SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K ANNUAL REPORT
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
COMMISSION FILE NO. 0-8672
ST. JUDE MEDICAL, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-1276891
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE LILLEHEI PLAZA
ST. PAUL, MINNESOTA 55117
(Address of principal executive office)
(612) 483-2000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK ($.10 PAR VALUE) PREFERRED STOCK PURCHASE RIGHTS
(Title of class) (Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, or will not be contained, to
the best of the Registrant's knowledge, in definitive proxy information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months; and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $1,301,349,104 at March 11, 1994, when the
closing sale price of such stock, as reported in the NASDAQ National Market
System, was $28.25.
The number of shares outstanding of the Registrant's Common Stock, $.10
par value, as of March 11, 1994, was 46,457,761 shares.
Portions of the Annual Report to Shareholders for the year ended December
31, 1993, are incorporated by reference in Parts I, II and IV. Portions of
the Proxy Statement dated March 28, 1994, are incorporated by reference in
Part III.
The exhibit index is set forth on pages 16, 17, 18 and 19. This Form 10-K
consists of 128 pages, consecutively numbered 1 through 128.
ST. JUDE MEDICAL, INC.
1993 10-K
PART I
Item 1. BUSINESS
GENERAL
St. Jude Medical, Inc. (the "Company") develops,
manufactures and markets medical devices for cardiovascular
applications. Its principal product is a mechanical heart valve
prosthesis. Based on market information obtained by Company
personnel as well as information provided by various industry
sources, the Company believes it is the market share leader in
the mechanical segment of the worldwide heart valve replacement
market. The Company's products are distributed worldwide through
a combination of direct sales personnel and independent
manufacturers' representatives.
The Company operates through three divisions to focus on the
management and growth of its established businesses. The St.
Jude Medical Division is responsible for the Company's heart
valves (mechanical and tissue) and annuloplasty ring products.
The Cardiac Assist Division is responsible for the Company's
intra-aortic balloon pump and centrifugal pump systems. The
International Division is responsible for marketing, sales and
distribution of the Company's products in Europe, Africa and the
Middle East.
Typically, the Company's net sales are somewhat stronger in
the first and second quarters and weaker in the third quarter.
This results from a tendency by patients to defer, if possible,
heart valve replacements during the summer months and from the
seasonality of the Western European market where summer vacation
schedules normally result in lower orders. Manufacturer
representatives place large orders randomly which can distort the
net sales pattern noted above.
HEART VALVES
General. The Company manufactures and markets a bileaflet
pyrolytic carbon coated prosthetic heart valve which it designed
and first sold in 1977. The purpose of a heart valve is to
facilitate the one-way flow of blood through the arteries and
heart and prevent significant back flow of blood into the heart.
Though the human heart has four valves, the two that are most
commonly replaced by prosthetic valves are the aortic and mitral
valves. Heart valve replacement may be required where the heart
valve has congenital defects, is diseased or is malfunctioning.
To-date, over 500,000 St. Jude Medical(R) mechanical heart valves
have been implanted worldwide.
The first prosthetic heart valves were used in the 1960s and
were mechanical valves made primarily of inert materials, such as
plastics and fabrics. Mechanical valves were followed by the
development of tissue valves made from the heart valve of a pig
or the pericardial tissue of a calf. Mechanical valves,
especially those utilizing pyrolytic carbon, offer the advantage
of longevity because of the durable nature of pyrolytic carbon.
These valves also are less susceptible than tissue valves to
calcium build-up which may cause valve malfunctions. The primary
advantage of tissue valves is that they generally require little
or no patient anticoagulant drug therapy to reduce the
possibility of clotting. Such therapy is presently indicated for
mechanical valves. Physicians will select either a tissue or a
mechanical valve depending upon the patient's requirements and
the physician's preference. Physician tendency to prescribe
mechanical valves rather than tissue valves has resulted in the
mechanical segment becoming a larger percentage of the total
market through time. In the early 1980s, the heart valve market
was evenly split between mechanical valves and tissue valves. In
1993, the Company estimates that mechanical valves were
approximately 70% of the market, which is consistent with the
1992 mechanical heart valve share of the total heart valve
market.
Mechanical Valves. The Company's mechanical heart valve
consists of four basic components: two leaflets; the valve body
or orifice; and the sewing cuff. St. Jude Medical(R) mechanical
heart valves are sold in sizes ranging from 17mm to 33mm in
diameter with nine sizes available for the mitral position and
eight for the aortic position. The St. Jude Medical(R) mechanical
heart valve was the first mechanical valve to utilize 100%
pyrolytic carbon coating in the fabrication of the valve body and
leaflets. The two leaflets and the valve body are fabricated
from a graphite substrate, coated with pyrolytic carbon and then
polished. Pyrolytic carbon is utilized because of its extremely
hard and durable nature and excellent compatibility with blood.
Until 1986, all pyrolytic carbon components were purchased from
CarboMedics, Inc. of Austin, Texas ("CMI").
The Company provides a wide range of mechanical heart valve
products. Depending upon physician preference, sewing cuffs are
made from either polyester fiber or polytetrafluoroethylene
fiber. In November 1992, the Company received Food and Drug
Administration ("FDA") approval to market its Hemodynamic Plus
mechanical heart valve series which provide optimum hemodynamics
in patients with a small valvular annulus. In February 1994, the
Company received FDA approval to market its collagen impregnated
aortic valved graft which combines its aortic heart valve with a
collagen impregnated graft and is utilized to replace the aortic
heart valve and reconstruct the ascending aorta.
In 1982, the Company commenced research in the field of
pyrolytic carbon technology, including an effort to determine
whether it could manufacture its own heart valve components.
This research was deemed necessary to maintain and improve its
technological and competitive position within the heart valve
industry and to reduce its dependence on its sole supplier. In
1986, the Company's initial production efforts were successful
and the Company began selling mechanical heart valves
internationally utilizing self-manufactured pyrolytic carbon
coated components. Since then, the Company has sold over 90,000
valves made from its own pyrolytic carbon coated components and
has made significant improvements in its manufacturing process.
The Company is able to produce its own heart valve components
pursuant to a license agreement with CMI. See "Suppliers."
In May 1991, the Company received FDA approval to
domestically market the St. Jude Medical(R) mechanical heart valve
as assembled with self-manufactured pyrolytic carbon coated
components. With this approval, the Company believes it is the
only mechanical heart valve manufacturer with two sources of
pyrolytic carbon components.
Tissue Valves. The Company acquired the assets and business
of BioImplant Canada, Inc., a Canadian manufacturer of tissue
heart valves, in 1986. The tissue valve purchased from
BioImplant was first implanted in 1978. The BioImplant tissue
valve is available in six aortic sizes (21mm through 28mm) and
five mitral sizes (27mm through 34mm). The product incorporates
a flexible medical grade plastic stent (frame) to provide tissue
support and improve handling characteristics during implantation.
It is sold outside the United States and is not approved for
commercial marketing in the United States.
In late 1992, the Company, together with Dr. Tirone David,
introduced in the Canadian and selected Western European markets
the Toronto SPV tissue heart valve. This is a stentless heart
valve which offers the potential for superior hemodynamic
performance and increased durability as compared to the current
stented designs. The Company filed an IDE application for this
valve in 1993 and received FDA approval to begin clinical trials
under an IDE in the United States in February 1994.
In 1992, the Company, in a joint venture with Hancock Jaffe
Laboratories, initiated a program to develop an advanced stented
tissue heart valve. The Company expects the first human implant
of this valve to take place in the first half of 1994. The joint
venture expects to file an IDE application with the FDA by the
end of 1994. The Company cannot presently predict the timing or
likelihood of obtaining IDE approval for this product.
A pre-market approval application for these tissue valve
products is expected to be filed with the FDA approximately two
years following receipt of IDE approval. See "Government
Regulation."
ANNULOPLASTY RINGS
Annuloplasty rings are prosthetic devices used to repair
diseased or damaged mitral heart valves which are determined by
the surgeon to be repairable. The Company received FDA
authorization to market this product in early 1991. The BiFlex(tm)
annuloplasty ring is made from tubular, knitted polyester fabric.
It is available in three sizes, 25mm, 30mm and 35mm. The ring
can be adjusted either symmetrically or asymmetrically before,
during or after placement to produce the desired valve annulus
size and configuration.
INTRA-AORTIC BALLOON PUMP
In December 1988, the Company acquired the assets and
business of Aries Medical, Inc., Woburn, Massachusetts, a
manufacturer of an intra-aortic balloon pump ("IABP") system.
The IABP is a cardiac assist device used to provide temporary
support to a weakened or unstable heart. It is used to stabilize
heart function before and after open-heart surgery and certain
angioplasty procedures. While there are a variety of cardiac
assist devices under development, IABPs are the least invasive
and the most widely used, commercially available type of cardiac
assist device currently on the market.
The Model 700 IABP system consists of a control console and
a single-use, balloon-tipped catheter. In IABP therapy, the
catheter is inserted percutaneously (through the skin), usually
into the femoral artery (the chief artery of the thigh). The
physician then threads the catheter through the circulatory
system to position the balloon in the descending thoracic aorta.
Once the balloon is properly positioned, the control console is
used to adjust the function of a pump that synchronizes the
balloon's inflation and deflation with the contraction and
relaxation of the heart's left ventricle. Properly applied, this
therapy increases the heart's output and the supply of oxygen-
rich blood to the heart while reducing the heart muscle's
workload (thereby decreasing the heart muscle's oxygen demand).
Over three quarters of annual expenditures on IAB products
are for the single-use balloon catheters used with the control
consoles. To take advantage of the higher volume portion of the
IAB market, the Company's catheters are adaptable for use on
competitive IABP consoles. In 1993, the Company introduced its
RediGuard 2.0 catheter which eases the guiding and placement
process.
CENTRIFUGAL PUMP
In April 1989, the Company acquired technology relating to a
centrifugal pump system from Symbion, Inc., of Salt Lake City,
Utah. Centrifugal pumps are used to replace a patient's cardiac
function during open heart surgery. Centrifugal pumps are less
traumatic to the blood than conventional roller pumps and
centrifugal designs reduce the risk of air and tubing emboli
entering the blood stream. The Company's Lifestream centrifugal
pump system consists of a single-use pump, a control console, a
motor drive, flow transducer and probe used to control blood
flow. In 1990, the Company introduced the centrifugal pump
system after receiving FDA authorization to market the system
domestically under the 510(k) pre-market notification procedure
for cardiopulmonary bypass products.
The Company entered into a distribution agreement with COBE
Cardiovascular Inc. (COBE) late in 1992 which was amended in late
1993. This three-year agreement requires COBE to purchase from
the Company specified minimum amounts of pumps and flow probes
for the domestic, Canadian and Australian markets. The pumps and
flow probes will be made part of COBE's sterile custom packs for
use in various surgical procedures.
Late in 1993, the Company entered into a non-exclusive
distribution agreement with COBE for selected European markets.
This agreement allows COBE to include the Company's pumps and
flow probes in COBE's custom pack units which are distributed in
these markets.
SUPPLIERS
In April 1990, the Company entered into an agreement with
CarboMedics, Inc. ("CMI") which covers the supply of heart valve
carbon components from 1991 through 1998. Under the agreement,
the Company agreed to purchase at least 70% of its carbon
component requirements from CMI in 1991, with lesser requirements
ranging downward to 48% of its needs in 1995 and, thereafter, 20%
of its needs through 1998. In return for the Company's agreement
to increase its minimum purchases from those required under an
earlier agreement, CMI agreed to price concessions in the current
agreement. Prices are fixed under the agreement and escalate
through 1995, whereupon the parties have agreed to negotiate
prices for the years 1996 through 1998. Prices are adjusted
upward if the Company's purchases are less than 95% of scheduled
quantities for each year and downward if purchases are 110% or
more than such scheduled quantities. If CMI is unable or fails
to perform under the agreement, the license permits the Company
to meet its own requirements during the supply interruption. The
agreement can be extended for additional one year terms after
1998 and the prices the Company would pay in 1999 and beyond will
be adjusted annually by a formula established in the agreement.
The formula is based upon certain components of the producer
price index for intermediate goods published by the United States
Department of Labor. In addition, CMI has agreed that it will
not discriminate against the Company in the setting of future
prices and terms for its supply of heart valve components. See
"Patents and Licenses."
The Company and CMI are also parties to a patent license
agreement pursuant to which the Company can produce its own heart
valve components. The license does not provide for an
interchange of carbon technology between the two companies but
does grant the Company a non-exclusive worldwide license to make
carbon coated heart valve components. Royalties were paid on all
Company produced heart valve components manufactured prior to
September 1993 after which time the license was fully paid.
The Company purchases raw material and other items from
numerous suppliers for use in connection with the production of
its products. The Company maintains sizeable inventories of up
to three years of its projected requirements for certain
materials, some of which are available only from single source
vendors. In 1992, the Company was advised that certain of such
vendors were planning to terminate sales of products to customers
that manufacture implantable medical devices in an effort to
reduce potential product liability exposure. Some vendors have
modified their position and have indicated a willingness to
either temporarily continue to provide product until such time as
an alternative vendor or product can be qualified or to
reconsider the supply relationship. While the Company believes
that alternative sources of raw materials are available and that
there is sufficient lead time in which to qualify such other
sources, any supply interruption could have a material adverse
effect on the Company's ability to manufacture its products.
MARKETING
The Company sells its products directly and through
independent manufacturers' representative organizations in the
United States and throughout the world. The international
representatives purchase products and resell them to hospitals.
No representative organization or single customer accounted for
more than 10% of 1993 net sales.
Early in 1987 in the United States, the Company began a
phased conversion from a distributor-based sales organization to
a direct employee-based sales organization. The domestic
conversion was completed in 1989. The Company initiated a direct
sales presence in the United Kingdom in January 1990 and
commenced direct sales activities in several other European
countries in January 1991. In addition, the Company initiated a
direct sales presence in the United States for its Cardiac Assist
Division in 1991. Such efforts allow Company personnel to
interface directly with customers.
In the normal course of its business, claims may be made by
former distributors whose agreements are terminated or not
renewed. The Company is currently involved in distributor
litigation and does not regard such litigation as material to its
business.
Payment terms, worldwide, are consistent with local
practice. Orders are shipped as they are received and,
therefore, no material back orders exist.
COMPETITION
The heart valve business is highly competitive. Presently,
there are four significant heart valve manufacturers in addition
to the Company: Baxter International, Medtronic, Sorin Biomedica
and CarboMedics. All competitors offer both tissue and
mechanical valves. See "Patents and Licenses."
In the domestic market, the Company competes primarily with
Medtronic and Baxter. CarboMedics, Inc. received FDA
authorization to market its bileaflet mechanical heart valve in
the U.S. in the third quarter 1993. Internationally, the Company
competes with the principal competitors as well as other smaller
manufacturers.
Mechanical heart valves currently being marketed by
established companies sell domestically in a price range from
$3,000 to $4,300. The Company's mechanical heart valve sells at
the high end of the domestic price range. When sold outside the
United States, valve prices vary significantly by country
depending on the country's economic climate and its government
reimbursement policies and, in certain instances, mark-ups by
international distributors. The Company does not believe the
price of its mechanical valve is a significant disadvantage in
the domestic market because the valve price represents a
relatively small proportion of the overall cost of heart valve
surgery. Health care reform and increased competition in the
domestic market is putting downward pressure on pricing.
Resistance to valve price increases and price limitations imposed
by government funded customers is not uncommon overseas. The
Company believes price considerations will continue to be a
factor in its ability to compete in certain foreign markets. See
"Government Regulation."
The Company, Medtronic, Sorin Biomedica and Baxter
International are the principal participants in the annuloplasty
ring market. The primary competitive factors include product
performance and ease of implantation. The Company's fully-
flexible BiFlex(tm) annuloplasty ring has two adjustable segments
which allow the ring to be easily shaped to the valve annulus.
Currently, there are five significant IABP manufacturers:
the Company, Datascope, the Mansfield Division of Boston
Scientific, C.R. Bard and Kontron Instruments, a division of
Arrow International. While Datascope is the leading market
competitor, all competitors have significant experience in the
manufacture and marketing of intra-aortic balloon pump systems.
Product performance, ease of use, price and service are the
principal competitive factors.
Manufacturers of roller pump systems and centrifugal pumps
include the Company, Medtronic, 3M, Pfizer, and Gambro. The
principal competitive factors in the blood pump market include
product performance, safety and price. While roller pump systems
are less expensive, centrifugal pump systems offer superior
product performance and higher patient safety levels.
RESEARCH AND DEVELOPMENT
The Company is focusing on the development of new products
and improvements to existing products. In addition, research and
development expense reflects the Company's efforts to obtain FDA
approval of certain products and processes and to maintain the
highest quality standards of existing products. The Company's
expenditures for research and development were $10,972,000 (4.3%
of net sales), $11,478,000 (4.8%) and $8,110,000 (3.9%) in 1993,
1992 and 1991, respectively.
GOVERNMENT REGULATION
The medical devices manufactured and marketed by the Company
are subject to regulation by the FDA and, in some instances, by
state and foreign governmental authorities. Under the Federal
Food, Drug and Cosmetic Act (the "Act"), and regulations
thereunder, manufacturers of medical devices must comply with
certain policies and procedures that regulate the composition,
labeling, testing, manufacturing, packaging and distribution of
medical devices. Medical devices are subject to different levels
of government approval requirements, the most comprehensive of
which requires the completion of an FDA approved clinical
evaluation program and submission and approval of a pre-market
approval ("PMA") application before a device may be commercially
marketed. The Company's mechanical heart valve was subject to
this level of approval. Tissue valves are also subject to this
level of approval. The annuloplasty ring, IABP and the
centrifugal pump are currently marketed under the 510(k) pre-
market notification procedure of the Act. The FDA has advised
that companies marketing IABPs will be required to make PMA
filings in the future. The Company is preparing to make such a
filing and cannot predict when the FDA will call for PMA
submission. The FDA has called for a PMA submission for
centrifugal pumps. The Company has petitioned the FDA to
downclass centrifugal pumps to Class II which, if successful,
would eliminate the need to file a PMA. If unsuccessful, the
Company is prepared to make a PMA filing.
Diagnostic-related groups ("DRG") reimbursement schedules
regulate the amount the United States government will reimburse
hospitals for the inpatient care of persons covered by Medicare.
While the Company has not been aware of significant domestic
price resistance directly as a result of DRG reimbursement
policies, changes in current DRG reimbursement levels could have
an adverse effect on its domestic pricing flexibility.
Various proposals to adjust the health care delivery system
in the United States are under consideration by the United States
Government. Certain specific areas under review include the
uninsured population, the rate of growth of health care expenses
and the overall size of the health care portion of the total budget
consumed by health care costs. It is possible that changes to the
existing health care system will be proposed and implemented in
1994. The Company cannot predict the effect, if any, such
changes will have on the Company's operating results.
PATENTS AND LICENSES
The Company's policy is to protect the intellectual property
rights in its work on heart valves and other biomedical devices.
Where appropriate, the Company applies for United States and
foreign patents. In those instances where the Company has
acquired technology from third parties, it has sought to obtain
rights of ownership to the technology through the acquisition of
underlying patents or exclusive licenses.
While the Company believes design, development, regulatory
and marketing aspects of the medical device business represent
the principal barriers to entry into such business, it also
recognizes that its patents and license rights may make it more
difficult for its competitors to market products similar to those
produced by the Company. The Company can give no assurance that
any of its patent rights, whether issued, subject to license or
in process, will not be circumvented or invalidated. Further,
there are numerous existing and pending patents on medical
products and biomaterials. Although the Company is unaware of
any violation by it of the patent or proprietary rights of
others, there can be no assurance that the Company's existing or
planned products do not or will not infringe such rights or that
others will not claim such infringement. The Company believes it
would be able to maintain, against future challenges, the
validity of its mechanical heart valve patents and its right
thereto. No assurance can be given that the Company will be able
to prevent competitors with designs similar to its mechanical
heart valve from challenging the Company's patents or from entry
into the marketplace.
The Company is aware that certain companies, including CMI,
have developed mechanical heart valves which have designs similar
to the Company's mechanical heart valve design. In 1990, the
Company granted CMI a non-exclusive worldwide license to
manufacture and sell the CMI mechanical heart valve in return for
the payment of royalties in the period from 1991 through July
1998 for those CMI valves sold in the ten countries where the
Company has patent protection. The license limits through 1995
the number of valves CMI may sell in the United States.
Sorin Biomedica S.p.A. ("Sorin") has also developed a
bileaflet heart valve which has a design similar to the Company's
mechanical heart valve design and has entered selected
international markets with its valve. The Company has commenced
litigation against Sorin in France and Germany alleging that the
design of the Sorin heart valve infringes the Company's heart
valve patents in those countries. Sorin has challenged the
validity of the Company's French and German patents.
PRODUCT LIABILITY
The Company carries insurance coverage for both domestic and
international products liability occurrences in amounts which it
believes are adequate. In 1986 and 1987, the Company was unable
to obtain suitable insurance coverage in amounts it deemed
adequate and, therefore, adopted a self-insurance program and
established reserves to cover products liability claims
pertaining to those years. The Company would be financially
responsible for any uninsured claims or claims which exceed its
insurance coverage. The Company's products are not marketed with
any express warranty provisions. CMI has made no warranty on the
valve components it manufactures on behalf of the Company and the
Company has agreed to hold CMI harmless in the event claims are
made or damages are assessed against CMI as a result of any
valve-related litigation.
From time to time, the Company receives communications from
persons who have received heart valve implants concerning various
claims which are generally surgery related. Also, claims
relating to the Company's other products have been received. On
occasion, these claims evolve into litigation and, in some
instances, plaintiffs have sought punitive damages in addition to
compensatory damages. In many states, the courts have held that
in certain circumstances corporations may not receive insurance
proceeds to pay punitive damages awarded in the course of
litigation. While the Company believes the likelihood of an
award of punitive damages in product liability litigation is
remote, any uninsured award of such damages could have an adverse
impact on the Company.
EMPLOYEES
As of December 31, 1993, the Company had 722 full-time
employees. It has never experienced a work stoppage as a result
of labor disputes and none of its employees is represented by a
labor organization.
INDUSTRY SEGMENT AND INTERNATIONAL OPERATIONS
The medical products and service industry is the single
industry segment in which the Company operates. The Company's
domestic and foreign net sales, operating profit and identifiable
assets, and its export sales to customers are described in Note 6
to the consolidated financial statements on page 28 of the 1993
Annual Report to Shareholders and are incorporated by reference
herein.
The Company's foreign business is subject to such special
risks as exchange controls, currency devaluation, dividend
restrictions, the imposition or increase of import or export
duties and surtaxes, and international credit or financial
problems. Since its international operations require the Company
to hold assets in foreign countries denominated in local
currencies, many assets are dependent for their U.S. dollar
valuation on the values of a number of foreign currencies in
relation to the U.S. dollar. The Company may from time to time
enter into purchase and sales contracts in the forward markets
for various foreign currencies with the objective of protecting
U.S. dollar values of assets and commitments denominated in
foreign currencies.
Item 2. PROPERTIES
The Company's principal plant and executive offices are
located in St. Paul, Minnesota. Its facilities are as follows:
OWNED LEASED
LOCATION SQUARE FEET LOCATION SQUARE FEET
Domestic Domestic
St. Paul, MN 119,000 Caguas, PR 22,000
St. Paul, MN 30,000 Chelmsford, MA 34,000
St. Paul, MN 80,000 St. Paul, MN 9,100
Foreign Foreign
Quebec, Canada 8,000 Vienna, Austria 150
Brussels, Belgium 11,000
Paris, France 3,100
Dusseldorf, Germany 4,000
Tokyo, Japan 350
Breda, Netherlands 400
Madrid, Spain 3,000
Basel,Switzerland 250
Coventry, U.K. 2,400
In management's opinion, all buildings and machinery and
equipment are in good condition and suitable for their purposes
and are maintained and repaired on a basis consistent with sound
operations. Management believes that adequate property and
casualty insurance is in force with respect to all property.
Item 3. LEGAL PROCEEDINGS
The Company is a named defendant in a purported class action
captioned Weisburgh, et al. v. St. Jude Medical, Inc. et al.
filed July 2, 1992 in the United States District Court for the
District of Minnesota, and later amended. The second amended
complaint also names as defendants certain officers and directors
alleged to control the Company. The plaintiff purports to
represent a class consisting of all persons who purchased common
stock of the Company during the period from December 17, 1991
through July 2, 1992. The second amended complaint alleges that
the defendants deceived the investing public regarding the
Company's finances, financial condition and present and future
prospects and induced the plaintiff class to purchase the
Company's common stock during the period prior to July 2, 1992 at
inflated prices. The second amended complaint asserts claims for
federal securities fraud, common law fraud and negligent
misrepresentation. The second amended complaint seeks damages
(including punitive damages) in an unspecified amount, attorney's
fees, costs and expenses. On March 2, 1993, the Company and the
other defendants moved to dismiss all claims for failure to state
a claim for relief and failure to plead fraud with particularity.
In its Order dated May 28, 1993, the court denied the defendant's
motion at that time, but directed the plaintiffs to file a second
amended complaint, with more particularized allegations of fraud.
The plaintiffs have filed a second amended complaint, and on June
28, 1993, the Company and the other defendants moved to dismiss
the second amended complaint for failure to state a claim for
relief and failure to plead fraud with particularity. The
plaintiff has moved for a class certification. Both motions are
under advisement. The Company believes that the second amended
complaint is without merit and intends to pursue a vigorous
defense of the action.
The Company is unaware of any other pending legal
proceedings which it regards as likely to have a material adverse
effect on its business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 4A. EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE POSITION*
Ronald A. Matricaria 51 President and Chief Executive
Officer (1993)
Lawrence A. Lehmkuhl 56 Former President and Chief
Executive Officer (1985)
Eric W. Sivertson 43 President, St. Jude Medical
Division (1992)
Todd F. Davenport 43 President, St. Jude Medical
International Division (1992)
Stephen L. Wilson 41 Vice President, Finance and
Chief Financial Officer (1990)
Robert S. Elgin 46 Vice President, Operations
St. Jude Medical Division (1990)
*Dates in brackets indicate period during which officers began
serving in such capacity. Executive officers serve at the
pleasure of the Board of Directors and are elected annually for
one year terms.
Mr. Matricaria is a director of the Company and his business
experience is set forth in the Company's definitive Proxy
Statement dated March 28, 1994 under the Section "Election of
Directors." The information is incorporated herein by reference.
Mr. Lehmkuhl is a director of the Company and his business
experience is set forth in the Company's definitive Proxy
Statement dated March 28, 1994 under the section "Election of
Directors." The information is incorporated herein by reference.
Mr. Sivertson joined the Company in June 1985 as Director of
Marketing. In 1986 he became Director of International Sales and
held that post until April 1988. He was appointed Vice President
of Sales and Marketing in May 1988 and held that position until
he was appointed as President of the International Division in
February 1990. In August 1992, Mr. Sivertson was appointed
President of the St. Jude Medical Division. Prior to joining the
Company, Mr. Sivertson spent eight years with American Hospital
Supply Corporation in various management positions, including
Vice President of Marketing for the Converters Division.
Mr. Davenport joined the Company in August 1992 as
President, St. Jude Medical International Division. Prior to
joining the Company, Mr. Davenport served for two years as Vice
President Marketing and Sales for the Edwards Critical-Care
Division of Baxter International, Inc., a manufacturer, marketer
and distributor of various hospital supply products. From 1986
to 1990, Mr. Davenport was employed by Abiomed, Inc., a cardiac
assist device manufacturer and marketer, and most recently was
that company's Vice President and General Manager. Prior to
joining Abiomed, he spent eleven years in various management
positions with Cordis Corporation, a catheter device
manufacturer.
Mr. Wilson joined the Company in May 1990 as Vice President,
Finance and Chief Financial Officer. Prior to joining the
Company, Mr. Wilson was Vice President and Controller of The
Foxboro Company, a manufacturer and marketer of products for the
automation of industrial processes, where he had been employed
for five years. Prior to that, he was the Controller of Brown &
Sharpe Manufacturing Company, a manufacturer and marketer of
metrology products and machine tools, and previously was with
Coopers & Lybrand.
Mr. Elgin joined the Company in January 1990 as Vice
President, Operations of the St. Jude Medical Division. Prior to
joining the Company, Mr. Elgin served as the Vice President of
Manufacturing for the V. Mueller Division of Baxter
International, Inc. From 1982 to 1990, Mr. Elgin held various
management positions with American Hospital Supply Corporation
and Baxter International, Inc. Mr. Elgin spent nine years in
various management capacities with Colt Industries Inc. prior to
joining American Hospital Supply Corporation.
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The information set forth under the captions "Supplemental
Market Price Data" and "Cash Dividends" on page 33 of the
Company's 1993 Annual Report to Shareholders is incorporated
herein by reference.
Item 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Ten Year
Summary of Selected Financial Data" on pages 30 and 31 of the
Company's 1993 Annual Report to Shareholders is incorporated
herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The information set forth under the caption "Management's
Discussion and Analysis of Results of Operations and Financial
Condition" on pages 17, 18, 19 and 20 of the Company's 1993
Annual Report to Shareholders is incorporated herein by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the
Company and Report of Independent Auditors set forth on pages 21
through 29 of the Company's 1993 Annual Report to Shareholders
are incorporated herein by reference:
Consolidated Statements of Income - Years ended December 31,
1993, December 31, 1992 and December 31, 1991
Consolidated Balance Sheets - December 31, 1993 and December
31, 1992
Consolidated Statements of Shareholders' Equity - Years
ended December 31, 1993, December 31, 1992 and December 31,
1991
Consolidated Statements of Cash Flows - Years ended December
31, 1993, December 31, 1992 and December 31, 1991
Notes to Consolidated Financial Statements
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information set forth under the caption "Election of Directors"
in the Company's definitive Proxy Statement dated March 28, 1994, is
incorporated herein by reference. Information on executive officers is
set forth in Part I, Item 4A hereto.
Item 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation
and Other Information" and "Election of Directors" in the Company's
definitive Proxy Statement dated March 28, 1994, is incorporated herein
by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" and "Election of Directors"
in the Company's definitive Proxy Statement dated March 28, 1994, is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Election of Directors"
in the Company's definitive Proxy Statement dated March 28, 1994, is
incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) List of documents filed as part of this Report
(1) Financial Statements
The following consolidated financial statements of the Company
and Report of Independent Auditors as set forth on pages 21
through 29 of the Company's 1993 Annual Report to Shareholders
are incorporated herein by reference:
Consolidated Statements of Income - Years ended December 31,
1993, December 31, 1992 and December 31, 1991
Consolidated Balance Sheets - December 31, 1993 and December 31,
1992
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1993, December 31, 1992 and December 31, 1991
Consolidated Statements of Cash Flows - Years ended December 31,
1993, December 31, 1992 and December 31, 1991
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
The following financial statement schedules are filed as part of
this Form 1O-K Report:
Schedule
Number Description Page Number
I Marketable Securities - Other Investments 24
VIII Valuation and Qualifying Accounts 25
X Supplementary Income Statement Information 26
The report of the Company's Independent Auditors with respect to
the above-listed financial statements and financial statement
schedules appears on page 23 of this Report.
All other financial statements and schedules not listed have
been omitted because the required information is included in the
Consolidated Financial Statements or the Notes thereto, or is
not applicable.
(3) Exhibits
Exhibit Index Page Number
3.1 Articles of Incorporation are incorporated by ---
reference to Exhibit 3(a) of the Company's
Form 8 filed on August 20, 1987 amending the
Company's quarterly report on Form 1O-Q for
the quarter ended June 30, 1987
3.2 Bylaws are incorporated by reference to ---
Exhibit 3B of the Company's Form S-3
Registration Statement dated September 25,
1986 (Commission File No. 33-8308)
4.1 Amended and Restated Rights Agreement dated as ---
of June 26, 1990 between the Company and
Norwest Bank Minneapolis, N.A., as Rights
Agent including the Certificate of
Designation, Preferences and Rights of Series
A Junior Participating Preferred Stock is
incorporated by reference to Exhibit 1 of the
Company's Form 8 Amendment 2 to Form 8-A dated
July 6, 1990
10.1 Employment letter dated as of March 9, 1993, 28
between the Company and Ronald A. Matricaria*
10.2 Supplemental Executive Retirement Plan and 36
Trust agreement dated April 12, 1993, between
the Company and Ronald A. Matricaria*
10.3 Supply Contract and Patent License Agreement ---
dated September 6, 1985 between the Company
and CarboMedics, Inc. is incorporated by
reference to the Company's 8-K Report dated
September 20, 1985
10.4 Form of Indemnification Agreement that the ---
Company has entered into with officers and
directors. Such agreement recites the
provisions of Minnesota Statutes Section
302A.521 and the Company's Bylaw provisions
(which are substantially identical to the
Statute) and is incorporated by reference to
Exhibit 1O(d) of the Company's Form 1O-K
Annual Report for the year ended December 31,
1986*
10.5 Form of Employment Agreement that the Company ---
has entered into with officers relating to
severance matters in connection with a change
in control is incorporated by reference to the
Company's Form 10-K Annual Report for the year
ended December 31, 1988*
10.6 Retirement Plan for members of the Board of ---
Directors, as amended, is incorporated by
reference to exhibit 10.5 of the Company's
Form 10-K Annual Report for the year ended
December 31, 1992*
10.7 Deferred Compensation Plan dated December 2, ---
1986 is incorporated by reference to the
Company's Form 10-K Annual Report for the year
ended December 31, 1987*
10.8 Supplemental Executive Retirement Plan 75
agreement dated September 30, 1988, and as
restated on April 9, 1993, between the Company
and Lawrence A. Lehmkuhl*
10.9 1989 Restricted Stock Plan is incorporated by ---
reference to the Company's Form S-8
Registration Statement dated June 6, 1989
(Commission File No. 33-29085)*
10.10 Management Incentive Compensation Plan* 81
10.11 Supply Contract dated April 17, 1990 between ---
the Company and CarboMedics, Inc. (portions of
this exhibit have been deleted and filed
separately with the Securities and Exchange
Commission pursuant to Rule 24b-2) is
incorporated by reference to the Company's
Form 8 filed on April 19, 1990 amending the
Company's Form 10-K Annual Report for the year
ended December 31, 1989
11 Computation of Earnings Per Share 90
13 1993 Annual Report to Shareholders. Except 91
for those portions of such report expressly
incorporated by reference in this Form 1O-K
Report, the Annual Report is not deemed to be
"filed" with the Securities and Exchange
Commission
21 Subsidiaries of the Company 127
23 Consent of Independent Auditors 128
*Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K during the quarter ended December 31, 1993
Reports on Form 8-K filed by the Company during the fourth
quarter 1993:
Form 8-K dated December 1993
Item 2. Acquisition or Disposition of Assets -
Acquisition of Electromedics, Inc.
(c) Exhibits: Reference is made to Item 14(a)(3).
(d) Schedules: Reference is made to Item 14(a)(2).
For the purposes of complying with the amendments to the rules
governing Form S-8 under the Securities Act of 1933, the
undersigned Company hereby undertakes as follows, which
undertaking shall be incorporated by reference into Company's
Registration Statements on Form S-8 Nos. 33-9262 (filed October
3, 1986), 33-29085 (filed June 6, 1989), 33-41459 (filed June
28, 1991) and 33-48502 (filed June 10, 1992):
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Company pursuant to
the foregoing provisions, or otherwise, the Company has
been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person
in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ST. JUDE MEDICAL, INC.
Date: March 24, 1994 By /s/ Ronald A. Matricaria
Ronald A. Matricaria
President and Chief Executive Officer
(Principal Executive Officer)
By /s/ Stephen L. Wilson
Stephen L. Wilson
Vice President, Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date
indicated.
/s/ Lawrence A. Lehmkuhl Chairman of the March 24, 1994
Lawrence A. Lehmkuhl Board of Directors
/s/ Ronald A. Matricaria Director March 24, 1994
Ronald A. Matricaria
/s/ Frank A. Ehmann Director March 24, 1994
Frank A. Ehmann
/s/ Thomas H. Garrett III Director March 24, 1994
Thomas H. Garrett III
/s/ Charles V. Owens, Jr. Director March 24, 1994
Charles V. Owens, Jr.
/s/ James S. Womack Director March 24, 1994
James S. Womack
/s/ William R. Miller Director March 24, 1994
William R. Miller
/s/ Roger G. Stoll Director March 24, 1994
Roger G. Stoll
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF
ST. JUDE MEDICAL, INC.
FOR
CALENDAR YEAR ENDED DECEMBER 31, 1993
- -------------------------------------
FINANCIAL STATEMENT SCHEDULES
- -----------------------------------------------------------------------------
Report of Independent Auditors
We have audited the consolidated financial statements of St. Jude
Medical, Inc. as of December 31, 1993 and 1992, and for each of
the three years in the period ended December 31, 1993, and have
issued our report thereon dated February 4, 1994. Our audits also
included the financial statement schedules listed in the Index at
Item 14(a). These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion
based on our audits.
In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material
respects the information set forth therein.
[signature]
Ernst & Young
February 4, 1994
ST. JUDE MEDICAL, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1993
SCHEDULE I - MARKETABLE SECURITIES AND OTHER INVESTMENTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
Amount at Which
Each Portfolio
of Equity
Number of Shares or Security Issues
Units-Principal Market Value and Each Other
Amount of Bonds of Each Issue Security Issue
Name of Issuer and Title of Each Issue and Notes Cost of at Balance Carried in the
Each Issue Sheet Date Balnce Sheet
<S>
Municipal Bonds <C> <C> <C> <C>
Intermountain Power - Utah $ 12,055,351 $ 12,996,668 $ 12,801,694 $ 12,631,674
Other(1) 231,599,682 242,061,270 239,075,566 237,234,078
243,655,033 255,057,938 251,877,260 249,865,752
Puerto Rican 936 Tax Exempt
Certificates of Deposit/Repurchase Agreements
Banco Popular 23,207,228 23,207,228 23,207,228 23,207,228
Royal Bank of Canada 16,000,000 16,000,000 16,000,000 16,000,000
Citibank 10,500,000 10,500,000 10,500,000 10,500,000
Chase Manhattan 10,500,000 10,500,000 10,500,000 10,500,000
Other(1) 39,000,000 39,000,000 39,000,000 39,000,000
99,207,228 99,207,228 99,207,228 99,207,228
Money Market Preferred Stock
Other(1) 10,000,000 10,000,000 10,000,000 10,000,000
Cash and Accrued Interest 9,918,020
Total Cash and Marketable Securities 368,991,000
(1) No other individual issue is greater than 2% of Total Assets.
Detail will be provided upon request.
ST. JUDE MEDICAL, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1993
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
</TABLE>
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
Balance at Beginning Additions Charged Balance at End
Description of Period to Expense Deductions of Period
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Allowance for doubtful accounts (3) $1,413 $583 $140(1) $1,856
Products liability claims reserve (4) 601 ---- 200(2) 401
Year ended December 31, 1992
Allowance for doubtful accounts (3) 802 650 39(1) 1,413
Products liability claims reserve (4) 910 ---- 309(2) 601
Year ended December 31, 1991
Allowance for doubtful accounts (3) 600 315 113(1) 802
Products liability claims reserve (4) 910 ---- --- 910
</TABLE>
(1) Reserve adjustments or uncollectible accounts written off, net of
recoveries.
(2) Settlements paid.
(3) Deducted from accounts receivable on the balance sheet.
(4) Included in accrued expenses on the balance sheet.
ST. JUDE MEDICAL, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1993
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Dollars in Thousands)
COL. A COL. B
Charged to Costs
Item and Expenses
Year Ended December 31
1993 1992 1991
Royalties $6,754 $7,203 $5,607
Amortization of
intangible assets $4,458 $4,202 $4,237
Each of the following items are less than 1% of net
sales and are not required to be reported:
*Maintenance and repairs
*Taxes, other than payroll and income taxes
*Advertising costs
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF
ST. JUDE MEDICAL, INC.
FOR
CALENDAR YEAR ENDED DECEMBER 31, 1993
- -------------------------------------
EXHIBITS
- -----------------------------------------------------------------------------
March 9, 1993
Mr. Ronald A. Matricaria
840 Wedgewood Lane
Carmel, IN 46032
Dear Mr. Matricaria:
We write to set forth our agreement with respect to your employment
as the President and Chief Executive Officer of St. Jude Medical,
Inc. (the "Company"). This letter shall be effective and shall
bind the Company from and after the date hereof, but shall be
operative only upon your acceptance by executing this letter and
upon your actual commencement of employment with the Company on or
before April 12, 1993.
1. Employment. The Company hereby agrees to employ you, and you
agree to be employed by the Company, on the terms and conditions
hereinafter set forth. You will serve as the Company's President
and Chief Executive Officer and, in addition, at no additional
compensation, be elected as a member of the Board of Directors, and
in such other directorships, Board committee memberships and
offices of the Company and its subsidiaries to which you may from
time to time be elected or appointed by the Chairman of the Board.
You agree to serve the Company faithfully and, to the best of your
ability, to promote the Company's interest, and to devote your full
working time, energy and skill to the Company's business.
You will assume all of the duties and responsibilities as
President and Chief Executive Officer immediately upon your
employment. As President, you will report directly to the Board of
Directors although you will normally work with the Chairman of the
Board as its representative. You will be solely responsible for
determining job description, compensation and promotion of all
employees other than corporate officers in accordance with any
salary and personnel policies established from time to time by the
Board of Directors. You shall recommend to the Board, after
consultation with the Chairman, job descriptions, compensation and
promotion of all corporate officers. You will discharge your
duties at all times in accordance with any and all policies
established by the Board of Directors and will report to, and be
subject to the direction of, the Board of Directors. I will, upon
your commencement of employment, assume the sole duties of Chairman
of the Board, but will be available for a period of up to 60 days
to assist you in your assuming the position of President and Chief
Executive Officer. It is the spirit of our agreement that I will
not be involved in day to day management and that I will move off-
site after a reasonable transition time.
2. Compensation.
(a) As full compensation for all of your services (including
services as director, Board committee member or officer of the
Company and its subsidiaries) during your term of employment
hereunder, you shall, beginning with the 1993 calendar year,
receive a base salary at the rate of Four Hundred Thousand Dollars
($400,000) per annum, payable in bi-weekly installments.
(b) Nothing in this agreement shall prevent the Company's
Board of Directors from at any time increasing the compensation to
be paid to you, if the Board shall deem it advisable to do so in
order to compensate you fairly for services to be rendered. It is
the parties' contemplation that the Board of Directors will effect
such increases from time to time, to the extent justified by all
the circumstances, including increases in the cost of living, the
value of your services, and the Company's results of operations and
financial position.
3. Bonus.
(a) You shall be eligible to earn bonus compensation for each
fiscal year of the Company during your term of employment hereunder
in an amount to be determined in accordance with an incentive
compensation plan for you as established by the Company's Board of
Directors. Under the plan, you will have an opportunity to earn
bonus compensation of up to 100% of your base compensation each
fiscal year upon achievement of various established targets based
on personal and corporate performance to be mutually agreed upon by
you and the Board of Directors. Bonus compensation payable to you
will be paid following approval of the fiscal year results by the
Audit Committee of the Board.
(b) Notwithstanding the foregoing, unless you voluntarily
resign from or are terminated for good cause by the Company before
December 31, 1993, the Company will pay you a bonus for 1993 equal
to $358,250, representing 3/12ths of the bonus target you would
have earned from your previous employer for 1993 and 9/12ths of the
$400,000 bonus target for 1993 under the incentive compensation
plan described above. Such bonus shall be paid at the same time as
other corporate officer bonuses for 1993 are paid or payable.
4. Fringe Benefits.
(a) You will be included in the Company's Executive Officer
Perquisite Plan (PERK) during the term of your employment hereunder
and the value of such perquisites shall be at least $24,000 during
1993. You shall also be eligible to participate in any and all
Company sponsored insurance (including medical, dental, life and
disability insurance), profit sharing and other fringe benefit
programs that it maintains for any of its executive officers,
subject to the terms of each such plan or program. Notwithstanding
this, you will be entitled to three weeks of vacation in 1993 upon
completion of six months of employment and four weeks of vacation
in each calendar year thereafter.
(b) The Company will provide for your relocation to
Minneapolis-St. Paul in accordance with the terms of a relocation
plan comparable to your current employer's plan including, but not
limited to home purchase, temporary living and relocation of your
family and household goods.
5. Expenses. During the term of your employment hereunder, the
Company will reimburse you for your reasonable travel and other
expenses incident to your rendering of services hereunder, in
conformity with its regular policies regarding reimbursement of
expenses as in effect from time to time. Payments to you under
this paragraph will be made upon presentation of expense vouchers
in such detail as the Company may from time to time require.
6. Term.
(a) The term of your employment hereunder shall continue
until the earliest of the following dates:
(i) December 31, 1997;
(ii) the last day of any month in which you die;
(iii) if you shall be unable to substantially perform
under this agreement by reason of physical or mental
disability for a period of six consecutive months, on the last
day of any month in which the Company shall have elected to
terminate your employment hereunder by notice to you; and
(iv) the date on which the Company terminates your
employment hereunder for "good cause."
(v) the date on which you voluntarily terminate your
employment.
(b) For purposes of this agreement, the Company shall have
"good cause" if you have acted in bad faith or with dishonesty, you
have willfully violated any law of any domestic or international
government to which the Company is bound, or willfully failed to
follow instructions of the Company's Board of Directors, you have
performed duties with gross negligence or you have otherwise
materially breached this agreement; provided, however, that in the
case of your willful failure to follow instructions or other
material breach hereof not involving bad faith, dishonesty or
willful violation of law, the Company shall give you written notice
of such failure or other breach and you shall have 21 days to
correct same.
(c) For purposes of this agreement, "good reason" shall mean
the Company, without your express written consent, (i)
substantially and materially reducing the principal duties,
responsibilities and reporting obligations of your position as
President and CEO, (ii) reducing your annual compensation as
described in Paragraph 2 (including any increases given under
Paragraph 2(b) or reducing your bonus described in Paragraph 3 or
(iii) failing to provide you with benefits at least as favorable to
those enjoyed by you under any of the Company's pension, life
insurance, medical, health and accident, disability, deferred
compensation, incentive awards, incentive stock options, savings
plans or vacation plans in which you were eligible to participate
at the beginning of your term of employment with the Company,
provided, however, that nothing herein will restrict the Company
from altering, amending or terminating any benefit plan so long as
any such change applies to executive officers generally.
7. Payments Due Upon Termination. If prior to such scheduled
expiration of your employment as provided in Paragraph 6(a), your
employment is terminated by the Company before December 31, 1997
for any reason other than your death, disability or because your
employment has been terminated for "good cause," then and in such
event the Company shall pay you as severance, in monthly
installments, at the rate of your base compensation then in effect
and the actual bonus paid for the immediately preceding fiscal
year. Such payments shall continue until the earlier of:
(a) 24 months following the date of your termination, or
(b) December 31, 1997.
You shall continue to be obligated under Paragraph 12 hereunder for
as long as you receive payments under this paragraph and for a
period of one year thereafter.
8. Change in Control. You and the Company agree to enter into a
separate "Employment Agreement" in substantially the form
previously presented to you pursuant to which you will be entitled
to receive severance pay and benefits as provided therein in the
event of a "change in control" as defined therein. Your rights
under such Employment Agreement are in lieu of your rights under
Paragraph 7. Accordingly, if you elect to receive the benefits
afforded you under such Employment Agreement, you may not receive
compensation under Paragraph 7 hereof.
9. Stock Option. You will receive two non-qualified options to
purchase up to 400,000 shares of Company common stock in the
following manner:
(a) 200,000 shares shall be exercisable at a rate of 20%
per year on each anniversary of your date of employment,
with the final 20% exercisable on December 31, 1997. In
addition, all or any of the 200,000 shares will be
exercisable immediately if you die or become disabled
while employed by the Company. This option shall be
governed by the terms of a "Non-Qualified Stock Option
Agreement" substantially in the form previously presented
to you.
If, prior to the third anniversary of your date of employment,
your employment is terminated by the Board of Directors other
than for "good cause" as defined in Paragraph 6(b) above or by
you for "good reason" as defined in Paragraph 6(c) above,
death or disability, any shares of stock under the option
above that are not then exercisable shall become exercisable
immediately upon your termination. In that event, if the
share price on the date of exercise is not less than the
purchase price in the option agreement, you agree to
immediately exercise the option for the number of shares that
vest solely as a result of your termination under this
paragraph and to sell to the Company such shares at the
closing price on the date of exercise. The Company shall pay
you for such shares within 10 days of the date of your
exercise.
(b) 200,000 shares shall be contingent on achievement of
annual increases in market valuation of the Company for
the five calendar years commencing in 1993 as follows:
(i) The number of whole Shares that the Optionee
shall earn and that shall become exercisable immediately
following the determination of Actual Market Value for
any year shall be equal to one percent (1%) of the excess
of the Actual Market Value of the Company over the Target
Market Value for the immediately prior calendar year
divided by the Purchase Price contained in the Option
Agreement.
(ii) Actual Market Value shall equal the number of
shares issued and outstanding as reported on the
Company's year end balance sheet, multiplied by the
closing price of the Company's Common Stock as reported
on NASDAQ-NMS for the last trading day of the calendar
year; provided, however, that if there is any change in
the financial results of the Company by the Audit
Committee of the Board of Directors, the Actual Market
Value shall be determined based upon the average of the
closing price for the first five trading days in the
month following the date the Company's annual audited
financial results are released to the public.
(iii) The Target Market Value for each year shall be
as follows:
$1,900,511,770 as of December 31, 1993
2,181,787,511 as of December 31, 1994
2,463,238,101 as of December 31, 1995
2,827,797,340 as of December 31, 1996
3,266,105,928 as of December 31, 1997
Provided, however, that the Target Market Value shall
never be less than the highest Actual Market Value for
any prior year during the performance period.
This Option shall be governed by a "Non-Qualified Stock
Option Agreement" substantially in the form previously
presented to you.
10. Pension Benefit.
(a) In addition to the compensation to be provided in
Paragraph 2 above, the Company shall deposit in an irrevocable
"vesting trust" an amount of $2,500,000 representing the actuarial
present value of a monthly benefit of $16,800, beginning October 1,
1996, during your life and, upon your death, 50% to your surviving
spouse, such payments adjusted every fourth year at a rate equal to
50% of the cumulative four year CPI-U, less any payments you will
receive from your previously employer's retirement plan. This
amount represents the value of the benefit you would have received
from your previous employer's plan had you remained in its
employment until October 1, 1996.
(b) The Company shall within 30 days of the date of your
employment, deposit this amount in the vesting trust, it being the
intent of the Company that such trust shall afford a measure of
security for the payment of these retirement benefits and to
provide for the additional net tax liability you will incur upon
the vesting of the trust. Under the terms of the trust, the amount
of the tax liability will be distributed to you in 1996 necessary
to pay any taxes then due, and the remainder to be paid to you in
monthly installments equal to the after tax benefit described
above. The trust will vest on October 1, 1996, but will not vest
in the event that you voluntarily terminate your employment before
September 30, 1996 other than for "good reason" defined above or
the Company terminates your employment for "good cause" as defined
above. With the consent of the Company and you, the trust may
purchase an noncancellable annuity contract after October 1, 1996,
to provide for such payments to you.
11. Retiree Benefits. On your first day of employment, shall
receive an award of 10,000 shares of restricted Company stock that
will vest at a rate of 25% per year on each anniversary date of
issue. This is intended to compensate you for giving up the health
coverage for you and your spouse during your life and your spouse's
life, offered by your current employer to its retirees as of the
date of the agreement.
12. Non-Compete and Confidentiality.
(a) During the term of your employment hereunder and for a
period of one year thereafter (or such later date as specified in
Paragraph 7), you will not, directly or indirectly, engage in or be
interested in any business which is then manufacturing or
developing products either marketed by the Company or under
development by the Company during the term of your employment,
including but not limited to cardiac valve prostheses, vascular
grafts, oxygenators, centrifugal blood pump and intra-aortic
balloon pump. For the purposes of this paragraph, you will be
considered to have been engaged or interested in a business if you
engage or are interested in such business as a stockholder,
director, officer, employee, agent, broker, partner, individual
proprietor, lender, consultant or in any other capacity, except
that nothing herein contained will prevent you from owning less
than 3% of any class of equity or debt securities listed on a
national securities exchange or traded in any established over-the-
counter securities market.
(b) During the term of your employment hereunder and
thereafter, you shall not disclose any confidential information or
take any other action proscribed in the "Confidentiality Agreement"
substantially in the form previously presented to you.
13. General Provisions.
(a) This agreement may not be amended or modified except by
written agreement of the parties.
(b) In the event that any provision or portion of this
agreement shall be determined to be invalid or unenforceable for
any reason, the remaining provisions of this agreement shall remain
in full force and effect to the fullest extent permitted by law.
(c) This agreement shall bind and benefit the parties hereto
and their respective successors and assigns, but no right or
obligation of Executive hereunder may be assigned without the
Company's written consent.
(d) This agreement has been made in and shall be governed and
construed in accordance with the laws of the State of Minnesota.
____________________________________
If the foregoing correctly sets forth your understanding of our
agreement, please so indicate by signing and returning to us a copy
of this letter.
Very truly yours,
ST. JUDE MEDICAL, INC.
[signature]
Lawrence A. Lehmkuhl
Chairman
Accepted and agreed to:
[signature]
Ronald A. Matricaria
ST. JUDE MEDICAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AND TRUST
April 12, 1993 TABLE OF
CONTENTS
Page
ARTICLE 1
NAME AND PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2
DEFINITIONS AND INTERPRETATIONS. . . . . . . . . . . . . . . . . . . 2
2.1 General Definitions. . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3
PARTICIPATION IN THE PLAN. . . . . . . . . . . . . . . . . . . . . . 7
3.1 Eligibility. . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Designation of Beneficiary . . . . . . . . . . . . . . . . 7
ARTICLE 4
CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 St. Jude Contributions . . . . . . . . . . . . . . . . . . 8
4.2 Reversion to St. Jude. . . . . . . . . . . . . . . . . . . 9
4.3 Contribution Does Not Vest . . . . . . . . . . . . . . . . 9
4.4 Valuation of the Trust Fund. . . . . . . . . . . . . . . . 9
ARTICLE 5
INVESTMENT OF CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . 9
5.1 Investment Powers. . . . . . . . . . . . . . . . . . . . . 9
5.2 Written Investment Policy. . . . . . . . . . . . . . . . . 10
5.3 Appointment of Investment Manager. . . . . . . . . . . . . 10
5.4 Executive's Right to Direct Investments. . . . . . . . . . 11
ARTICLE 6
VESTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.1 Vesting of Executive in Trust Fund . . . . . . . . . . . . 12
6.2 Executive's Forfeiture of Interest in Trust Fund . . . . . 12
6.3 Notice and Dispute Resolution. . . . . . . . . . . . . . . 12
ARTICLE 7
PAYMENTS OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.2 Amount of Benefits and Valuation . . . . . . . . . . . . . 14
7.3 Notice of Benefit Commencement . . . . . . . . . . . . . . 14
7.4 Modes of Payment to Executive After Full Vesting . . . . . 14
7.5 Time for Payment . . . . . . . . . . . . . . . . . . . . . 16
7.9 Medium of Payment. . . . . . . . . . . . . . . . . . . . . 16
7.7 Payment to Executive to Satisfy Taxes. . . . . . . . . . . 16
7.8 Facility of Payment. . . . . . . . . . . . . . . . . . . . 17
ARTICLE 8
CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.1 Claims for Benefits. . . . . . . . . . . . . . . . . . . . 17
8.2 Dispute of Benefits. . . . . . . . . . . . . . . . . . . . 17
8.3 Arbitration or Judicial Review of Dispute. . . . . . . . . 18
ARTICLE 9
COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . 19
9.2 Action of the Committee. . . . . . . . . . . . . . . . . . 19
9.3 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.4 Records. . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.5 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.6 Compensation . . . . . . . . . . . . . . . . . . . . . . . 21
9.7 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . 21
9.8 Powers Denied. . . . . . . . . . . . . . . . . . . . . . . 21
9.9 Action When There is a Vacancy . . . . . . . . . . . . . . 21
9.10 Settlement of Claims. . . . . . . . . . . . . . . . . 21
9.11 Discretionary Powers . . . . . . . . . . . . . . . . . . . 21
9.12 Employment of Professionals and Assistants . . . . . . . . 22
9.13 Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 10
TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.1 Duty and Liability of Trustee. . . . . . . . . . . . . . . 22
10.2 General Scope of Powers. . . . . . . . . . . . . . . . . . 23
10.3 Powers Discretionary . . . . . . . . . . . . . . . . . . . 26
10.4 Annual Account . . . . . . . . . . . . . . . . . . . . . . 26
10.5 Person Dealing with Trustee. . . . . . . . . . . . . . . . 26
10.6 Prohibited Transactions. . . . . . . . . . . . . . . . . . 26
10.7 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . 27
10.8 Resignation and Appointment. . . . . . . . . . . . . . . . 27
10.9 Removal of Trustee . . . . . . . . . . . . . . . . . . . . 27
10.10 Continuation of the Trust . . . . . . . . . . . . . . 28
ARTICLE 11
CLAIMS AGAINST THE TRUST FUND. . . . . . . . . . . . . . . . . . . . 28
11.1 Anti-Alienation of Benefits. . . . . . . . . . . . . . . . 28
11.2 Qualified Domestic Relations Orders. . . . . . . . . . . . 28
11.3 Independent Fund . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 12
RIGHTS OF ST. JUDE TO AMEND, DISCONTINUE OR TERMINATE. . . . . . . . 30
12.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . 30
12.2 Termination of Plan. . . . . . . . . . . . . . . . . . . . 31
12.3 Termination of Trust . . . . . . . . . . . . . . . . . . . 31
ARTICLE 13
SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS. . . . . . . 31
13.1 Successor Employer . . . . . . . . . . . . . . . . . . . . 31
13.2 Merger and Consolidation . . . . . . . . . . . . . . . . . 32
ARTICLE 14
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.1 Liability of St. Jude. . . . . . . . . . . . . . . . . . . 32
14.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . 32
14.3 No Guarantee of Employment . . . . . . . . . . . . . . . . 33
14.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . . 33
14.5 Binding Effect . . . . . . . . . . . . . . . . . . . . . . 33
ST. JUDE MEDICAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AND TRUST
This Agreement, establishing the St. Jude Medical, Inc.
Supplemental Executive Retirement Plan and Trust, is adopted by
St. Jude Medical, Inc., a Minnesota corporation, ("St. Jude"),
and Norwest Bank Minnesota, N.A. (the "Trustee") and is effective
as of April 12, 1993.
W I T N E S S E T H :
WHEREAS, St. Jude desires to establish a retirement plan
(the "Plan") for the benefit of Ronald A. Matricaria ("the
Executive");
WHEREAS, Norwest Bank Minnesota, N.A. has agreed to serve as
Trustee of the Trust established hereunder;
NOW, THEREFORE, the St. Jude Medical, Inc. Supplemental
Executive Retirement Plan and Trust is established to read as
follows:
ARTICLE 1
NAME AND PURPOSE
1.1 Name. The name of the Plan set forth in this
instrument is the St. Jude Medical, Inc. Supplemental Executive
Retirement Plan, and the name of the trust which is part of that
Plan and the terms of which are set forth in this instrument is
the St. Jude Medical, Inc. Supplemental Executive Retirement
Trust.
1.2 Purpose. The purpose of the Plan is to provide
retirement income to the Executive and his family. The purpose
of the Trust is to facilitate the administration of the Plan for
the exclusive benefit of the Executive and his Beneficiaries.
ARTICLE 2
DEFINITIONS AND INTERPRETATIONS
2.1 General Definitions.
(1) "Alternate Payee" shall mean a:
(a) spouse;
(b) former spouse;
(c) child; or
(d) other dependent
of the Executive who is recognized by a Qualified
Domestic Relations Order as having a right to receive
all, or a portion of, the Executive's Beneficial
Interest under the Plan.
An Alternate Payee is treated as a Beneficiary for
all purposes under the Plan.
(2) "Anniversary Date" shall mean each December 31,
beginning December 31, 1993.
(3) "Beneficial Interest" shall mean all of the assets of
the Trust Fund which are distributable to the
Executive or his Beneficiary in accordance with the
terms of the Plan.
(4) "Beneficiary" shall mean the Executive's spouse and
his natural or adopted children, or a trust
established by the Executive solely for their
benefit, who are entitled to receive benefits that
may be payable upon or after the Executive's death.
(5) "Board of Directors" shall mean the elected Board of
Directors of St. Jude Medical, Inc.
(6) "Change in Control" shall mean a Change in Control as
defined in that certain Employment Agreement between
the Executive and St. Jude dated as of April 12,
1993.
(7) "Code" shall mean the Internal Revenue Code of 1986,
and amendments thereto.
(8) "Committee" shall mean the Compensation Committee of
the Board of Directors of St. Jude, or its successor,
the members of which are named fiduciaries of the
Plan within the meaning of Section 402 of the
Employee Retirement Income Security Act of 1974. In
no event shall the Executive be a member of such
Committee at any time prior to the date the Executive
becomes fully vested in the Plan as provided in
Article 6.
(9) "Disability" shall mean a physical or mental
condition of the Executive resulting from a bodily
injury or disease or mental disorder which renders
him incapable of continuing employment with St. Jude.
Disability of the Executive shall be determined by
the Committee in accordance with uniform principles
consistently applied, upon the basis of such medical
and other evidence which the Committee deems
necessary and desirable.
(10) "Earliest Retirement Age" shall mean, for purposes of
a Qualified Domestic Relations Order, the earlier of:
(a) the date on which the Executive is entitled to a
distribution under the Plan; or
(b) the later of the day the Executive attains age
50, or the earliest date on which the Executive
could begin receiving his Beneficial Interest
under the Plan if the Executive separated from
service.
Earliest Retirement Age shall also mean a date
earlier than (i) or (ii) if such date is specified in
the Qualified Domestic Relations Order.
(11) "Effective Date" shall mean April 12, 1993.
(12) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and any successor
thereto, and any regulations promulgated thereunder.
(13) "Good Cause," as grounds for the termination of the
Executive's employment by St. Jude, shall mean:
(a) prior to a Change in Control, any act by which
the Executive in bad faith or with dishonesty,
willfully violates any law of any domestic or
international government to which St. Jude is
bound, willfully fails to follow instructions of
the Company's Board of Directors, performs
duties with gross negligence or otherwise
materially breaches the employment agreement
between the Executive and St. Jude; provided,
however, that in the case of the Executive's
willful failure to follow instructions or other
material breach of said employment agreement not
involving bad faith, dishonesty or willful
violation of law, St. Jude shall give the
Executive written notice of such failure or
other breach and the Executive shall have 21
days to correct same.
(b) after a Change in Control, the conviction of the
Executive by a court of competent jurisdiction
for felony criminal conduct.
(14) "Good Reason", as grounds for the voluntary
termination of employment by the Executive, shall
mean:
(a) prior to a Change in Control, any act by which
St. Jude, without the express written consent of
the Executive:
(i) substantially and materially reduces the
principal duties, responsibilities and
reporting obligations of the Executive
in his position as President and CEO;
(ii) reduces the Executive's annual
compensation as described in the written
employment agreement between St. Jude
and the Executive or
(iii) fails to provide the Executive with
benefits at least as favorable to those
enjoyed by the Executive under any of
St. Jude's pension, life insurance,
medical, health and accident,
disability, deferred compensation,
incentive awards, incentive stock
options, savings plans or vacation plans
in which the Executive was eligible to
participate in the beginning of his term
of employment with St. Jude, provided,
however, that nothing herein will
restrict St. Jude from altering,
amending or terminating any benefit plan
so long as any such change applies to
executive officers generally.
(b) after a Change in Control, without Executive's
express written consent, any of the following
acts by St. Jude:
(i) the assignment to Executive of any
duties inconsistent with Executive's
status or position with St. Jude, or a
substantial alteration in the nature or
status of Executive's responsibilities
from those in effect immediately prior
to the Change in Control;
(ii) a reduction by St. Jude in Executive's
annual compensation in effect
immediately prior to a Change in
Control;
(iii) the relocation of St. Jude's principal
executive offices to a location more
than fifty miles from St. Paul,
Minnesota or St. Jude requiring
Executive to be based anywhere other
than St. Jude's principal executive
offices except for required travel on
St. Jude's business to an extent
substantially consistent with
Executive's business travel obligations
immediately prior to the Change in
Control;
(iv) the failure by St. Jude to continue to
provide Executive with benefits at least
as favorable to those enjoyed by
Executive under any of St. Jude's
pension, life insurance, medical, health
and accident, disability, deferred
compensation, incentive awards,
incentive stock options, or savings
plans in which Executive was partici-
pating immediately prior to the Change
in Control, the taking of any action by
St. Jude which would directly or
indirectly materially reduce any of such
benefits or deprive Executive of any
material fringe benefit enjoyed at the
time of the Change in Control, or the
failure by St. Jude to provide Executive
with the number of paid vacation days to
which Executive is entitled immediately
prior to the Change in Control,
provided, however, that St. Jude may
amend any such plan or programs as long
as such amendments do not reduce any
benefits to which Executive would be
entitled upon termination;
(v) the failure of St. Jude to obtain a
satisfactory agreement from any
successor to assume and agree to perform
that certain Employment Agreement
between the Executive and St. Jude dated
as of April 12, 1993; or
(vi) any purported termination of Executive's
employment which is not made pursuant to
a Notice of Termination satisfying the
requirements of the Employment Agreement
described in paragraph (v) above.
(15) "Plan" shall mean the St. Jude Medical, Inc.
Supplemental Executive Retirement Plan for Ronald A.
Matricaria.
(16) "Plan Year" shall mean the 12 consecutive months
ending on December 31 of each year.
(17) "Qualification Procedures" shall mean written
procedures adopted by the Committee to:
(a) determine whether domestic relations orders meet
the requirements for Qualified Domestic
Relations Orders; and
(b) to administer distributions under such orders.
The procedures shall be implemented within a
reasonable time after receipt of a domestic relations
order by the Committee. Qualification Procedures
must permit an Alternate Payee to designate a
representative for receipt of copies of notices sent
to the Alternate Payee with respect to a Qualified
Domestic Relations Order.
(18) "Qualified Domestic Relations Order" shall mean a
judgment, decree or order, including approval of a
property settlement agreement, that relates to
provision of child support, alimony payments, or
marital property rights to an Alternate Payee, is
made pursuant to state domestic relations law
(including a state community property law) and
creates an Alternate Payee's right to all or a
portion of the benefits payable to the Executive
under the Plan. A Qualified Domestic Relations Order
must satisfy all of the requirements of Section
414(p) of the Code and must specify:
(a) the name and last known mailing address of each
Alternate Payee;
(b) the amount or percentage of the Executive's
benefits to be paid to the Alternate Payee or
the manner in which the amount is to be
determined;
(c) the number of payments or period for which
payments are required; and
(d) each plan to which the order relates.
An order does not qualify under this definition if it
requires the Committee to provide a benefit or option
not available under the Plan, requires the Plan to
provide increased benefits or requires payment of
benefits to an Alternate Payee that are required to
be paid to another Alternate Payee under a previously
existing Qualified Domestic Relations Order.
(19) "Qualified Joint and Survivor Annuity" shall mean if
the Executive has a Spouse at the time of the
commencement of benefits, an annuity for the life of
the Executive with a survivor annuity for the life of
his Spouse which can be purchased with the
Executive's Beneficial Interest. A Qualified Joint
and Survivor Annuity for the Executive if he is
unmarried at the time of the commencement of benefits
shall mean an annuity for the life of such Executive
and which can be purchased with his Beneficial
Interest.
(20) "Qualified Preretirement Survivor Annuity" shall mean
an annuity for the life of the Executive's surviving
Spouse, purchased with the Executive's Beneficial
Interest as of the date of the Executive's death.
(21) "St. Jude" shall mean St. Jude Medical, Inc., a
Minnesota corporation, and its successors and
assigns.
(22) "Spouse" shall mean the person to whom the Executive
is married on the date payments actually commence
under the Plan.
(23) "Termination of Employment" of the Executive shall
mean complete severance from the service of St. Jude.
(24) "Trust" shall mean the St. Jude Medical, Inc.
Supplemental Executive Retirement Trust.
(25) "Trust Fund" or "Fund" shall mean the total of
contributions made hereunder, or the investments
purchased, increased by profits, income, refunds and
recoveries received, and decreased by investment
losses and expenses incurred in the administration of
the Trust and by benefits released or paid.
(26) "Trustee" shall mean the undersigned Trustee or
Trustees or any duly appointed successor Trustee.
ARTICLE 3
PARTICIPATION IN THE PLAN
3.1 Eligibility. The Executive is the sole employee of
St. Jude eligible to participate in the Plan.
3.2 Designation of Beneficiary. Upon commencement of
participation in the Plan, the Executive shall complete, sign and
file with the Committee a designation of Beneficiary on a form to
be provided by the Committee. On said form, the Executive shall
designate a Beneficiary (or Beneficiaries), which may be an
individual or a trust established solely for the individual, to
whom shall be paid any sum which may be payable on account of the
Executive's death after the Executive becomes fully vested in the
Plan as provided in Article 6 (reserving, however, to the
Executive the power to change the designation of Beneficiary from
time to time) and where applicable, a particular form of benefit.
The Executive's Spouse shall be the Beneficiary of the entire
vested and nonforfeitable benefit payable upon the death of the
Executive unless the Executive's Spouse irrevocably consents in
writing to the designation of another Beneficiary. Such spousal
consent shall identify the specific alternate Beneficiary, and
where applicable, a particular form of benefit, acknowledge the
effect of such designation, and be witnessed by a Plan
representative or a notary public. Any subsequent change by the
Executive in the designation of a Beneficiary shall require
specific written consent by the Executive's Spouse unless the
Spouse has previously consented in writing to voluntarily waive
the right to consent to subsequent Beneficiary changes, and such
consent acknowledges the Spouse's right to otherwise limit
consent to a specific Beneficiary. However, the designation of a
Beneficiary other than the Executive's Spouse shall be effective
if the Committee determines that the foregoing consent may not be
obtained because there is no Spouse, because the Spouse cannot be
located, or because of other circumstances described in
regulations issued by the Secretary of the Treasury. A divorce
before the payment commencement date shall terminate all rights
of the Executive's ex-spouse to any benefits under this Plan,
unless the Executive expressly designates or redesignates the ex-
spouse as Beneficiary or as otherwise provided under a Qualified
Domestic Relations Order.
If the Executive shall fail to validly designate a
Beneficiary, or if no designated Beneficiary survives the
Executive, the following designated persons shall be the
Beneficiaries in the order named:
(a) the Executive's spouse, if living; or
(b) the Executive's lawful children, if living, including
any lawfully adopted children.
In the event the last survivor of the Executive, his Spouse, and
his children dies prior to the date all assets are distributed
from this Plan and Trust, any amount then remaining in the Trust
shall revert to St. Jude.
Notwithstanding anything herein to the contrary, in the
event St. Jude, directly or through insurance, provides a death
benefit payment to Executive's Beneficiaries pursuant to that
certain Supplement to his employment letter agreement, dated
May 5, 1993, no benefits shall be due or paid under this Plan.
ARTICLE 4
CONTRIBUTIONS
4.1 St. Jude Contributions. St. Jude shall contribute to
the Trust the sum of Two Million Five Hundred Thousand Dollars
($2,500,000.00) within 30 days of the Effective Date of the Plan.
In addition, until such time as the Executive becomes fully
vested in the Plan as provided in Article 6, St. Jude shall pay
any and all reasonable Trustee fees and any additional expenses,
including but not limited to, any taxes on the income of the
Trust, incurred in connection with the administration of the Plan
and Trust. St. Jude shall reimburse the Trust, as an additional
contribution, any amount which the Trust is required to pay in
federal, state and local income or other taxes imposed upon the
Trust during the period prior to the date the Executive becomes
fully vested in the Plan as provided in Article 6. From and
after the date the Executive becomes fully vested in the Plan as
provided in Article 6, St. Jude shall have no further
responsibility or obligation to pay any expenses of the Trust or
the Trustee.
4.2 Reversion to St. Jude. Except as provided for in
Section 3.2 or 6.2, principal or income of this Trust shall not
be paid or revert to St. Jude or be used for any purpose
whatsoever other than the exclusive benefit of the Executive or
his Beneficiaries.
4.3 Contribution Does Not Vest. The fact that a
contribution has been made as hereinbefore provided will not of
itself operate to vest in the Executive any right, title or
interest in the Trust. Vesting will be accomplished only at the
times and on the contingencies hereinafter set forth.
4.4 Valuation of the Trust Fund. The Trustee shall
determine the fair market value of the Trust Fund as of the
Anniversary Date of each Plan Year.
All accounts, books and records maintained pursuant to this
Section 4.4 shall be opened to inspection and audit at all
reasonable times by St. Jude and by the Executive.
ARTICLE 5
INVESTMENT OF CONTRIBUTIONS
5.1 Investment Powers. Except as otherwise provided in
this Article, during the term of the Trust, the Trustee shall
have the exclusive authority and discretion to invest and
reinvest the principal and income of the Trust in real and
personal property of any kind. The Trustee shall not be limited
by the laws of any state proscribing or limiting the investment
of trust funds by trustees, either as to types of investments or
as to diversification of investments.
Notwithstanding the foregoing, until such time as the
Executive becomes fully vested in the Plan as provided in
Article 6, the Trustee shall invest the Trust Funds only in one
or more of the following investments:
(a) obligations of or guaranteed by the United
States of America;
(b) securities traded on a national securities
exchange or the NASDAQ national market;
(c) commercial paper obligations receiving the
highest rating from either Moody's Investors Services, Inc.
or Standard & Poor's Corporation or a similar rating
service;
(d) certificates of deposit, bank repurchase
agreements or bankers acceptances (including those of the
trustee or of its affiliates) of commercial banks the
securities of which or the securities of the holding company
of which are rated in the highest category by a nationally-
recognized credit agency;
(e) an annuity or insurance policy of a company
licensed to do business in Minnesota;
(f) registered investment funds, including such
funds of an affiliate of the Trustee; or
(g) a commingled common money-market, stock or bond
fund operated by the Trustee.
5.2 Written Investment Policy. The Trustee shall invest
the Trust Fund in accordance with the written investment policy
set forth as Exhibit A attached hereto and incorporated herein.
Except as otherwise provided in Section 5.3, the Committee shall
have no further power or authority with respect to the investment
of the Trust assets.
5.3 Appointment of Investment Manager. Prior to the date
the Executive becomes fully vested in the Plan as provided in
Article 6, the Committee may, with the consent of the Executive,
appoint one or more parties that are investment managers as
defined in ERISA, to have power to manage, acquire, or dispose of
all or part of the Trust Fund, and thereafter, the Committee may,
with the consent of the Executive, remove such investment manager
and appoint a successor. The appointment of any such investment
manager and investment of the Trust Fund pursuant to such
appointment shall be subject to the following:
(a) Written notice of each such appointment shall be
given to the Trustee a reasonable time in advance of
the date that the investment manager first exercises
the power granted to it. Such notice shall state
what portion of the Trust Fund is to be invested by
the manager and shall direct the Trustee to segregate
such portion of the Trust Fund into a separate
account for such investment manager.
(b) The Trustee shall not act on any direction or
instruction of the investment manager until the
Trustee has been furnished with an acknowledgment in
writing by the investment manager that it is a
fiduciary with respect to the Plan.
(c) There shall be a written agreement between St. Jude
and each investment manager. The Trustee shall
receive a copy of each agreement and all amendments
thereto and shall give written acknowledgment of
receipt of same.
5.4 Executive's Right to Direct Investments. The
Executive shall not be permitted to direct the investment of the
Trust Fund prior to the date the Executive becomes fully vested
in the Plan as provided in Article 6. From and after the date
the Executive becomes fully vested in the Plan as provided in
Article 6, the Executive shall have the sole authority to
instruct the Trustee as to investments (including the
acquisition, sale or retention of specific assets), disbursements
or any other matter which comes within the investment powers
granted to the Trustee under this Plan, provided, however, that
the Executive shall not direct the investment of the Trust Fund
in any investment in which the Executive, any family member or
any affiliate of the Executive has an interest. When the
Executive does instruct the Trustee, the Trustee shall have no
responsibility or accountability for making any investment, for
retaining any investment or for doing any other act directed by
the Executive other than to comply with the instructions of the
Executive. From and after the date the Executive becomes fully
vested in the Plan as provided in Article 6, the Trustee may rely
upon any instruction from the Executive given to it in writing
and shall be under no duty to inquire as to the action taken.
ARTICLE 6
VESTING
6.1 Vesting of Executive in Trust Fund. The Executive
shall have a fully vested and nonforfeitable interest in the
assets of the Trust Fund and earnings thereon, upon the
occurrence of any one of the following events:
(a) involuntary Termination of Employment of the
Executive by St. Jude for reasons other than Good
Cause;
(b) voluntary Termination of Employment from St. Jude by
the Executive for Good Reason;
(c) the Executive's continued employment with St. Jude
until October 1, 1996; or
(d) October 1, 1996 if, prior to October 1, 1996, the
Executive is rendered incapable of continuing his
employment with St. Jude due to a Disability and the
Executive survives to October 1, 1996.
6.2 Executive's Forfeiture of Interest in Trust Fund.
The Executive shall forfeit any and all right, title and interest
in and to the Trust Fund upon the occurrence of any one of the
following events prior to October 1, 1996:
(a) involuntary Termination of Employment of the
Executive by St. Jude for Good Cause;
(b) voluntary Termination of Employment from St. Jude by
the Executive for reasons other than Good Reason; or
(c) the Executive dies prior to October 1, 1996.
If at any time the Executive's rights to the Trust Fund are
forfeited, the purpose of the Trust will be deemed to have been
accomplished and all liabilities of the Trust shall be deemed
satisfied, the Trust shall terminate and all the assets in the
Trust shall revert to St. Jude.
6.3 Notice and Dispute Resolution. Within 30 days after
the occurrence of an event specified in this Article resulting in
either the full vesting of Executive in accordance with
Section 6.1 or the forfeiture by Executive in accordance with
Section 6.2, St. Jude and the Executive shall jointly notify the
Trustee of such occurrence in writing. If either St. Jude or the
Executive disagree as to the occurrence of an event or the
consequences of such event, each party shall immediately notify
the Trustee that a dispute as to the Executive's rights under the
Plan exists. Upon such notice, the Trustee shall not make any
payment to the Executive, his Beneficiaries or to St. Jude until
such time as the parties resolve such dispute or until the
Trustee is ordered to pay or begin payments to one or the other
of the parties or by a court of competent jurisdiction. Any such
dispute between St. Jude and the Executive as to the occurrence
of an event giving rise to full vesting or forfeiture under this
Article (including, but not limited to, any determination with
respect to Executive's Disability) shall be resolved by the
parties in accordance with Article 8.
ARTICLE 7
PAYMENTS OF BENEFITS
7.1 Notice. The Trustee shall furnish the Executive or
Beneficiary with a written statement of the terms, conditions and
forms of payment from the Trust available to him no less than 30
nor more than 90 days prior to the first day of the first period
for which an amount is paid as an annuity or any other form under
Section 7.5 of the Plan. The statement shall explain:
(a) the terms and conditions of the Qualified Joint and
Survivor Annuity;
(b) the Executive's right to make, and the effect of, an
election to waive the Qualified Joint and Survivor
Annuity form of benefit;
(c) if the Executive is married at the time, the right of
the Executive's Spouse to consent to the above
election; and
(d) the right to make, and the effect of, a revocation of
a previous election to waive the Qualified Joint and
Survivor Annuity.
The Trustee shall furnish the Executive and his Spouse, if
any, with a statement explaining the Qualified Preretirement
Survivor Annuity in a form similar to the form described above.
7.2 Amount of Benefits and Valuation. Benefits under the
Plan shall be paid solely from the Trust Fund and the amount
payable to the Executive shall be based on the fair market value
of the assets of the Trust as of the time for distribution.
7.3 Notice of Benefit Commencement. Upon receipt of a
notice of benefit commencement, the Trustee shall, within 10 days
of receipt of such notice, provide notice to St. Jude of such
commencement, and the terms thereof and St. Jude shall, within 30
days after receipt of such notice, inform the Trustee whether or
not St. Jude disputes such benefit commencement. If St. Jude
disputes such commencement, the Trustee shall not pay any amount
to the Executive except in accordance with Section 6.3. It shall
be the responsibility of the Trustee to verify that the
Executive's Beneficial Interest from the Trust shall be due and
payable in accordance with the terms of the Plan and Trust.
7.4 Modes of Payment to Executive After Full Vesting.
(a) The Executive's Beneficial Interest shall be paid at
the time specified in Section 7.5 in the form of a
Qualified Joint and Survivor Annuity unless the
Executive elects subject to the provisions of this
Subsection to waive the Qualified Joint Survivor
Annuity or to receive another form of benefit as
provided under paragraph (b). An election to waive
the Qualified Joint and Survivor Annuity shall be
made (or revoked) within 90 days prior to the date on
which payment of his Beneficial Interest begins, and
shall be effective only if:
(i) the Executive's Spouse consents in writing to
such election, and the Spouse's consent
acknowledges the effect of such election and the
consent is witnessed by a Plan representative or
a notary public; or
(ii) it is established to the satisfaction of the
Trustee that the Spouse's consent may not be
obtained because there is no Spouse, because the
Spouse cannot be located, or because of such
other circumstances that the Secretary of the
Treasury may prescribe by regulation.
Any consent by the Spouse under paragraph (i) above
(or establishment that the consent of the Spouse
cannot be obtained under paragraph (ii) above) shall
be effective only with respect to such Spouse.
If the Executive dies before payment of his
Beneficial Interest has commenced and has a surviving
Spouse, payment of benefits shall take place as
provided in Subsection (c) below.
(b) If the Executive is unmarried on the date on which
payment of his Beneficial Interest begins, as
specified in Section 7.5, or if the Executive has
elected to waive the Qualified Joint and Survivor
Annuity as provided above, the Executive's Beneficial
Interest in the Plan shall be paid under one or more
of the following modes of settlement selected by the
Executive, or by the Executive's designated
Beneficiary if the Executive dies before commencement
of benefits:
(i) by payment of nonperiodic lump sum amounts;
provided, however, that the cumulative payments
during the first 12 month period commencing on
the date on which the Executive becomes fully
vested as provided in Article 6 shall not exceed
1/10th of the value of the Trust Fund as of the
most recent Anniversary Date (excluding any
amount payable under Section 7.7(a)) and
thereafter, a fraction of the value of the Trust
Fund as of the most recent Anniversary Date, the
denominator of which is reduced by one for each
subsequent 12 month period, and further provided
that any amount not distributed in any year
shall be available for distribution in any later
year;
(ii) by payment in the form of annual or more
frequent installments of as nearly equal amounts
as may be conveniently determined over a period
of not less than 10 years; or
(iii) by payment in any other form of annuity over
the life of the Executive, the joint lives of
the Executive and his Beneficiary or over a
period certain of not less than 10 years.
(c) If the Executive dies before commencement of his
Beneficial Interest and leaves a surviving Spouse,
the Executive's Beneficial Interest shall be paid to
his surviving Spouse in the form of a Qualified
Preretirement Survivor Annuity, unless the Executive
had otherwise elected as provided herein, subject to
the following rules:
(i) Payment of such benefit shall commence within 60
days after the Executive's death, unless the
surviving Spouse elects a later date in
accordance with this Article, but in no event
later than the date the Executive would have
reached age 70.5.
(ii) The Executive's surviving Spouse may elect in
writing to receive such benefit in any of the
forms permitted under Subsection (b).
(iii) The Executive may elect to waive the
Qualified Preretirement Survivor Annuity.
Designation under Section 3.2 of a
Beneficiary or Beneficiaries other than the
Executive's Spouse shall be deemed a waiver
of the Qualified Preretirement Survivor
Annuity, subject to the Spouse's consent in
accordance with that Section.
(iv) The Trustee shall provide the Executive with a
written explanation of the Qualified
Preretirement Survivor Annuity containing
comparable information to that required in
regard to the Qualified Joint and Survivor
Annuity under Section 8.1.
The decision of the Executive as to the mode of settlement
shall be final and the Trustee shall not be liable to the
recipient (or to any heir, Beneficiary, or representative of the
Executive, or of the recipient if other than the Executive) for
such decision notwithstanding the fact that another mode of
settlement would have resulted in a greater benefit. Any
distribution to a Beneficiary shall be in accordance with this
Article and shall be determined as if the Beneficiary were the
Executive.
7.5 Time for Payment. Except as otherwise set forth
below, payment of the Executive's Beneficial Interest in the Plan
to the Executive, or his Beneficiary, to be made or begin as soon
as administratively feasible following the date the Executive
becomes fully vested in the Plan as provided in Article 6, or on
such later date as elected by the Executive.
7.9 Medium of Payment. Any payment of benefits from the
Plan to the Executive or his Beneficiary shall be made in cash,
except that, with the consent of the Executive or his
Beneficiary, such a payment may be in the form of a
nontransferable, noncancellable annuity contract upon termination
of the Plan and Trust.
7.7 Payment to Executive to Satisfy Taxes.
Notwithstanding anything in this Article to the contrary:
(a) The Trustee shall, upon request of the Executive,
distribute to the Executive such amount of the Trust
Fund as the Executive represents as necessary to pay
any and all federal, state and local taxes which are
assessed against the Executive as a result of the
Executive's becoming fully vested in the Plan in
accordance with Article 6. The Trustee may request
reasonable proof of the amount requested by the
Executive. The Trustee shall make payment to the
Executive as soon as administratively feasible
following verification of such amount, but in no
event later than the date such taxes are otherwise
due from Executive. Such distribution shall not be
credited against or reduce any amount otherwise
payable under Section 7.4.
(b) In addition to any amounts payable under the
preceding paragraph, following the Executive's
becoming fully vested in the Plan in accordance with
Article 6, the Trustee shall, upon request of the
Executive, pay to the Executive part or all of any
interest, gains or earning on the Trust Fund for the
Plan Year. Such distribution shall be credited
against, and reduce, any amount otherwise payable
under Section 7.4.
7.8 Facility of Payment. In case of incompetency of the
Executive or Beneficiary entitled to receive any distribution
under the Plan, and if the Trustee shall be advised of the
existence of such condition, the Trustee shall direct
distribution to any one of the following:
(a) to the duly appointed guardian, conservator, or other
legal representative of the Executive or Beneficiary;
or
(b) to a person or institution entrusted with the care or
maintenance of the incompetent Executive or
Beneficiary, provided such person or institution has
satisfied the Trustee that the payment will be used
for the best interest and assist in the care of the
Executive or Beneficiary and; provided further, that
no prior claim for said payment has been made by a
duly appointed guardian, conservator, or other legal
representative of the Executive or Beneficiary.
Any payment made in accordance with the foregoing provisions of
this Section shall constitute a complete discharge of any
liability or obligation of St. Jude, the Trustee, and the Trust
Fund.
ARTICLE 8
CLAIMS PROCEDURE
8.1 Claims for Benefits. At any time after the Executive
becomes fully vested in the Plan as provided in Article 6, the
Executive or, if the Executive is deceased, his Beneficiary may
make a claim for Plan benefits, by filing a written request with
the Trustee on a form to be furnished to him for such purpose.
The Executive or Beneficiary shall also furnish such additional
information as may be reasonably necessary to pay the Executive's
Beneficial Interest in accordance with the terms of the Plan and
Trust.
8.2 Dispute of Benefits. Any dispute between the
Executive and St. Jude as to the occurrence of an event described
in Article 6 and the effect of such event or any other dispute
under the Plan shall be resolved first by the Board of Directors
of St. Jude. The Board of Directors shall furnish to the
Executive a notice of its decision, meeting the requirements
stated below within 30 days after receipt of a notice of dispute
from the Executive. If special circumstances require more than
30 days to process the claim, this period may be extended for up
to an additional 30 days by giving written notice to the
Executive before the end of the initial 30-day period, stating
the special circumstances requiring the extension and the date by
which a decision is expected. Failure to provide a notice of
decision in the time specified shall constitute a denial of the
claim, and the Executive shall be entitled to the rights
specified in Section 8.3.
The notice to be provided to the Executive in the event the
claim for benefits is denied, shall be in writing and shall set
forth the following:
(a) the specified reason or reasons for the denial of a
benefit;
(b) specific reference to pertinent Plan provisions on
which the denial is based.
8.3 Arbitration or Judicial Review of Dispute. If the
Executive is dissatisfied with the decision of the Board of
Directors of St. Jude under Section 8.2, the Executive shall have
the right, in addition to all other rights and remedies provided
by law, at his election, either to seek arbitration in St. Paul,
Minnesota, under the rules of the American Arbitration
Association, by serving a notice to arbitrate upon St. Jude or to
institute a judicial proceeding, in either case within 60 days
after having received notice of denial of benefits under this
Plan, or within such longer period as may reasonably be necessary
for the Executive to take action in the event of his Disability
during such 60 day period. If arbitration is elected, each party
shall select one arbitrator and a third arbitrator shall be
selected by St. Jude from a list submitted to it by the
Executive. Each party shall bear its own costs and expenses,
including attorney and expert witness fees, in any arbitration or
judicial proceeding. All decisions of the Committee or the Board
of Directors with respect to Executive's rights to his Beneficial
Interest under the Plan shall be subject to review de novo by the
court or arbitrators.
ARTICLE 9
COMMITTEE
9.1 Appointment. The Compensation Committee of the Board
of Directors of St. Jude is designated as the administrator of
the Plan and its members are "named fiduciaries." Such Committee
shall be responsible for the administration of the Plan prior to
and until such time as the Executive shall become fully vested in
the Plan as provided in Article 6, at which time the authority
and control of the Committee otherwise provided in this Plan
shall cease. The Executive shall not be a member of this
committee at any time prior to the date on which he becomes fully
vested in the Plan as provided in Article 6.
9.2 Action of the Committee. The Committee may authorize
one or more of its members or any agent to execute or deliver any
instrument on behalf of the Committee.
9.3 Meetings. The Committee shall hold such meetings
upon such notice and at such place or places and at such time or
times as it may from time to time determine. A majority of
members then serving on the Committee shall constitute a quorum
for the conduct of business and the affirmative vote of a
majority of the members present at any meeting shall be necessary
to approve action taken at the meeting. Action by the Committee
may be taken without a formal meeting by the written
authorization of all the members thereof.
9.4 Records. The Committee shall keep all records
appropriate for the performance of its powers and duties under
the Plan and may keep appropriate written records of its
meetings.
9.5 Powers. Prior to the date the Executive becomes
fully vested in the Plan, the Committee shall have full power and
authority to do each and every act and thing which it is
specifically required or permitted to do under the provisions of
the Plan and in addition thereto shall have the following
discretionary powers and duties in connection with the
administration of the Plan:
(a) to adopt from time to time such bylaws, procedures
and forms as the Committee considers appropriate in
the operation and administration of the Plan and
Trust;
(b) to determine that an event giving rise to full
vesting by the Executive as provided in Article 6
shall have occurred;
(c) to establish rules and procedures needed for its
administration of the Plan;
(d) to receive information and review copies of all Trust
accountings;
(e) to exercise general administration of the Plan except
to the extent responsibilities are expressly
conferred on others;
(f) to be the designated agent of the Plan for the
service of legal process;
(g) to determine conclusively for all parties all
questions arising in the interpretation or
administration of the Plan;
(h) to employ a qualified investment manager to manage
all or part of the Plan assets;
(i) to allocate fiduciary duties and responsibilities
(other than Trustee responsibilities) among members
of the Committee or other named fiduciaries appointed
by the Committee to act in such capacity and to
designate persons other than named fiduciaries to
carry out fiduciary responsibilities (other than
Trustee responsibilities) under the Plan to the
extent that it is deemed advisable by the Committee.
For purposes of this subparagraph, Trustee
responsibility shall mean any responsibility provided
in the Trust to manage or control the assets of the
Plan, other than power of the Committee to appoint an
investment manager in accordance with Section
402(c)(3) of ERISA. Before the Committee delegates
any duties or responsibilities as provided herein, it
must first obtain approval for such delegation from
the Board of Directors of St. Jude. The Committee
shall periodically review the performance of any
person to whom it has delegated such
responsibilities. In no event shall the Committee
delegate any authority to the Executive prior to the
date he becomes fully vested in the Plan as provided
in Article 6. It is intended under this Plan and
Trust that each fiduciary shall be responsible for
the proper exercise of its own powers, duties,
responsibilities and obligations under this Plan and
the Trust, and shall not be responsible for any act
or failure to act of another fiduciary.
9.6 Compensation. No member of the Committee shall
receive any compensation from the Trust for his services.
9.7 Indemnity. St. Jude shall indemnify each member of
the Committee against any and all claims, loss, damages, expenses
(including counsel fees approved by the Committee), and liability
(including any amounts paid in settlement with the Committee's
approval) arising from any loss or damage or depreciation which
may result in connection with the execution of his duties or the
exercise of his discretion or from any other action or failure to
act hereunder, except when the same is judicially determined to
be due to gross negligence or willful misconduct of such member.
9.8 Powers Denied. No action of the Committee shall:
(a) alter the amount of the contribution otherwise
payable to the Plan;
(b) increase the duties or liabilities of the Trustee
without its written consent; or
(c) cause the funds contributed to this Trust or the
assets of this Trust to ever revert to or be used or
enjoyed by St. Jude, except as provided in this Plan.
9.9 Action When There is a Vacancy. If at any time there
should be a vacancy on the Committee, then pending the
appointment of a successor to fill such vacancy, the remaining
members shall have the power to act on behalf of the Committee.
9.10 Settlement of Claims. The Committee shall have the
power to accept, compromise, arbitrate, or otherwise settle any
obligation, liability or claim, but it shall not be obligated to
do so unless, in its sole judgment, it is in the interest of the
Plan or Trust to do so.
9.11 Discretionary Powers. Whenever in this Plan and
Trust discretionary powers are given to the Committee, it shall
have absolute discretion, and its decision shall be binding upon
all persons affected thereby.
9.12 Employment of Professionals and Assistants. The
Committee shall have the power:
(a) to secure such legal, medical, and actuarial advice
or assistance as it deems necessary or desirable in
carrying out the provisions of the Plan;
(b) to appoint or employ such other advisors or
assistants as it deems necessary or desirable to
carry out its duties.
The Committee shall have full discretion to employ any person or
firm that it deems qualified to supply any of the required
services set forth above; provided, however, that the person or
firm so employed shall be independent of the control of St. Jude
and, where required, shall have all necessary licenses to
practice his profession.
9.13 Bond. Until such time as the Executive becomes fully
vested in the Plan as provided in Article 6, St. Jude shall
obtain and maintain a fidelity bond that shall cover every
fiduciary of the Plan and every person who handles funds or other
property of the Plan ("Plan official"). Each fiduciary and Plan
official shall be bonded in an amount which is not less than 10%
of the assets of the Plan. Said bond will insure the Plan
against loss by reason of acts of fraud or dishonesty on the part
of every fiduciary and Plan official, directly or through
connivance with others.
ARTICLE 10
TRUSTEE
10.1 Duty and Liability of Trustee. The Trustee shall
discharge its duties with respect to this Plan solely in the
interests of the Executive and his Beneficiaries and for the
exclusive purpose of providing benefits to the Executive and his
Beneficiaries and defraying reasonable expenses of administering
the Plan. The Trustee shall have generally all of the powers of
owners with respect to securities or properties held in the Trust
Fund, but shall not be liable for any losses incurred upon
investments, except to the extent such Trustee failed to
diversify the investments of the Plan so as to minimize the risk
of large losses (unless under the circumstances it is clearly
prudent not to do so), or failed to manage the investments of the
Plan with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a
like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims.
Except to the extent such duties may be expressly allocated to
the Trustee, the Trustee in its capacity as such shall have no
authority or responsibility with respect to the operation and
administration of the Plan.
10.2 General Scope of Powers. Except as otherwise
provided in Article 5, the Trustee shall have all powers
necessary for the performance of its duties. In extension, but
not in limitation of the rights, powers and discretion conferred
upon the Trustee by virtue of any statute or rule of law, or
conferred upon the Trustee by other provisions of this Plan and
Trust, the Trustee shall have and may exercise from time to time
in the administration of the Trust herein created and for the
purpose of distribution after the termination thereof and for the
purpose of distributing the Executive's Beneficial Interest after
vesting thereof, and without order or license of any court, any
one or more of the following rights, powers and discretion:
(a) To Determine Executive's Beneficial Interests. To
compute and determine the interest of the Executive
and Beneficiaries in the Trust Fund, and any such
computation or determination made in good faith shall
be binding and conclusive upon all parties to this
Plan and Trust and upon all persons interested or who
may become interested in the Trust Fund.
(b) To Carry Securities in Nominee Form. To purchase,
hold and carry investments for the Trust Fund in the
name of the Trustee, or in the name of any nominee or
nominees selected by the Trustee, without Trust
designation in any said case, and to invest funds of
the Trust in deposits, including savings accounts,
savings certificates, and similar interest-bearing
instruments or accounts, in itself or its affiliates,
provided that such deposits bear a reasonable rate of
interest.
(c) To Exercise Powers of Owners in Cases of
Reorganization, Merger and the Like. To institute,
participate and join in any plan of reorganization or
readjustment or merger or consolidation of any
corporation, the securities of which are held by the
Trust Fund, or to use any other means of protecting
or dealing with any investments of the Trust Fund,
and in general, to exercise each and every other
power or right with respect to each investment of the
Trust Fund as individuals generally have and enjoy
with respect to their own investments and securities,
including the power to give proxies, with or without
power of substitution or revocation, and to deposit
securities with any protective committee or with a
trustee or with depositories designated by any such
committee or by any such trustee or by any court.
(d) To Segregate Funds for Proper Purposes. To segregate
any parts or portion of the Trust Fund for the
purposes of administration thereof, or for purposes
of distribution, or for any other purpose deemed
proper by the Trustee.
(e) To Sue and Defend and be Indemnified on that Account.
To institute or defend any proceedings at law or in
equity concerning the Trust Fund or the assets
thereof at the sole cost and expense of the Trust
Fund, and of the several Beneficial Interests
involved or concerned therein, but the Trustee shall
be under no duty or obligation to institute,
maintain, or defend any suit, action or other legal
proceedings except and unless the Trustee shall have
been indemnified to the Trustee's satisfaction
against all expenses and liabilities which the
Trustee may sustain or anticipate by reason thereof.
(f) To Sell or Otherwise Dispose of Assets. To sell,
exchange, or otherwise dispose of any investment of
the Trust Fund for such price and on such terms as
the Trustee in the Trustee's absolute discretion
shall elect, without regard to whether the time of
payment provided in any said sale shall be greater
than the probable or actual duration of the Trust
herein created or not.
(g) To Employ Agents, Servants and Attorneys. To select
and employ or retain such agents, servants, or
attorneys as the Trustee from time to time may deem
necessary or advisable in connection with the
management and operation of the Trust herein created,
and to pay the fees, commissions, or salaries
incurred on account thereof as an expense of
administration of the Trust.
(h) To Value Assets and the Trust Fund. To fix and
determine, at the current fair market value thereof,
the value of the Trust Fund annually and from time to
time as may be necessary or advisable, in the
Trustee's opinion, for any of the purposes of this
Plan and Trust, including power to fix and determine
the then fair market value of each and every item
constituting the Trust, the items composing the same,
and any such computation, determination, or action of
the Trustee made in good faith shall be binding and
conclusive upon all parties to this Plan and Trust
and upon St. Jude, and the Executive and his
Beneficiary.
(i) To Determine Complex Questions of Income and
Principal. To determine, in accordance with sound
business or accounting practices, with respect to any
receipt of the Trust Fund and without regard to
statutes or rules of law that otherwise would be
controlling, the part or portion thereof which is
income and the part or portion thereof which is
principal, and to charge or credit to principal or
income, as the Trustee may from time to time elect
(without duty or obligation to exercise this power
uniformly in all cases) any premiums paid or received
or discounts received or allowed in connection with,
or any gain or loss resulting from the purchase,
sale, call, redemption or payment of any security or
investment acquired, held, or disposed of by the
Trust Fund.
(j) To Require Settlement and Allowance of Accounts
Before Making Distribution. In making distribution
of any Beneficial Interest, to demand and receive
from the Executive or Beneficiary such verification
as the Trustee in its sole discretion shall require
before the Trustee shall be obligated to pay,
distribute, or make available any part thereof to the
Executive or Beneficiary.
(k) Form and Method of Accounting. To select and
determine the appropriate forms, methods and books of
account for use by the Trustee in the management and
administration of the Trust herein created and for
the purpose of accounting for the same.
(l) Compensation. To receive reasonable compensation for
the Trustee's services as Trustee hereunder, and to
pay from out of the Trust Fund all costs, fees,
expenses, taxes, and other charges and expenses of
administration and distribution of the Trust Fund to
the extent that they are not paid directly by
St. Jude as provided in Section 4.1, and the Trustee
shall further be entitled to reimburse itself for or
on account of any said item of disbursement from and
out of the Trust Fund from time to time held by the
Trustee. From and after the date the Executive
becomes fully vested in the Plan as provided in
Article 6, all compensation and other expenses of the
Trustee shall be paid solely from the Trust Fund.
(m) To Pay any Taxes on the Trust Fund. To pay when due
any taxes of any kind levied or assessed against the
Trust Fund under the existing or future laws of the
United States and any state or local taxing
authority. To the extent required by law, the
Trustee shall withhold from any payment to the
Executive or Beneficiary any amount of taxes required
by law, or such larger amounts as may be requested by
the Executive or Beneficiary. The Trustee shall
cooperate with St. Jude or the Executive who shall be
primarily responsible for filing any return required
by any tax authority in connection with the operation
of the Plan.
(n) To Hold and Deposit Funds. To hold uninvested such
cash funds as may appear reasonably necessary to meet
the anticipated cash requirements of the Plan from
time to time, and to deposit such funds or any part
thereof, either separately or together with other
trust funds under the control of the Trustee, in its
own deposit department or to deposit the same in its
name as Trustee in such other depositories as he may
select.
10.3 Powers Discretionary. Each of the foregoing rights,
powers and discretion conferred upon the Trustee and each and
every power possessed by trustees generally by virtue of any
statute or rule of law or other provisions of this Plan and Trust
shall be discretionary powers exercisable by the Trustee, and the
Trustee shall in no event be or become liable to anyone on
account of the exercise of any said power by him in good faith.
10.4 Annual Account. The Trustee shall account annually
for the Trust Fund and for its various transactions in connection
therewith to the Committee.
10.5 Person Dealing with Trustee. No purchaser at any
sale made by the Trustee hereunder, and no person, firm, or
corporation dealing with the Trustee shall be obligated to see to
the application of any money or property paid or delivered to the
Trustee. All persons dealing with the Trustee may act in
reliance upon the signature of the Trustee and shall not be bound
to inquire as to whether or not said signature represents valid
action by the Trustee.
10.6 Prohibited Transactions. Except as may be expressly
permitted by law, no Trustee or other fiduciary hereunder shall
permit the Plan to engage, directly or indirectly, in any of the
following transactions with a disqualified person (as defined in
Section 4975 of the Code):
(a) sale or exchange, or leasing, of any property between
the Plan and a disqualified person;
(b) lending of money or other extension of credit between
the Plan and a disqualified person;
(c) furnishing of goods, services or facilities between
the Plan and a disqualified person;
(d) transfer to, or use by or for the benefit of, a
disqualified person of the income or assets of the
Plan;
(e) act by a disqualified person who is a fiduciary
whereby he deals with the income or assets of the
Plan in his own interest or for his own account; or
(f) receipt of any consideration for his own personal
account by any disqualified person who is a fiduciary
from any party dealing with the Plan in connection
with a transaction involving the income or assets of
the Plan.
10.7 Indemnity. St. Jude shall indemnify, save and hold
harmless, the Trustee from any and all loss, damage and liability
which the Trustee may incur or sustain, arising out of the
performance of its nondiscretionary duties under the Plan to the
extent directed by the Committee, except to the extent that they
result from the willful misconduct or gross negligence or lack of
good faith of the Trustee, or such actions are otherwise contrary
to the terms of the Plan or ERISA. Except to the extent
otherwise required under ERISA or other applicable law, the
Trustee shall not be liable for the acts or omissions of third
parties.
10.8 Resignation and Appointment. The Trustee, or any
successor Trustee, must accept its appointment in writing. The
Trustee, or any successor Trustee, may resign as Trustee of this
Trust at any time by giving 30 days' notice of resignation by
registered mail to St. Jude, or if the Executive has become fully
vested in the Plan, the Executive, or such shorter notice as may
be agreed to by St. Jude or the Executive, as appropriate. Upon
such resignation becoming effective, the resigning Trustee shall
render to St. Jude an account of its administration of the Trust
during the period following that covered by the most recent
account, and shall perform all acts necessary to transfer the
assets of the Trust to its successor Trustee. In the event of
the resignation of the original or any successor Trustee,
St. Jude, or if the Executive has become fully vested in the
Plan, the Executive, shall have the power to appoint a successor
Trustee. Any successor Trustee shall be a corporate Trustee with
the authority to operate in the State of Minnesota and with
assets under trust of at least $500,000,000. No successor
Trustee shall be or become liable for any action or default of a
prior Trustee.
10.9 Removal of Trustee. St. Jude, or if the Executive
has become fully vested in the Plan, the Executive may remove a
Trustee or any successor Trustee upon 30 days' notice of removal
by registered mail to the Trustee, or such shorter notice as may
be agreed to by the Trustee in the event the Trustee has breached
its duties under this Plan. In case of such removal, the Trustee
shall be under the same duty to account for and transfer assets
of the Trust to a successor as hereinabove provided in the case
of the resignation of a Trustee; and St. Jude or if the Executive
has become fully vested in the Plan, the Executive shall have the
same power to appoint a successor Trustee as provided in Section
10.8.
10.10 Continuation of the Trust. Resignation,
disqualification, liability or removal of a Trustee shall not
terminate the Trust; and any successor Trustee shall have all
powers, duties and discretion herein conferred upon the original
Trustee.
ARTICLE 11
CLAIMS AGAINST THE TRUST FUND
11.1 Anti-Alienation of Benefits. Except as otherwise
provided herein, neither the Executive nor any Beneficiary shall
have any transmissible interest in the Trust Fund or in his
Beneficial Interest therein, either before or after the vesting
thereof, or in any of the assets comprising the same prior to
actual payment and distribution thereof to him, nor shall such
person have any power to alienate, dispose of, pledge or encumber
the same, while in the possession or control of the Trustee, nor
shall the Trustee recognize any assignment thereof, either in
whole or in part, nor shall the interest of the Executive or
Beneficiary be subject to attachment, garnishment, execution or
other legal process while in the hands of the Trustee.
11.2 Qualified Domestic Relations Orders. Notwithstanding
any provision to the contrary herein, the Committee may assign
the interest of the Executive in the Plan to an Alternate Payee
pursuant to a Qualified Domestic Relations Order if such order is
received prior to the date the Executive becomes fully vested in
the Plan as provided in Article 6. In the event the Plan
receives a Qualified Domestic Relations Order with respect to the
Executive's interest in the Trust Fund, the following provisions
shall apply:
(a) The Committee shall promptly give written
notification to the Executive and to the Alternate
Payee of receipt of a domestic relations order and of
Plan Qualification Procedures. The Committee shall
then proceed with Qualification Procedures to
determine whether the order is a Qualified Domestic
Relations Order and shall notify the Executive and
Alternate Payee (or the Alternate Payee's designated
representative) of its determination.
(b) Disputed funds shall be disposed of as follows:
(i) During the period in which the Qualification
Procedures are in progress, the Committee shall
separately account for any amounts which would
be payable to an Alternate Payee if the domestic
relations order is determined to be a Qualified
Domestic Relations Order.
(ii) If the order is determined to be a Qualified
Domestic Relations Order within the 18-month
period beginning on the date on which the first
payment would be required to be made under the
order, the Committee shall pay the amounts
designated in the Order, together with earnings
or losses, if required, to the Alternate Payee.
(iii) If the Committee determines that the order is
not a Qualified Domestic Relations Order, or
if the 18-month period described in paragraph
(i) above elapses and the qualification
dispute has not been resolved, the Committee
shall pay such amounts, together with
earnings or losses, if required, to the
persons who would have received the amounts
if the order had not been issued.
(iv) If an order is qualified after expiration of the
18-month period described in paragraph (i)
above, payment of benefits to an Alternate Payee
shall proceed prospectively and the Plan shall
not be liable to an Alternate Payee for benefits
attributable to the period prior to
qualification.
(c) The Committee shall obey a Qualified Domestic
Relations Order requiring that benefits be paid to an
Alternate Payee beginning on a date on or after the
Executive's Earliest Retirement Age, even though the
Executive does not have a Termination of Employment
on that date.
(d) Payment of benefits pursuant to a Qualified Domestic
Relations Order shall be made only as permitted under
the Plan.
(e) To the extent permitted by law and except as
otherwise provided under a Qualified Domestic
Relations Order, the Committee may, on a uniform
basis, charge the reasonable and necessary expenses
associated with the review of a domestic relations
order and the implementation of a Qualified Domestic
Relations Order as an expense of the Trust.
11.3 Independent Fund. In the event St. Jude shall at any
time go out of business, cease to exist, be dissolved, either
voluntarily or involuntarily, or have a receiver or trustee in
bankruptcy appointed for it, or be merged or consolidated into or
with another company, no part of the Trust Fund created hereunder
or the Executive's Beneficial Interest shall in any manner
whatsoever be or become subject to the rights or claims of any of
its creditors, but the Trust herein created from its inception
shall be a separate entity, aside and apart from St. Jude and its
assets, and except as provided in Section 6.2, St. Jude shall
have no claim or right to repossess any part of the funds or
properties of the Trust or of the income derived therefrom.
ARTICLE 12
RIGHTS OF ST. JUDE TO AMEND, DISCONTINUE OR TERMINATE
12.1 Amendment. Except as herein limited, prior to the
date the Executive becomes fully vested in the Plan as provided
in Article 6, the Board of Directors of St. Jude shall have the
right to amend this Plan and Trust at any time to the extent
necessary to satisfy the requirements of ERISA. Such amendment
will be stated in an instrument in writing executed by St. Jude.
Upon delivery of such instrument to the Trustee, this Plan and
Trust shall be deemed to have been amended in the manner therein
set forth, and the Executive shall be bound thereby; provided,
however:
(a) that no amendment shall increase the duties or
liabilities of the Trustee without its written
consent;
(b) that no amendment shall have the effect of vesting in
St. Jude any interest in or control over any of the
funds or properties subject to the terms of the
Trust;
(c) that no amendment shall modify the vesting
requirements hereunder; and
(d) that no amendment shall reduce the Executive's
Beneficial Interest.
From and after the date the Executive becomes fully vested
in the Plan as provided in Article 6, the Plan and Trust shall
not be amended except upon written agreement of both the
Executive and the Board of Directors of St. Jude.
12.2 Termination of Plan. This Plan shall continue
indefinitely as a contractual obligation of St. Jude until such
time as the purposes herein are accomplished, at which time the
Plan shall terminate. From and after the date Executive becomes
fully vested in the Plan as provided in Article 6, the Plan and
Trust shall not be terminated except by written agreement of both
the Executive and the Board of Directors of St. Jude.
12.3 Termination of Trust. The term of the Trust herein
created shall be for such time as may be necessary to accomplish
the purposes set forth herein and in no event shall the term
exceed the limits prescribed by the laws of the jurisdiction to
which the Trust is subject. In the event such limit should be
reached at any time, or for any reason, prior to the
accomplishment of the purposes for which the Trust is created,
the Trust shall be deemed to have terminated upon the attainment
of such limit. The Board of Directors of St. Jude reserves the
right to terminate the Trust at any time after the Executive's
rights in the Plan are fully vested with the consent of the
Executive, provided that all assets in the Trust Fund are
distributed to the Executive and his Beneficiaries in the form of
a nontransferable, noncancellable annuity contract.
ARTICLE 13
SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS
13.1 Successor Employer. In the event of the dissolution,
merger, consolidation or reorganization of St. Jude, provision
may be made by which the Plan and Trust will be continued by the
successor; and, in that event, such successor shall be
substituted for St. Jude under the Plan. The substitution of the
successor shall constitute an assumption of Plan liabilities by
the successor and the successor shall have all of the powers,
duties and responsibilities of St. Jude under the Plan.
13.2 Merger and Consolidation. This Plan shall not be
merged into or consolidated with, or the assets and liabilities
of the Trust Fund transferred in whole or in part to another
trust fund held under any other plan or deferred compensation
plan maintained or to be established for the benefit of and other
employees of St. Jude.
ARTICLE 14
MISCELLANEOUS
14.1 Liability of St. Jude. All benefits payable under
the Plan shall be paid or provided for solely from the Trust.
Upon the deposit of funds into the Trust as provided in Section
4.1, St. Jude shall have no further responsibility for
contributions or otherwise to provide for the Beneficial Interest
of the Executive under this Plan and Trust. From and after the
date the Executive becomes fully vested in the Plan in accordance
with Article 6, St. Jude's authority under this Plan and Trust
shall be limited to the enforcement of the limitations on
distributions set forth in Article 7 and to approving the
termination of the Plan and Trust upon satisfaction of all of its
liabilities to Executive.
14.2 Indemnification. St. Jude shall be responsible to
comply with any and all applicable requirements of ERISA,
including, but not limited to, all reporting and disclosure
imposed upon the Employer during the term of the Plan and Trust,
and St. Jude shall indemnify and hold harmless the Executive from
any liability resulting from any act or omission by St. Jude as
Employer in connection with the Plan and Trust. Executive shall
indemnify and hold harmless St. Jude from any loss or liability
arising out of ERISA or otherwise resulting from any act or
omission of Executive required or permitted hereunder.
14.3 No Guarantee of Employment. Nothing contained in
this Plan and Trust shall be deemed to give the Executive the
right to be retained in the employ of St. Jude or to interfere
with the right of the Executive to terminate his employment with
St. Jude at any time.
14.4 Governing Law. This Plan and Trust shall be
construed, administered, and governed in all respects under the
laws of the State of Minnesota to the extent not preempted by
federal law.
14.5 Binding Effect. This Plan and Trust shall be binding
upon and inure to the benefit of the heirs, personal
representatives, successors and assigns of any and all of the
parties hereto.
IN WITNESS WHEREOF, St. Jude Medical, Inc. has caused the
St. Jude Medical, Inc. Supplemental Executive Retirement Plan and
Trust to be executed by its officer, who has been duly authorized
by its Board of Directors; Norwest Bank Minnesota, N.A. has
executed this Plan and Trust and hereby accepts its appointment
as Trustee; and Executive has executed this Plan and Trust, as of
the Effective Date.
ST. JUDE MEDICAL, INC.
[signature]
By: Lawrence A. Lehmkuhl
Its Chairman of the Board
NORWEST BANK MINNESOTA, N.A.
[signature]
By Jeanne M. Whitehill
Its Assistant Vice President
[signature]
By Christine Kaehler
Its Vice President
EXECUTIVE:
Ronald A. Matricaria EXHIBIT A
WRITTEN INVESTMENT POLICY PURSUANT TO SECTION 5.2
The general investment objectives for the Plan are:
1. To outperform inflation and to equal or exceed the total
return of the Standard & Poor's 500 Index.
2. To establish a diversified investment portfolio consisting
of equities, fixed income and cash investments that are
diversified among securities and industries and are of
acceptable quality and diversification.
3. To maximize the pretax return for the total portfolio within
reasonable and prudent levels of risk.
The general philosophy for the investment program follows:
A. The investment program should achieve performance results
over a full market cycle that compare favorably to major
market indices.
B. A particular security class may underperform appropriate
market indices in strong markets because of the need to
maintain a moderate risk posture in both equity and fixed
income investments.
C. The Plan should have better than average performance in a
weak or declining market by outperforming appropriate market
indices because it expects to avoid significant exposure to
market declines.
D. There should be consistency of results allowing negative
returns for both equities and fixed income assets so long as
the appropriate market indices are also negative; provided,
however, that the Plan in the aggregate should outperform
appropriate market indices during periods of negative market
results.
SUPPLEMENTARY EXECUTIVE RETIREMENT PLAN AGREEMENT
THIS AGREEMENT, between St. Jude Medical, Inc., a Minnesota
corporation ("St. Jude") and Lawrence A. Lehmkuhl of St. Paul,
Minnesota ("Mr. Lehmkuhl"), restating and superseding that certain
Supplementary Executive Retirement Plan Agreement dated September
30, 1988, is made and entered into as of the 9th day of April,
1993.
WHEREAS, St. Jude and Mr. Lehmkuhl entered into a
Supplementary Executive Retirement Plan Agreement effective
September 30, 1988 (the "1988 Agreement") to provide Mr. Lehmkuhl
with a meaningful pension benefit upon his retirement, taking into
account the benefits to which Mr. Lehmkuhl is otherwise due under
St. Jude's qualified pension plan and other sources; and
WHEREAS, Mr. Lehmkuhl intends to resign as an employee of St.
Jude and assume the duties as Chairman of the Board of Directors of
St. Jude, whereupon he would forfeit any benefits under the 1988
Agreement, unless St. Jude terminates the Agreement before such
termination of employment or otherwise agrees to provide such
benefit to Mr. Lehmkuhl; and
WHEREAS, paragraph 12 of the 1988 Agreement reserved to St.
Jude the power to amend or terminate the Agreement at any time by
action of its Board of Directors; and
WHEREAS, St. Jude desires to continue to provide Mr. Lehmkuhl
the benefits otherwise accrued under the 1988 Agreement at the time
of his termination of employment and to restate and modify the 1988
Agreement as set forth herein.
THEREFORE, pursuant to the authority reserved to St. Jude in
paragraph 12 of the 1988 Agreement, the 1988 Agreement is hereby
restated in it entirety to read as follows:
1. Purpose. The purpose of this Agreement is to provide an
unfunded deferred compensation for Mr. Lehmkuhl, who is a member of
a select group of management employees of St. Jude as that term is
used in the Employee Retirement Income Security Act of 1974, as
amended in accordance with the terms of the 1988 Agreement.
2. Definitions. The following capitalized terms shall have
the meanings specified in this section:
a. "Accrued Benefit" shall mean the amount payable to
Mr. Lehmkuhl or his named beneficiaries, which represents
the present value of Mr. Lehmkuhl's Pension Benefit less
his Benefit Offset described in Section 3 discounted at
an annual rate of 6% from his Normal Retirement Date to
the date of the determination, as set forth on the
attached Exhibit A.
b. "Actuarial Equivalent" shall mean a lump sum amount
payable as of Mr. Lehmkuhl's Normal Retirement Date based
on reasonable mortality tables and interest rate
consistently applied.
c. "Benefit Offset" shall mean the sum of the following
retirement benefits (including any death benefit payable
upon the death of Mr. Lehmkuhl) expressed as:
(i) $3,000, representing the accrued benefit under the
American Hospital Supply Corporation Employee Pension
Plan and any other deferred compensation plan of American
Hospital Supply Corporation or its affiliates to which
Mr. Lehmkuhl may be entitled; (ii) $3,476, representing
the assumed life annuity value of the account balance
under the St. Jude Medical, Inc. Retirement Savings Plan
and Trust attributable to contributions other than Mr.
Lehmkuhl's cash or deferred contributions or rollover
contributions; and (iii) $1,806, representing the assumed
Social Security benefits to which Mr. Lehmkuhl is
entitled, whether or not Mr. Lehmkuhl is or has been
receiving such benefits prior to age 65.
d. "Normal Retirement Date" shall mean the date on which Mr.
Lehmkuhl attains age 65.
e. "Pension Benefit" shall mean $13,225, payable monthly
during Mr. Lehmkuhl's life, beginning with the month Mr.
Lehmkuhl attains his Normal Retirement Date, which amount
represents 50% of Mr. Lehmkuhl's average monthly base
salary for the 12 months prior to July 1, 1993.
3. Retirement Pension Benefit. If Mr. Lehmkuhl attains his
Normal Retirement Date, St. Jude shall pay to Mr. Lehmkuhl the
Actuarial Equivalent of the Pension Benefit, less Mr. Lehmkuhl's
Benefit Offset and less the cash surrender value owned by or
transferred to Mr. Lehmkuhl (including any policy loans taken by
Mr. Lehmkuhl) of any Policy maintained pursuant to that certain
Split-Dollar Agreement dated September 30, 1988, as restated
April 9, 1993, together with the amount provided in Section 6.
Such amount shall be payable in a single lump sum within 60 days
following Mr. Lehmkuhl's attainment of his Normal Retirement Date.
In the event the cash surrender value of such policy exceeds the
Actuarial Equivalent of the Pension Benefit less the Benefit
Offset, no payment shall be due hereunder.
4. Pre-Retirement Death Benefit. In the event Mr. Lehmkuhl
dies prior to his Normal Retirement Date, St. Jude shall pay to Mr.
Lehmkuhl's named beneficiary or beneficiaries his Accrued Benefit
as of the date of his death, less the cash surrender value owed by
or transferred to Mr. Lehmkuhl (including any policy loans taken by
Mr. Lehmkuhl) of any Policy maintained pursuant to that certain
Split Dollar Agreement dated September 30, 1988, as restated April
9, 1993. The Pre-Retirement Death Benefit shall be payable in a
single lump sum within 60 days following Mr. Lehmkuhl's date of
death.
5. Designation of Beneficiary. Mr. Lehmkuhl may designate
a beneficiary or beneficiaries and may change such designation at
any time by written notice to St. Jude in the form attached hereto,
which shall be effective only upon receipt by St. Jude. In the
event Mr. Lehmkuhl fails to name a beneficiary, or if any and all
designated beneficiaries have predeceased Mr. Lehmkuhl, payment of
any benefits shall be made to Mr. Lehmkuhl's spouse, if living,
otherwise to Mr. Lehmkuhl's surviving children in equal shares, and
if no spouse or children survive Mr. Lehmkuhl, to the executor or
administrator of Mr. Lehmkuhl's estate.
6. Additional Payment for Taxes. In addition to the amount
payable under Sections 3 or 7 of this Agreement, St. Jude shall pay
to Mr. Lehmkuhl such additional compensation as is
necessary, after taking into account all federal, state and local
taxes payable by Mr. Lehmkuhl as a result of the receipt of such
additional compensation, such that the payment received under
Sections 3 or 7 represents an after tax amount.
7. Merger, Consolidation or Sale of Assets. In the event of
a merger, consolidation or sale of substantially all of the assets
of St. Jude where St. Jude is not the surviving corporation, Mr.
Lehmkuhl's Accrued Benefit shall be immediately payable to Mr.
Lehmkuhl in a lump sum within 60 days of the effective date of such
merger, consolidation or sale of assets, together with the amount
provided in Section 6; provided that such tax payment shall never
exceed the tax otherwise payable at Normal Retirement Age as if
this Agreement had continued in effect until such date.
8. Assignment of Benefits. Neither Mr. Lehmkuhl, nor his
spouse or beneficiary may assign or alienate the benefits payable
under this Agreement, whether voluntary or involuntary, or directly
or indirectly.
9. No Funding. This Agreement shall not be funded by St.
Jude and neither Mr. Lehmkuhl, his spouse nor beneficiaries shall
have any right, title, or interest in any of St. Jude's assets or
have any greater rights than an unsecured general creditor of St.
Jude in any respect with regard to benefits payable under this
Agreement.
10. Claims and Arbitration Procedure. The Board of Directors
of St. Jude shall make all determinations concerning rights to
benefits under this Agreement; provided that the Chairman shall not
participate in any matter before the Board regarding this
Agreement. Any decision by the Board of Directors of St. Jude
denying a claim by Mr. Lehmkuhl for benefits under this Agreement
shall be stated in writing and delivered or mailed to Mr. Lehmkuhl
(or beneficiary). Such decision shall set forth the specific
reasons for the denial, as well as specific reference to the
provisions of this Agreement upon which denial is based. In
addition, St. Jude shall afford a reasonable opportunity to Mr.
Lehmkuhl (or his beneficiary) for a full and fair review of the
decision denying such claim, provided that such request for a
review is received by St. Jude within 60 days of the date of
receipt of such denial.
If any claim arising under this Agreement is not resolved
under the preceding paragraph or any other dispute arises under the
terms of this Agreement, the Board of Directors of St. Jude and Mr.
Lehmkuhl agree to submit the claim or dispute to arbitration
proceedings held in accordance with the rules of the American
Arbitration Association. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction
thereof. Pending final resolution of the dispute, St. Jude and Mr.
Lehmkuhl shall continue to comply with the provisions of this
Agreement not in dispute. The expenses of the arbitration shall be
borne equally by the parties to the arbitration, provided that each
party shall pay for and bear the costs of its own experts, evidence
and legal counsel. Such arbitration shall be held in Minneapolis,
Minnesota.
11. Amendment and Termination. St. Jude may amend and may
terminate this Agreement at any time by the action of its Board of
Directors in the event of a change in the laws providing for the
deferral of income taxes on amounts deferred under this Agreement.
Any amendment to or termination of this Agreement shall not
decrease the obligations of St. Jude to pay a benefit equal to the
benefit that would have been provided to Mr. Lehmkuhl upon his
Normal Retirement Date, and further provided that upon termination
of this Agreement, the Board of Directors of St. Jude may, in its
sole discretion, pay to Mr. Lehmkuhl his Accrued Benefit at time of
the termination of this Agreement.
12. Construction of Agreement. This Agreement shall be
construed according to the laws of the State of Minnesota.
IN WITNESS WHEREOF, St. Jude has caused this Agreement, which
restates and supersedes the 1988 Agreement, to be executed on
behalf of the corporation and Mr. Lehmkuhl has executed this
Agreement as of the day and date first above written.
ST. JUDE MEDICAL, INC.
By Thomas H. Garrett III
Its Secretary
___________________________
Lawrence A. Lehmkuhl
CALCULATION OF ACCRUED BENEFIT
AND DEATH BENEFIT UNDER SERP
Calendar Year Accrued Benefit Under
SERP Agreement
1993 $371,275
1994 393,552
1995 417,165
1996 442,194
1997 468,726
1998 496,850
1999 526,661
2000 558,260
2001 591,756
2002 627,261
ST. JUDE MEDICAL, INC.
DESIGNATION OF BENEFICIARY
Pursuant to the terms of an Executive Supplemental Retirement Agreement,
dated April 9, 1993, between St. Jude Medical and Lawrence A. Lehmkuhl, I
hereby designate the following beneficiary(ies) to receive any payments which
may be due under such Agreement after my death:
Primary Beneficiary
1. [ ] My spouse, ______________________________________, if my spouse
survives me.
2. [ ] My descendants, per stirpes, who survive me. (The share of a
deceased child will be distributed to the deceased child's
children.)
3. [ ] My children who survive me in equal shares. (The children of a
deceased child will not be entitled to their parent's share.)
4. [ ] Other:
_______________________________________________________________
Name Relationship
Contingent Beneficiary(ies)
---------------------------------------------------------------
Name Relationship
---------------------------------------------------------------
Name Relationship
The Primary Beneficiary named above shall be the designated beneficiary
referred to in Article 4 of said Agreement if he or she is living at the time
a death benefit payment thereunder becomes due and payable, and the Contingent
Beneficiary named above shall be the designated beneficiary referred to in
Article 4 of said Agreement only if he or she is living at the time a death or
retirement benefit payment becomes payable and the Primary Beneficiary is not
then living.
Upon acknowledgement by St. Jude this designation hereby revokes any
prior designation which may have been in effect.
Date:______________________________
_______________________________ ______________________________
(Witness) Lawrence A. Lehmkuhl
Acknowledged By: ______________________________
Title
Received By (Company Use Only): ______________________________
ST. JUDE MEDICAL, INC.
MANAGEMENT INCENTIVE COMPENSATION PLAN
MANAGEMENT INCENTIVE COMPENSATION PLAN
The Management Incentive Compensation Plan
(MICP) is designed to reward management for
achieving annual performance goals. MICP
intents include:
Reinforce strategically important
operational objectives
Establish stretch goals related to
profitability, and
Provide additional compensation based on
achieving significant company, division,
organizational unit and individual goals
The Plan serves St. Jude's interests by
motivating its management and providing annual
compensation opportunities which are
comparable to those found among similar
organizations within the industry.
1994 CHANGES
The MICP contains several changes for 1994
which are detailed in later sections of this
document. These changes include:
Incorporating the Technical Incentive
Compensation Plan (TICP) into the MICP
Establishing the lowest level of Plan
eligibility at grade levels A15 and E15
Assigning performance measures which are
most directly within participants' control
Calculating MICP awards by adding results
from each performance measure rather than
multiplying results across performance
measures
For 1994, setting 10% of payout aside
subject to president/ CEO discretion
Redefining base salary as annual base
compensation paid during the Plan year,
excluding commissions, special awards,
bonuses, and perquisites.
PLAN SUMMARY
Individual MICP awards for division
participants are based on achievement of
corporate earnings per share (EPS), division
income before taxes (IBT), and
local/individual performance objectives (MBO).
Individual MICP awards for corporate
participants are based on achievement of
corporate EPS and individual performance
objectives.
Awards are calculated and distributed during
the first quarter of the subsequent
year following Audit Committee approval of
year end results and
subject to approval by the president/CEO, the
Compensation Committee of the Board and the
Board of Directors.
Funding for the Plan is based on percent of
corporate EPS goal achieved. The president/CEO
and the Compensation Committee of the Board
set the corporate EPS target annually based on
the Company's operating plan, subject to
approval by the Board of Directors.
TARGET AWARD LEVELS
Target award levels vary by participant grade
level. Award levels range from 20% of base
salary at the A15/E15 level to 50% of base
salary at the A24 level, and 100% for the
president/CEO.
MANAGEMENT INCENTIVE COMPENSATION PLAN
TARGET AWARD LEVELS
Grade Level Management Group Percent of Base
-----------------------------------------------------
A26 President/CEO 100%
A24 Officers 50%
A20-A22 Officers 40%
A18-A19 Officers/Directors 30%
E/A16-E/A17 Directors/Managers 25%
E/A15 Managers 20%
In the event that performance measures are
exceeded, awards may exceed the above-stated
target award levels. Such overachievement
awards will be based on a percentage of the
participants' bonus to a maximum of 25% of the bonus.
PERFORMANCE MEASURES
The Plan uses three performance measures to
determine MICP awards:
corporate EPS, division IBT, and
local/individual performance objectives.
The Plan assigns performance measures which
are most directly within participants' ability
to influence them.
For example, division presidents directly
impact division performance which in turn
impacts the consolidated results of the
Company. Division presidents, therefore, have
been assigned MICP performance measures which
are exclusively tied to corporate and division
results. Corporate participants directly
impact overall corporate results and,
therefore, have performance measures largely
based on corporate EPS. Performance measures
for division participants, including country
managers, are largely based on division and
local/individual performance objectives.
PERFORMANCE MEASURES & WEIGHTS
BY ORGANIZATIONAL LEVEL
CORPORATE DIVISION LOCAL/INDIVIDUAL
Earnings Per Income Before Performance
Levels: Share (EPS) Taxes (IBT) Objectives
- -----------------------------------------------------------------
CEO 100% - -
Division
Presidents 50% 50%
Corporate
Participants 70% - 30%
Division
Participants 30% 40% 30%
Country
Managers 20% 30% 50%
INDIVIDUAL OBJECTIVES
Corporate EPS and division IBT goals are
established prior to the start of each Plan
year by the president/CEO, the Compensation
Committee of the Board, and the Board of
Directors.
The process for setting participants'
local/individual performance objectives
begins with the operating plan as approved by
the Board of Directors. Based on the operating
plan, the president/CEO provides direct staff
with annual objectives for application within
their specific functional area. All MICP
participants will incorporate these objectives
to the extent they apply in their functional
area. The six-to-seven most essential
individual performance objectives are listed
on the 1994 Local/Individual Performance
Objectives form (see Appendix A) and submitted
for approval to the division president and/or
the president/CEO.
Once approved, objectives are reviewed
quarterly to ensure milestones are met and any
changes are reviewed by the president/CEO. The
year-end achievement level for
local/individual performance objectives must
be approved by the division president or
corporate vice presidents, with final approval
by the president/CEO.
ELIGIBILITY
Employees in grade level 15 and above
positions as of January 1 of the Plan year
are eligible to participate in MICP, subject
to president/CEO approval. New employees hired
into grade level 15 and above positions after
January 1 but before October 1 of the Plan
year are eligible to participate on a pro rata basis.
Current employees promoted into grade level 15
and above positions between January 1 and
October 1 of the Plan year will be eligible to
participate, or participate at a higher level,
on a pro rata basis.
Individuals hired or promoted into grade level
15 and above positions after October 1 of the
Plan year will be ineligible for participation
during the remainder of the Plan year.
FURTHER INFORMATION
This information summarizes the Management
Incentive Compensation Plan. It is not
intended to be an all inclusive document. The
Compensation Committee of the Board and the
Board of Directors has final discretion on all
employee incentive programs.
If you have any questions regarding this Plan,
please contact the division human resource
manager or Corporate Compensation.
DEFINITION OF TERMS
The following terms as used in the Plan shall
have the meaning as set forth below:
PERFORMANCE MEASURES - Performance measures
for corporate EPS, division IBT and
local/individual performance objectives are
based on the operating plan. The Board may
amend the performance measures to reflect
material adjustments in or changes to the
Company's accounting policies; to reflect
changes due to foreign currency translations,
to reflect material corporate changes such as
mergers, acquisitions, or divestitures; and to
reflect such other events having a material
impact on the performance measures.
BASE SALARY - Annual base compensation paid
during the Plan year, excluding commissions,
special awards, bonuses, and perquisites.
PARTICIPANT - Any employee or position which
shall have been designated by the Board as a
participant in the Plan for the year or during
the year.
ELIGIBILITY - If a management position is
qualified to participate in the MICP,
individuals will be eligible on January 1 of
the Plan year. Any individuals hired or
promoted into an MICP position on or before
October 1 of the Plan year shall be eligible
to participate on a pro rata basis effective
with the date in which the
individual is hired or promoted. Individuals
hired or promoted into an MICP position after
October 1 will not be eligible to participate
in the Plan until the following year.
PLAN YEAR - Shall mean the fiscal year of the
corporation.
FUNDING - Funding levels are determined by
percent of corporate EPS goal achieved.
AWARDS - The actual amount to be paid to a
participant based upon achievement of
corporate, division and local/individual
performance objectives (as applied).
TARGET AWARD LEVELS - The percent of base
salary for which a participant is eligible,
based on grade level. For instance, an A15
participant is eligible for a 20% target
award.
OVERACHIEVEMENT AWARDS - Achievement in excess
of 100% of Corporate EPS and division IBT
performance measures may qualify the
participant for an additional award based on a
percentage of the normal award.
DESIGNATION OF PARTICIPANTS - The minimum
level of MICP eligibility is at grade level
A15 or E15. Each eligible employee at grade 15
or above shall be furnished with a copy of the
Plan as it applies to him/her and shall be
notified of the level of incentive for which
he/she is eligible.
PAYMENT OF AWARDS - Individual awards will not
be paid until the president/CEO and
Compensation Committee of the Board of
Directors approve each participant's
individual award and the Audit Committee
approves year-end results.
PROMOTIONS - Awards for individuals promoted
to either a higher level MICP position or from
a non-MICP position to an MICP position prior
to October 1 of the Plan year will be pro-
rated effective the day in which the
individual is promoted into the new position.
DEMOTIONS - For individuals demoted from one
MICP level position to another, the lower MICP
level will be effective the day in which the
demotion occurs. For individuals demoted into
a non-MICP position, MICP award will be pro-
rated based on the length of time in the MICP
position.
TERMINATION OF EMPLOYMENT - In the event that
any participant shall cease to be a full-time
employee during any year in which s/he is
participating in the Plan, such participant
shall be entitled to receive no incentive
compensation for such Plan year. If s/he terminates after
the Plan year, but prior to the award payment,
payment is at the discretion of the
president/CEO.
AMENDMENT OF THE PLAN - The Board, may, from
time to time, make amendments to the Plan as
it believes appropriate and may terminate the
Plan at any time, provided that no such
amendment or termination will affect the right
of any participant to receive incentive
compensation in accordance with the terms of
the Plan for the portion of any year up to the
date of the amendment or termination.
MISCELLANEOUS - Nothing contained in the Plan
shall be construed to confer upon any employee
any right to continue in the employ of the
Company or the Company's right to terminate
his/her employment at any time.
1994 MICP PERFORMANCE MEASURES
CORPORATE
Corporate performance funds MICP awards. The
award level for the president/CEO is 100%
based on Corporate performance. Corporate
performance impacts MICP awards for other
participants as follows: division presidents
(50%), division participants (30%), corporate
participants (70%), and country managers
(20%).
1994 CORPORATE PERFORMANCE
(YEAR-END EARNINGS PER SHARE)
Percent of Funding
Goal Achieved Percentage
- ------------- ----------
110% 115%
108% 110%
106% 105%
104% 100%
103% 95%
102% 90%
101% 85%
100% 80%
99% 79%
98% 75%
97% 70%
96% 60%
95% 55%
94% 50%
0%
Under the 1994 program, payment of 10% of a
participant's target award will be subject to
the president/CEO discretion.
LOCAL/INDIVIDUAL PERFORMANCE OBJECTIVES
Division and corporate participant MICP awards
are 30% based on local/individual performance.
Country managers MICP award is 50% based on
local country performance.
1994 LOCAL/INDIVIDUAL PERFORMANCE
LOCAL/INDIVIDUAL PERFORMANCE OBJECTIVES
Percent of Award
Measure Achieved Percentage
- ---------------- ----------
100% 100%
99% 99%
98% 98%
97% 97%
96% 96%
95% 95%
94% 94%
93% 93%
92% 92%
91% 91%
90% 90%
85%-89% 85%
80%-84% 80%
<80% 0%
DIVISION GOALS
Division performance directly impacts
corporate EPS. Division presidents have 50% of
their MICP award based on division
performance, other division participants have
40% of their MICP award based on division
performance, and country managers have 30% of
their MICP award based on division
performance.
1994 ST. JUDE MEDICAL DIVISION
INCOME BEFORE TAXES (IN THOUSANDS)
Percent of Award
Measure Achieved Percentage
- ---------------- ----------
110% 115%
108% 110%
106% 105%
104% 100%
103% 95%
102% 90%
101% 85%
100% 80%
99% 79%
98% 75%
97% 70%
96% 60%
91-95% 55%
85-90% 50%
Under 85% 0%
1994 CARDIAC ASSIST DIVISION
INCOME/LOSS BEFORE TAXES (IN THOUSANDS)
Percent
Measure Award
Achieved Percentage
- ---------------- ----------
307% 115%
276% 110%
245% 105%
215% 100%
184% 95%
153% 90%
123% 85%
100% 80%
50% 75%
0% 70%
-150% 65%
-200% 60%
Under -200% 0%
1994 ST. JUDE MEDICAL INTERNATIONAL DIVISION
INCOME BEFORE TAXES (IN THOUSANDS)
Percent of Award
Measure Achieved Percentage
- ---------------- ----------
110% 115%
108% 110%
106% 105%
104% 100%
103% 95%
102% 90%
101% 85%
100% 80%
99% 79%
98% 75%
97% 70%
96% 60%
91-95% 55%
85-90% 50%
Under 85% 0%
ESTABLISHMENT OF 1994 INDIVIDUAL PERFORMANCE OBJECTIVES
In establishing individual performance objectives, the following guidelines
should be used:
Each objective should be concise, clear and measurable (based on time,
cost, and task accomplishment)
Each objective should be a precise, written statement which is discussed
and agreed upon by the individual and manager
Individual objectives should measure accomplishment and not effort
Individuals should normally have 6-to-7 objectives in total
Before receiving an MICP award, it will be necessary for immediate managers
to:
Submit written measurable objectives using the attached format prior
to commencement of the Plan year (or two weeks after receipt of this
material) to the division president and/or the president/chief
executive officer for review and approval
Submit a documented quarterly evaluation of results against
established objectives to the division president and/or the president
/chief executive officer by the second Monday following each calendar
quarter closes
Any modifications or adjustments to the original objectives must be
reviewed by the participant and his/her manager and then submitted to
the division president or the president/chief executive officer for
their respective approvals
Submit the final year-end results against objectives by January 9,
1995, to the division president and the president/chief executive
officer for their respective approvals
All proposed MICP awards will be reviewed for approval by the
Compensation Committee of the Board of Directors
ACKNOWLEDGEMENT
1994 MANAGEMENT INCENTIVE COMPENSATION PLAN
This is to acknowledge that I have read and understand the terms and
conditions of the attached Management Incentive Compensation Plan for the
1994 Plan year.
NAME: __________________________________
DATE: ___________________________________
EXHIBIT 11
ST. JUDE MEDICAL, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1993
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 46,963,158 47,521,510 47,179,168
Net effect of dilutive stock
options, based on the
treasury stock method using
average market price 259,195 409,525 889,649
TOTAL 47,222,353 47,931,035 48,068,817
Net Income $109,643,072 $101,658,327 $83,967,877
Earnings Per Share $2.32 $2.12 $1.75
FULLY DILUTED
Average shares outstanding 46,963,158 47,521,510 47,179,168
Net effect of dilutive
stock options, based on the
treasury stock method
using year-end market price,
if higher than average market price 278,523 424,167 906,571
TOTAL 47,241,681 47,945,677 48,085,739
Net Income $109,643,072 $101,658,327 $83,967,877
Earnings Per Share $2.32 $2.12 $1.75
</TABLE>
ST. JUDE MEDICAL, INC.
1993
Annual
Report
Leader in
Quality
Products for
Tomorrow's
Health Care
[photo]
Table of Contents
Financial Highlights 1
Letter to Shareholders 2
Q&A with the CEO 4
Review of Operations 6
Mission Statement 16
Management's Discussion and Analysis 17
Report of Management 21
Report of Independent Auditors 21
Consolidated Financial Statements 22
Notes to Consolidated Financial Statements 26
Ten-Year Summary of Selected Financial Data 30
Directors and Officers 32
Investor Information 33
ABOUT THE COMPANY St. Jude Medical, Inc. is a multinational manufacturer and
marketer of the world's leading mechanical heart valve. The Company serves
physicians worldwide with the highest quality medical devices for
cardiovascular applications. Since the introduction of the St. Jude
Medical(R) mechanical heart valve in 1977, more than 500,000 have been
successfully implanted. St. Jude Medical is headquartered in St. Paul,
Minnesota, and has operations in Chelmsford, Massachusetts; St. Hyacinthe,
Canada; Caguas, Puerto Rico; and Brussels, Belgium; as well as sales and
service offices throughout the United States, Japan and Europe. The Company's
products are sold in more than 75 countries and its customers include more
than 1,500 open heart centers worldwide. At December 31, 1993, St. Jude
Medical employed 722 people in 11 countries.
St. Jude Medical, Inc. common stock is traded on the over-the-counter
market's National Market System under the symbol STJM. Listed options are
traded on the Chicago Board Options Exchange under the symbol SJQ.
OUR PRODUCTS
*St. Jude Medical(R) mechanical heart valve.
*St. Jude Medical(R) mechanical heart valve
Hemodynamic Plus series.
*BioImplant(R) tissue heart valve.
*Toronto SPVtm tissue heart valve.
*BiFlex(tm)annuloplasty ring.
*Collagen-impregnated aortic valved graft.
*Model 700 intra-aortic balloon pump system.
*RediFurl(R), RediGuardtm and TaperSeal(R)
intra-aortic balloon catheters.
*Lifestream(R) centrifugal pump system.
*Isoflow(R) centrifugal pump.
THE COVER: JUDI GAVIN OF PRINCETON, NEW JERSEY What difference has a St. Jude
Medical(R) mechanical heart valve made in the life of Judi Gavin, 41-year-old
competitive A level tennis player, certified scuba diver and skier?
"I now feel like I have a Maserati engine in a Yugo body," Gavin says. She
was born with congenital aortic stenosis, a narrowing of the aortic valve.
When she was a child, her condition was discovered by her father, Angelo
Migliori, M.D., now a retired cardiologist -- and his daughter's frequent
tennis partner.
Despite shortness of breath, Gavin developed an extremely active lifestyle.
But her condition progressively worsened, forcing her to have surgery to
replace her aortic valve at age 35.
Gavin recalls: "I was concerned about the effects a St. Jude valve would have
on my life. But knowing what I know now, I'd have had the surgery years
before I did. I feel better than I ever have. Four months after my surgery, I
won the tennis tournament at my club for the third consecutive year. I can
still scuba dive to depths of 90 feet. And I love to ski from the top of a
mountain to the bottom without stopping, which I could never do before. I've
also taken up aerobic exercises."
Gavin works full time as a manager in IBM's Latin America organization. She
volunteers with the Women's Heart Research Foundation, from whom she received
the 1993 Ambassador Award. She has written and plans to publish a book for
children with serious illnesses.
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share amounts)
Year ended December 31 1993 1992 % Change
INCOME STATEMENT
Net sales $252,642 $239,547 5
Operating profit 131,288 122,258 7
Net income 109,643 101,658 8
Earnings per share 2.32 2.12 9
PROFIT MARGINS
Gross 75.7% 74.8%
Operating 52.0 51.0
Net 43.4 42.4
BALANCE SHEET
Cash and marketable securities $368,991 $338,690 9
Property, plant and equipment, net 47,185 35,433 33
Total assets 526,817 469,750 12
Shareholders' equity 484,241 429,039 13
FINANCIAL CONDITION
Current ratio 11.0/1 10.8/1
Shareholders' equity to total
liabilities 11.4/1 10.5/1
Return on average net operating assets 68.2% 75.0%
<TABLE>
<CAPTION>
Net Sales Operating Profit Net Income Earnings Per Share
(Dollars in millions) (Dollars in millions) (Dollars in millions) (In dollars)
<S> <C> <C> <C>
$260 $140 $120 $2.40
195 105 90 1.80
130 70 60 1.20
65 35 30 .60
89 90 91 92 93 89 90 91 92 93 89 90 91 92 93 89 90 91 92 93
</TABLE>
[photo]
Ronald A. Matricaria
President and Chief Executive Officer
[caption]: "We have an ambitious but achievable vision for St. Jude Medical
to become a globally significant medical device company built on several
major technology platforms, including our heart valve business."
TO OUR SHAREHOLDERS
St. Jude Medical accomplished a great deal in 1993's tumultuous health care
environment. Most significantly, we moved decisively to set the stage for
diversification so that we can achieve improved future growth and maximize
long-term shareholder value.
Through diversification, we can mitigate risks associated with reliance on a
single product line and fuel our growth. After many months of work, we have
developed St. Jude Medical's first comprehensive diversification strategy,
which will guide us to swift and intelligent action with regard to
appropriate opportunities.
During 1993, we also strengthened our world leadership position in the
mechanical heart valve business and achieved record financial performance. We
are continuously improving and strengthening our core business to become the
most innovative and efficient company in all facets of the heart valve
market.
RECORD FINANCIAL PERFORMANCE During 1993, sales grew to $252.6 million, up
5.5 percent from $239.5 million in 1992. Net income reached $109.6 million,
an increase from the year-earlier level of $101.7 million. Earnings per share
totaled $2.32 versus $2.12 for 1992, an increase of 9.4 percent. Our 1993
first half year-over-year income statement comparisons were very favorable.
However, during the third and fourth quarters, sales and earnings felt the
impact of foreign currency exchange rate changes, increasing worldwide
competition and reduced domestic market demand.
Our gross margin continued to improve, moving from 74.8 percent in 1992 to
75.7 percent in 1993, as we increased manufacturing efficiency in both our
St. Jude Medical and Cardiac Assist divisions. Net after-tax margin reached
43.4 percent, up from 42.4 percent in 1992. Our vertical integration strategy
continued to unfold as we reduced reliance on our major outside supplier and
completed construction of a new, highly efficient manufacturing plant. Under
the contract with our supplier, we will have the opportunity by 1999 to be
completely self-sufficient in producing the main components for the St. Jude
Medical(R) mechanical heart valve.
St. Jude Medical's strong balance sheet offers us considerable opportunity
and financial flexibility to achieve our diversification objectives. At the
end of 1993, cash totaled $369.0 million, or 70 percent of total assets of
$526.8 million. We have no debt. During the year, we repurchased 1.2 million
shares of the Company's stock for a total of 1.4 million shares repurchased
since 1992. We continued to pay a $.10 per share quarterly cash dividend.
CORE BUSINESS ACHIEVEMENTS During 1993, we were pleased with strong market
acceptance of our new Hemodynamic Plus (HP) mechanical heart valve. We made
significant progress in tissue valve products -- our single greatest
opportunity to accelerate growth in the heart valve business. The initial
human implants of the tissue valve developed by The Heart Valve Company, our
50-50 joint venture with Hancock Jaffe Laboratories, are planned for the
first half of 1994 in Europe. We continue to make excellent progress in
international marketing of the Toronto SPVtm (Stentless Porcine Valve) and we
recently received Food and Drug Administration (FDA) approval to enter
clinical trials in the United States with this product.
St. Jude Medical's Cardiac Assist Division is investing in new products to
increase worldwide market share. In 1993, we introduced a new intra-aortic
balloon catheter, the RediGuardtm 2.0, which we believe is the best on the
market today.
1994 GOALS During 1994, we will continue to build our core heart valve
business and effectively deal with increased competition. We are thoroughly
prepared, from both product superiority and marketing perspectives, to meet
our biggest competitive challenge this year -- the U.S. market entry of
mechanical valve manufacturer, CarboMedics, Inc.
We will become more efficient, focusing in 1994 on bringing our new heart
valve component manufacturing facility on line and beginning the FDA
qualification process. We will continue to research, develop and introduce
new products and would expect to achieve international market share gains. We
plan a 1994 international introduction of a new rotatable mechanical heart
valve, which surgeons prefer in certain cases.
We also will move forward aggressively to implement our diversification
strategy.
THE FUTURE We have an ambitious but achievable vision for St. Jude Medical to
become a globally significant medical device company built on several major
technology platforms, including our heart valve business. In the near term,
we seek one technology platform with a fully developed world leadership
capability, and another representing an emerging technology with potential
for eventual market leadership. Over the next several years, we will create
shareholder value through diversification and by investing in research and
development, vertical integration and new service and distribution
capabilities.
Much of our future growth will come from acquisitions, joint ventures,
research and development partnerships, and investments in technology-based
companies. During 1993, we invested in InControl, Inc. of Redmond,
Washington, which is developing a product to treat atrial fibrillation. We
also signed a license and supply agreement with California-based Telios
Pharmaceuticals, Inc., which has developed biocompatible product coatings
designed to improve tissue ingrowth. We recently made an investment in
Advanced Tissue Sciences, Inc. of La Jolla, California, and separately signed
an agreement to pursue the joint development of tissue engineered heart
valves.
A WORD OF THANKS We would like to extend our sincere thanks to William G.
Hendrickson, who retired from our Board of Directors in July 1993 after 12
years as chairman. Dr. Hendrickson provided us with strong leadership and
insight during a period of tremendous growth and profitability.
The gold standard we carry into the future is our core heart valve business,
which has lengthened and improved the lives of more than 500,000 people. We
look forward, with you, to an exciting future of growth and change for St.
Jude Medical.
Sincerely,
[signature]
RONALD A. MATRICARIA
President and Chief Executive Officer
[signature]
LAWRENCE A. LEHMKUHL
Chairman of the Board
March 15, 1994
[photo]
[caption]: Lawrence A. Lehmkuhl
Chairman of the Board
[photo]
[caption]: "I support the concept of managed competition and the idea that
competitive forces should be allowed to work freely. However, I do not
believe that the government should be the nation's health care manager."
HEALTH CARE REVOLUTION: Q&A WITH RON MATRICARIA
In March 1993, St. Jude Medical's Board of Directors named Ronald A.
Matricaria to the position of president and chief executive officer,
assigning him the responsibility for leading the Company to a new level of
growth and prosperity.
Prior to joining St. Jude Medical, Mr. Matricaria spent 23 years with Eli
Lilly and Company. He most recently was executive vice president of the
Pharmaceutical Division and president of North American Operations. He brings
significant medical device and international marketing experience through his
previous positions as president of the company's Medical Device Division and
president of Lilly International. Under his leadership, Eli Lilly's medical
device sales grew from several hundred million dollars to more than $1
billion. Previously, Mr. Matricaria was president and CEO of Cardiac
Pacemakers, Inc., a wholly owned Eli Lilly subsidiary.
Q: What are the major changes taking place in the health care industry, and
how will they affect investors?
A: First, it is important to realize that we are in the midst of a revolution
in the way health care products and services are delivered and purchased.
These changes are taking place not only here in the United States but in a
number of major countries around the world.
Change is underway, and no investor should believe that we will return to
business as usual. In the United States, health care reform is a major
political issue as well as a budgetary one. While we continue to have the
best health care system in the world, it does need some constructive reform.
Health care inflation clearly has started to slow, but the overall
expenditure level is still too high as a percentage of our country's gross
domestic product. As a health care consumer, I have concerns about whether
the best quality care will be available to my family in a few years. And I am
concerned that we retain incentives that encourage our best and brightest
young people to continue to become health care professionals.
Q: Specifically, what are your views on the Clinton Administration's health
care reform plan?
A: As a citizen, taxpayer and medical company CEO, I support the concept of
managed competition and the idea that competitive forces should be allowed to
work freely. However, I do not believe that the government should be the
nation's health care manager.
Details of the Clinton proposal indicate that more than 10 percent of the
budget would be used to pay for additional bureaucracy -- a national health
care board, health care alliances, approved health planning, regional health
care committees and more. I clearly think the administration is on the wrong
track in terms of the specific legislation they are recommending.
Having said that, I think our elected representatives are having a
significant impact on changes that are underway simply by continuing to talk
about reform.
[photo]
[photo]
Q: What trends and changes do you anticipate for your specific segment of the
market -- medical devices for cardiovascular applications?
A: Among the changes already in process are shifts in buying patterns,
industry consolidation, increased competition and pricing pressures worldwide
and a changing regulatory environment that requires new partnership efforts
between medical device companies and the FDA. Perhaps the single most
important change is a greater demand for data that will prove our products
are cost-effective. St. Jude Medical's pricing philosophy is in line with
these trends, and we are holding our price increases well below many measures
of health care inflation.
We are working on many fronts to build value for our shareholders within the
context of these changes. It is important to note that medical devices
account for only a few cents of every health care dollar. We are not one of
the health care system's problems; we are part of the solution in that we
provide proven medical devices which save and enhance lives in a
cost-effective manner.
Q: How is St. Jude Medical positioned to succeed in this environment?
A: For several reasons, I believe we are well-positioned for any post-reform
environment.
First, all of our products are life sustaining or life enhancing. Second, our
heart valve product line is recognized as the standard of excellence in the
industry. We are the cardiovascular surgeon's first, and many times only,
choice. Third, the valve itself represents just a small percentage of the
total cost of a heart valve replacement procedure; over the next several
years, we will continue to improve our cost competitiveness. Fourth, the
number of cardiovascular procedures will continue to increase because the
worldwide population is aging and cardiovascular disease remains the leading
cause of death in the United States and Europe. In addition, universal
coverage may soon provide all consumers with insurance to cover such
procedures.
These reasons are connected to our markets and our products. Looking inside
the Company, we are confident because we have assembled an experienced,
talented and dedicated team of employees and have developed a sound strategic
framework for diversification and future growth. We have tremendous financial
strength and are recognized for our unparalleled product quality and clinical
documentation, which will be increasingly important in the future.
The bottom line is that we have the ability and commitment to diversify and
continuously improve to stay ahead and take advantage of change.
[photo]
[caption]: "We are working on many fronts to build value for our shareholders
within the context of these changes. . . we provide proven medical devices
which save and enhance lives in a cost-effective manner."
REVIEW OF OPERATIONS
[photo]
[caption]: St. Jude Medical(R) mechanical heart valve Hemodynamic Plus series
[photo]
[caption]: Collagen-impregnated aortic valved graft
Strengthening Leadership in Our Core Heart Valve Business In 1977, we began
marketing the St. Jude Medical(R) mechanical heart valve to cardiac surgeons
who treat patients needing valve replacement for a wide range of heart
conditions. For more than 16 years, our original bileafet pyrolytic carbon
coated valve has set the industry standard and is the cardiovascular
surgeon's first choice in mechanical heart valves.
Today's worldwide market for prosthetic heart valves is approximately $500
million, with 4 to 5 percent annual unit growth. We feel we have the superior
product in the market and through product additions and enhancements, as well
as increasing distribution through a direct sales force, St. Jude Medical has
steadily increased its market share to the current level of 48 percent of the
worldwide heart valve market.
During 1993, we were pleased to achieve excellent acceptance of our
Hemodynamic Plus (HP) series of mechanical heart valves. Compared with other
mechanical heart valves, the HP series offers superior blood flow and reduces
the heart's workload for patients with small valvular openings.
On January 20, 1994, we celebrated the 500,000th implant of our mechanical
heart valve product. Also, we recently received FDA approval for U.S.
marketing of our new collagen-impregnated aortic valved graft (CAVG), which
is used to replace the aortic heart valve and reconstruct the ascending
aorta. Recipients of the St. Jude Medical(R) mechanical heart valve often can
resume all the activities they enjoyed prior to any valve deficiency.
WORLD'S MOST INNOVATIVE HEART VALVE COMPANY Our long-term goal is to be known
as the world's most innovative company in all sectors of the heart valve
market, and specifically to:
*Increase worldwide market share;
*Further reduce our manufacturing costs for the future's demanding health
care environment;
*Provide a full line of mechanical and tissue valve products;
*Participate in new heart valve developments involving synthetics and
recellularization technology;
*Strengthen our internal research and development capability; and
*Continue to expand our heart valve line to provide products that offer the
best fit, durability and hemodynamics for all valve replacement patients.
NEW CARBON COMPONENT MANUFACTURING CAPABILITIES Our new carbon component
manufacturing facility near our St. Paul, Minnesota, headquarters will
increase St. Jude Medical's ability to control our own destiny, increasing
our manufacturing capacity and self-sufficiency and enhancing our future
mechanical heart valve cost advantage. Training of personnel and the FDA
qualification process for the new facility are top 1994 priorities, with full
on-line FDA approval expected in 1995. This facility will produce top quality
components at higher volumes and a lower cost than our current facility.
The new, 65,000-square-foot plant is designed for cellular manufacturing,
with smaller batch sizes and shorter lead times. Space utilization is twice
as efficient as in the existing plant. Special features include
state-of-the-art equipment, paperless record keeping and immediate feedback
to equipment operators for superior quality control.
[photo]
[caption]: Our new, world-class manufacturing plant will enable us to become
totally self-sufficient in the production of the St. Jude Medical(R)
mechanical heart valve's carbon components. We will become the lowest cost
manufacturer of mechanical heart valves, while enhancing product quality and
customer service levels.
Monitoring progress at the new facility are, from left: Robert Eno,
Operations Manager; Robert Elgin, Vice President, Operations; and Michael
Serie, Plant Manager.
Woodridge Carbon Technology Center
[photo]
[caption]: Linda Stack, 46, became the 500,000th St. Jude Medical(R)
mechanical heart valve recipient on January 20, 1994. The St. Paul,
Minnesota, resident is a materials control analyst for 3M. Her recovery
program includes daily walks with her dog Max.
"I had rheumatic fever as a child, but did well until I started experiencing
fatigue and respiratory problems four years ago. Since then, Dr. Arom has
replaced two of my heart valves with St. Jude mechanical heart valves and I
feel great. In fact, I have a trip to Glacier National Park planned for next
summer."
[photo]
[caption]: "Linda's aortic stenosis progressed faster than we thought. She
needed both a mitral valve and an aortic valve replacement in what was a
relatively short time period, especially for someone so young. In both cases,
I was happy that I was able to give her the best mechanical heart valve
available today."
Dr. Kit V. Arom performed Linda Stack's surgery, implanting the 500,000th St.
Jude mechanical heart valve. He participated in initial clinical testing of
the St. Jude valve and currently is conducting a 15-year patient follow-up
study. His surgical group has implanted nearly 3,000 St. Jude valves.
[photo]
[caption]: "Receiving a St. Jude Medical heart valve has extended my life.
With my wife expecting our second child, I feel great about the future. And I
continue to run five miles a day, lift weights and play pick-up basketball."
Bill Gurtin, 33, pictured with wife, Kay, and 3-year-old son, Grant. An
investment advisor in Chicago, Bill received his implant on February 22,
1993.
REVIEW OF OPERATIONS
GROWTH OPPORTUNITIES IN TISSUE VALVES The single greatest opportunity to
accelerate core business growth is to become a significant player in the
tissue valve market, today estimated at $150 million.
Mechanical valves currently comprise 70 percent of all implants, primarily
because of their superior durability. Because tissue valves normally do not
require anticoagulant medication, the market will grow as new technology
improves their durability. St. Jude Medical's goal is to reach the U.S.
market with approved tissue products within the next several years.
In addition to our long-term, next generation heart valve project, we have a
joint venture with Hancock Jaffe Laboratories, under the direction of Warren
Hancock and Norman Jaffe, Ph.D., two of the world's leading tissue valve
experts. The first human implants of this valve are planned for the first
half of 1994 in Europe. We expect very favorable results regarding valve
implantability and performance.
St. Jude Medical also is collaborating with Canadian cardiac surgeon Dr.
Tirone David on the U.S. approval of a new stentless aortic tissue valve, the
Toronto SPVtm. Stentless valves, which do not have frames, require demanding
surgical techniques but are designed to offer potentially superior
hemodynamic performance in the aortic position. We received an
Investigational Device Exemption (IDE) from the FDA in February 1994, and
will begin our U.S. clinical trials of the Toronto SPV before the end of
April.
INTERNATIONAL EXPANSION Today, our customers include more than 1,500 open
heart centers worldwide. While we sell our products in more than 75
countries, approximately 80 percent of our revenues currently come from the
United States and eight European countries where we have direct sales forces.
However, non-direct foreign market sales will be increasingly important to
our future growth as markets such as China, the Pacifc Rim, Latin America,
the Middle East, Africa and Eastern Europe continue to develop.
We are working to expand our international presence by building relationships
with top cardiovascular surgeons and supporting clinical studies in overseas
markets.
Key accomplishments for St. Jude Medical International in 1993 included:
*The launch of an important new randomized multicenter clinical study in
Germany. This research, involving 4,500 patients over the course of five
years, is designed to confirm that lower doses of anticoagulant medication
are sufficient for use with the St. Jude Medical(R) mechanical heart valve.
*Significant progress towards achieving our Total Quality Management goals,
which will result in exceeding ISO 9000 standards and obtaining the CE mark
necessary to market our products in Europe by 1998.
*Significant market share gains in the Middle East and Africa.
*Strategic alliances in Germany and Spain with well-established companies
marketing a full line of cardiovascular devices, which enable us to respond
quickly to market changes.
During 1994, we anticipate international revenue gains from increasing our
mechanical heart valve market share, from increased sales of the Toronto SPV,
from our first human implants of the tissue heart valve developed by Hancock
Jaffe Laboratories and from the introduction of additional cardiac assist
products. We will continue to pursue strategic alliances in the increasingly
competitive European market, tailoring approaches to each country's changing
reimbursement and regulatory environment.
[photo]
[caption]: Tissue heart valve developed by Hancock Jaffe Laboratories
[photo]
[caption]: Toronto SPVtm tissue heart valve
[photo]
[caption]: Model 700 intra-aortic balloon pump system
[photo]
[caption]: RediFurl(R), RediGuardTM and TaperSeal(R) intra-aortic balloon
catheters
[photo]
[caption]: Lifestream(R) centrifugal pump system and Isoflow(R) centrifugal
pump
We also will conduct intensive sales training and clinical symposia in our
non-direct markets where distributors will work with us to launch new cardiac
assist products, together with new mechanical and tissue heart valve devices.
NEW CARDIAC ASSIST PRODUCTS Our Cardiac Assist Division markets two major
categories of products associated with open heart surgery to cardiologists
and perfusionists. Intra-aortic balloon pump (IABP) systems, which include
balloon-tipped catheters and electro-mechanical control consoles, take on
part of the heart's workload before and after open heart surgery and
complicated coronary balloon angioplasty. Centrifugal pump systems,
comprising electro-mechanical control consoles, motor drives and pumps
through which the blood circulates, completely take over for the heart during
open heart procedures.
To increase our market share worldwide, we are introducing new products and
building our reputation for superior customer service. During 1993, we
successfully introduced a refined IAB catheter product, the RediGuardtm 2.0,
which eases the process of guiding and correctly placing the catheter.
We also significantly expanded our direct sales force in the United States in
1993 and increased our worldwide cardiac assist presence through our
distribution agreement with COBE(R) Cardiovascular Inc., which supplies
customized packages of products to perfusionists.
Goals for 1994 include introducing our new ArmorGlidetm coating for catheters
which will allow for easier insertion, and launching our new Model 800 IABP
console.
DIVERSIFICATION PLANNING At St. Jude Medical, we understand the importance of
knowing our destination. For that reason, before making any major
diversification moves, we thoroughly analyzed our business and opportunities
for creating shareholder value. The strategic diversification planning
process sets the stage for us to achieve our vision of becoming a globally
significant medical device company with several major technology platforms,
including our heart valve business. It has four phases:
1) An extensive survey, or shareholder profile, told us about shareholder and
investment community attitudes toward diversification, various types of
acquisitions and growth versus profitability.
2) A core competency assessment identified what we do well, what we can do to
improve our existing businesses and what strengths we can transfer or
leverage in alliances with other companies. Our management team and
consultant advisors identified 191 primary capabilities, which were narrowed
to 48 critical cross-functional capabilities. We zeroed in on 15 potential
core competencies, then on eight true core competency opportunities for St.
Jude Medical which were identified based on passing tests regarding value to
customers, barriers to competition and leverageability to other markets. Our
true core competency opportunities focus primarily on blood handling and
processing, device development and manufacturing, clinical trials and
regulatory approval processes.
[photo]
[caption]: "I like the St. Jude Medical(R) mechanical heart valve's overall
design, which resists blood clot formation, its low profile, and rapid
opening and closing action, which resemble the human heart valve. Japanese
follow-up studies achieve excellent compliance and are very thorough, so
Japan is the ideal country to evaluate the valve; we've seen absolutely no
structural deterioration in 14 years of implants."
Dr. Hitoshi Koyanagi, professor and chairman of the Department of
Cardiovascular Surgery at Tokyo Women's Medical College in Japan, has
implanted more than 1,800 St. Jude Medical(R) mechanical heart valves since the
product's Japanese introduction in 1978.
[photo]
[caption]: St. Jude Medical's diversification efforts are moving forward
from a solid strategy that grew out of a four-part planning process, including
a shareholder profile, core competency assessment, therapeutic class review
and specific opportunity analysis.
[caption]: Members of St. Jude Medical's senior management team conduct a
strategic planning session (from left:) Stephen Wilson, Vice President,
Finance and Chief Financial Officer; John Berdusco, Vice President,
Administration; John Alexander, Vice President, Corporate Development; and
Diane Johnson, Vice President and General Counsel.
REVIEW OF OPERATIONS
3) A therapeutic class review of the medical devices and supplies market
identifies the companies, technologies and products within the markets that
show the most promise. This ongoing process analyzes the relative size,
growth rates and competition within various segments of the medical devices
and supplies market.
4) A specific opportunity analysis continually evaluates the best companies,
products and technologies within the most attractive therapeutic classes and
within the context of the shareholder profile and core competency assessment,
so that our focus is on diversifying in a manner that creates long-term value
for our shareholders.
SPECIFIC OPPORTUNITIES During 1993 and early 1994, four situations
demonstrated our ability to quickly respond to new opportunities.
First, we announced an equity investment in InControl, Inc. of Redmond,
Washington, which is working with leading medical researchers on a product
that would be the first device to diagnose and treat atrial fibrillation,
automatically restoring normal rhythm to an improperly beating atrium of the
heart. We believe that InControl's promising technology represents an
important market opportunity.
Second, we signed an exclusive license and supply agreement with Telios
Pharmaceuticals, Inc. of San Diego, California, to utilize Telios'
proprietary cell adhesion technology. Its PepTite-2000tm biocompatible coating
is expected to promote human tissue ingrowth on the sewing cuffs of heart
valves, aortic valved grafts and annuloplasty rings.
Third, in December we made a fully valued offer to purchase Colorado-based
Electromedics, Inc. However, while the company's open heart surgery products
fit with our existing Cardiac Assist Division business, we did not choose to
participate in a controlled auction process. The agreement was terminated
because it did not make sense from a shareholder value point of view for St.
Jude Medical to pay what would have been required to make the acquisition.
Finally, in January 1994, we announced an investment in Advanced Tissue
Sciences, Inc. and a separate agreement to pursue tissue engineered heart
valves. As part of this agreement, St. Jude Medical obtained exclusive rights
to license technology resulting from this alliance.
As we pursue specific diversification transactions, we are focused on
building our reputation and competencies in cardiovascular products -- an
area we know and where we have an established customer base. We relate each
opportunity to our planning process to ensure it has the potential to create
shareholder value and truly makes sense for our long-term success.
[photo]
[caption]: Diversification Planning
Shareholder Profile
Core Competency Assessment
Therapeutic Class Review
Specific Opportunity Analysis
OUR MISSION
MISSION STATEMENT
ST. JUDE MEDICAL, INC. IS COMMITTED TO HELPING OUR CUSTOMERS WORLD-WIDE SAVE
LIVES, RESTORE HEALTH, AND IMPROVE THE QUALITY OF LIFE IN THEIR PATIENTS
THROUGH THE DESIGN, MANUFACTURE, AND MARKETING OF THE HIGHEST QUALITY
CARDIOVASCULAR MEDICAL DEVICES AND SERVICES.
WE WILL ACCOMPLISH OUR MISSION BY:
* PROVIDING THE MOST INNOVATIVE AND HIGHEST VALUE-ADDED PRODUCTS WHICH CREATE
A CLINICAL BENEFIT;
* EMPHASIZING QUALITY AND INNOVATION IN THE DESIGN, MANUFACTURE, AND
DISTRIBUTION OF OUR PRODUCTS;
* DEVELOPING AND MAINTAINING SUPERIOR RELATIONSHIPS WITH OUR CUSTOMERS AND
THE COMMUNITY;
* PROVIDING A CHALLENGING AND REWARDING WORK ENVIRONMENT WHICH ENABLES OUR
EMPLOYEES TO REACH THEIR FULLEST POTENTIAL.
BY ACHIEVING OUR MISSION WE WILL CREATE ADDITIONAL VALUE IN THE COMPANY AND
GREATER REWARDS FOR OUR SHAREHOLDERS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)
INTRODUCTION
St. Jude Medical, Inc. designs, manufactures and markets medical devices for
cardiovascular applications. The Company is the world's leading supplier of
mechanical heart valves which account for more than 90% of the Company's net
sales. Other products manufactured and sold by the Company include two types
of tissue heart valves, annuloplasty rings, intra-aortic balloon pump systems
and centrifugal pump systems.
The Company's fiscal year is the 52 or 53 week period ending the Saturday
nearest to December 31. Fiscal years 1993 and 1991 included 52 weeks and
fiscal 1992 included 53 weeks.
RESULTS OF OPERATIONS
The Company posted record net sales and net income for the eighth consecutive
year in 1993 as net sales increased 5% to $252,642 and net income increased
8% to $109,643. Shown below for the periods indicated are the percentage
relationships of certain items in the consolidated statements of income to
net sales and the percentage change of the dollar amounts of such items as
compared with the prior period.
<TABLE>
<CAPTION>
Year-to-Year
Percent of Net Sales Increase/(Decrease)
1993 1992
Year Ended December 31 Compared Compared
1993 1992 1991 to 1992 to 1991
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 5% 14%
Cost of sales 24.3% 25.2% 29.0% 2% (1%)
Gross profit 75.7% 74.8% 71.0% 7% 20%
Selling, general and
administrative 19.4% 19.0% 19.1% 8% 13%
Research and development 4.3% 4.8% 3.9% (4%) 42%
Total operating expenses 23.7% 23.8% 23.0% 5% 18%
Operating profit 52.0% 51.0% 48.0% 7% 21%
Other income 5.5% 5.9% 5.7% (2%) 18%
Income before taxes 57.5% 56.9% 53.7% 6% 21%
Income tax provision 14.1% 14.5% 13.7% 2% 21%
Net income 43.4% 42.4% 40.0% 8% 21%
</TABLE>
NET SALES: Net sales totalled $252,642 in 1993, a 5% increase over 1992 net
sales. The increase principally resulted from higher mechanical heart valve
unit sales in the Company's international markets which were partially offset
by lower domestic unit sales. The decrease in domestic unit sales was
attributable to one less operating week in 1993 as compared to 1992 as well
as to hospital inventory reductions and fewer procedures caused by managed
care and the anticipation of health care reform.
Domestic mechanical heart valve net sales increased slightly in 1993 despite
the lower unit sales as prices increased due to the introduction of an
expanded product line and general price increases. International mechanical
heart valve net sales in 1993 increased substantially, particularly in the
emerging country markets where selling prices are lower than in the developed
country markets. Therefore, the higher revenue resulting from increased unit
sales was somewhat offset by lower average selling prices. In addition, net
sales in 1993 were negatively impacted by the appreciation of the U.S. dollar
from 1992 levels in relation to the eight foreign currencies in which the
Company directly markets its products. This foreign currency exchange
situation decreased 1993 net sales by $4,670 relative to 1992.
[graph]
[description]: Net Sales (in millions) International and United States sales
compared over the years 1991, 1992 and 1993.
Cardiac assist device and tissue heart valve net sales in 1993 increased over
1992 levels. These increases were partially offset by decreased biological
vascular graft net sales as a result of the discontinuance of the product
line in mid-1992.
In 1993, net sales in the international markets increased to 43% of total net
sales from 42% in 1992 despite the unfavorable impact of foreign currency
exchange rates. The increase was attributable to higher growth rates within
these markets and the Company's ability to further penetrate these markets.
Net sales in 1992 of $239,547 were 14% higher than 1991 levels. The increase
primarily resulted from higher mechanical heart valve unit sales in all
geographic markets as well as price increases implemented at the beginning of
1992. In addition, net sales of all other Company products, except the
biological vascular graft, increased over 1991 levels.
COST OF SALES: Cost of sales as a percentage of net sales decreased in 1993
to 24.3% from 25.2% in 1992. The improvement was principally attributable to
higher levels of lower cost self-manufactured pyrolytic carbon components for
the mechanical heart valve. In addition, cessation of royalty payments
associated with the acquisition of the intra-aortic balloon pump system and
increased manufacturing efficiencies associated with higher levels of cardiac
assist device production, reduced cost of sales in 1993. These improvements
were partially offset by a lower 1993 mechanical heart valve average selling
price as compared to 1992 which resulted from unfavorable foreign currency
translation and from a higher level of lower margin sales into the emerging
country markets.
In 1992, cost of sales as a percentage of net sales decreased 3.8 percentage
points from the 1991 level. The improvement resulted from reduced costs of
mechanical heart valve components purchased from the Company's supplier,
higher levels of lower cost self-manufactured mechanical heart valve
components, favorable foreign currency translation effects and higher
pricing. The margin improvements were partially offset by higher sales levels
of lower margin non-mechanical heart valve products.
The Company expects cost of sales as a percentage of net sales to increase in
1994 from the 1993 level as a result of a larger increase in international
sales versus domestic sales, particularly into lesser developed countries.
Selling prices in these faster growth markets are significantly lower than in
the markets served by the Company's direct sales forces because sales are
made through distributors rather than directly to hospitals and because
lesser developed countries are typically more price sensitive due to their
economic condition. In addition, the cost of mechanical heart valve
components purchased from the Company's supplier will increase in 1994. Also,
the Company anticipates its sales of lower margin non-mechanical heart valve
products will increase in 1994. Increased competition together with
governmental and third-party payor pressures to reduce health care costs may
limit the Company's pricing flexibility.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expense in 1993 increased $3,479, or 8%, over 1992. The Company expanded its
domestic sales force and marketing department during 1993 in order to better
serve its customers and to better compete against a new mechanical heart
valve competitor in the domestic market. In addition, the Company increased
its support of clinical studies to further document the advantages of the
Company's products. The Company is aggressively pursuing ISO 9000
certification which raised the 1993 expense level as compared to 1992. The
appreciation of the U.S. dollar partially offset the increases noted above.
During 1992, selling, general and administrative expense increased $5,275, or
13%, over 1991. The increase mainly resulted from higher commissions
associated with higher sales levels, expenses associated with several new
product introductions, and increased support of symposia, research papers and
follow-up clinical studies.
RESEARCH AND DEVELOPMENT: Research and development expense decreased $506, or
4%, in 1993. Expenditures in 1993 were primarily associated with mechanical
heart valve product line expansion, tissue heart valve development programs,
a new intra-aortic balloon pump console and intra-aortic balloon catheter
product improvements. During 1993, funding of the Hancock Jaffe Laboratories
joint venture development of a tissue heart valve decreased from the 1992
level due to the completion of certain phases of the project.
In 1992, research and development expense increased $3,368, or 42%, over
1991. The increase was principally associated with new product development
for mechanical heart valves, tissue heart valves and cardiac assist products.
Significant product development efforts included the Hemodynamic Plus (HP)
series of mechanical heart valves, the tissue valve developed by Hancock
Jaffe Laboratories and the Toronto SPVtm.
[graph]
[description]: Increase in cash and marketable securities (in millions)
shown over the course of 1991, 1992 and 1993.
OTHER INCOME: Other income decreased $262, or 2%, from 1992. While cash and
marketable securities increased $30,301 during 1993, the additional interest
received on the higher investment balances was significantly reduced by the
lower average investment rates of return. The additional week of operations
in 1992 added approximately $280 to 1992 investment income. Due to a
significant shift in the relationship between European currencies in 1993,
the loss associated with foreign currency transactions increased to $526 from
$43 in 1992. In addition, losses relating to joint ventures and partnerships
were $243 higher in 1993 than 1992.
INCOME TAX PROVISION: The Company's 1993 effective income tax rate of 24.5%
was one percentage point below the 1992 and 1991 rate of 25.5%. The decrease
was attributable to the derivation of a higher percentage of the Company's
income from the Company's Puerto Rican operations. The relatively low rate as
compared to the U.S. statutory rate stems from the reduced taxes on profits
generated by the Company's Puerto Rican operations as well as from other
income generated by the Company's tax advantaged investments.
[graph]
[description]: Increase in cash flow from operations (in millions) shown over
the course of 1991, 1992 and 1993.
NET INCOME: Net income in 1993 of $109,643, or $2.32 per share, increased 8%
over the $101,658, or $2.12 per share, reported in 1992 which had risen 21%
over 1991 net income. The appreciation of the U.S. dollar against foreign
currencies in 1993 as compared to 1992 decreased net income in 1993 by
$2,488, or $.05 per share.
During 1993, the Company repurchased 1,177,700 shares of its common stock for
$35,239. This repurchase reduced 1993 interest income by approximately $650
and average shares outstanding by approximately 600,000 shares. The net
effect of the repurchase was an increase in 1993 earnings per share of $.02.
OUTLOOK: The Company's core mechanical heart valve business remains strong as
the Company has maintained or slightly increased its market share in the
developed country markets and has continued to penetrate the emerging country
markets. The Company estimates it held a 48% share of the worldwide heart
valve market for 1993.
The health care industry is in the midst of dramatic change worldwide.
Business consolidations and alliances are expected to increase industry
efficiencies and strengthen the bargaining position of large providers of
health care services. Specifically, domestic health care reform is putting
downward pressure on pricing and appears presently to be having the effect of
reducing the number of open heart procedures. In addition, during 1993
hospital consolidations and inventory reduction programs reduced the demand
for the Company's products.
During the third quarter 1993, a competitor received Food and Drug
Administration (FDA) approval to market its bileafet mechanical heart valve
in the United States. The Company cannot predict the impact that this new
competitor may have on its domestic market position.
Internationally, the Company has successfully competed against many
competitors for many years. The Company expects these international markets
to grow at rates which exceed the domestic market rate of growth and the
Company anticipates it will continue to gain share in these highly
competitive markets.
The Omnibus Budget Tax Reconciliation Act of 1993 (the "Act") significantly
reduces the tax benefits which were previously available from income
generated by the Company's Puerto Rican operations under Internal Revenue
Code (IRC) Section 936. Under the new legislation, the Puerto Rican tax
benefit will be reduced by 40% in 1994 and an additional 5% per year in years
1995 through 1998 at which time the benefit will have been reduced by 60%
from current levels. The Company's 1994 tax provision may increase by as much
as five percentage points as a result of this legislation. The impact on 1994
earnings is expected to be approximately $.15 per share. Also, the Act
increased domestic corporate income tax rates effective January 1, 1993, by
1% which will increase future tax provisions. There are additional changes to
IRC Section 936 regulations being proposed by the Internal Revenue Service
which, if enacted, would further negatively impact the Company's effective
income tax rate.
The Company continues to seek diversification opportunities in the form of
acquisitions, joint ventures, partnerships and investments in emerging
technology companies, as well as through internal research and development.
The Company cannot predict the size or timing of such diversification
activities.
FINANCIAL CONDITION
SUMMARY: The Company's financial condition at December 31, 1993, was strong.
Cash and marketable securities totalled $368,991, or 70% of total assets. The
Company had no outstanding debt. Working capital, the difference between
current assets and current liabilities, continued to increase.
The following key measurements are indicative of the excellent liquidity and
strong financial position maintained by the Company.
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Cash and marketable securities $368,991 $338,690 $263,314
Working capital $408,998 $377,321 $301,094
Current ratio 11.0 to 1 10.8 to 1 11.6 to 1
Cash flow from operations $115,302 $113,210 $ 98,500
Shareholders' equity $484,241 $429,039 $344,727
Shareholders' equity to total
liabilities 11.4 to 1 10.5 to 1 11.4 to 1
</TABLE>
LIQUIDITY: Cash flow from operations in 1993 continued to provide sufficient
funds to meet working capital and investment needs. Cash and marketable
securities increased in 1993 by $30,301 to the level of $368,991 at December
31, 1993.
Accounts receivable decreased $2,535 during the year. At December 31, 1993,
days sales outstanding (the number of days worth of sales that are in
accounts receivable) decreased to 58 days from 65 days at the end of 1992.
The decrease was principally attributable to focused collection efforts in
several European countries. In particular, Spanish accounts receivable
decreased $965 during 1993 and totalled $5,397 at the end of 1993.
Inventories increased $5,407 during 1993. The increase was primarily
attributable to the extension of the mechanical heart valve product line as
well as to the purchase of raw materials considered essential to the
Company's operations.
Purchases of property, plant and equipment in 1993 of $16,422 were
principally associated with building a new manufacturing facility for the
production of mechanical heart valve components. This building was completed
in 1993; therefore, property, plant and equipment expenditures are
anticipated to decrease substantially in 1994.
Other assets of $29,722 increased by $11,043 in 1993 as investments were made
in several entities including InControl, Inc., an emerging technology cardiac
rhythm management company; The Heart Valve Company, a joint venture with
Hancock Jaffe Laboratories; and two health care limited partnerships.
The Company expects future working capital and capital spending to be
financed by funds provided by operations.
CAPITAL: During 1993, the Company used $35,239 of its cash flow to repurchase
1,177,700 shares of its common stock. The Company may repurchase
approximately 1,000,000 additional shares under the current authorization
from the Board of Directors. Future repurchases will depend upon
diversification objectives, market conditions, cash position and other
factors.
Although the Company has no debt or outside credit lines, the Company is
prepared to utilize debt to finance its diversification program. The
Company's strong cash flow generating capabilities will enable the Company to
acquire sufficient capital to finance anticipated acquisitions.
Cash dividends paid to shareholders were $18,786 in 1993, an increase of
$4,516 from 1992. The Company initiated the cash dividend in the second
quarter 1992 and maintained a $.10 per share quarterly cash dividend through
1993.
[graph]
[description]: Increase in shareholders' equity over the course of 1991, 1992
and 1993.
OTHER MATTERS: As a medical device manufacturer, the Company is exposed to
product liability claims. Such product liability claims may be asserted
against the Company in the future which are presently unknown to management.
The Company believes its insurance coverage will be adequate to protect the
Company against any material loss.
In the United States, several proposals to "reform" health care are under
consideration. The Company has already experienced some change, as noted
above, as a result of the discussion of reform. Any legislated health care
reform could have a material impact on the Company's operations.
REPORT OF MANAGEMENT
The management of St. Jude Medical, Inc. is responsible for the preparation,
integrity and objectivity of the accompanying financial statements. The
financial statements have been prepared in accordance with generally accepted
accounting principles and include amounts which reflect management's best
estimates based on its informed judgement. Management is also responsible for
the accuracy of the related data in the annual report and its consistency
with the financial statements.
In the opinion of management, the Company's accounting systems and
procedures, and related internal controls, provide reasonable assurance that
transactions are executed in accordance with management's intention and
authorization, that financial statements are prepared in accordance with
generally accepted accounting principles, and that assets are properly
accounted for and safeguarded. The concept of reasonable assurance is based
on the recognition that there are inherent limitations in all systems of
internal control, and that the cost of such systems should not exceed the
benefits to be derived therefrom. These systems are periodically reviewed and
modified in response to changed conditions.
St. Jude Medical, Inc. also recognizes its responsibility for fostering a
strong ethical climate so that the Company's affairs are conducted according
to the highest standards of personal and business conduct. This
responsibility is reflected in the Company's business ethics policy which is
publicized throughout the organization.
The adequacy of the Company's internal accounting controls, the accounting
principles employed in its financial reporting and the scope of independent
and internal audits are reviewed by the Audit Committee of the Board of
Directors, consisting solely of outside directors. The independent certified
public accountants and internal auditors meet with, and have confidential
access to, the Audit Committee to discuss the results of their audit work.
[signature]
Ronald A. Matricaria
President and Chief Executive Officer
[signature]
Stephen L. Wilson
Vice President, Finance and Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
Board of Directors
St. Jude Medical, Inc.
St. Paul, Minnesota
We have audited the accompanying consolidated balance sheets of St. Jude
Medical, Inc. and subsidiaries as of December 31, 1993 and 1992 and the
related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of St. Jude
Medical, Inc. and subsidiaries at December 31, 1993 and 1992 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles.
[signature]
Ernst & Young
Minneapolis, Minnesota
February 4, 1994
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31 1993 1992 1991
<S> <C> <C> <C>
Net sales $ 252,642 $ 239,547 $ 209,837
Cost of sales 61,342 60,250 60,794
Gross profit 191,300 179,297 149,043
Selling, general and administrative
expense 49,040 45,561 40,286
Research and development expense 10,972 11,478 8,110
Operating profit 131,288 122,258 100,647
Other income 13,934 14,196 12,062
Income before taxes 145,222 136,454 112,709
Income tax provision 35,579 34,796 28,741
Net income $ 109,643 $ 101,658 $ 83,968
Earnings per share:
Primary $ 2.32 $ 2.12 $ 1.75
Fully diluted $ 2.32 $ 2.12 $ 1.75
Cash dividends paid per share $ .40 $ .30 $ --
Average shares outstanding:
Primary 47,222,000 47,931,000 48,069,000
Fully diluted 47,242,000 47,946,000 48,086,000
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31 1993 1992
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 26,987 $ 68,346
Marketable securities 342,004 270,344
Accounts receivable, less allowance (1993 - $1,856; 1992 -
$1,413) 40,159 42,694
Inventories:
Finished goods 15,414 12,800
Work in process 2,677 2,054
Raw materials 14,422 12,252
Total inventories 32,513 27,106
Deferred income taxes 2,844 3,118
Prepaid expenses 5,403 4,030
Total current assets 449,910 415,638
PROPERTY, PLANT AND EQUIPMENT
Land 2,136 2,087
Buildings and improvements 24,900 15,045
Machinery and equipment 29,958 26,441
Construction in progress 8,968 6,505
Gross property, plant and equipment 65,962 50,078
Less accumulated depreciation (18,777) (14,645)
Net property, plant and equipment 47,185 35,433
OTHER ASSETS 29,722 18,679
Total assets $ 526,817 $ 469,750
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,837 $ 9,218
Accrued income taxes 23,492 16,965
Accrued employee compensation and related taxes 6,801 6,847
Accrued royalties 2,204 3,313
Other accrued expenses 1,578 1,974
Total current liabilities 40,912 38,317
DEFERRED INCOME TAXES 1,664 2,394
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per share - 25,000,000
shares authorized; no shares issued
Common stock, par value $.10 per share - 100,000,000 shares
authorized; issued and outstanding 1993 - 46,414,261 shares;
1992 - 47,517,546 shares 4,641 4,752
Additional paid-in capital 27,411 60,831
Retained earnings 455,798 364,941
Cumulative translation adjustment (3,609) (1,485)
Total shareholders' equity 484,241 429,039
Total liabilities and shareholders' equity $ 526,817 $ 469,750
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Common Stock
Additional Cumulative Total
Number of Paid-In Retained Translation Shareholders'
Shares Amount Capital Earnings Adjustment Equity
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1990 47,044,508 $4,704 $ 56,063 $ 193,585 $ 53 $ 254,405
Net income 83,968 83,968
Issuance of common stock
under stock plans, net of
taxes withheld 310,634 32 1,115 1,147
Tax benefit realized upon
exercise of stock options 4,774 4,774
Translation adjustment 433 433
Balance December 31, 1991 47,355,142 4,736 61,952 277,553 486 344,727
Net income 101,658 101,658
Issuance of common stock
under stock plans, net of
taxes withheld 347,404 35 (1,481) (1,446)
Tax benefit realized upon
exercise of stock options 5,678 5,678
Cash dividends ($.30 per
share) (14,270) (14,270)
Purchase and retirement of
common shares (185,000) (19) (5,318) (5,337)
Translation adjustment (1,971) (1,971)
Balance December 31, 1992 47,517,546 4,752 60,831 364,941 (1,485) 429,039
Net income 109,643 109,643
Issuance of common stock
under stock plans, net of
taxes withheld 74,415 7 1,346 1,353
Tax benefit realized upon
exercise of stock options 355 355
Cash dividends ($.40 per
share) (18,786) (18,786)
Purchase and retirement of
common shares (1,177,700) (118) (35,121) (35,239)
Translation adjustment (2,124) (2,124)
Balance December 31, 1993 46,414,261 $4,641 $ 27,411 $ 455,798 $(3,609) $ 484,241
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31 1993 1992 1991
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 109,643 $ 101,658 $ 83,968
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,516 3,607 2,948
Amortization 4,458 4,202 4,237
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 718 (7,154) (12,254)
Decrease (increase) in inventories (5,972) (3,657) 8,978
Increase in prepaid expenses (1,920) (1,583) (802)
Increase (decrease) in accounts payable and
accrued expenses (2,746) 3,845 4,043
Increase in accrued income taxes 7,061 12,567 6,705
Decrease (increase) in deferred income taxes (456) (275) 677
Net cash provided by operating activities 115,302 113,210 98,500
INVESTING ACTIVITIES
Purchases of property, plant and equipment (16,422) (11,660) (7,385)
Purchases of marketable securities (153,290) (323,322) (228,455)
Proceeds from sale or maturity of marketable
securities 81,630 259,347 179,232
Payments to former distributors -- (1,747) (7,555)
Investments in companies, joint ventures and
partnerships (12,253) (3,091) (244)
Other investing activities (3,273) (4,489) (2,198)
Net cash used in investing activities (103,608) (84,962) (66,605)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 1,353 3,018 3,345
Cash dividends paid (18,786) (14,270) --
Common stock repurchased (35,239) (5,337) --
Net cash provided by (used in) financing
activities (52,672) (16,589) 3,345
Effect of currency exchange rate changes on cash (381) (258) (208)
Increase (decrease) in cash and cash equivalents (41,359) 11,401 35,032
Cash and cash equivalents at beginning of year 68,346 56,945 21,913
Cash and cash equivalents at end of year $ 26,987 $ 68,346 $ 56,945
</TABLE>
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. Significant
intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifcations of previously reported amounts have been made to
conform with the current year presentation.
ACCOUNTING PERIOD: The Company's fiscal year is the 52 or 53 week period
ending the Saturday nearest December 31. Fiscal years 1991 and 1993 included
52 weeks and fiscal year 1992 included 53 weeks.
TRANSLATION OF FOREIGN CURRENCIES: All assets and liabilities of the
Company's foreign subsidiaries are translated at exchange rates in effect on
reporting dates and differences due to changing translation rates are charged
or credited to "cumulative translation adjustment" in shareholders' equity.
Income and expenses are translated at rates which approximate those in effect
on transaction dates.
CASH EQUIVALENTS: Cash equivalents, consisting of liquid investments with a
maturity of three months or less when purchased, are stated at cost which
approximates market.
MARKETABLE SECURITIES: Marketable securities, consisting of investment grade
municipal debt instruments, bank certificates of deposit and Puerto Rico
industrial development bonds, are stated at cost which approximates market.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," effective for fiscal years beginning after
December 15, 1993. Under this pronouncement, debt securities that the Company
has both the positive intent and ability to hold to maturity are carried at
amortized cost. Debt securities that the Company does not have the positive
intent and ability to hold to maturity and all marketable equity securities
are classified as either available-for-sale or trading and are carried at
fair value. Unrealized holding gains and losses on securities classified as
available-for-sale are carried as a separate component of shareholders'
equity. Unrealized holding gains and losses on securities classified as
trading are reported in earnings.
Presently, the Company classifies its marketable securities as
available-for-sale and carries them at amortized cost. The Company will apply
the new pronouncement starting in the first quarter 1994. The Company
anticipates that the majority of its marketable security holdings will be
classified as available-for-sale and that any shareholders' equity
adjustments will be immaterial.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined under the first-in, first-out method. Allowances are made for
slow-moving, obsolete, unsalable or unusable inventories.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION: Property, plant and equipment
are stated at cost and are depreciated on the straight line method over their
estimated useful lives ranging from three to 32 years. Accelerated
depreciation is used by the Company for tax accounting purposes only.
REVENUE RECOGNITION: The Company's general practice is to recognize revenues
from sales of products as shipped and services as performed.
RESEARCH AND DEVELOPMENT: Research and development expense includes all
expenditures for general research into scientific phenomena, development of
useful ideas into merchantable products and continuing support and upgrading
of various products. All such expense is charged to operations as incurred.
EARNINGS PER SHARE: Primary and fully diluted earnings per share are computed
by dividing net income for the year by the weighted average number of shares
of common stock and common stock equivalents outstanding.
NOTE 2 - INCOME TAXES
During 1993, the Company adopted Statement of Financial Accounting Standard
No. 109, "Accounting for Income Taxes." The statement requires use of the
asset and liability approach for financial accounting and reporting for
income taxes. The cumulative effect of the accounting change was not
material.
The components of income before taxes were as follows:
1993 1992 1991
Domestic $140,303 $133,477 $102,143
Foreign 4,919 2,977 10,566
Income before
taxes $145,222 $136,454 $112,709
The components of the income tax provision were as follows:
1993 1992 1991
Current:
Federal $21,682 $21,892 $15,030
State and Puerto
Rico 12,400 11,272 8,896
Foreign 1,953 1,907 4,138
Total current 36,035 35,071 28,064
Deferred:
Prepaid 274 (807) 404
Deferred (730) 532 273
Total deferred (456) (275) 677
Income tax provision $35,579 $34,796 $28,741
Deferred tax assets (liabilities) were comprised of the following at December
31, 1993:
Net deferred income tax asset:
Accruals not currently deductible $ 2,557
Other 287
Deferred income tax asset $ 2,844
Net deferred income tax liability:
Depreciation and amortization $(2,925)
Other 1,261
Deferred income tax liability $(1,664)
The Company's effective income tax rate varied from the statutory U.S.
federal income tax rate of 35% in 1993 and 34% in prior years as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Income tax provision at U.S. statutory rate $ 50,828 $ 46,394 $ 38,321
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax
benefit 2,610 2,651 1,865
Tax benefits from Foreign Sales Corporation
(FSC) (1,612) (1,325) (408)
Tax benefits from Puerto Rican operations (13,782) (11,401) (8,922)
Tax exempt income (3,403) (3,412) (3,588)
Foreign taxes at higher rates 358 335 435
Other 580 1,554 1,038
Income tax provision $ 35,579 $ 34,796 $ 28,741
Effective income tax rate 24.5% 25.5% 25.5%
</TABLE>
The Company's effective income tax rate is favorably affected by Puerto Rican
tax exemption grants which result in Puerto Rican earnings being partially
tax exempt through the year 2003.
Consolidated U.S. federal income tax returns fled by the Company have been
examined by the Internal Revenue Service through the year 1989. The Company's
1990 and 1991 federal income tax returns are presently under audit.
The Company has not recorded deferred income taxes applicable to
undistributed earnings of foreign subsidiaries ($4,190 at December 31, 1993)
because distribution of these earnings generally would not require additional
taxes due to available foreign tax credits.
The Company made income tax payments of $28,385, $22,709 and $21,872 in 1993,
1992 and 1991, respectively.
NOTE 3 - STOCK PLANS
Under the terms of the Company's various stock plans, 1,801,118 shares of
common stock have been reserved for issuance to directors, officers and
employees upon the grant of restricted stock or the exercise of stock
options. The stock options are exercisable over periods up to 10 years from
date of grant and may be "incentive stock options" or "non-qualified stock
options" and may have stock appreciation rights attached.
At December 31, 1993, there were a maximum of 514,000 shares available for
grant and 1,287,118 options outstanding, of which 498,831 were exercisable.
Stock option activity was as follows:
Options Price
Outstanding Per Share
Balance at December 31,
1991 1,077,297 $ 1.31-50.25
Granted 242,000 28.81-48.25
Cancelled (60,000) 4.59-48.25
Exercised (436,654) 1.31-27.69
Balance at December 31,
1992 822,643 4.59-50.25
Granted 602,250 27.25-35.63
Cancelled (88,050) 21.94-50.25
Exercised (49,725) 4.59-22.63
Balance at December 31,
1993 1,287,118 4.59-49.63
Pursuant to the terms of the Company's various stock plans, optionees can use
cash, previously owned shares or a combination of cash and previously owned
shares to reimburse the Company for the cost of exercising the option. Shares
are acquired from the optionee at the fair market value of the stock on the
transaction date.
All options have been granted at not less than fair market value at dates of
grant. When stock options are exercised, the par value of the shares issued
is credited to common stock and the excess of the proceeds over the par value
is credited to additional paid-in capital. When non-qualified options are
exercised, the Company realizes income tax benefits based on the difference
between the fair value of the common stock on the date of exercise and the
stock option exercise price. These tax benefits do not affect the income tax
provision, but rather are credited directly to additional paid-in capital.
Under the terms of the Company's shareholder rights agreement, upon the
occurrence of certain events which result in a change in control as defined
by the agreement, registered holders of common shares are entitled to
purchase one-tenth of a share of Series A Junior Participating Preferred
Stock at a stated price, or to purchase either the Company's shares or shares
of the acquiring entity at half their market value.
NOTE 4 - RETIREMENT PLANS
The Company has a defined contribution profit sharing plan, including
features under Section 401(k) of the Internal Revenue Code, which provides
retirement benefits to substantially all full-time U.S. employees. Under the
401(k) portion of the plan, eligible employees may contribute a maximum of
10% of their annual compensation with the Company matching the first 3%. The
Company's level of contribution to the profit sharing portion of the plan is
determined based on its earnings per share. The Company has additional
defined contribution pension plans for employees outside the United States.
The benefits under these plans are based primarily on compensation levels.
Total retirement plan expense was $1,265, $1,487 and $1,177 in 1993, 1992 and
1991, respectively.
NOTE 5 - SUPPLY OF HEART VALVE COMPONENTS
The Company has a long-term contract for supply of pyrolytic carbon
components used in its mechanical heart valve prosthesis. Under the terms of
the contract, the Company has agreed to purchase decreasing percentages of
its component requirements from the supplier through 1998. After 1995,
provisions of the contract retain the supplier as a back-up component source,
whereby the Company will purchase a minimum of 20% of its needs through 1998.
The contract specifies an increasing, but annually fixed pricing structure in
effect through 1995, whereupon the parties have agreed to negotiate prices
for the years 1996 through 1998. Subsequent to 1998, annual renewal clauses
may take effect as appropriate. As part of this contract, the Company has
granted the supplier a license to produce and sell the supplier's bileafet
mechanical heart valve in countries where patents have been issued covering
the St. Jude Medical(R) mechanical heart valve. Under this portion of the
contract, the supplier will pay royalties to the Company through 1998. Under
a separate agreement, the Company paid a royalty to the supplier based on the
number of mechanical heart valves the Company produced from its
self-manufactured carbon components through August 1993.
NOTE 6 - GEOGRAPHIC AREA
The Company operates in the medical products industry and is segmented into
two geographic areas--the United States and Canada (including all export
sales to unaffiliated customers except to customers in Europe, the Middle
East and Africa) and Europe (including export sales to unaffiliated customers
in the Middle East and Africa).
Sales between geographic areas are made at transfer prices which approximate
prices to unaffiliated third parties. Export sales from the United States and
Canada to unaffiliated customers were $29,926, $25,748 and $21,643 for 1993,
1992 and 1991, respectively.
Net sales by geographic area were as follows:
United States
and Canada Europe Eliminations Net Sales
1993
Customer sales $172,713 $79,929 $ -- $252,642
Intercompany
sales 59,908 -- (59,908) --
$232,621 $79,929 $(59,908) $252,642
1992
Customer sales $165,551 $73,996 $ -- $239,547
Intercompany
sales 55,893 -- (55,893) --
$221,444 $73,996 $(55,893) $239,547
1991
Customer sales $148,792 $61,045 $ -- $209,837
Intercompany
sales 48,772 -- (48,772) --
$197,564 $61,045 $(48,772) $209,837
Operating profit by geographic area was as follows:
United States
and Canada Europe Corporate Total
1993 $99,092 $41,046 $(8,850) $131,288
1992 $92,613 $38,341 $(8,696) $122,258
1991 $77,937 $32,066 $(9,356) $100,647
Identifiable assets by geographic area were as follows:
United States
and Canada Europe Corporate Total
1993 $92,083 $40,947 $393,787 $526,817
1992 $73,333 $46,669 $349,748 $469,750
1991 $70,608 $31,794 $272,691 $375,093
Corporate expenses consist principally of non-allocable general and
administrative expenses. Corporate identifiable assets consist principally of
cash and cash equivalents and marketable securities.
NOTE 7 - OTHER INCOME
Other income consisted of the following:
1993 1992 1991
Interest income $14,635 $13,840 $11,359
Dividend income 14 49 313
Gain on sale of investments 54 350 456
Joint venture and partnership
losses (243) -- --
Foreign exchange losses (526) (43) (66)
Other income $13,934 $14,196 $12,062
NOTE 8 - OTHER ASSETS
Other assets as of December 31, 1993 and 1992, net of accumulated
amortization of $17,422 and $12,964, respectively, consisted of the
following:
1993 1992
Investments in companies, joint ventures and
partnerships $15,259 $ 3,092
Payments made to former distributors 4,237 6,371
Intangibles and other assets 10,226 9,216
Other assets $29,722 $18,679
Investments in companies, joint ventures and partnerships are stated at cost.
Pursuant to various transition agreements, payments made to former
distributors are being amortized over their benefit periods of from four to
five years. Intangibles and other assets, which consist principally of the
excess of cost over net assets of certain acquired businesses and technology
purchased in connection with the acquisition of certain businesses, are being
amortized over periods ranging from five to 15 years.
NOTE 9 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly data for 1993 and 1992 was as follows:
Quarter
First Second Third Fourth
Year Ended
December 31, 1993:
Net sales $68,154 $66,944 $58,946 $58,598
Gross profit $51,225 $50,617 $44,948 $44,510
Net income $29,189 $28,843 $25,972 $25,639
Earnings per
share $ .61 $ .61 $ .55 $ .55
Year Ended
December 31, 1992:
Net sales $60,055 $57,008 $58,281 $64,203
Gross profit $44,173 $42,796 $44,044 $48,284
Net income $25,054 $24,891 $25,292 $26,421
Earnings per
share $ .52 $ .52 $ .53 $ .55
Primary and fully diluted per share results are the same for all quarters in
1993 and 1992.
TEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS FOR THE
YEAR ENDED:
Net sales $252,642 $239,547 $209,837 $175,160 $147,981
Gross profit $191,300 $179,297 $149,043 $114,730 $ 94,825
Percent of sales 75.7% 74.8% 71.0% 65.5% 64.1%
Operating profit (loss) $131,288 $122,258 $100,647 $ 77,315 $ 62,221
Percent of sales 52.0% 51.0% 48.0% 44.1% 42.0%
Net income (loss) $109,643 $101,658 $ 83,968 $ 64,680 $ 50,916
Percent of sales 43.4% 42.4% 40.0% 36.9% 34.4%
Earnings (loss) per share $ 2.32 $ 2.12 $ 1.75 $ 1.35 $ 1.07
FINANCIAL POSITION AT YEAR END:
Cash and marketable securities $368,991 $338,690 $263,314 $179,059 $120,881
Working capital $408,998 $377,321 $301,094 $218,507 $157,063
Total assets $526,817 $469,750 $375,093 $278,146 $201,735
Long-term debt
Total shareholders' equity $484,241 $429,039 $344,727 $254,405 $185,984
OTHER DATA:
Cash dividends per share $ .40 $ .30
Primary weighted average shares
outstanding 47,222,000 47,931,000 48,069,000 47,852,000 47,546,000
Total employees 722 684 599 544 445
</TABLE>
<TABLE>
<CAPTION>
1988 1987 1986 1985 1984
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS FOR THE
YEAR ENDED:
Net sales $114,075 $ 71,806 $60,473 $26,068 $34,943
Gross profit $ 71,754 $ 41,817 $32,567 $11,621 $17,841
Percent of sales 62.9% 58.2% 53.9% 44.6% 51.1%
Operating profit (loss) $ 45,697 $ 28,231 $21,477 $ (4,210) $ 7,049
Percent of sales 40.1% 39.3% 35.5% (16.2%) 20.2%
Net income (loss) $ 33,473 $ 17,307 $12,031 $ (1,095) $ 5,293
Percent of sales 29.3% 24.1% 19.9% (4.2%) 15.1%
Earnings (loss) per share $ .71 $ .40* $ .30 $ (.03) $ .14
FINANCIAL POSITION AT YEAR END:
Cash and marketable securities $ 85,688 $ 65,025 $52,526 $18,978 $24,118
Working capital $113,033 $ 80,883 $64,538 $28,100 $28,078
Total assets $143,141 $101,671 $85,817 $39,716 $39,640
Long-term debt $ 508 $26,083
Total shareholders' equity $129,742 $ 92,293 $49,769 $35,284 $36,018
OTHER DATA:
Cash dividends per share
Primary weighted average shares
outstanding 47,016,000 42,812,000 39,944,000 37,048,000 37,674,000
Total employees 399 296 262 211 205
</TABLE>
*$.39 on a fully diluted basis.
Earnings per share and share data have been adjusted for 100% stock dividends
paid in 1990, 1989 and 1986.
[graph]
Description: Gross Margin (as a percentage of sales) over the years 1984 -
1993.
[graph]
Description: Operating Margin (as a percentage of sales) over the years 1984
- - 1993.
[graph]
Description: Net Sales Per Employee (dollars in thousands) over the years
1984 - 1993.
[graph]
Description: Net Income Per Employee (dollars in thousands) over the years
1984 - 1993.
DIRECTORS
Lawrence A. Lehmkuhl (3)
Chairman
St. Jude Medical, Inc.
St. Paul, Minnesota
Ronald A. Matricaria President and Chief Executive Officer
St. Jude Medical, Inc.
St. Paul, Minnesota
Frank A. Ehmann (1) (3)
Consultant
RCS Health Care Partners, L.P.
San Francisco, California
Thomas H. Garrett, III (1)
Attorney
Lindquist & Vennum
Minneapolis, Minnesota
William R. Miller (2)
Director of Various Companies
New York, New York
Charles V. Owens (1)
Chairman
Genesis Labs, Inc.
Minneapolis, Minnesota
Roger G. Stoll, Ph.D. (2) (3)
Chief Executive Officer and President
Ohmeda, Inc.
Liberty Corner, New Jersey
James S. Womack (2)
Chairman
Sheldahl, Inc.
Northfeld, Minnesota
(1) Denotes members of the Audit Committee
(2) Denotes members of the Compensation Committee
(3) Denotes members of the Technology Committee
OFFICERS
Ronald A. Matricaria
President and Chief Executive Officer
Todd F. Davenport
President, International Division
Robert J. Helbling
President, Cardiac Assist Division
Eric W. Sivertson
President, St. Jude Medical Division
John J. Alexander
Vice President,
Corporate Development
Andrew K. Balo
Vice President, Regulatory Affairs
and Quality Assurance
St. Jude Medical Division
John P. Berdusco
Vice President,
Administration
Robert S. Elgin
Vice President, Operations
St. Jude Medical Division
Diane M. Johnson
Vice President and General Counsel
J. Gary Jordan
Vice President,
Sales and Marketing
St. Jude Medical Division
Stephen L. Wilson
Vice President, Finance and
Chief Financial Officer
INVESTOR INFORMATION
TRANSFER AGENT
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
718-921-8293
800-937-5449
Correspondence regarding stock holdings, dividend checks and changes of
address should be directed to the transfer agent.
LEGAL COUNSEL
Lindquist & Vennum
Minneapolis, Minnesota
INDEPENDENT AUDITORS
Ernst & Young
Minneapolis, Minnesota
INVESTOR INFORMATION Investors, shareholders and security analysts seeking
additional information about the Company should call Investor Relations at
(612) 481-7555.
A copy of the Company's annual report to the Securities and Exchange
Commission on Form 10-K or other financial reports will be provided free of
charge to any shareholder upon written request to Investor Relations, St.
Jude Medical, Inc., One Lillehei Plaza, St. Paul, Minnesota 55117-9983
ANNUAL MEETING OF SHAREHOLDERS The annual meeting of shareholders will be
held at 8:15 a.m. on Wednesday, May 4, 1994, at the Lutheran Brotherhood
Auditorium, Lutheran Brotherhood Building, 625 Fourth Avenue South,
Minneapolis, Minnesota.
SHAREHOLDER MAILINGS When shares owned by one shareholder are held in
different forms of the same name (e.g., John Doe, J. Doe) or when new
accounts are established for shares purchased at different times, duplicate
mailings of shareholder information results. The Company, by law, is required
to mail to each name on the shareholder list unless the shareholder requests
that duplicate mailings be eliminated or consolidates all accounts into one.
Such requests should be directed, in writing, to American Stock Transfer,
6201 15th Avenue, Brooklyn, New York, 11219.
St. Jude Medical, Inc. mails quarterly reports only to registered
shareholders. Shareholders can obtain the Company's results each quarter by
calling a toll-free number (800-
552-7664) and listening to a recorded message.
RESEARCH COVERAGE The following firms currently provide research coverage of
St. Jude Medical, Inc.:
Bear, Stearns & Co., New York, New York
Dain Bosworth Incorporated, Minneapolis, Minnesota
Goldman Sachs & Co., New York, New York
Hambrecht & Quist Incorporated, New York, New York
Kemper Securities Group, Inc., Chicago, Illinois
Lehman Brothers, New York, New York
Mabon Securities Corp., New York, New York
Merrill Lynch & Co., New York, New York
Morgan Keegan & Company, Inc., Memphis, Tennessee
Morgan Stanley & Co. Incorporated, New York, New York
Olde Discount, Detroit, Michigan
PaineWebber Incorporated, New York, New York
Piper, Jaffray Incorporated, Minneapolis, Minnesota
Raymond James & Associates, Inc., St. Petersburg, Florida
Robert W. Baird Co., Incorporated, Milwaukee, Wisconsin
13D Research Services, Brewster, New York
Value Line Inc., New York, New York
Vector Securities International, Inc., Deerfeld, Illinois
Wertheim Schroder, New York, New York
Wessels, Arnold & Henderson, Minneapolis, Minnesota
SUPPLEMENTAL MARKET PRICE DATA The common stock of St. Jude Medical, Inc. is
traded on the NASDAQ National Market System under the symbol STJM. The range
of high and low prices per share for the Company's common stock for 1993 and
1992 are set forth below. As of February 9, 1994, the Company had 5,391
shareholders of record.
Year Ended
December 31 1993 1992
Quarter High Low High Low
First $42.50 $28.75 $55.50 $42.50
Second $39.00 $27.25 $50.75 $34.00
Third $39.50 $25.50 $38.25 $27.50
Fourth $29.75 $25.00 $43.25 $30.25
Price data reflect actual transactions. In all cases, prices shown are
inter-dealer prices and do not reflect mark-ups, markdowns or commissions.
CASH DIVIDENDS St. Jude Medical, Inc. initiated a cash dividend in the second
quarter 1992 and maintained a $.10 per share quarterly cash dividend through
1993.
TRADEMARKS St. Jude Medical(R), BiFlex(R), BioImplant(R), Toronto SPVtm,
RediFurl(R), RediGuardtm, TaperSeal(R), SureGuidetm, Lifestream(R), and
Isoflow(R) are trademarks of St. Jude Medical, Inc.
[logo]
St. Jude Medical, Inc.
One Lillehei Plaza
St. Paul, MN 55117
612/483-2000
Telex 298453
Fax 612/490-4333
ST. JUDE MEDICAL, INC. AND SUBSIDIARIES
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
1. St. Jude Medical, Inc., Cardiac Assist Division (Delaware)
2. St. Jude Medical Puerto Rico, Inc. (Delaware)
3. St. Jude Medical Sales Corporation (Virgin Islands)
4. St. Jude Medical S.C., Inc. (Minnesota)
5. 151703 Canada Inc. (Canada)
6. St. Jude Medical Ltd. (Canada)
7. St. Jude Medical International, Inc. (Delaware)
8. St. Jude Medical U.K. Limited (United Kingdom)
9. St. Jude Medical France S.A. (France)
10. St. Jude Medical GmbH (Germany)
11. St. Jude Medical Espagna S.A. (Spain)
12. St. Jude Medical Europe, Inc. (Delaware)
13. S.A. St. Jude Medical Belgium N.V. (Belgium)
14. St. Jude Medical AG (Switzerland)
15. St. Jude Medical Nederland B.V. (Netherlands)
16. St. Jude Medical Medizintechnik GesmbH (Austria)
17. St. Jude Medical Acquisition Corporation (Colorado)
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of St. Jude Medical, Inc. of our report dated
February 4, 1994, included in the 1993 Annual Report to
Shareholders of St. Jude Medical, Inc.
We also consent to the incorporation by reference in
Registration Statement No. 33-9262; Registration
Statement No. 33-29085; Registration Statement No.33-41459 and
Registration Statement No. 33-48502 on Form S-8 of our reports
dated February 4, 1994, with respect to the consolidated
financial statements and schedules of St. Jude Medical, Inc.
included in or incorporated by reference in the Annual Report
(Form 10-K) for the year ended December 31, 1993.
[signature of Ernst & Young]
Minneapolis, Minnesota
March 24, 1994
