 31, 1999.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Fiscal Year-End (#)(2) Fiscal Year End ($)(3)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise (#)(1) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------------ --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Mussallem........... 111,018 575,601 143,449 79,900 [ ] [ ]
Ms. Bessler............. 56,754 738,014 39,525 38,800 [ ] [ ]
Mr. Foster.............. 40,000 -0- 71,628 38,800 [ ] [ ]
Officer #4..............
Officer #5..............
</TABLE>
- --------
(1) The number of shares shown in these columns include the options granted
and exercised on May 3, 1999 pursuant to Baxter's Shared Investment Plan.
See footnote (4) to the Option Grants Table on page 51. Because those
options were granted and exercised at the closing price of Baxter common
stock on May 3, 1999, there was no value realized upon the exercise of
those options.
(2) The sum of the numbers under the Exercisable and Unexercisable columns of
this table represents each named executive officer's total number of
outstanding Baxter options.
(3) The dollar amounts shown under the Exercisable and Unexercisable columns
of this table represent the number of exercisable and unexercisable Baxter
options, respectively, which had an exercise price below the closing price
of Baxter common stock on December 31, 1999, which was $[], multiplied by
the difference between such closing price and the exercise price of the
Baxter options.
Pension Plan and Excess Pension Plan
The table on the following page shows estimated annual retirement benefits
payable to participants under the Baxter International Inc. and Subsidiaries
Pension Plan (Pension Plan) whose employment terminates at normal retirement
age (age 65). The Pension Plan's normal retirement benefit equals (1) 1.75% of
an employee's Final Average Pay multiplied by the employee's number of years
of benefit service, as defined by the Pension Plan, minus (2) 1.75% of an
employee's estimated primary social security benefit, multiplied by the
employee's years of benefit service, as defined by the Pension Plan. An
employee's Final Average Pay is equal to the average of an employee's five
highest consecutive calendar years of earnings out of his or her last ten
calendar years of
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<PAGE>
earnings. In general, the earnings covered by the Pension Plan include salary,
annual cash bonuses and other regular pay. The figures shown include benefits
payable under the Pension Plan and Baxter's related defined benefit excess
pension plan. The estimates assume that benefit payments begin at age 65 under
a single life annuity form. The figures are net of the Social Security offset
specified by the Pension Plan's benefit formula and therefore do not include
Social Security benefits payable from the federal government. The estimated
primary Social Security benefit used in the calculations is that payable for
an individual attaining age 65 in 1999.
Although age 65 is the normal retirement age under the Pension Plan, the
Pension Plan has early retirement provisions based on a point system. Under
the point system, each participant is awarded one point for each year of
benefit service, as defined by the Pension Plan and one point for each year of
age. Participants who terminate employment after accumulating at least 65
points, and who wait to begin receiving their Pension Plan benefits until they
have 85 points, receive an unreduced Pension Plan benefit regardless of their
actual age when they begin receiving their Pension Plan benefits.
Pension Plan Table
<TABLE>
<CAPTION>
Estimated Annual Retirement Benefits
Years of Pension Plan
Final Average Pay(1)($) Participation(1)($)
----------------------- ---------------------------------------
10 15 20 25 30
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
100,000.......................... 14,500 21,700 29,000 36,200 43,400
200,000.......................... 32,000 48,000 64,000 80,000 95,900
300,000.......................... 49,500 74,200 99,000 123,700 148,400
400,000.......................... 67,000 100,500 134,000 167,500 200,900
500,000.......................... 84,500 126,700 169,000 211,200 253,400
600,000.......................... 102,000 153,000 204,000 255,000 305,900
700,000.......................... 119,500 179,200 239,000 298,700 358,400
800,000.......................... 137,000 205,500 274,000 342,500 410,900
900,000.......................... 154,500 231,700 309,000 386,200 463,400
</TABLE>
- --------
(1) As of December 31, 1999, the named executive officers' years of benefit
service and Final Average Pay for purposes of calculating annual
retirement benefits payable under the Pension Plan are as follows:
Mr. Mussallem--19 years and $544,908; Ms. Bessler--11 years and $269,068;
Mr. Foster--9 years and $255,804; Officer #4--[ ] years and $[ ]; and
Officer #5--[ ] years and $[ ].
Baxter Common Stock Held By Edwards Lifesciences Employees
Baxter restricted common stock held by Edwards Lifesciences employees will
be [treatment to be determined]. Edwards Lifesciences employees holding Baxter
stock options will, as of the distribution date, be considered terminated and,
as such, vesting and exercise will be in accordance with the terms and
conditions of the outstanding grants.
Future Compensation of Executive Officers
The compensation of Edwards Lifesciences' executive officers for periods
beginning on and after the distribution date will be determined by the Edwards
Lifesciences board of directors or its Compensation Committee.
Compensation Philosophy For Executive Officers
Edwards Lifesciences expects that its philosophy will be to provide
compensation opportunities supporting Edwards Lifesciences' business
objectives and values. Forms and levels of total compensation will be
structured to be competitive when compared to other companies of similar focus
and size. These companies are reported in surveys whose participants include
many companies in the Fortune 500 as well as other companies with which
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<PAGE>
Edwards Lifesciences and its subsidiaries compete for executive talent. This
philosophy is intended to assist Edwards Lifesciences in attracting, retaining
and motivating executives with superior leadership and management abilities.
Consistent with this philosophy, a total compensation structure will be
determined for each officer, including Mr. Mussallem, consisting primarily of
salary, cash bonus, stock options and benefits. The proportions of these
elements of compensation will vary among the officers depending upon their
levels of responsibility. The senior executive officers will receive a larger
portion of their total compensation through performance-based incentive plans,
which place a greater percentage of their compensation at risk while more
closely aligning their interests with the interests of Edwards Lifesciences'
stockholders.
Edwards Lifesciences' philosophy with respect to the limitation on the tax-
deductibility of executive compensation will be to maximize the benefit of tax
laws for Edwards Lifesciences' stockholders by seeking performance-based
exemptions which are consistent with Edwards Lifesciences' compensation
policies and practices. Edwards Lifesciences will adopt performance goals for
the officer cash bonus plan which are expected to satisfy the deductibility
requirements with respect to any payments under those plans.
Compensation Elements
Salaries will be targeted each year at the median of salaries of executive
officers in comparison companies. In addition, officer salaries will be based
on the officer's individual performance. Bonuses are intended to provide
executive officers with an opportunity to receive additional cash compensation
but only if they earn it through Edwards Lifesciences' achievement of strong
performance results as measured by key financial indicators. Each year, a
bonus target will be established for each executive officer between the 50th
and 75th percentile of the market data of comparison companies. After year-end
results are calculated, each officer's bonus will be determined based on
Edwards Lifesciences' performance against the key financial indicators
established for the year. Achievement of the performance objectives will
determine an officer's opportunity to earn bonus compensation either
significantly above or below the bonus target.
Stock options will be granted under Edwards Lifesciences' 2000 Incentive
Compensation Program and such other stock option plans that may be
established, as described below. They represent a vehicle for more closely
aligning management's and stockholders' interests, specifically motivating
executives to remain focused on the market value of Edwards Lifesciences
Stock.
The number of stock options granted to executive officers is expected to be
market-based. The intent is to provide an opportunity to earn stock-based
compensation at the 75th percentile compared to executives in comparison
companies.
2000 Incentive Compensation Program
Edwards Lifesciences expects to adopt the Edwards Lifesciences 2000
Incentive Compensation Program (Incentive Program). The Incentive Program is
expected to be approved by Baxter as sole stockholder of Edwards Lifesciences
prior to the distribution.
General
The Incentive Program is designed to promote success and enhance the value
of Edwards Lifesciences by linking participants' interests more closely to
those of Edwards Lifesciences stockholders and by providing participants with
an incentive for excellence.
The Incentive Program will be administered by the Compensation Committee of
Edwards Lifesciences. The Compensation Committee must consist of two or more
directors who qualify as non-employee directors under Rule 16b-3 of the
Securities Exchange Act of 1934 and as outside directors under Section 162(m)
of the Code. Incentives may consist of the following: (a) stock options; (b)
stock appreciation rights; (c) restricted stock; (d) stock awards; (e)
performance shares; and (f) other incentives, including cash. Incentives may
be granted to any
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<PAGE>
employee of Edwards Lifesciences (including directors of Edwards Lifesciences
who are also employees of Edwards Lifesciences) selected from time to time by
the Compensation Committee.
The number of shares of Edwards Lifesciences common stock authorized for
issuance (including conversion for outstanding awards) under the Incentive
Program will not exceed [18.5]% of the outstanding shares of Edwards
Lifesciences common stock as of the distribution date.
Stock Options
Under the Incentive Program, the Compensation Committee may grant non-
qualified and incentive stock options to eligible employees to purchase shares
of Edwards Lifesciences common stock from Edwards Lifesciences. The Incentive
Program gives the Compensation Committee discretion, with respect to any such
stock option, to determine the number and purchase price of the shares subject
to the option, the term of each option and the time or times during its term
when the option becomes exercisable, subject to the following limitations. No
stock option may be granted with a purchase price below the fair market value
of the shares subject to the option on the date of grant and the term may not
exceed 10 years and one day from the date of grant. Except to the extent that
the Compensation Committee determines that another value is more appropriate
given the circumstances, the fair market value of shares on the date of a
grant shall mean the closing sale price of Edwards Lifesciences common stock
as reported on the New York Stock Exchange composite reporting tape. No person
may receive, in any calendar year, stock options which, in the aggregate,
represent more than [1,000,000] shares of Edwards Lifesciences common stock.
The initial option grant to the named executive officers will be as follows:
Mr. Mussallem, [ ] shares; Ms. Bessler, [ ] shares; Mr. Foster, [ ]
shares; Officer #4, [ ] shares; and Officer #5, [ ] shares.
Stock Appreciation Rights
SARs may be granted by the Compensation Committee pursuant to the Incentive
Program in such number and on such terms as the Compensation Committee may
decide, provided that the term of an SAR may not exceed 10 years and one day
from the date of grant. SARs may be granted together with or independently of
any stock option. SARs may be paid in Edwards Lifesciences common stock or
cash, as determined by the Compensation Committee. No person may receive, in
any calendar year, SARs which, in the aggregate, represent more than
[1,000,000] shares of Edwards Lifesciences common stock.
Restricted Stock
Restricted stock consists of the sale or transfer by Edwards Lifesciences
to an eligible employee of one or more shares of Edwards Lifesciences common
stock which are subject to restrictions on their sale or other transfer by the
employee. The price, if any, at which restricted stock will be sold will be
determined by the Compensation Committee, and it may vary from time-to-time
and among employees and may require no payment or be less than the fair market
value of the shares at the date of sale. All shares of restricted stock may be
subject to the attainment of performance goals under Section 162(m) of the tax
code and other restrictions as the Compensation Committee may determine.
Subject to these restrictions and the other requirements of the Incentive
Program, a participant receiving restricted stock will have the rights of a
stockholder (including voting and dividend rights) as to those shares only to
the extent the Compensation Committee designates such rights at the time of
the grant. Not more than [500,000] shares of Edwards Lifesciences common stock
may be issued in the form of restricted stock under the Incentive Program.
Stock Awards
Stock awards consist of the transfer by Edwards Lifesciences to an eligible
employee of shares of Edwards Lifesciences common stock, without payment, as
additional compensation for his or her services to Edwards Lifesciences or a
subsidiary of Edwards Lifesciences. Stock awards are subject to the following
limitations: No person subject to Section 16(a) of the Exchange Act (executive
officers of Edwards Lifesciences) may receive a
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<PAGE>
stock award, and no person eligible to receive a stock award may receive a
stock award representing more than [50,000] shares of Edwards Lifesciences
common stock in any calendar year.
Performance Shares
Performance shares consist of the grant by Edwards Lifesciences to an
eligible employee of a contingent right to receive payment of shares of
Edwards Lifesciences common stock. The performance shares will be paid in
shares of Edwards Lifesciences common stock to the extent performance goals
set forth in the grant are achieved. All grants of performance shares to a
person subject to Section 16(a) of the Exchange Act (executive officers of
Edwards Lifesciences) will be subject to the attainment of performance goals
under Section 162(m) of the tax code. The number of shares granted and the
performance goals will be determined by the Compensation Committee. No person
may receive in any calendar year performance shares which, in the aggregate,
represent more than [100,000] shares of Edwards Lifesciences common stock.
Other Incentives
Other incentives may consist of a payment in cash or stock by Edwards
Lifesciences to an eligible employee as additional compensation for his or her
services to Edwards Lifesciences or a subsidiary of Edwards Lifesciences. The
form, amount and the terms and conditions of other incentives will be
determined by the Compensation Committee.
Section 162(m) Performance Goals
Under the Incentive Program, grants of restricted stock, performance
shares, and other incentives (as defined in the Incentive Program) may be
subject to the attainment of performance goals under Section 162(m) of the tax
code. The regulations under Section 162(m) require the performance goals
related to grants under the Incentive Program to be approved separately by
Edwards Lifesciences' stockholders. Performance goals for performance based
grants may include, but are not limited to, stock price, sales, return on
equity, cash flow, market share, earnings per share and/or costs.
Non-Transferability of Incentives
Unless otherwise determined by the Compensation Committee, no stock option,
SAR, restricted stock, performance share or other incentive granted under the
Incentive Program will be transferable by its holder, except in the event of
the holder's death, by will or the laws of descent and distribution. During an
employee's lifetime, an incentive may be exercised only by the employee or the
employee's guardian or legal representative. The Compensation Committee may
allow the limited transfer of an incentive to the immediate family of an
employee to facilitate estate planning.
Amendment of the Program
Edwards Lifesciences' board of directors may amend or discontinue the
Incentive Program at any time. However, no amendment or discontinuance may
adversely affect an incentive previously granted. In addition, the board of
directors may not amend the Incentive Program without approval of Edwards
Lifesciences' stockholders to the extent such approval is required by law,
agreement or any exchange on which Edwards Lifesciences common stock is
traded.
Acceleration of Incentives
In the event of a change in control of Edwards Lifesciences (as specified
in the Incentive Program), the restrictions on all outstanding shares of
restricted stock will lapse immediately, all outstanding stock options and
SARs will become exercisable immediately and all performance goals will be
deemed to be met at target and payment made immediately.
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<PAGE>
Other Edwards Lifesciences Stock Option Plans
Edwards Lifesciences also expects to adopt one or more stock option plans
to provide for the grant of non-statutory stock options to certain
consultants, independent contractors and other persons who are not employees
of Edwards Lifesciences and its subsidiaries.
Edwards Lifesciences Change of Control Plan
Edwards Lifesciences expects to adopt the Edwards Lifesciences Change of
Control Plan. Pursuant to agreements entered into under this plan, employees
selected to participate (including each of the named executive officers) will
be entitled to separation pay and benefits following a change of control in
Edwards Lifesciences and the employee's subsequent termination of employment
unless such termination is voluntary and unprovoked or results from death,
disability, retirement or cause. The eligible termination must occur within 24
months of the change of control or the agreement is void. Mr. Mussallem will
be permitted to terminate his employment voluntarily at any time during the
thirteenth month following a change of control and collect the change of
control separation pay and benefits. Each agreement will continue for three
years from the distribution date and automatically extend for one year on each
anniversary of the agreement, unless Edwards Lifesciences notifies the
specific participant in writing that the agreement will not be renewed.
Under this plan, the separation pay will equal either three years'
annualized base salary and target cash bonus or two years' annualized base
salary and target cash bonus (as determined by the Compensation Committee in
its discretion depending on the employee's position). In addition, vesting of
all outstanding equity grants will be accelerated upon a change of control and
other terms and conditions will be governed by the provisions of the Edwards
Lifesciences 2000 Incentive Compensation Program.
In the event that any payments would be subject to an excise tax under the
tax code, Edwards Lifesciences will pay an additional gross-up amount for any
excise tax and federal, state and local income taxes, such that the net amount
of the payments would be equal to the net payments after income taxes had the
excise tax and resulting gross-up not been imposed.
Edwards Lifesciences Retirement Plan for United States Employees
Edwards Lifesciences will adopt a tax-qualified defined contribution
retirement plan (Edwards Lifesciences Retirement Plan) for its United States
employees effective on the distribution date. This plan will include a section
401(k) deferred compensation account (401(k) account), a company matching
contribution account, a performance account for Edwards Lifesciences' hourly
manufacturing employees, an initial stock grant for Edwards Lifesciences'
hourly employees and a transition account for each eligible employee, as
described below.
The defined contribution accounts for transferring employees under the
Baxter Incentive Investment Plan will be transferred to the Edwards
Lifesciences Retirement Plan. The Edwards Lifesciences Retirement Plan will
establish a fund to hold the Baxter common stock currently held on behalf of
Edwards Lifesciences employees in the Baxter Incentive Investment Plan. The
Edwards Lifesciences Retirement Plan will allow participants to redirect the
balances of their Edwards Lifesciences Retirement Plan accounts that are
invested in the Baxter common stock fund but not allow participants to direct
that their plan accounts make new investments in Baxter common stock within
the Edwards Lifesciences Retirement Plan.
401(k) Account and Company Matching Contribution Account
Employees of Edwards Lifesciences will be eligible to contribute to the
Edwards Lifesciences Retirement Plan on or after the distribution date.
Participants may elect to contribute, on a before-tax basis, up to 15% of
their annual eligible compensation as defined by the Edwards Lifesciences
Retirement Plan to their 401(k) accounts. Edwards Lifesciences will match the
first 3% (from 1-3%) of the participant's annual eligible compensation
contributed to the plan on a dollar for dollar basis. Edwards Lifesciences
will match the next 2% (from 4-5%) of the participant's annual eligible
compensation to the plan on a 50% basis.
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Performance Account
Subject to the terms of the Edwards Lifesciences Retirement Plan, hourly
manufacturing employees of Edwards Lifesciences will be eligible to receive
contributions to their performance accounts under such plan. Edwards
Lifesciences will make discretionary contributions to each performance account
in an amount equal to a target of 3% of the participant's annual eligible
compensation based on achievement of certain performance measures.
Contributions will be made quarterly, in cash, and will be invested according
to each employee's current 401(k) account investment elections if the employee
is a participant in the 401(k); otherwise the contributions will be invested
in the Edwards Lifesciences Common Stock Fund. Such contribution will be
immediately vested, and participants may elect to re-invest them in any of the
other funds within the Retirement Plan.
Initial Stock Grant Account
Edwards Lifesciences will be awarding each hourly manufacturing employee a
cash contribution to be held in a special account under the Edwards
Lifesciences Retirement Plan. Such contributions will be immediately invested
in approximately [50] shares of Edwards Lifesciences common stock. The grant
will be immediately vested, but the shares will not be available for loan or
withdrawals, and the special stock account may not be reallocated to other
funds within the 401(k) account until a participant reaches age 59.
Transition Account
Edwards Lifesciences has determined that it will facilitate the transition
of certain longer service employees from the Baxter Pension Plan to the
Edwards Lifesciences Retirement Plan by offering some additional benefits to
employees who meet specific age and service criteria. Contributions to a
transition account under the Edwards Lifesciences Retirement Plan will be made
to five groups of salaried non-exempt and hourly manufacturing employees.
These contributions will be made in cash, and will be invested according to
each employee's current 401(k) account investment elections if the employee is
a participant in the 401(k); otherwise the contributions will be invested in
the Edwards Lifesciences Common Stock Fund. They will be immediately vested,
and participants may elect to re-invest them in any of the other funds within
the Retirement Plan. Annual contributions will be made for eligible
participants until the earlier of when such participant terminates employment
or reaches age 65.
Employees with 75 or more "points" (as determined under the terms of the
Baxter Pension Plan explained on page 56) as of the distribution date will
receive transition contributions equal to 5% of the participant's eligible
compensation.
Employees with 70-74 "points" as of the distribution date will receive
transition contributions equal to 3% of the participant's eligible
compensation.
Employees with 65-69 "points" as of the distribution date will receive
transition contributions equal to 2.5% of the participant's eligible
compensation.
Employees with 60-64 "points" and at least 10 years of "benefit service"
(as determined under the terms of the Baxter Pension Plan explained on page
56) as of the distribution date will receive transition contributions equal to
1% of the participant's eligible compensation.
Employees with 55-59 "points" and at least 10 years of "benefit service"
(as determined under the terms of the Baxter Pension Plan explained on page
56) as of the distribution date will receive transition contributions equal to
one-half of 1% of the participant's eligible compensation.
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Edwards Lifesciences Non-Qualified Plan
Federal income tax laws limit the amount Edwards Lifesciences may
contribute to the accounts of certain highly compensated participants under
the Edwards Lifesciences Retirement Plan. Federal income tax laws also limit
the amount participants may contribute to their accounts under the Edwards
Lifesciences Retirement Plan. Edwards Lifesciences will adopt an unfunded non-
qualified excess plan (Edwards Lifesciences Excess Plan) that will credit
participants affected by the limits with the amount of their contributions
that the participants would have contributed or that Edwards Lifesciences
would have contributed on their behalf to the Edwards Lifesciences Retirement
Plan but for such limits.
Baxter Pension Plan
Eligible Edwards Lifesciences employees (transferring employees) will
continue to participate for purposes of benefit accruals in the Baxter Pension
Plan through the distribution date. All benefit accruals for Edwards
Lifesciences United States employees in the Baxter Pension Plan cease as of
the distribution date and all such employees will be fully vested in their
accrued benefits under the Pension Plan as of such date. Edwards Lifesciences'
United States employees with vested accrued benefits in the Pension Plan will
have those benefits maintained by the Pension Plan until they are eligible or
required to receive them according to the terms of the Plan.
Employee Stock Purchase Plan for United States Employees
Edwards Lifesciences will adopt an employee stock purchase plan for its
United States employees, as described in Section 423 of the tax code. All
active employees of Edwards Lifesciences and its United States subsidiaries
will be eligible to participate in the Plan. The employee stock purchase plan
will make available shares of Edwards Lifesciences common stock for purchase
by eligible employees through payroll deductions at a maximum rate of 12% of
eligible compensation. The purchase price per share will be equal to the
lesser of 85% of the fair market value of Edwards Lifesciences common stock on
the effective date of subscription or 85% of the fair market value of Edwards
Lifesciences common stock on the date of purchase. Purchases will be made
quarterly. [400,000] shares will be reserved for issuance under this Plan.
Transition Options for Salaried Exempt Employees
Edwards Lifesciences has determined that it will facilitate the transition
of certain longer service salaried exempt employees out of the Baxter Pension
Plan by offering additional stock options to salaried exempt employees who
meet specific age and service criteria. Transition stock options will be
provided to five groups of salaried exempt employees. Eligible employees will
receive an annual grant as described below, until the earlier of when the
employee reaches age 65 or terminates employment. The options will have a ten
year term with three year vesting.
Employees with 75 or more "points" (as determined under the terms of the
Pension Plan explained on page 52) as of the distribution date will receive an
annual transition option grant equal in value to 8% of the participant's
eligible compensation (based on a Black Scholes valuation of the options as of
the distribution date).
Employees with 70-74 "points" as of the distribution date will receive an
annual transition option grant equal in value to 6% of the participant's
eligible compensation.
Employees with 65-69 "points" as of the distribution date will receive an
annual transition option grant equal in value to 5.5% of the participant's
eligible compensation.
Employees with 60-64 "points" and at least 10 years of "benefit service"
(as determined under the terms of the Pension Plan explained on page 56) as of
the distribution date will receive an annual transition option grant equal in
value to 4% of the participant's eligible compensation.
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Employees with 55-59 "points" and at least 10 years of "benefit service"
(as determined under the terms of the Pension Plan explained on page 56) as of
the distribution date will receive an annual transition option grant equal in
value to 3.5% of the participant's eligible compensation.
Initial Stock Option Grant For Salaried Employees Worldwide
Edwards Lifesciences will be awarding each salaried exempt and each
salaried non-exempt employee [250] Edwards Lifesciences stock options. This is
a one-time stock option grant. The options will have a ten year term and three
year vesting.
Employee Stock Purchase Plan for Employees Outside the United States
Employees outside the United States are also eligible to participate in an
Employee Stock Purchase Plan. The terms of that plan mirror the stock plan
available to United States employees.
Initial Stock Grant for Hourly Employees Outside the United States
As noted above, hourly employees within the United States will receive a
one-time initial cash contribution which will be allocated to each employee's
401(k) account and immediately invested in approximately [50] shares of
Edwards Lifesciences common stock. Hourly employees outside the United States
will also receive an identical contribution. Whether those shares can be
allocated to the local retirement plan for those employees will be determined
on a country-by-country basis.
Other Retirement Plans for Employees Outside the United States
Various other retirement plans will be offered to Edwards Lifesciences
employees outside the United States according to the terms of local law and as
supplemented by Edwards Lifesciences.
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SECURITY OWNERSHIP OF EDWARDS LIFESCIENCES
The following table sets forth the beneficial ownership of Edwards
Lifesciences common stock immediately following the distribution date based on
an assumed exchange ratio of [six] to one by each of Edwards Lifesciences'
directors, its Chief Executive Officer and the executive officers who are
expected to be Edwards Lifesciences' four most highly compensated executive
officers in 2000 and all directors and executive officers as a group, based
upon information available to Baxter concerning ownership of shares of Baxter
common stock on October 31, 1999. The mailing address of each of these
individuals is c/o Edwards Lifesciences Corporation, 17221 Red Hill Avenue,
Irvine, California 92614. Except as otherwise noted, each individual has sole
investment and voting power with respect to the shares listed.
<TABLE>
<CAPTION>
Number of Shares
Projected to be % of Shares
Name Beneficially Owned Outstanding
---- ------------------ -----------
<S> <C> <C>
Michael A. Mussallem...................... [48,066](1)
Vernon R. Loucks Jr....................... [127,953](2)
Philip M. Neal............................ [ ]
David E.I. Pyott.......................... [ ]
Director..................................
Director..................................
Director..................................
Anita B. Bessler.......................... [16,024]
Stuart L. Foster.......................... [19,928]
Executive Officer.........................
Executive Officer.........................
All directors and executive officers as a
group
( [ ] persons).........................
</TABLE>
- --------
(1) Includes shares held in joint tenancy with spouse over which the named
individual shares voting or investment power as follows: Mr. Mussallem
[3,963].
(2) Includes [625] shares not held directly by Mr. Loucks but held by his
spouse.
Based on information available to Baxter concerning the ownership of shares
of Baxter common stock at December 1, 1999, no person is projected to own
beneficially more than 5% of the outstanding Edwards Lifesciences common stock
immediately following the distribution date.
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DESCRIPTION OF EDWARDS LIFESCIENCES CAPITAL STOCK
Authorized Capital Stock
The authorized capital stock of Edwards Lifesciences will consist of
400,000,000 shares of common stock, par value $1.00 per share, and 50,000,000
shares of preferred stock, par value $.01 per share. Baxter will not issue any
shares of Edwards Lifesciences preferred stock in connection with the
distribution. Based on the number of shares of Baxter common stock outstanding
as of September 30, 1999, Baxter will issue up to approximately [48,618,000]
shares of Edwards Lifesciences common stock to Baxter stockholders in the
distribution. All of the shares of Edwards Lifesciences common stock issued in
the distribution will be validly issued, fully paid and non-assessable. The
following is a summary description of the capital stock of Edwards
Lifesciences. For more complete information, you should read the proposed
forms of the amended and restated certificate of incorporation and amended and
restated bylaws of Edwards Lifesciences that are included as exhibits to the
registration statement of which this information statement is a part.
Edwards Lifesciences Common Stock
Edwards Lifesciences stockholders are entitled to one vote for each share
of common stock held by that stockholder on all matters submitted to a vote of
stockholders. A majority of the votes cast is required for all actions to be
taken by stockholders, except for the election of directors which requires a
plurality of the votes cast, and amendments of certain provisions of the
certificate of incorporation and bylaws as described below under "Certain
Anti-Takeover Effects of Provisions of the Certificate of Incorporation,
Bylaws and Delaware Law--Certificate of Incorporation and Bylaws--Amendment of
Certain Provisions of the Certificate of Incorporation and Bylaws."
Edwards Lifesciences stockholders will not have cumulative voting rights in
the election of directors. Edwards Lifesciences stockholders will not have any
preemptive, subscription, redemption, sinking fund or conversion rights.
Edwards Lifesciences stockholders are entitled to the dividends that may be
declared by the Edwards Lifesciences board out of funds legally available for
dividends, subject to preferences that may apply to holders of any outstanding
shares of Edwards Lifesciences preferred stock. If there is a liquidation,
dissolution or winding-up of Edwards Lifesciences, Edwards Lifesciences will
distribute the assets that are legally available for distribution to
stockholders ratably among the holders of Edwards Lifesciences common stock
outstanding at that time, subject to prior distribution rights of creditors
and to the preferential rights of any outstanding shares of Edwards
Lifesciences preferred stock.
Edwards Lifesciences Preferred Stock
Under the Edwards Lifesciences certificate of incorporation, the Edwards
Lifesciences board is authorized to provide for the issuance of Edwards
Lifesciences preferred stock, in one or more series. The Edwards Lifesciences
board is authorized to determine the designations, voting powers, preferences
and rights of any series of preferred stock, and any qualifications,
limitations or restrictions of any series of preferred stock. The Edwards
Lifesciences board expects to designate a series of preferred stock in
connection with the proposed rights agreement described below.
Edwards Lifesciences Rights Agreement
Prior to the distribution, Edwards Lifesciences expects that its board will
adopt a rights agreement between Edwards Lifesciences and [ ], as rights
agent. If adopted, the board will cause Edwards Lifesciences to issue one
preferred share purchase right with each share of Edwards Lifesciences common
stock issued at the close of business on the record date for the distribution.
Each right will entitle the registered holder to purchase from Edwards
Lifesciences one one-hundredth of a share of Series A Junior Participating
Preferred Stock for $[ ], subject to the adjustments specified in the rights
agreement. The terms of the rights will be set forth in the rights agreement.
The description set forth below is intended as a summary of the rights and the
rights agreement. For more complete information, you should read the form of
rights agreement that is included as an exhibit to the registration statement
of which this information statement is a part.
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The rights become exercisable upon the earliest to occur of:
. 10 days after the first public announcement that any person or group of
affiliated or associated persons has acquired beneficial ownership of 15%
or more of the outstanding shares of Edwards Lifesciences common stock,
subject to certain exceptions (an "Acquiring Person"); and
. 10 business days, unless delayed by the board, after the commencement by
any person of a tender or exchange offer if, upon the consummation of the
tender or exchange offer, that person would be the beneficial owner of
15% or more of the outstanding shares of Edwards Lifesciences common
stock.
The earliest of the dates specified in the preceding sentence is called the
"Rights Distribution Date."
Until the rights become exercisable, they will only be represented by the
stock certificates for the Edwards Lifesciences common stock and will not
trade independently, but only with the associated shares of Edwards
Lifesciences common stock. If the rights become exercisable, separate
certificates representing the rights will be distributed to holders and the
rights will then trade independently from the Edwards Lifesciences common
stock. Until a right is exercised, the holder of the right, as such, will have
no rights as a stockholder of Edwards Lifesciences, including, without
limitation, the right to vote or to receive dividends. Preferred shares
purchasable upon exercise of the rights will not be redeemable. The rights are
not exercisable until the Rights Distribution Date. The rights will expire ten
years from the date of issuance, unless the expiration date is extended or
unless the rights are earlier redeemed or exchanged by Edwards Lifesciences,
as described below.
Because of the nature of the dividend, liquidation and voting rights of the
Series A preferred stock, the value of one one-hundredth interest in a share
of Series A preferred stock purchasable upon exercise of each right should
approximate the value of one share of Edwards Lifesciences common stock. Each
preferred share will be entitled to a minimum preferential quarterly dividend
payment of $1 per share and an aggregate dividend of 100 times the dividend
declared per share of Edwards Lifesciences common stock. If there is a
liquidation of Edwards Lifesciences, the holders of the preferred shares will
be entitled to a minimum preferential liquidation payment of $100 per share.
Each preferred share will have 100 votes and will vote together with the
Edwards Lifesciences common stock. Finally, if there is any merger,
consolidation or other transaction in which shares of Edwards Lifesciences
common stock are exchanged, each preferred share will be entitled to receive
100 times the amount received per share of Edwards Lifesciences common stock.
Edwards Lifesciences will not issue fractional shares of preferred stock,
other than fractions that are integral multiples of one one-hundredth of a
share of preferred stock, which may, at Edwards Lifesciences election, be
evidenced by depositary receipts. In lieu of fractional shares, an adjustment
in cash will be made based on the market price of the preferred shares on the
last trading day prior to the date of exercise. The rights are protected by
customary anti-dilution provisions.
If any person or group of affiliated or associated persons becomes an
Acquiring Person, as defined in the rights agreement, each holder of a right,
other than rights beneficially owned by the Acquiring Person which will be
voided, will have the right to receive upon exercise of the right the number
of shares of Edwards Lifesciences common stock having a market value of two
times the exercise price of the right. If Edwards Lifesciences is acquired in
a merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold after a person or group of
affiliated or associated persons has become an Acquiring Person, each holder
of a right will have the right to receive, upon the exercise of the right, the
number of shares of common stock of the acquiring company that at the time of
the transaction will have a market value of two times the exercise price of
the right.
At any time after any person or group of affiliates or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or
group of 50% or more of the outstanding shares of Edwards Lifesciences common
stock, the Edwards Lifesciences board may exchange the rights, other than
rights that have become void, in whole or in part, at an exchange ratio of one
share of Edwards Lifesciences common stock, or one one-hundredth of a
preferred share, or of a share of a class or series of Edwards Lifesciences
preferred stock having equivalent rights, preferences and privileges, per
right, subject to adjustment.
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In general, Edwards Lifesciences may redeem the rights in whole, but not in
part, at a price of $.01 per right at any time until ten days following the
first public announcement that a person or group of affiliated or associated
persons has become an Acquiring Person. Immediately upon the board's
authorization of a redemption, the rights will terminate and the only right of
the holders of the rights will be to receive the redemption price.
The terms of the rights may be amended by the Edwards Lifesciences board
without the consent of the holders of the rights. However, from and after such
time as any person or group of affiliated or associated persons becomes an
Acquiring Person, the Edwards Lifesciences board may not amend the terms of
the rights in a manner adversely affecting the interests of the holders of the
rights.
The rights will have an anti-takeover effect because the rights will cause
substantial dilution to a person or group that attempts to acquire Edwards
Lifesciences on terms not approved by the Edwards Lifesciences board. The
rights should not interfere with any merger or other business combination
approved by the Edwards Lifesciences board because the rights may be redeemed
by Edwards Lifesciences until the tenth day following the first public
announcement that a person or group has become an Acquiring Person.
CERTAIN ANTI-TAKEOVER EFFECTS OF
PROVISIONS OF EDWARDS LIFESCIENCES' CERTIFICATE OF INCORPORATION AND
BYLAWS AND OF DELAWARE LAW
Certificate of Incorporation and Bylaws
Edwards Lifesciences' certificate of incorporation and bylaws contain
provisions that could make it more difficult to acquire Edwards Lifesciences
by means of a tender offer, proxy contest or otherwise. The description set
forth below is intended as a summary only; for more complete information you
should read the proposed forms of the certificate of incorporation and the
bylaws that are included as exhibits to the registration statement, of which
this information statement is a part.
Classified Board of Directors
Edwards Lifesciences' certificate of incorporation provides that the
Edwards Lifesciences directors, other than those who may be elected by the
holders of any series of preferred stock under specified circumstances, will
be divided into three classes of directors, with the classes to be as nearly
equal in number as possible, and with each class serving a staggered term.
Immediately after the distribution, the Edwards Lifesciences board will
consist of the persons referred to in "Management--Directors." The certificate
of incorporation provides that the term of office of the first class will
expire at the 2001 annual meeting of stockholders. The term of office of the
second class will expire at the 2002 annual meeting of stockholders. The term
of office of the third class will expire at the 2003 annual meeting of
stockholders.
The classification of directors will make it more difficult for
stockholders to change the composition of the Edwards Lifesciences board. At
least two annual meetings of stockholders, instead of one, will be required to
change a majority of the Edwards Lifesciences board. Such a delay may help
ensure that the Edwards Lifesciences board, if confronted by a stockholder's
attempt to force a stock repurchase at a premium above market price, a proxy
contest or an extraordinary corporate transaction, would have sufficient time
to review the proposal as well as any available alternatives to the proposal
and to act in what they believe to be the best interests of the stockholders.
However, the classification provisions could have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of Edwards Lifesciences, even though
such an attempt might be beneficial to Edwards Lifesciences and its
stockholders. In addition, the classification of the Edwards Lifesciences
board could increase the likelihood that incumbent directors will retain their
positions. Finally, because the classification provisions may discourage
accumulations of large blocks of Edwards Lifesciences' stock by purchasers
whose objective is to take control of Edwards Lifesciences and remove a
majority of the Edwards Lifesciences board, the classification of the Edwards
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Lifesciences board could reduce the likelihood of fluctuations in the market
price of Edwards Lifesciences common stock that might result from
accumulations of large blocks. Accordingly, stockholders could be deprived of
certain opportunities to sell their shares of Edwards Lifesciences common
stock at a higher market price than they might otherwise obtain.
Number of Directors; Filling Vacancies; Removal
Edwards Lifesciences' certificate of incorporation provides that the
Edwards Lifesciences board will fix the number of Edwards Lifesciences
directors, subject to any rights of holders of Edwards Lifesciences preferred
stock to elect additional directors under specific circumstances. In addition,
the certificate of incorporation provides that any vacancy that results from
an increase in the number of directors or for any other reason may be filled
only by a majority of directors then in office, subject to any rights of
holders of Edwards Lifesciences preferred stock. Accordingly, absent an
amendment to the Edwards Lifesciences certificate of incorporation, the
Edwards Lifesciences board could prevent a stockholder from increasing the
size of the Edwards Lifesciences board and filling the newly created
directorships with that stockholder's own nominees. Under Delaware General
Corporation Law, unless otherwise provided in the certificate of
incorporation, directors serving on a classified board may be removed by the
stockholders only for cause.
No Stockholder Action by Written Consent; Special Meetings
Edwards Lifesciences' certificate of incorporation prohibits stockholder
action by written consent in lieu of a meeting. The bylaws provide that
special meetings of the stockholders may be called only by the chairman of the
board or the secretary or by resolution of the directors, and shall be called
upon a request signed by a majority of the directors.
The provisions of Edwards Lifesciences' certificate of incorporation
prohibiting stockholder action by written consent may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting
unless a special meeting is called at the request of a majority of the board.
These provisions would also prevent the holders of a majority of the voting
power of the voting stock from unilaterally using the written consent
procedure to take stockholder action. Moreover, a stockholder could not force
stockholder consideration of a proposal over the opposition of the Edwards
Lifesciences board by calling a special meeting of stockholders prior to the
time a majority of the board believes such consideration to be appropriate.
Advance Notice of Stockholder Nominations and Stockholder Proposals Required
The Edwards Lifesciences bylaws establish an advance notice procedure for
stockholders to make nominations of candidates for election as directors, or
bring other business before an annual meeting of stockholders.
The advance notice procedures provide that the only persons who are
eligible for election as Edwards Lifesciences directors are those who are
nominated by, or at the direction of, the Edwards Lifesciences board, or by a
stockholder who has given timely written notice to the secretary prior to the
meeting at which directors are to be elected. The advance notice procedures
provide that at an annual meeting the only business that may be conducted is
that which has been brought before the meeting by, or at the direction of, the
Edwards Lifesciences board or by a stockholder who has given timely written
notice to Edwards Lifesciences' secretary of that stockholder's intention to
bring that business before the meeting. Under the advance notice procedures,
for a stockholder to timely provide notice of any stockholder nominations at
an annual meeting, Edwards Lifesciences must receive the notice not less than
75 days nor more than 100 days prior to the first anniversary of the previous
year's annual meeting. However, if Edwards Lifesciences advances the date of
any other annual meeting by more than 30 days from the anniversary date of the
meeting, a stockholder must provide notice not later than the 10th day after
Edwards Lifesciences mails or publicly announces the notice of the date of the
annual meeting. Under the advance notice procedures, for a stockholder to
timely provide notice of any stockholder nominations at a special meeting at
which directors are to be elected, Edwards Lifesciences must receive the
notice not less than 75 days nor more than 100 days prior to the special
meeting or by the 10th day after Edwards Lifesciences publicly announces the
date of the special meeting.
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A stockholder's notice to Edwards Lifesciences proposing to nominate a
person for election as a director must contain certain information including,
without limitation, the name and address of the nominating stockholder, the
class and number of shares of stock of Edwards Lifesciences that are owned by
that stockholder and all information regarding the proposed nominee that would
be required to be included in a proxy statement soliciting proxies for the
proposed nominee. A stockholder's notice to Edwards Lifesciences relating to
other proposed business must contain certain information about the proposed
business and about the proposing stockholder, including, without limitation, a
brief description of the business, the reasons for conducting the business at
the meeting, the name and address of the proposing stockholder, the class and
number of shares of stock of Edwards Lifesciences beneficially owned by such
stockholder and any material interest of that stockholder in the business so
proposed. If the chairman of the board or other officer presiding at the
meeting determines that a person was not nominated or other business was not
properly brought before the meeting, that person will not be eligible for
election as a director or that business will not be conducted at the meeting,
as the case may be.
The advance notice procedures regarding election of directors afford
Edwards Lifesciences' board an opportunity to consider the qualifications of
the proposed nominees and, to the extent deemed necessary or desirable by the
Edwards Lifesciences board regarding other proposed business, provide a more
orderly procedure for conducting annual meetings of stockholders. In addition,
these advance notice procedures will provide the Edwards Lifesciences board
with an opportunity to inform stockholders in advance of a meeting, to the
extent deemed necessary or desirable by the Edwards Lifesciences board, of any
business proposed to be conducted at the meeting and any board recommendation
regarding the proposed business, so that stockholders can better decide
whether to attend the meeting or to grant a proxy regarding the disposition of
the proposed business.
Although the bylaws do not give the Edwards Lifesciences board any power to
approve or disapprove of stockholder nominations for the election of directors
or other proposals, they may preclude a contest for the election of directors
or the consideration of stockholder proposals if the proper procedures are not
followed. In addition, these procedures may discourage or deter a third party
from conducting a solicitation of proxies to elect its own slate of directors
or to approve its own proposal, without regard to whether consideration of
those nominees or proposals might be harmful or beneficial to Edwards
Lifesciences and its stockholders.
Amendment of Certain Provisions of the Certificate of Incorporation and
Bylaws
Under Delaware General Corporation Law, the stockholders have the right to
adopt, amend or repeal the bylaws and, with the approval of the board of
directors, the certificate of incorporation of a corporation. In addition,
under Delaware General Corporation Law, if the certificate of incorporation so
provides, the bylaws may be adopted, amended or repealed by the board of
directors. Edwards Lifesciences' certificate of incorporation provides that
the affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares of voting stock, voting together as a single class, is
required to amend provisions of the certificate of incorporation relating to:
. the prohibition of stockholder action without a meeting;
. the number, election and term of Edwards Lifesciences' directors;
. super-majority voting requirements to amend the charter; and
. the issuance of rights.
The bylaws may be amended by the Edwards Lifesciences board or by the
affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares of voting stock, voting together as a single class. These
super-majority voting requirements will have the effect of making more
difficult any amendment by stockholders of the bylaws or of any of the
provisions of the certificate of incorporation described above, even if a
majority of Edwards Lifesciences' stockholders believe that an amendment would
be in their best interests.
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Delaware Law
Anti-Takeover Legislation
Section 203 of the Delaware General Corporation Law provides that, subject
to the exceptions specified in that section, a corporation may not engage in
any business combination with any interested stockholder for a three-year
period following the time that such stockholder becomes an interested
stockholder unless:
. prior to that time, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (excluding certain shares); or
. at or subsequent to that time, the business combination is approved by
the board of directors of the corporation and by the affirmative vote of
at least two-thirds of the outstanding voting stock that is not owned by
the interested stockholder.
Except as specified in Section 203 of the Delaware General Corporation Law,
an "interested stockholder" is defined to include:
. any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation, at any time within three years immediately
prior to the relevant date; and
. the affiliates and associates of any person described in the preceding
clause.
Under certain circumstances, Section 203 of the Delaware General
Corporation Law makes it more difficult for a person who would be an
interested stockholder to effect various business combinations with a
corporation for a three-year period. It is anticipated that the provisions of
Section 203 may encourage persons interested in acquiring Edwards Lifesciences
to negotiate in advance with the Edwards Lifesciences board, since those
persons could avoid the stockholder approval requirement if a majority of the
directors then in office approves either the business combination or the
transaction that results in the stockholder becoming an interested
stockholder.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF EDWARDS LIFESCIENCES DIRECTORS
AND OFFICERS
Limitation of Liability of Directors
Edwards Lifesciences' certificate of incorporation provides that a director
of Edwards Lifesciences will not be personally liable to Edwards Lifesciences
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
. for any breach of the director's duty of loyalty to Edwards Lifesciences
or its stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, which concerns
unlawful payments of dividends, stock purchases or redemptions; or
. for any transaction from which the director derived an improper personal
benefit.
While Edwards Lifesciences' certificate of incorporation provides directors
with protection from awards for monetary damages for breaches of their duty of
care, it does not eliminate their duty of care. Accordingly, the certificate
of incorporation will have no effect on the availability of equitable remedies
such as an injunction or rescission based on a director's breach of his or her
duty of care. The provisions of the certificate of incorporation described
above apply to an officer of Edwards Lifesciences only if he or she is a
director of Edwards Lifesciences and is acting in his or her capacity as
director, and do not apply to officers of Edwards Lifesciences who are not
directors.
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Indemnification of Directors and Officers
The Edwards Lifesciences certificate of incorporation provides that each
person who is, or was, or has agreed to become a director or officer of
Edwards Lifesciences, and each person who serves, or may have served, at the
request of Edwards Lifesciences as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
will be indemnified by Edwards Lifesciences to the fullest extent permitted
from time to time by Delaware law, as the same exists or may hereafter be
amended. Directors and officers will not be indemnified with respect to an
action commenced by such directors or officers against Edwards Lifesciences or
by such directors or officers as a derivative action.
The certificate of incorporation of Edwards Lifesciences provides that the
right to indemnification and the payment of expenses conferred in the
certificate of incorporation will not be exclusive of any other right which
any person may have or may in the future acquire under any agreement, vote of
stockholders, vote of disinterested directors or otherwise. The certificate of
incorporation permits Edwards Lifesciences to maintain insurance on behalf of
any person who is, or was, a director, officer, employee or agent of Edwards
Lifesciences, or is serving at the request of Edwards Lifesciences as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any expense, liability or
loss, whether or not Edwards Lifesciences would have the power to indemnify
such person against that liability under the certificate of incorporation or
Delaware law.
Edwards Lifesciences intends to obtain directors and officers liability
insurance providing coverage to its directors and officers.
EDWARDS LIFESCIENCES' 2001 ANNUAL MEETING OF STOCKHOLDERS
The Edwards Lifesciences bylaws provide that an annual meeting of
stockholders will be held each year on a date specified by the Edwards
Lifesciences board of directors. The first annual meeting of Edwards
Lifesciences stockholders after the distribution is expected to be held on May
[ ], 2001. In order to be considered for inclusion in Edwards Lifesciences'
proxy materials for the 2001 annual stockholders meeting, any proposals by
stockholders must be received at Edwards Lifesciences' principal executive
offices at 17221 Red Hill Avenue, Irvine, California 92614, prior to [ ],
2000. Edwards Lifesciences anticipates commencing the mailing of proxies for
the 2001 annual stockholders meeting on or about March [ ], 2001. In
addition, stockholders at the Edwards Lifesciences 2001 annual meeting may
consider stockholder proposals or nominations brought by a stockholder of
record on the record date for the 2001 annual meeting, who is entitled to vote
at such annual meeting and who has complied with the advance notice procedures
established by the Edwards Lifesciences bylaws. A stockholder proposal or
nomination intended to be brought before the Edwards Lifesciences 2001 annual
meeting must be received by Edwards Lifesciences' secretary on or after [ ],
2001 and on or prior to [ ], 2001. See "Certain Anti-Takeover Effects of
Provisions of Edwards Lifesciences' Certificate of Incorporation and Bylaws
and of Delaware Law--Certificate of Incorporation and Bylaws."
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement, of which this
information statement constitutes a part, under the Securities Exchange Act of
1934 with respect to the Edwards Lifesciences common stock being received by
Baxter stockholders in the distribution. This information statement does not
contain all of the information set forth in the registration statement. For
further information with respect to our business and the common stock being
received by Baxter stockholders in the distribution, please refer to the
registration statement. While we have provided a summary of the material terms
of the contents of certain contracts and other documents, the summary does not
describe all of the details of the contracts and other documents. In each
instance where a copy of a contract or other document has been filed as an
exhibit to the registration statement, please refer to the registration
statement. Each statement in this information statement regarding a contract
or
72
<PAGE>
other document is qualified in all respects by such exhibit. You may read and
copy all or any portion of the registration statement at the offices of the
SEC at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and copies
of all or any part of the registration statement may be obtained from the
Public Reference Section of the SEC, Washington, D.C. 20549 upon the payment
of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for
further information about the public reference rooms. The SEC maintains a Web
site, http://www.sec.gov, that contains reports, proxy and information
statements and other information regarding registrants, such as Baxter and
Edwards Lifesciences, that file electronically with the SEC. Upon completion
of this offering, Edwards Lifesciences will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934,
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. These periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the SEC's Web site.
Edwards Lifesciences intends to furnish its stockholders with annual
reports containing consolidated financial statements (beginning with fiscal
year 2000) audited by independent accountants.
You should rely only on the information contained in this information
statement and other documents referred to in this information statement.
Baxter and Edwards Lifesciences have not authorized anyone to provide you with
information that is different. This information statement is being furnished
by Baxter solely to provide information to Baxter stockholders who will
receive Edwards Lifesciences common stock in the distribution. It is not, and
is not to be construed as, an inducement or encouragement to buy or sell any
securities of Baxter or Edwards Lifesciences. Baxter and Edwards Lifesciences
believe that the information presented herein is accurate as of the date
hereof. Changes will occur after the date hereof, and neither Baxter nor
Edwards Lifesciences will update the information except to the extent required
in the normal course of their respective public disclosure practices and as
required pursuant to the federal securities laws.
73
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Combined Balance Sheets.................................................... F-3
Combined Statements of Income.............................................. F-4
Combined Statements of Cash Flows.......................................... F-5
Combined Statements of Equity and Comprehensive Income..................... F-6
Notes to Edwards Lifesciences Corporation Combined Financial Statements.... F-7
Schedule II--Valuation and Qualifying Accounts............................. S-1
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders of
Baxter International Inc.
In our opinion, the combined financial statements listed on the
accompanying index present fairly, in all material respects, the financial
position of Edwards Lifesciences Corporation (the Company) at December 31,
1998 and 1997 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related combined financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
December 8, 1999
F-2
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
COMBINED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
December 31,
September 30, --------------
1999 1998 1997
------------- ------ ------
(unaudited)
<S> <C> <C> <C>
Current assets
Accounts receivable, net of allowances of $8
million at September 30, 1999 and December 31,
1998, and $6 million at December 31, 1997..... $ 133 $ 141 $ 165
Other receivables.............................. 27 28 24
Inventories.................................... 188 156 157
Short-term deferred income taxes............... 14 14 10
Prepaid expenses............................... 10 14 15
------ ------ ------
Total current assets......................... 372 353 371
------ ------ ------
Property, plant and equipment
Property, plant and equipment.................. 493 480 448
Accumulated depreciation and amortization...... (270) (253) (231)
------ ------ ------
Net property, plant and equipment............ 223 227 217
------ ------ ------
Other assets
Goodwill and other intangibles................. 854 886 918
Other.......................................... 16 17 20
------ ------ ------
Total other assets........................... 870 903 938
------ ------ ------
Total assets............................... $1,465 $1,483 $1,526
====== ====== ======
Current liabilities
Accounts payable and accrued liabilities....... 151 157 140
------ ------ ------
Total current liabilities.................... 151 157 140
------ ------ ------
Other noncurrent liabilities..................... 52 55 55
Contingencies and commitments....................
Equity........................................... 1,289 1,296 1,358
Accumulated other comprehensive income (loss).... (27) (25) (27)
------ ------ ------
Total liabilities and equity............... $1,465 $1,483 $1,526
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
COMBINED STATEMENTS OF INCOME
(in millions)
<TABLE>
<CAPTION>
Nine months
ended Years ended
September 30, December 31,
------------- ----------------
1999 1998 1998 1997 1996
------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales...................................... $ 672 $ 639 $865 $879 $837
Costs and expenses
Cost of goods sold........................... 339 334 455 455 437
Cost of goods sold--transactions with Baxter. 5 5 11 8 5
Marketing and administrative expenses........ 143 133 187 168 155
Marketing and administrative expenses--
transactions with Baxter.................... 33 31 35 43 39
Research and development expenses............ 28 30 40 41 38
Research and development expenses--
transactions with Baxter.................... 10 10 16 12 11
In-process research and development.......... -- -- -- 132 --
Goodwill amortization........................ 26 26 34 34 30
Other expenses (income)...................... 3 -- (6) 1 (5)
------ ------ ---- ---- ----
Total costs and expenses....................... 587 569 772 894 710
------ ------ ---- ---- ----
Income (loss) before income taxes.............. 85 70 93 (15) 127
Income tax expense............................. 23 23 31 37 40
------ ------ ---- ---- ----
Net income (loss).............................. $ 62 $ 47 $ 62 $(52) $ 87
====== ====== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Nine months Years ended December 31,
ended ---------------------------
September 30, 1998 1997 1996
-------------- -------- -------- --------
(unaudited)
(Brackets denote cash outflows)
<S> <C> <C> <C> <C> <C>
Cash flow provided from operations
Net income (loss)............... $ 62 $ 47 $ 62 $ (52) $ 87
Adjustments
Depreciation and amortization. 65 61 82 80 79
In-process research and
development.................. -- -- -- 132 --
Other......................... 2 11 14 (3) 2
Changes in balance sheet items
Accounts receivable........... 8 2 9 (6) (15)
Inventories................... (22) (5) (1) 10 12
Accounts payable and accrued
liabilities.................. (6) (11) 6 4 7
Other......................... (2) 8 4 (2) 13
------ ------ -------- ------- --------
Cash flow provided by
operations..................... 107 113 176 163 185
------ ------ -------- ------- --------
Investment transactions
Capital expenditures............ (31) (28) (40) (42) (36)
Acquisitions (net of cash
received)...................... (7) (12) (12) (16) (119)
------ ------ -------- ------- --------
Investment transactions, net.... (38) (40) (52) (58) (155)
------ ------ -------- ------- --------
Financing transactions
Investments by and advances from
(payments to) Baxter
International Inc., net........ (69) (73) (124) (105) (30)
------ ------ -------- ------- --------
Financing transactions, net..... (69) (73) (124) (105) (30)
------ ------ -------- ------- --------
Change in cash and equivalents.... -- -- -- -- --
Cash and equivalents at beginning
of period........................ -- -- -- -- --
------ ------ -------- ------- --------
Cash and equivalents at end of
period........................... $ -- $ -- $ -- $ -- $ --
====== ====== ======== ======= ========
Disclosure of noncash activity
Acquisition of business with
Baxter International Inc.
common stock................... $ -- $ -- $ -- $ 223 $ --
====== ====== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
COMBINED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(in millions)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Comprehensive
Equity Income (Loss) Income (Loss)
------ ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1995............... $1,235 $--
Net income............................... 87 $ 87
----
Other comprehensive income (loss):
Currency translation adjustments....... (9)
Unrealized net gain on marketable
security, net of tax of $1............ 1
----
Other comprehensive income (loss).... (8) (8)
----
Investments by and advances from
(payments to) Baxter International Inc.,
net..................................... (30)
------ ----
Comprehensive income....................... $ 79
====
Balance at December 31, 1996............... 1,292 (8)
Net loss................................. (52) $(52)
----
Other comprehensive income (loss):
Currency translation adjustments....... (16)
Unrealized net loss on marketable
security, net of tax benefit of $2.... (3)
----
Other comprehensive income (loss).... (19) (19)
----
Investments by and advances from
(payments to) Baxter International Inc.,
net:
Cash................................... (105)
Acquisition of business with Baxter
International Inc. common stock....... 223
------ ----
Comprehensive income (loss)................ $(71)
====
Balance at December 31, 1997............... 1,358 (27)
Net income............................... 62 $ 62
----
Other comprehensive income:
Currency translation adjustments....... --
Unrealized net gain on marketable
security, net of tax of $1............ 2
----
Other comprehensive income........... 2 2
----
Investments by and advances from
(payments to) Baxter International Inc.,
net..................................... (124)
------ ----
Comprehensive income....................... $ 64
====
Balance at December 31, 1998............... 1,296 (25)
(Unaudited):
Net income............................... 62 $ 62
Other comprehensive income (loss)........ (2) (2)
Investments by and advances from
(payments to) Baxter International Inc.,
net..................................... (69)
------ ---- ----
Comprehensive income....................... $ 60
====
Balance at September 30, 1999.............. $1,289 $(27)
====== ====
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
On July 11, 1999, the board of directors of Baxter International Inc.
(Baxter) approved a plan to spin off its CardioVascular business to Baxter
stockholders. Management expects that shares of the new cardiovascular
company, Edwards Lifesciences Corporation (Edwards Lifesciences or the
company,) will be distributed to Baxter stockholders (the distribution) in the
second quarter of 2000 and that the spin-off will be tax-free. The
distribution will result in Edwards Lifesciences operating as an independent
entity with publicly traded common stock.
Edwards Lifesciences is a global leader in providing a comprehensive line
of products and services to treat late-stage cardiovascular disease. Edwards
Lifesciences' sales are categorized in four main product areas: (a) cardiac
surgery, (b) critical care, (c) vascular and (d) perfusion products and
services. In addition, Edwards Lifesciences also offers a diverse grouping of
product lines comprised mostly of pharmaceuticals and selected distributed
products. Edwards Lifesciences' cardiac surgery portfolio is comprised of
products relating to heart valve therapy, mechanical cardiac assist, and
cannulae and cardioplegia products used during open-heart surgery. The
critical care product category primarily includes hemodynamic monitoring
systems used to measure a patient's heart function in surgical and intensive
care settings. The vascular product area includes balloon catheter-based
products, surgical clips and inserts, angioscopy equipment, artificial
implantable grafts, and an endovascular system used for less-invasive
abdominal aortic aneurysms. The perfusion products and services area includes
disposable products used during cardiopulmonary bypass procedures and contract
perfusion services.
Baxter will have no ownership interest in Edwards Lifesciences after the
spin-off, but will continue to conduct business pursuant to various
agreements, which are outlined in Note 7. However, unless released by third
parties, Baxter will remain liable for certain lease and other obligations and
liabilities that are transferred to and assumed by Edwards Lifesciences.
Edwards Lifesciences will be obligated by the reorganization agreement to
indemnify Baxter against liabilities related to those transferred obligations
and liabilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the combined financial statements.
These policies are in conformity with accounting principles generally accepted
in the United States (GAAP) and have been applied consistently in all material
respects. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements, the
reported amounts of revenues and expenses during the reporting period, and
related disclosures. Actual results could differ from those estimates.
Basis of presentation
The accompanying combined financial statements include those assets,
liabilities, revenues and expenses directly attributable to the company's
operations. All material intercompany balances have been eliminated. The
combined financial statements include allocations of certain Baxter corporate
assets, liabilities and expenses to Edwards Lifesciences. These amounts have
been allocated to the company on the basis that is considered by management to
reflect most fairly or reasonably the utilization of the services provided to
or the benefit obtained by the company. Management believes the methods used
to allocate these amounts are reasonable. However, the financial information
included herein does not necessarily reflect what the financial position and
results of operations of the company would have been had it operated as a
stand-alone public entity during the periods covered, and may not be
indicative of future operations or financial position. Estimated pretax
incremental
F-7
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
selling, general and administrative costs associated with being an independent
public company total approximately $25 million on an annual basis. The
following is a summary of the estimated annual incremental costs by
significant function (in millions):
<TABLE>
<S> <C>
. Accounting, tax and legal $ 8
. Insurance and risk management 4
. Human resources 7
. Treasury, stockholder relations and other costs 6
---
Total $25
===
</TABLE>
Unaudited interim financial statements
In the opinion of management, the unaudited interim combined financial
statements reflect all adjustments necessary for a fair presentation of the
interim periods. All such adjustments are of a normal, recurring nature. The
results of operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the full year.
Fiscal year of international operations
Certain operations outside the United States and its territories are
included in the combined financial statements on the basis of fiscal years
ending November 30 in order to facilitate timely combination.
Foreign currency translation
The results of operations for non-U.S. subsidiaries, other than those
located in highly inflationary countries, are translated into U.S. dollars
using the average exchange rates during the year, while assets and liabilities
are translated using period-end rates. Resulting translation adjustments are
recorded as currency translation adjustments within other comprehensive
income. Where foreign affiliates operate in highly inflationary economies,
non-monetary amounts are translated at historical exchange rates while
monetary assets and liabilities are translated at the current rate with the
related adjustments reflected in the combined statements of income.
Revenue recognition
The company's practice is to recognize revenues from product sales as
shipped and for services as performed. For certain products, the company
maintains consigned inventory at customer locations. For these products,
revenue is recognized at the time the company is notified that the inventory
has been used by the customer.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Market value for raw materials is based on replacement costs
and, for other inventory classifications, on net realizable value.
Inventories consisted of the following:
<TABLE>
<CAPTION>
December
31,
September 30, ---------
1999 1998 1997
------------- ---- ----
(unaudited)
(in millions)
<S> <C> <C> <C>
Raw materials..................................... $ 33 $ 33 $ 34
Work in process................................... 37 36 33
Finished products................................. 118 87 90
---- ---- ----
Total inventories............................... $188 $156 $157
==== ==== ====
</TABLE>
Reserves for excess and obsolete inventory were approximately $13 million
at September 30, 1999, $10 million at December 31, 1998 and $13 million at
December 31, 1997.
F-8
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are principally calculated for financial reporting purposes on
the straight-line method over the estimated useful lives of the related
assets, which range from 20 to 50 years for buildings and improvements and
from three to 15 years for machinery and equipment. Leasehold improvements are
amortized over the life of the related facility leases or the asset, whichever
is shorter. Straight-line and accelerated methods of depreciation are used for
income tax purposes.
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
as of December 31 1998 1997
----------------- ---- ----
(in
millions)
<S> <C> <C>
Land.......................................................... $ 28 $ 20
Buildings and leasehold improvements.......................... 82 80
Machinery and equipment....................................... 274 264
Equipment with customers...................................... 81 73
Construction in progress...................................... 15 11
---- ----
Total property, plant and equipment, at cost.................. 480 448
Accumulated depreciation and amortization..................... (253) (231)
---- ----
Net property, plant and equipment............................. $227 $217
==== ====
</TABLE>
Depreciation expense was $35 million in 1998, and $33 million in 1997 and
1996. Repairs and maintenance expense was $10 million in 1998 and $7 million
in 1997 and 1996.
Goodwill and other intangible assets
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized on a straight-line basis over estimated useful lives
ranging from 15 to 40 years.
Other intangible assets include purchased patents, trademarks and other
identified rights and are amortized on a straight-line basis over their legal
or estimated useful lives, whichever is shorter (generally not exceeding 17
years).
Goodwill and other intangible assets are summarized as follows:
<TABLE>
<CAPTION>
as of December 31 1998 1997
----------------- ------ ------
(in millions)
<S> <C> <C>
Goodwill.................................................. $1,116 $1,107
Accumulated amortization.................................. (337) (303)
------ ------
Net goodwill.............................................. 779 804
------ ------
Other intangibles......................................... 184 180
Accumulated amortization.................................. (77) (66)
------ ------
Net other intangibles..................................... 107 114
------ ------
Goodwill and other intangibles............................ $ 886 $ 918
====== ======
</TABLE>
Management reviews the carrying amounts of goodwill and other intangibles
whenever events or changes in circumstances indicate that the carrying amounts
of an asset may not be recoverable. Management reviews the carrying amounts of
goodwill and other intangibles whenever events and circumstances indicate that
the carrying amounts of an asset may not be recoverable. Impairment indicators
include, among other conditions, cash flow deficits, historic or anticipated
declines in revenue or operating profit and adverse legal or regulatory
developments. If it is determined that such indicators are present and the
review indicates that the assets will not
F-9
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
be fully recoverable, based on undiscounted estimated cash flows over the
remaining amortization periods, their carrying values are reduced to estimated
fair market value. Estimated fair market value is determined primarily using
the anticipated cash flows discounted at a rate commensurate with the risk
involved. For the purpose of identifying and measuring impairment, assets are
grouped at the lowest level for which there are identifiable cash flows that
are largely independent of the cash flows generated by other asset groups.
Based upon management's assessment of the future undiscounted operating cash
flows of acquired businesses, the carrying values of goodwill and other
intangibles at December 31, 1998, have not been impaired.
Income taxes
Edwards Lifesciences' operations were historically included in Baxter's
consolidated U.S. federal and state income tax returns and in the tax returns
of certain Baxter foreign subsidiaries. The provision for income taxes has
been determined as if Edwards Lifesciences had filed separate tax returns
under its existing structure for the periods presented. Accordingly, the
effective tax rate of Edwards Lifesciences in future years could vary from its
historical effective rates depending on Edwards Lifesciences' future legal
structure and tax elections. All income taxes are settled with Baxter on a
current basis through the "Investments by and advances from (payments to)
Baxter International Inc., net" account.
Derivatives
For all periods presented, Edwards Lifesciences has been considered in
Baxter's overall risk management strategy. Baxter's accounting policies with
respect to derivatives are summarized below as they apply to Edwards
Lifesciences.
Gains and option premiums relating to qualifying foreign currency hedges of
anticipated transactions are deferred and recognized in income as offsets of
gains and losses resulting from the underlying hedged transactions. Gains
relating to terminations of qualifying hedges are deferred and recognized in
income at the same time as the underlying hedged transactions. In
circumstances where the underlying anticipated transaction is no longer
expected to occur, any remaining deferred amounts are recognized immediately
in income. Foreign currency contracts not qualifying for hedge treatment are
marked to market at each balance sheet date with resulting gains and losses
recognized in earnings. Cash flows from derivatives are classified in the same
category as the cash flows from the related hedged activity. Foreign currency
financial instruments are used to hedge economic risks and are not used for
trading purposes.
Investments by and Advances from (payments to) Baxter International Inc., net
Investments by and advances from (payments to) Baxter International Inc.,
net includes common stock, additional paid-in capital and net intercompany
balances with Edwards Lifesciences which will be contributed at the time of
the spin-off.
Comprehensive income (loss)
Comprehensive income (loss) encompasses all changes in equity other than
those arising from transactions with stockholders, and consists of net income,
currency translation adjustments and unrealized net gains and losses on
marketable equity securities. The company does not provide for U.S. income
taxes on foreign currency translation adjustments since it does not provide
for such taxes on undistributed earnings of foreign subsidiaries. The net
unrealized gain on a marketable security of $2 million for 1998 (net-of-tax)
principally consisted of a reclassification adjustment for an impairment loss
included in net income during the year.
Recent accounting pronouncement
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (Statement No. 133) which was to be effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB
issued Statement No. 137, "Accounting for Derivative Instruments--Deferral of
the Effective Date of FASB Statement No. 133"
F-10
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Statement No. 137). Statement No. 137 deferred the effective date of
Statement No. 133 to all fiscal quarters of fiscal years beginning after June
15, 2000. Statement No. 133 requires that all derivatives be recorded in the
balance sheet as either assets or liabilities and be measured at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. Management is in
the process of evaluating this standard and has not yet determined the future
impact on the company's financial statements.
3. ACQUISITIONS
All acquisitions during the three years ended December 31, 1998 were
accounted for under the purchase method. Results of operations of acquired
companies are included in the company's results of operations as of the
respective acquisition dates. The purchase price of each acquisition was
allocated to the net assets acquired based on estimates of their fair values
at the date of the acquisition. The excess of the purchase price over the fair
values of the net tangible assets and liabilities and identifiable intangibles
acquired was allocated to goodwill.
Research Medical, Inc.
In March 1997, Edwards Lifesciences acquired Research Medical, Inc.
(Research Medical), a manufacturer of specialized products used in open-heart
surgery for approximately $239 million. Approximately $223 million of the
purchase price was in the form of 4,801,711 shares of Baxter International
Inc. common stock, issued from treasury. As further discussed below, $132
million of the purchase price was allocated to in-process research and
development (IPR&D), and, under generally accepted accounting principles,
immediately expensed. Approximately $40 million and $38 million of the
purchase price was allocated to existing product technology and goodwill,
respectively, and is being amortized on a straight-line basis over 14 years
and 20 years, respectively.
In-Process Research and Development
The amount allocated to IPR&D was determined on the basis of independent
appraisals using the income approach, which measures the value of an asset by
the present value of its future economic benefits. Estimated cash flows for
each project category were discounted to their present values at rates of
return that incorporate the risk-free rate, the expected rate of inflation,
and risks associated with the particular projects, including their stages of
completion. Projected revenue and cost assumptions were determined considering
the company's historical experience and industry trends and averages. No value
was assigned to any IPR&D project unless it was probable of being further
developed.
Approximately $76 million of the total IPR&D charge pertained to minimally
invasive surgical (MIS) procedures, with the remainder relating principally to
heparin removal technology, autologous fibrin delivery kit and sealant
technologies, retrograde reprofusion system technologies and ischemic limb
reperfusion system technologies. The status of development, stage of
completion, assumptions, nature and timing of remaining efforts for
completion, risks and uncertainties, and other key factors varied by
individual project. Discount rates on individual projects ranged from 14
percent to 20 percent, with a discount rate of 16 percent used for the MIS
procedures project. Material net cash inflows for the most significant
projects were forecasted to commence between 1998 and 2000. Assumed research
and development expenditures prior to the various dates of product
introductions totaled approximately $2 million.
The products under development were at various stages of development, and
substantial further research and development, pre-clinical testing and
clinical trials would be required to determine their technical feasibility and
commercial viability. Any delay in the development, introduction or marketing
of the products under development could result either in such products being
marketed at a time when their cost and performance characteristics would not
be competitive in the marketplace or in a shortening of their commercial
lives. If the
F-11
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
products are not completed on time, the expected returns on the investment
could be significantly and unfavorably impacted.
As part of the post-acquisition integration and research and development
(R&D) rationalization process, management reassessed all of Research Medical's
ongoing R&D projects. Based on these subsequent analyses of the costs versus
potential future benefits of continuing the Research Medical projects, several
of the R&D projects in-process at acquisition date were terminated in late
1997. Such projects related principally to heparin removal technology,
autologous fibrin delivery kit and sealant technologies, retrograde
reprofusion system technologies and ischemic limb reperfusion system
technologies. The total IPR&D charge recorded at acquisition date relating to
these projects subsequently terminated totaled approximately $56 million.
With respect to the MIS procedures project, the expected timetable for net
cash inflows has been significantly and unfavorably impacted by the effect of
a significantly slower than anticipated transition from traditional surgical
procedures to MIS procedures in the marketplace. While sales are currently
being generated, the current and anticipated future level is significantly
less than projected in the original timetable. In addition, the expected
future R&D costs to be incurred to generate such future revenues are
significantly more than anticipated at the time of acquisition. It is
currently not clear whether originally projected sales are delayed or whether
the originally anticipated levels will not be achieved.
Acquisition reserves
Approximately $14 million of reserves were established with respect to the
acquisition of Research Medical. Of this total, approximately $1 million was
reserved to eliminate 17 positions at Research Medical, principally in the
sales and marketing and research and development functions, and approximately
$13 million was established principally to terminate certain distribution
contracts relating to the acquired company. The reserves were fully utilized
as of December 31, 1998 and such utilization was in accordance with the
original plans.
Pro forma information (unaudited)
Excluding the IPR&D charge, had the acquisition of Research Medical taken
place on January 1 of 1997, combined net sales and net income would not have
been materially different from the reported amounts and, therefore, pro forma
information is not presented. Excluding the IPR&D charge, had the acquisition
of Research Medical taken place on January 1 of 1996, the company's combined
pro forma net sales and net income in 1996 would have been $876 million and
$91 million, respectively.
PSICOR, Inc.
In January 1996, the company acquired PSICOR, Inc., a contract perfusion
services company, for approximately $84 million. Approximately $68 million of
the purchase price was allocated to goodwill and is being amortized on a
straight-line basis over 15 years.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
as of December 31 1998 1997
----------------- ---- ----
(in
millions)
<S> <C> <C>
Accounts payable, principally trade............................ $ 44 $ 43
Employee compensation and withholdings......................... 47 40
Property, payroll and other taxes.............................. 10 11
Other accrued liabilities...................................... 45 37
Other accounts payable......................................... 11 9
---- ----
Accounts payable and accrued liabilities..................... $157 $140
==== ====
</TABLE>
F-12
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
5. LEASE OBLIGATIONS
Certain facilities and equipment are leased under operating leases expiring
at various dates. Most of the operating leases contain renewal options. Total
expense for all operating leases was $8 million in 1998 and $9 million in 1997
and 1996.
Future minimum lease payments (including interest) under noncancelable
operating leases at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Operating
leases
-------------
(in millions)
<S> <C>
1999........................................................ $ 7
2000........................................................ 4
2001........................................................ 2
2002........................................................ 1
2003........................................................ 1
Thereafter.................................................. 1
---
Total obligations and commitments......................... $16
===
</TABLE>
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Concentrations of credit risk
In the normal course of business, Edwards Lifesciences provides credit to
customers in the health-care industry, performs credit evaluations of these
customers and maintains reserves for potential credit losses which, when
realized, have been within the range of management's allowance for doubtful
accounts.
Foreign exchange risk management
For all periods presented, Edwards Lifesciences has been considered in
Baxter's overall risk management strategy. As part of this strategy, Baxter
uses certain financial instruments to reduce its exposure to adverse movements
in foreign exchange rates. These financial instruments are not used for
trading purposes. The financial instruments contain credit risk in that the
banking counterparty may be unable to meet the terms of the agreements. Such
risk is minimized by limiting counterparties to major financial institutions
and by management's monitoring of credit risk. In addition, where appropriate,
Baxter has arranged collateralization and master-netting agreements to
minimize the risk of loss.
As part of implementing its strategy, Baxter enters into foreign exchange
contracts, principally options, with terms generally less than two years, to
hedge anticipated but not yet committed sales expected to be denominated in
foreign currencies. Baxter has allocated to Edwards Lifesciences the net
income associated with certain of such contracts in the amounts of $3 million,
$3 million and less than $1 million in 1998, 1997 and 1996, respectively. The
approximate notional amounts associated with the allocated portion of these
foreign exchange contracts was $177 million and $81 million at December 31,
1998 and 1997, respectively. The allocations were determined based on Edwards
Lifesciences' hedged sales relative to Baxter's total hedged sales, by
applicable currency. With respect to Edwards Lifesciences' foreign currency
exposures, Baxter principally hedges the Japanese Yen and the Euro.
F-13
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Fair values of financial instruments
<TABLE>
<CAPTION>
Carrying Approximate
amounts fair values
--------- ------------
as of December 31 1998 1997 1998 1997
----------------- ---- ---- ----- -----
(in millions)
<S> <C> <C> <C> <C>
Investments in affiliates........................ $ 1 $ 5 $ 1 $ 1
Foreign currency hedges.......................... 2 1 2 1
</TABLE>
The carrying values of accounts receivable and payable and accrued
liabilities approximate fair value due to the short-term maturities of these
assets and liabilities.
7. RELATED PARTY TRANSACTIONS
Baxter has provided to Edwards Lifesciences certain legal, treasury,
employee benefits, insurance and administrative services. Charges for these
services, which have been recorded in cost of sales, marketing and
administrative expenses and research and development expenses, as applicable,
are based on actual costs incurred by Baxter and totaled $62 million, $63
million and $55 million in 1998, 1997 and 1996, respectively. The bases for
the amounts charged to Edwards Lifesciences varied depending on the nature of
the service, but generally were determined using headcount, sales, payroll,
square footage or other appropriate data, or were determined based on actual
utilization of services. Management believes that the bases used for
allocating services is reasonable. However, the terms of these transactions
may differ from those that would result from transactions with unrelated third
parties or had Edwards Lifesciences performed these functions on their own.
Edwards Lifesciences participates in a centralized cash management program
administered by Baxter. Short-term advances from Baxter or excess cash sent to
Baxter has been treated as an adjustment to the "Investments by and advances
from (payments to) Baxter International Inc., net" account through the balance
sheet date. No interest is charged on this balance.
Effective on the distribution date, Baxter and Edwards Lifesciences will
enter into a series of administrative services agreements pursuant to which
Baxter and Edwards Lifesciences will continue to provide, for a specified
period of time, certain administrative services which each entity historically
has provided to the other. These agreements require both parties to pay each
other a fee which approximates the actual costs of these services.
Additionally, subsequent to the spin-off, Edwards Lifesciences will have
continuing relationships with Baxter as a customer and supplier for certain
products. See "Edwards Lifesciences' Relationship with Baxter after the
Distribution." included elsewhere in this Information Statement, for detailed
descriptions of the related agreements.
8. RETIREMENT AND OTHER BENEFIT PROGRAMS
Edwards Lifesciences employees participated in Baxter-sponsored non-
contributory, defined benefit pension plans covering substantially all
employees in the U.S. and Puerto Rico and employees in certain other
countries. The benefits were based on years of service and the employee's
compensation during 5 of the last 10 years of employment as defined by the
plans. Baxter and Edwards Lifesciences have announced their intent to freeze
benefits under the U.S. plan at the date of the spin-off for Edwards
Lifesciences employees. Edwards Lifesciences has also announced that it will
not have a defined benefit pension plan in the U.S. to replace the Baxter
plan. The pension liability related to Edwards Lifesciences' U.S. employees'
service prior to the spin-off date will remain with Baxter. With respect to
the Puerto Rico plan, Baxter plans to transfer the assets and liabilities
relating to Edwards Lifesciences' employees to Edwards Lifesciences at spin-
off date. Edwards Lifesciences intends to continue to have a non-contributory,
defined benefit pension plan in Puerto Rico after the spin-off date.
F-14
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Pension expense for the Baxter-sponsored plans in the U.S. and Puerto Rico
relating to Edwards Lifesciences' employees was $4 million, $3 million and $4
million in 1998, 1997 and 1996, respectively. The assumed discount rate
applied to benefit obligations to determine 1998 and 1997 pension expense was
7.5% and 8.0%, respectively. The assumed long-term rate of return on assets
was 10.5% for 1998 and 1997. The assumed rate of compensation increase was
4.5% and 4.0% for the U.S. and Puerto Rico plan, respectively, in both 1998
and 1997.
In addition to pension benefits, Edwards Lifesciences participated in
Baxter-sponsored contributory health-care and life insurance benefits for
substantially all domestic retired employees. Baxter and Edwards Lifesciences
have announced that they will freeze benefits under these plans at the date of
the spin-off for Edwards Lifesciences employees. Edwards Lifesciences has
announced its intention not to establish new health-care and life insurance
plans for employees retiring subsequent to the spin-off date. Expense
associated with these benefits relating to Edwards Lifesciences employees was
less than $1 million in each of the years 1998, 1997 and 1996.
Most U.S. employees have been eligible to participate in a qualified 401(k)
plan. Participants could contribute up to 12% of their annual compensation
(limited in 1998 to $10,000 per individual) to the plan and Baxter matched
participants' contributions, up to 3% of an individual participant's
compensation. Matching contributions relating to Edwards Lifesciences
employees were approximately $3 million in 1998 and 1997, and $2 million in
1996.
9. OTHER EXPENSE (INCOME)
Components of other expense (income) are as follows:
<TABLE>
<CAPTION>
years ended December 31: 1998 1997 1996
------------------------ ---- ---- ----
(in millions)
<S> <C> <C> <C>
Asset dispositions and writedowns, net................... $ 6 $-- $11
Insurance and legal settlements.......................... (13) -- (18)
Foreign exchange......................................... 1 -- --
Other.................................................... -- 1 2
--- ---- ---
Total other expense (income)........................... $(6) $ 1 $(5)
=== ==== ===
</TABLE>
10. INCOME TAXES
Income before tax expense by category is as follows:
<TABLE>
<CAPTION>
years ended December 31: 1998 1997 1996
------------------------ ---- ---- ----
(in millions)
<S> <C> <C> <C>
U.S...................................................... $66 $(42) $ 90
International............................................ 27 27 37
--- ---- ----
Income before income tax expense....................... $93 $(15) $127
=== ==== ====
</TABLE>
F-15
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Income tax expense by category and by income statement classification is as
follows:
<TABLE>
<CAPTION>
years ended December 31: 1998 1997 1996
------------------------ ---- ---- ----
(in millions)
<S> <C> <C> <C>
Current
U.S.
Federal.............................................. $16 $18 $13
State and local, including Puerto Rico............... 11 16 16
International.......................................... 4 7 12
--- --- ---
Current income tax expense............................... 31 41 41
--- --- ---
Deferred
U.S.
Federal.............................................. -- (3) (2)
State and local, including Puerto Rico............... -- (1) --
International.......................................... -- -- 1
--- --- ---
Deferred income tax expense.............................. -- (4) (1)
--- --- ---
Income tax expense....................................... $31 $37 $40
=== === ===
</TABLE>
The income tax shown above was calculated as if Edwards Lifesciences were a
stand-alone entity.
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
years ended December 31: 1998 1997 1996
------------------------ ---- ---- ----
(in millions)
<S> <C> <C> <C>
Deferred tax assets
Accrued expenses..................................... $ 12 $ 8 $ 10
Other................................................ 2 2 2
---- ---- ----
Total deferred tax assets.......................... 14 10 12
---- ---- ----
Deferred tax liabilities
Asset basis differences.............................. 43 45 36
Other................................................ 1 1 --
---- ---- ----
Total deferred tax liabilities..................... 44 46 36
---- ---- ----
Net deferred tax liabilities........................... $(30) $(36) $(24)
==== ==== ====
</TABLE>
INCOME TAX EXPENSE
Income tax expense differs from income tax expense calculated by using the
U.S. federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
years ended December 31: 1998 1997 1996
------------------------ ---- ---- ----
(in millions)
<S> <C> <C> <C>
Income tax expense at statutory rate.................... $ 33 $ (5) $ 44
Tax-exempt operations................................... (12) (16) (19)
Nondeductible goodwill.................................. 12 12 11
State and local taxes................................... 4 4 4
Foreign tax expense..................................... (6) (4) --
In-process R&D expense.................................. -- 46 --
---- ---- ----
Income tax expense.................................... $ 31 $ 37 $ 40
==== ==== ====
</TABLE>
F-16
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The company has manufacturing operations outside the United States, namely
in Puerto Rico and Switzerland, which benefit from reductions in local tax
rates under various tax incentives. As a result of the spin-off of the company
from Baxter and other actions, the company will seek to renegotiate these
existing tax incentives. It is expected that comparable tax grants will be
secured on a stand-alone basis in due course.
11. LEGAL PROCEEDINGS
Upon the distribution, Edwards Lifesciences will assume the defense of
litigation involving cases and claims related to the Edwards Lifesciences
business. Edwards Lifesciences has not been named as a defendant in such
matters but will be defending and indemnifying Baxter Healthcare Corporation,
as contemplated by the reorganization agreement, for all related expenses and
potential liabilities. It is possible that Edwards Lifesciences may be added
as a defendant in existing cases and claims.
The cases and claims relate primarily to products and services currently or
formerly manufactured or performed, as applicable, by Edwards Lifesciences.
Such cases and claims raise difficult and complex factual and legal issues and
are subject to many uncertainties and complexities, including, but not limited
to, the facts and circumstances of each particular case or claim, the
jurisdiction in which each suit is brought, and differences in applicable law.
Accordingly, in certain cases, Edwards Lifesciences is not able to estimate
the amount of its liabilities with respect to such matters.
Upon resolution of any pending legal matters, Edwards Lifesciences may
incur charges in excess of presently established reserves. While such a charge
could have a material adverse impact on Edwards Lifesciences' net income or
net cash flows in the period in which it is recorded or paid, management
believes that no such charge would have a material adverse effect on Edwards
Lifesciences' combined financial position.
Edwards Lifesciences believes that the liability and defense costs relating
to its legal matters will be within self-insured retentions or substantially
covered by insurance, subject to exclusions, conditions, policy limits and
potential insurer insolvency.
12. STOCK-BASED COMPENSATION PLANS
Certain employees of Edwards Lifesciences participated in stock-based
compensation plans sponsored by Baxter. Such plans principally included fixed
stock option plans and employee stock purchase plans. Baxter applies APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for such plans. Accordingly, no compensation
cost has been recognized by Baxter for its fixed stock option plans and its
stock purchase plans. These plans are the sole responsibility of Baxter and,
accordingly, no information is presented herein.
F-17
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(Concluded)
13. SEGMENT INFORMATION
The company manages its business on the basis of one reportable segment.
Refer to Note 1 for a description of the company's business. The company's
products and services share similar distribution channels and customers and
are sold principally to hospitals and physicians. Management evaluates its
various global product portfolios on a revenue basis, which is presented
below, and profitability is generally evaluated on an enterprise-wide basis
due to shared infrastructures. Edwards Lifesciences' principal markets are the
United States, Europe and Japan.
Geographic area data includes net sales based on product shipment
destination and long-lived asset data is presented based on physical location.
<TABLE>
<CAPTION>
as of or for the year ended December 31 1998 1997 1996
--------------------------------------- ---- ---- ----
(in millions)
<S> <C> <C> <C>
Net Sales by Geographic Area
United States.............................................. $508 $515 $456
Japan...................................................... 138 154 166
Other countries............................................ 219 210 215
---- ---- ----
Totals................................................... $865 $879 $837
==== ==== ====
Net Sales by Major Product and Service Area
Cardiac Surgery............................................ $273 $247 $199
Vascular................................................... 60 57 59
Critical Care.............................................. 221 227 241
Perfusion Products and Services............................ 269 289 285
Other...................................................... 42 59 53
---- ---- ----
Totals................................................... $865 $879 $837
==== ==== ====
Long-Lived Assets by Geographic Area
United States.............................................. $198 $189 $171
Other countries............................................ 29 28 31
---- ---- ----
Totals................................................... $227 $217 $202
==== ==== ====
</TABLE>
Sales to Allegiance Corporation, a subsidiary of Cardinal Health, Inc.,
represented approximately 13 percent, 10 percent and six percent of the
company's total net sales in 1998, 1997 and 1996, respectively.
F-18
<PAGE>
SCHEDULE II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
----------------------
Balance at Charged to Charged to Deductions Balance
beginning costs and other from at end of
of period expenses accounts(A) reserves period
---------- ---------- ----------- ---------- ---------
(In millions of dollars)
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1998:
Allowances for
doubtful accounts and
returns.............. $ 6 $ 8 -- $(6) $ 8
Inventory reserves.... 13 4 -- (7) 10
Litigation reserves... 1 1 -- (1) 1
---------------------------------------
Year ended December 31,
1997:
Allowances for
doubtful accounts and
returns.............. 6 6 (1) (5) 6
Inventory reserves.... 15 3 -- (5) 13
Litigation reserves... -- 1 -- -- 1
Deferred tax asset
valuation allowance.. 1 -- -- (1) --
---------------------------------------
Year ended December 31,
1996:
Allowances for
doubtful accounts and
returns ............. 6 5 -- (5) 6
Inventory reserves.... 11 7 -- (3) 15
Litigation reserves... -- 1 -- (1) --
Deferred tax asset
valuation allowance.. 2 -- -- (1) 1
---------------------------------------
</TABLE>
- --------
(A) Valuation accounts of acquired or divested companies and foreign currency
translation adjustments. Reserves are deducted from assets to which they
apply.
S-1
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
/s/ Michael A. Mussallem
By: ________________________________
Name: Michael A. Mussallem
Title: Chief Executive Officer
Date: January 21, 2000
<PAGE>
<TABLE>
<CAPTION>
(b) Exhibits
<C> <S>
Amended and Restated Certificate of Incorporation of Edwards
3.1* Lifesciences
3.2* Amended and Restated Bylaws of Edwards Lifesciences
Certificate of Designation for Edwards Lifesciences Series A Junior
3.3* Participating Preferred Stock
Specimen form of certificate representing Edwards Lifesciences common
4.1* stock
10.1* Form of Agreement and Plan of Reorganization, to be entered into
between Edwards Lifesciences and Baxter International Inc.
10.2* Form of Tax Sharing Agreement, to be entered into between Edwards
Lifesciences and Baxter International Inc.
10.3* Form of Edwards Lifesciences 2000 Incentive Compensation Plan
10.4* Form of Edwards Lifesciences Retirement Plan
10.5* Form of Edwards Lifesciences Excess Plan
10.6* Form of Employee Stock Purchase Plan
10.7* Terms and Conditions of Transition Options
10.8* Edwards Lifesciences Change of Control Plan
10.9* Rights Agreement between Edwards Lifesciences Corporation and [ ] as
Rights Agent, dated as of [ ], 2000
10.10* Services and Distribution Agreement between Edwards Lifesciences, as
successor in interest to Baxter Healthcare Corporation, and
Allegiance Healthcare Corporation, dated as of September 30, 1999.
10.11 Form of Employment Agreement
10.12 Form of Consulting Agreement
10.13* Form of Outgoing Confidentiality Agreement
21.1* Subsidiaries of Edwards Lifesciences
27.1** Financial Data Schedule--September 30, 1999
27.2** Financial Data Schedule--September 30, 1998
27.3** Financial Data Schedule--December 31, 1998
27.4** Financial Data Schedule--December 31, 1997
27.5** Financial Data Schedule--December 31, 1996
</TABLE>
NOTE
*to be filed by amendment
**previously filed
<PAGE>
Exhibit 10.11
FORM OF EMPLOYMENT AGREEMENT
(NOTE: BEFORE SIGNING, PROSPECTIVE EMPLOYEES SHOULD READ THE FOLLOWING AGREEMENT
IN ITS ENTIRETY, MAKE CERTAIN THAT THEY UNDERSTAND IT, AND IF DESIRED, REVIEW IT
WITH THEIR ATTORNEYS AND ADVISORS.)
In consideration of my employment and the compensation to be paid to me by
Baxter, which includes Baxter Healthcare Corporation, Baxter International, Inc.
and Baxter World Trade Corporation, (together "Baxter"), any of its affiliated
companies, and its successors or assigns, I agree as follows:
1. For purposes of this agreement:
(a) "Competing Products" means products, processes, or services of any
person or organization other than Baxter, in existence or under
development, which are substantially the same, may be substituted for,
or applied to substantially the same end use as the products,
processes or services with which I work during the time of my
employment with Baxter or about which I acquire Confidential
Information through my work with Baxter.
(b) "Competing Organization" means persons or organizations, including
myself, engaged in, or about to become engaged in, research or
development, production, distribution, marketing, providing or selling
of a Competing Product.
(c) "Confidential Information" means information relating to the present
or planned business of Baxter which has not been released publicly by
authorized representatives of Baxter. I understand that Confidential
Information may include, for example, Trade Secrets, Inventions, know-
how and products, customer, patient, supplier and competitor
information, sales, pricing, cost, and financial data, research,
development, marketing and sales programs and strategies,
manufacturing, marketing and service techniques, processes and
practices, and regulatory strategies. I understand further that
Confidential Information also includes all information received by
Baxter under an obligation of confidentiality to a third party.
(d) "Invention" means procedures, systems, machines, methods, processes,
uses, apparatuses, compositions of matter, designs or configurations,
computer programs of any kind, or any improvements of the foregoing,
discovered, conceived, reduced to practice, developed, made, or
produced, and shall not be limited to the meaning of "Invention" under
the United States patent laws.
(e) "Items" include documents, reports, drawings, photographs, designs,
specifications, formulae, plans, samples, research or development
information, prototypes, tools, equipment, proposals, marketing or
sales plans, customer information, customer lists, patient lists,
patient information, regulatory files, financial data, costs, pricing
information, supplier information, written, printed or graphic matter,
or other information and materials that concern Baxter's business that
come into my possession or about which I have knowledge by reason of
my employment.
<PAGE>
(f) "Trade Secrets" include all information encompassed in all Items, and
in all manufacturing processes, methods of production, concepts or
ideas, to the extent that such information has not been released
publicly by duly authorized representatives of Baxter.
2. I will exert my best efforts in the performance of my duties as an employee
of Baxter and will remain loyal to Baxter during the term of my employment.
I am not presently engaged in, nor shall I, during the term of my
employment with Baxter, enter into any employment or agency relationship
with any third party whose interests might conflict with those of Baxter. I
do not presently, nor shall I, during the term of my employment with
Baxter, possess any significant interest, directly, through my family, or
through organizations or trusts controlled by me, in any third party whose
interest might conflict with those of Baxter.
3. Each Item and all Confidential Information that comes into my possession by
reason of my employment are the property of Baxter and shall not be used by
me in any way except in the course of my employment by, and for the benefit
of Baxter, I will not remove any items from premises owned or leased by
Baxter except as my duties shall require, and upon termination of my
employment, all Items will be turned over to my supervisor at Baxter.
4. I will preserve as confidential all Confidential Information that has been
or may be obtained by me. I will not, without written authority from
Baxter, use for my own benefit or purposes, or disclose to others, either
during my employment or thereafter, except as required by my employment
with Baxter, any Confidential Information or any copy or notes made from
any Item embodying Confidential Information. I understand that my
obligations with respect to Confidential Information shall continue even
after termination of my employment with Baxter. These restrictions
concerning use and disclosure of Confidential Information shall not apply
to information which is or becomes publicly known by lawful means, or comes
into my possession from sources not under an obligation of confidentiality
to Baxter.
(NOTE: BAXTER WILL SEEK JUDICIAL ENFORCEMENT OF ITS RIGHT TO PROTECT
CONFIDENTIAL INFORMATION AND TRADE SECRETS, AND SHALL PURSUE ALL LEGAL REMEDIES
UP TO AND INCLUDING PROHIBITION OF COMPETITIVE EMPLOYMENT OPPORTUNITIES WHICH
WOULD INVOLVE THE DISCLOSURE OR USE OF THIS INFORMATION. UPON LEAVING BAXTER
YOUR ABILITY TO ACCEPT EMPLOYMENT WITH COMPETITIVE COMPANIES WILL BE LIMITED.)
5. I understand that any entrusting of Confidential Information to me by
Baxter is done in reliance on a confidential relationship arising out of my
employment with Baxter. I further understand that Confidential Information
that I may acquire or to which I may have access, especially with regard to
research and development projects and findings, formulae, designs,
formulation, processes, the identity of suppliers, customers and patients,
methods of manufacture, and cost and pricing data is of great value to
Baxter. In consequence of such entrusting and such consideration, I will
not render services, directly or indirectly, for a period of one year after
termination of my employment with Baxter to any Competing Organization in
connection with any Competing Product within such geographic limits as
Baxter and such Competing Organization are, or would be, in actual
competition when such rendering of services might potentially involve the
disclosure or use of Confidential Information or Trade Secrets. I
understand that services rendered to such Competing Organization in an
executive, scientific, administrative, or consulting capacity in connection
with Competing Products are in support of actual competition in various
geographic areas and thus fall within the prohibition of this agreement
regardless
<PAGE>
of where such services physically are rendered. Further, if, at any time
during the last two years of my employment with Baxter, I have been
employed as a sales representative, I will not render services, directly or
indirectly, for a period of one year after termination of my employment
with Baxter to any Competing Organization in connection with the sale,
merchandising, or promotion of Competing Products to any customer of Baxter
in the territories assigned to me by Baxter within the past 12 months, or
with respect to which I acquired Confidential Information.
6. I understand that following my employment with Baxter I will make every
effort to contact Baxter's General Counsel if I am served with a subpoena
or other legal process asking for a deposition, testimony or other
statement, or other potential evidence to be used in connection with any
lawsuit to which Baxter is a party.
7. All inventions related to the present or planned business of Baxter, which
are conceived or reduced to practice by me, either alone or with others,
during the period of my employment or during a period of one hundred twenty
(120) days after termination of such employment, whether or not done during
my regular working hours, are the sole property of Baxter. The provisions
of this paragraph shall not apply to an invention for which no equipment,
supplies, facilities or trade secret information of Baxter was used and
which was developed entirely on my own time, unless (a) the intention
relates (i) to the business of Baxter, or (ii) to my actual or demonstrably
anticipated research or development for Baxter, or (b) the invention
results from any work performed by me for Baxter.
8. I will disclose promptly and in writing to Baxter, through my supervisor,
all Inventions which are covered by this agreement, and I agree to assign
to Baxter or its nominee all my right, title, and interest in and to such
Inventions. I agree not to disclose any of these Inventions to others,
without the express consent of Baxter, except as required by my employment.
9. (a) I will, at any time during or after my employment, on request of
Baxter, execute specific assignments in favor of Baxter or its nominee
of my interest in and to any of the Inventions covered by this
agreement, as well as execute all papers, render all assistance, and
perform all lawful acts which Baxter considers necessary or advisable
for the preparation, filing, prosecution, issuance, procurement,
maintenance or enforcement of patent applications and patents of the
United States and foreign countries for these Inventions, and for the
transfer of any interest I may have. I will execute any and all papers
and documents required to vest title in Baxter or its nominee in the
above Inventions, patent applications, patents, and interests.
(b) I understand that if I am not employed by Baxter at the time I am
requested to execute any document under paragraph 9(a), I shall
receive fifty dollars ($50.00) for the execution of each document, and
one hundred fifty dollars ($150.00) per day of each day or portion
thereof spent at the request of Baxter in the performance of acts
pursuant to paragraph 9(a), plus reimbursement for any out-of-pocket
expenses incurred by me at Baxter's request in such performance.
(c) I further understand that the absence of a request by Baxter for
information, or for the making of an oath, or for the execution of any
document, shall in no way be construed to constitute a waiver of
Baxter's rights under this agreement.
<PAGE>
10. I have disclosed to Baxter all continuing obligations which I have with
respect to the assignment of Inventions to any previous employers, and I
claim no previous unpatented Inventions as my own, except for those which
have been reduced to practice and which are shown on a schedule, if any,
attached to this agreement. I understand that Baxter does not seek any
confidential information which I may have acquired from a previous
employer, and I will not disclose any such information to Baxter.
11. All writings and other works which may be copyrighted (including computer
programs) which are related to the present or planned business of Baxter
and are prepared by me during my employment by Baxter shall be, to the
extent permitted by law, works made for hire, and the authorship and
copyright of the work shall be in Baxter's name. To the extent that such
writings and works are not works for hire, I agree to the waiver of "moral
rights" in such writings and works, and to assign to Baxter all my right,
title and interest in and to such writings and works, including copyright.
12. I will permit Baxter and its agents to use and distribute any pictorial
images which are taken of me during my employment by Baxter as often as
desired for any lawful purpose. I waive all rights of prior inspection or
approval and release Baxter and its agents from any and all claims or
demands which I may have on account of the lawful use or publication of
such pictorial images.
13. I understand and agree that this agreement is not a guarantee of continued
employment or rate of compensation for any period. My employment is at
will. This means I am free to terminate my employment at any time, for any
reason, and that Baxter retains the same rights.
14. I understand that I may be asked to submit to drug testing as a condition
of employment or continued employment and consent to such testing as
determined by Baxter to be appropriate.
15. I will comply with Baxter Shared Values: Standards for Business Ethics, a
copy of which I acknowledge having received, read and understood.
16. The obligations which I have undertaken in paragraphs 3, 4, 5, 6, 7, 8, 9,
11 and 12 shall survive the termination of my employment by Baxter.
17. Baxter has a right to make and enforce any other rules and regulations not
contrary to this agreement which will also govern my employment.
18. The provisions of the agreement shall be severable, and in the event that
any provision of it is found by any court to be unenforceable, in whole or
in part, the remainder of this agreement shall nevertheless be enforceable
and binding on the parties.
19. I agree that, to promote uniformity in the interpretation of this and
similar agreements, this agreement shall be governed by the laws of
Illinois for contracts made within that state. I further agree that this
agreement sets forth the entire employment agreement between Baxter and
myself, and shall not be amended or added to except in writing signed by
Baxter and me. I understand that Baxter may, at any time and without
further action by me, assign this agreement to any of its affiliated
companies with which I may be employed. In the event of such an assignment,
the assignee company shall succeed to all the rights held by Baxter under
this agreement.
<PAGE>
Date: ___________________________
EMPLOYEE BAXTER
__________________________________ By: __________________________________
Signature
__________________________________
Print Name
<PAGE>
Exhibit 10.12
FORM OF CONSULTING AGREEMENT
Effective ___________________________, 1999, Baxter Healthcare Corporation,
acting through its _______ Division having an address at _____, ("BAXTER") and
______, residing at _____ ("Consultant") agree to the following terms and
conditions under which Consultant has agreed to provide BAXTER with Consulting
Service during the period ending _____ from the Effective Date of this
Agreement.
1. Scope of Work
-------------
The services performed by Consultant for BAXTER pursuant to this Agreement
shall be deemed to be within the general field of _____ ("Field of the
Agreement"). Consulting Service shall mean those services to be performed by
Consultant for BAXTER as outlined in the attached Exhibit A.
2. Compensation
------------
BAXTER shall pay Consultant for Consulting Service actually requested by
and provided to BAXTER at the rate of _____. Consultant has agreed to provide
BAXTER with a minimum of _____ of Consulting Service under this Agreement.
Consultant also recognizes that any obligation specifying a minimum number of
hours to be made available by Consultant shall not be interpreted as binding
BAXTER to use Consultant for the specified number of hours. BAXTER shall only be
obligated to pay Consultant for the actual number of hours requested by BAXTER
and provided by Consultant.
In the event that BAXTER requests Consultant to provide Consulting Service
at a location away from the metropolitan area of Consultant's regular place of
business, BAXTER will reimburse Consultant for reasonable travel and living
expenses incurred by Consultant. It is understood and agreed that BAXTER will
stipulate the places and locations where Consultant will provide the Consulting
Service. Payment for the Consulting Service and any travel expenses will be made
upon submission by Consultant, and approval by BAXTER of an itemized account of
the Consulting Service provided, travel expenses incurred, and payments due.
3. Manner of Performance
---------------------
Consultant represents that Consultant has the requisite expertise, ability
and legal right to render the Consulting Service, and will perform the
Consulting Service in an efficient manner and in accordance with the terms of
this Agreement. Consultant will abide by all laws, rules and regulations that
apply to the performance of the Consulting Service and when on BAXTER's
premises, will comply with BAXTER's policies with respect to conduct of
visitors.
<PAGE>
In performing the Consulting Service, Consultant will comply with Baxter
Shared Values: Standards for Business Ethics, a copy of which Consultant
acknowledges having received, read and understood.
Consultant is an independent contractor, and shall not be considered an
employee of BAXTER. BAXTER will not be responsible for Consultant's acts while
performing the Consulting Services, whether on BAXTER's premises or elsewhere,
and Consultant will not have authority to speak for, represent, or obligate
BAXTER in any way.
4. Confidentiality
---------------
During discussions leading up to this Agreement, and during the course of
the Consulting Service performed pursuant to this Agreement, it is anticipated
that Consultant will learn confidential and/or proprietary information of
BAXTER. Consultant will keep confidential, and not use, except in connection
with the Consulting Service to be provided hereunder, information which is
provided to Consultant by BAXTER and/or developed by Consultant while performing
Consulting Service, including without limitation, information concerning BAXTER
products, manufacturing processes, customers, product pricing, and technical
know-how, unless and until BAXTER consents to disclosure, or unless such
information otherwise was previously known by Consultant, as documented by
Consultant in writing, or becomes generally available to the public through no
fault of Consultant. The obligations of non-use and confidentiality of such
information shall survive the termination of this Agreement.
Consultant further represents that any and all information disclosed to
BAXTER, or used for the benefit of BAXTER by Consultant does not include any
confidential, trade secret or proprietary information of others.
Consultant will not disclose to others, without BAXTER's consent, the fact that
it is providing Consulting Service for BAXTER. Upon termination of this
Agreement, Consultant will return to BAXTER all copies of drawings,
specifications, manuals and other printed or reproduced material (including
information stored on machine readable media) provided to Consultant by BAXTER
or developed by Consultant during the performance of Consulting Services under
this Agreement.
5. Conflicts of Interest
---------------------
Consultant represents that it has advised BAXTER in writing prior to the
date of signing this Agreement of any relationship with third parties, including
competitors of BAXTER, which would present a conflict of interest with the
Consulting Service, or which would prevent Consultant from carrying out the
terms of this Agreement. Consultant agrees to advise BAXTER of any such
relationships that arise during the term of this Agreement.
2
<PAGE>
BAXTER will have the option to terminate this Agreement without further
liability to Consultant, upon learning of the occurrence of any of the described
events except to pay for any Consulting Service actually rendered. Consultant
shall have no recourse against BAXTER for termination under this Article.
6. Relationship with Others
------------------------
During the term of this Agreement, and for one year after its termination
date, Consultant agrees not to perform any service within the Field of the
Agreement or which may utilize any of the information obtained from BAXTER or
any information developed during the course of performing the Consulting Service
for BAXTER, for any other entity, and in particular any other entity engaged in
the development, manufacture, distribution or sales of medical care products or
services.
7. Indemnification
---------------
Consultant agrees to indemnify and hold BAXTER harmless for any injury
occurring to the property or person of Consultant as a result of Consultant's
performance of Consulting Services under this Agreement, provided that said
injury has not occurred because of the gross negligence of BAXTER.
8. Ownership of Developments
-------------------------
Consultant agrees and does hereby assign to BAXTER, any and all of
Consultant's interest in any inventions or discoveries, which includes all
written materials and other works which may be subject to copyright, and all
patentable and unpatentable inventions, discoveries, and ideas (including but
not limited to any computer software) which are reduced to practice, conceived
or written by Consultant during the term of this Agreement, and for 90 days
after it expires, and which are based upon any information received from BAXTER,
and/or developed as a result of performing the Consulting Service for BAXTER
(hereinafter "Development"). Consultant agrees to hold all such Developments
confidential in accordance with Article 4 of this Agreement.
Consultant shall disclose promptly to BAXTER each such inventions or
discoveries and, upon BAXTER's request and at BAXTER's expense, Consultant will
assist BAXTER, or anyone it designates, in filing and prosecuting patent or
copyright applications in any country in the world. Each copyrightable work, to
the extent permitted by law, will be considered a work made for hire and the
authorship and copyright of the work shall be in BAXTER's name. Consultant will
execute all papers and do all things which may be necessary or advisable, in the
opinion of BAXTER, to prepare, file and prosecute such applications, and to
evidence the assignment in BAXTER, or its designee, of all right, title and
interest in and to such Development.
3
<PAGE>
BAXTER agrees to compensate Consultant for any time Consultant actually
spends in response to a specific request for assistance by BAXTER under this
Article. If for any reason Consultant's interest in such Development is
subordinate to another party, or if Consultant's interest in such Development
has been released to another party pursuant to a contract or governmental
regulation, Consultant agrees to notify BAXTER and take whatever steps BAXTER
deems necessary to convert or transfer such third party's interest in such
Development to Consultant for subsequent transfer to BAXTER under the terms of
this Agreement. Furthermore, if for any reason BAXTER is unable to obtain
Consultant's execution of any paper necessary to prepare, file and/or prosecute
such applications, Consultant hereby conveys to BAXTER its power of attorney
only for the purpose of executing any such papers necessary to prepare, file
and/or prosecute such applications.
9. Disclosures to BAXTER
---------------------
If during the term of this Agreement, Consultant discloses any
copyrightable works, inventions, discoveries, or ideas to BAXTER which were
conceived or written prior to this Agreement, or which are not based upon any
information received from BAXTER, and/or developed as a result of performing the
Consulting Service under this Agreement, BAXTER will have no liability to
Consultant because of its use of such works, inventions, discoveries or ideas,
except liability for infringement of any valid copyright or patent now or
hereafter issued thereon.
10. Term
----
The term of this Agreement is as specified on the first page of this
Agreement. The parties agree that this Agreement may be extended by mutual
written agreement. BAXTER shall have the right to terminate this Agreement upon
sixty (60) days written notice to Consultant. Consultant agrees that he shall
have no recourse against BAXTER, beyond that provided for under Article 2, for
BAXTER's earlier termination. BAXTER's only obligation upon such termination is
to compensate Consultant for any time actually spent by Consultant in providing
Consulting Services under this Agreement and for properly reimbursable travel
expenses.
11. General
-------
No assignment by Consultant of this Agreement, or any sums due under it,
will be binding on BAXTER without BAXTER's prior written consent. This Agreement
supersedes all prior agreements and understandings between the parties
respecting the subject matter of this Agreement. This Agreement may not be
changed or terminated orally by or on behalf of either party. In the event
either party breaches this Agreement, the other party will have the right to
terminate the Agreement. In the event of the actual or threatened breach of any
of the terms of paragraphs 4, 6, and 8, BAXTER will have the right to specific
performance and injunctive relief. The rights granted by this paragraph are in
addition to all other remedies and rights available at law or in equity. This
Agreement shall be construed according to the laws of California for contracts
made within that state.
4
<PAGE>
12. Severability
------------
If any of the provisions of this Agreement are void or unenforceable, the
remaining provisions shall nevertheless be effective, the intent being to
effectuate this Agreement to the fullest extent possible.
CONSULTANT BAXTER HEALTHCARE CORPORATION
_____ DIVISION
By: ______________________________ By: ______________________________
Title: ___________________________ Title: ___________________________
Date: ____________________________ Date: ____________________________
Soc. Sec. No.: __________________
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