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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
FOR THE FISCAL YEAR ENDED APRIL 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NO. 1-7707
[LOGO] MEDTRONIC
MEDTRONIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
MINNESOTA 41-0793183
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
7000 CENTRAL AVENUE N.E.
MINNEAPOLIS, MINNESOTA 55432
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER: (612) 514-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, PAR VALUE $.10 PER SHARE NEW YORK STOCK EXCHANGE, INC.
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE, INC.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES __X__ NO ____
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. (X)
AGGREGATE MARKET VALUE OF VOTING STOCK OF MEDTRONIC, INC. HELD BY NONAFFILIATES
OF THE REGISTRANT AS OF JULY 3, 1997, BASED ON THE CLOSING PRICE OF $89.875 AS
REPORTED ON THE NEW YORK STOCK EXCHANGE: $20.80 BILLION.
SHARES OF COMMON STOCK OUTSTANDING ON JULY 3, 1997: 234,662,051
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S 1997 ANNUAL SHAREHOLDERS REPORT ARE INCORPORATED BY
REFERENCE INTO PARTS I, II AND IV; PORTIONS OF REGISTRANT'S PROXY STATEMENT
FOR ITS 1997 ANNUAL MEETING ARE INCORPORATED BY REFERENCE INTO PART III.
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS. Medtronic, Inc. (together with its
subsidiaries, "Medtronic" or the "company") was incorporated as a Minnesota
corporation in 1957. Medtronic is the world's leading medical technology company
specializing in implantable and interventional therapies. Primary products
include implantable pacemaker systems used for the treatment of bradycardia,
implantable tachyarrhythmia management devices, ablation systems, mechanical and
tissue heart valves, balloon and guiding catheters used in angioplasty, coronary
and peripheral stents and stented grafts, interventional neuroradiology
products, implantable neurostimulation and drug delivery systems, hydrocephalic
shunts and other neurosurgical devices, urological and digestive diagnostic
systems, perfusion systems including blood oxygenators, centrifugal blood pumps,
cannulae products, and autotransfusion and blood monitoring systems, and
minimally invasive cardiac surgery products.
In fiscal 1997, the company continued to enhance its strategic position by
taking advantage of additional growth opportunities through acquisitions. In May
1996, the company acquired AneuRx, Inc., which provides a minimally invasive
endovascular stented graft and delivery system used to repair life-threatening
abdominal aortic aneurysms. In June 1996, the company acquired InStent Inc.,
which develops, manufactures and markets a variety of self-expanding and
balloon-expandable stents used in a broad range of medical indications. In
August 1996, the company acquired Avalon Laboratories, Inc., which develops,
manufactures and sells cannulae and other surgical products.
Medtronic operates in a single industry segment, that of providing medical
products and services. Its revenues, operating profits and assets for the past
three fiscal years (1995-1997) have been attributable to this single industry
segment. The company does business in more than 120 countries and reports on
three business units -- Pacing, Other Cardiovascular, and Neurological and
Diversified Businesses -- and three geographic areas -- the Americas,
Europe/Middle East/Africa (Europe), and Asia/Pacific.
BUSINESS DESCRIPTION. Pacing is the company's largest business unit, consisting
primarily of Bradycardia Pacing, which produces products for treating patients
with slow or irregular heartbeats, Tachyarrhythmia Management, which develops
products to treat abnormally fast heart rhythms, and Ablation Systems. The
bradycardia pacing systems include pacemakers, leads and accessories. The
pacemakers can be noninvasively programmed by the physician to adjust sensing,
electrical pulse intensity, rate, duration and other characteristics, and can
produce impulses to cause contractions in either the upper or lower heart
chamber, or both, in appropriate relation to heart activity. The company's Model
9790 programmer can be used interchangeably with all of the company's
bradycardia pacemakers as well as with its Jewel(R) and Micro Jewel(R) line of
tachyarrhythmia management devices. Advances in bradycardia pacing in fiscal
1997 include the commercial release of the new Medtronic.Kappa 400 series of
pacemakers in Europe, which is a new generation of pacemakers designed to adjust
heart rate to match patient activity without requiring a hospital or clinic
visit. The Kappa 400 series is currently in clinical trials in the U.S.
Medtronic also markets the CapSure(R) Z and CapSureFix(R) steroid-eluting leads,
which deliver more concentrated levels of electrical energy that extend device
life. Nearly half of Medtronic's revenues are generated from the sale of
implantable cardiac pacemaker systems for treatment of bradycardia.
The Tachyarrhythmia Management business produces implantable devices and
transvenous lead systems for treating ventricular tachyarrhythmias, which are
abnormally fast, and sometimes fatal, heart rhythms. The systems offer a tiered
therapy of pacing, cardioversion and defibrillation, and may be implanted
pectorally, which reduces patient trauma and hospitalization time and costs. The
company's Jewel(R) line of devices was expanded in July 1996 with the commercial
release in the U.S. of the Micro Jewel(R) implantable defibrillator, which
offers expanded diagnostic capabilities in a smaller size device. The Micro
Jewel(R) II, currently the world's smallest and lightest implantable
defibrillator, was commercially released in the U.S. in November 1996. The
Jewel(R) AF for treatment of atrial arrhythmias is currently in clinical trials
in the U.S. The entire line of tachyarrhythmia devices, like the bradycardia
pacemakers, are programmed with the Model 9790 pacing programmer.
The Ablation Systems business develops and markets EP catheters and ablation
systems that are used to neutralize heart cells involved in conducting
arrhythmias.
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The company's Pacing business unit accounted for 65.6% of Medtronic's net sales
during the fiscal year ended April 30, 1997 ("fiscal 1997"), 67.9% of net sales
in fiscal 1996 and 66.0% of net sales in fiscal 1995.
The Other Cardiovascular business unit is comprised of the Vascular and Cardiac
Surgery businesses. The Vascular business was established in fiscal 1996 to
focus the company's involvement in minimally invasive therapies for the
treatment of disease and damage to cerebral, coronary and peripheral blood
vessels. Medtronic's previous involvement in the vascular area has been in
coronary angioplasty. The company offers coronary angioplasty balloon and guide
catheters worldwide. The company's Wiktor(R) and Wiktor(R)-i stents, designed
for coronary applications, are widely used outside the U.S., as is Medtronic's
beStent(TM). In late June 1997, the FDA cleared the Wiktor(R) Prime coronary
stent system for commercial release in the U.S. Adding to the company's previous
expertise in the vascular area are three companies acquired in fiscal 1996 and
1997: AneuRx, Inc., which provides minimally invasive abdominal aortic aneurysm
repair therapy; InStent Inc., which develops self-expanding and balloon
expandable stents used in several of the body's fluid passageways; and Micro
Interventional Systems, which develops products for the minimally invasive
treatment of stroke and peripheral vascular diseases.
The Cardiac Surgery business includes the Heart Valves, Cardiopulmonary, DLP
Cannulae and Blood Management businesses. Through a series of strategic
acquisitions over the past decade, Medtronic now markets through its
Cardiopulmonary, DLP Cannulae and Blood Management businesses a complete line of
blood-handling products that form a life-saving circuit by maintaining and
monitoring blood circulation, oxygen supply and body temperature while the
patient is undergoing emergency treatment or open-heart surgery. The company's
Heart Valve business produces tissue and mechanical valves and repair products
for damaged or diseased heart valves. The Blood Management business markets the
Sequestra(TM) 1000 autotransfusion system, which recovers and processes a
patient's blood during major surgery, minimizing concern about the transmission
of bloodborne diseases.
The company's Other Cardiovascular business unit accounted for 22% of net sales
in fiscal 1997, 23.6% of net sales in fiscal 1996 and 26.5% of net sales for
fiscal 1995.
The company's Neurological and Diversified business unit consists of the
Neurological business and Corporate Ventures. The Neurological business includes
the Neurostimulation, Drug Delivery, Diagnostic Systems and Neurosurgery
businesses. The Neurostimulation business produces implantable systems for
spinal cord and brain stimulation to treat pain and tremor. Neurostimulation
products include the Itrel(R) 3 spinal cord stimulation system, which features a
patient-operated control unit, and the Mattrix(R) stimulator, which offers a
dual stimulation mode for more effective pain management. The new Activa(TM)
therapy for essential tremor and tremor associated with Parkinson's disease has
been recommended for marketing clearance by an advisory panel to the FDA. The
Activa(TM) allows stimulation levels to be adjusted according to the needs of
each patient.
The company's Drug Delivery business produces implantable programmable drug
delivery systems that are used in treating chronic intractable pain, tremor and
spasticity, including the SynchroMed(R) drug delivery system. The business is
collaborating with several biotechnology companies to develop therapies for
neurodegenerative disorders such as Alzheimer's disease, Parkinson's disease,
Huntington's disease and amyotrophic lateral sclerosis or Lou Gehrig's disease.
Compounds for treating these diseases, called neurotrophic factors, are still in
development by these companies. Once they are proven to be safe and effective,
Medtronic believes its drug delivery technology could be effective in
administering these agents directly to their site of action in precise doses. In
fiscal 1996, the company added two new growth platforms in this sector by
acquiring PS Medical, which manufactures and distributes cerebrospinal fluid
shunts and neurosurgical implants, and Synectics Medical AB of Stockholm,
Sweden, a world leader in computer-supported systems to diagnose urological and
digestive disorders and sleep apnea.
Corporate Ventures focuses on using the company's core technologies to meet
unmet medical needs that are beyond the immediate areas of focus of the other
sectors, such as minimally invasive cardiac surgery and upper airway
stimulation.
The Neurological and Diversified business unit accounted for 12.4% of net sales
for fiscal 1997, 8.5% of net sales for fiscal 1996 and 7.5% of net sales for
fiscal 1995.
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GOVERNMENT REGULATION. Government and private sector initiatives to limit the
growth of health care costs, including price regulation and competitive pricing,
are continuing in many countries in which the company does business, including
the United States. These changes are causing the marketplace to put increased
emphasis on the delivery of more cost-effective medical therapies. Although the
company believes it is well positioned to respond to changes resulting from this
worldwide trend toward cost containment, the uncertainty as to the outcome of
any proposed legislation or changes in the marketplace precludes the company
from predicting the impact these changes may have on future operating results.
In the United States, the Food and Drug Administration (the "FDA"), among other
governmental agencies, is responsible for regulating the introduction of new
medical devices, including laboratory and manufacturing practices, labeling and
recordkeeping for medical devices, and review of manufacturers' required reports
of adverse experience to identify potential problems with marketed medical
devices. The FDA can ban certain medical devices, detain or seize adulterated or
misbranded medical devices, order repair, replacement, or refund of such
devices, and require notification of health professionals and others with regard
to medical devices that present unreasonable risks of substantial harm to the
public health. The FDA may also enjoin and restrain certain violations of the
Food, Drug and Cosmetic Act and the Safe Medical Devices Act pertaining to
medical devices, or initiate action for criminal prosecution of such violations.
Many of the devices that Medtronic develops and markets are in a category for
which the FDA has implemented stringent clinical investigation and pre-market
clearance requirements. Moreover, the FDA administers certain controls over the
export of such devices from the United States.
Medical device laws are also in effect in many of the countries in which
Medtronic does business outside the United States. These range from
comprehensive device approval requirements for some or all of Medtronic's
medical device products to requests for product data or certifications. The
number and scope of these requirements is increasing.
In the early 1990's the review time by the FDA to clear medical devices for
commercial release lengthened and the number of clearances, both of 510(k)
submissions and pre-market approval applications ("PMA's"), decreased. In
response to public and congressional concern, the FDA has attempted to address
these issues by clearing more 510(k) submissions and clearing them more quickly.
Some progress has also been made in the number of PMA's and PMA-Supplements
cleared, but review times for leading-edge, innovative products remain long.
While the trend is in the right direction, the lengthy clearance time remains a
significant issue and various legislative solutions to resolve this are
currently before the U.S. Congress.
In keeping with the increased emphasis on cost effectiveness in health care
delivery, the current trend among hospitals and other customers of medical
device manufacturers is to consolidate into larger purchasing groups to enhance
purchasing power. The medical device industry has also been consolidating
rapidly, partly in order to offer a broader range of products to large
purchasers. As a result, transactions with customers are more significant, more
complex and tend to involve more long-term contracts than in the past. This
enhanced purchasing power may also increase the pressure on product pricing,
although management is unable to estimate the potential impact at this time.
Management believes that in this climate it is increasingly important to offer a
full line of products in order to better serve the many requirements of
multi-hospital purchasers.
Medtronic is also subject to various environmental laws and regulations both in
the United States and abroad. The operations of the company, like those of other
medical device companies, involve the use of substances regulated under
environmental laws, primarily in manufacturing and sterilization processes.
While it is difficult to quantify the potential impact of compliance with
environmental protection laws, management believes that such compliance will not
have a material impact on the company's financial position, results of
operations or liquidity.
The company operates in an industry susceptible to significant product liability
claims. In recent years, there has been an increased public interest in product
liability claims for implanted medical devices, including pacemakers and leads.
These claims may be brought by individuals seeking relief for themselves or,
increasingly, by groups seeking to represent a class, and the company has
experienced an increase in such claims. During the past year, United States
District Courts in California, Florida and
<PAGE>
Kentucky have refused to certify class actions in cases brought against the
company. This is consistent with the trend in class action law as it applies to
the medical device industry generally. In addition, product liability claims may
be asserted against the company in the future relative to events not known to
management at the present time. Management believes that the company's risk
management practices, including insurance coverage, are reasonably adequate to
protect against potential product liability losses.
In 1994, governmental authorities in Germany began an investigation into certain
business and accounting practices by heart valve manufacturers. As part of this
investigation, documents were seized from the company and certain other
manufacturers. Subsequently, the United States Securities and Exchange
Commission (the "SEC") also began an inquiry into this matter. In August 1996,
the SEC issued a formal non-public order of investigation to the company, as it
had to at least one other manufacturer. Based upon currently available
information, the company does not expect these investigations to have a
materially adverse impact on the company's financial position, results of
operations or liquidity.
SALES, MARKETS AND DISTRIBUTION METHODS. The primary markets for Medtronic's
products are hospitals, other medical institutions and physicians in the United
States and other countries around the world. No one customer individually
accounts for a material amount of Medtronic's total sales.
Medtronic sells most of its products and services directly through its staff of
trained, full-time sales representatives. Sales by these representatives
accounted for approximately 93.1% of Medtronic's U.S. sales and approximately
66.1% of its sales from other countries in fiscal 1997. The remaining sales were
made through independent distributors.
RAW MATERIALS AND PRODUCTION. Medtronic generally has vertically integrated
manufacturing operations, and makes its own lithium batteries, feedthroughs,
integrated and hybrid circuits, microprocessors, and certain other components.
Medtronic purchases many of the parts and materials used in manufacturing its
components and products from external suppliers. Medtronic's single- and
sole-sourced materials include biomaterials such as adhesives, polymers,
elastomers and resins; certain integrated circuits and other
electrical/electronic/ mechanical components; power sources, battery anodes,
pyrolytic carbon discs, pharmaceutical preparations such as Lioresal(R)
(baclofen, USP) Intrathecal (registered trademark of Novartis Pharmaceutical
Corporation), and computer and other peripheral equipment.
Certain of the raw materials and components used in Medtronic products are
available only from a sole supplier. Materials are purchased from single sources
for reasons of quality assurance, sole source availability or cost
effectiveness. Medtronic works closely with its suppliers to assure continuity
of supply while maintaining high quality and reliability. However, in an effort
to reduce potential product liability exposure, certain suppliers have
terminated or are planning to terminate sales of certain materials and parts to
companies that manufacture implantable medical devices. Medtronic believes that
various design, material or supplier alternatives can be found for these
materials and components without a significant interruption in production.
PATENTS AND LICENSES. Medtronic owns patents on certain of its inventions, and
obtains licenses from others as it deems necessary to its business. Medtronic's
policy is to obtain patents on its inventions whenever practical. Technological
advancement characteristically has been rapid in the medical device industry,
and Medtronic does not consider its business to be materially dependent upon any
individual patent.
COMPETITION AND INDUSTRY. Medtronic sells therapeutic and diagnostic medical
devices in the United States and around the world. In the businesses in which
Medtronic competes, the company faces a mixture of competitors ranging from
large multi-national industrial manufacturers to national or regional
manufacturers that offer a limited selection of products. Important factors to
Medtronic's customers include product reliability and performance, product
technology that provides for improved patient benefits, product price, and
breadth of product lines and related product services provided by the
manufacturer. Major shifts in industry market share have occurred in connection
with product problems, physician advisories and safety alerts, reflecting the
importance and risks of product quality in the medical device industry.
<PAGE>
Medtronic is the leading manufacturer and supplier of pacemakers in both the
U.S. and non-U.S. markets. Worldwide, approximately ten manufacturers compete
in the pacemaker industry. In the U.S., Medtronic and three other
manufacturers account for a significant portion of pacemaker sales. Medtronic
and five other manufacturers account for most of the non-U.S. pacemaker
sales.
In the tachyarrhythmia management device market, Medtronic and two other
manufacturers based in the U.S. account for most sales of implantable
defibrillators within and outside the U.S. Medtronic's Jewel(R) and Micro
Jewel(R) family of implantable cardioverter-defibrillators is commercially
available with the company's Sprint(TM) leads in U.S. and non-U.S. markets. At
least three other companies have devices in various stages of development and
clinical evaluation.
In the vascular market, which includes balloon and guiding catheters, and
implantable stents and grafts, there are numerous competitors worldwide.
Medtronic and four other manufacturers account for most balloon and guiding
catheter sales. In stents, Medtronic and several competitors account for most
sales worldwide, with one competitor holding a dominant market position and many
new competitors emerging.
Medtronic is the second largest manufacturer and supplier of both tissue and
mechanical heart valves within and outside the U.S. A large manufacturer and
distributor of hospital products and services is the major competitor in tissue
heart valves and another company is the major competitor in mechanical heart
valves. These two companies and Medtronic are the primary manufacturers and
suppliers of heart valves within the U.S. These three companies plus a few other
competitors account for most of the worldwide heart valve sales.
In the blood oxygenator market, there are approximately seven companies that
account for a significant portion of the U.S. and non-U.S. markets. Medtronic is
the market leader in cannulae products. Medtronic and three competitors account
for a significant portion of cannulae sales in the U.S. Medtronic and three
competitors account for a significant portion of autotransfusion sales in both
U.S. and non-U.S. markets.
In neurological devices, Medtronic is the leading manufacturer and supplier of
implantable neurostimulation and drug delivery systems, and shunts for the
treatment of hydrocephalus. Medtronic and two competitors account for most sales
worldwide.
Market complexity continues to intensify in the medical device industry. Factors
such as relative patent portfolios, government regulation (including the
regulatory approval process for medical devices), a more rigorous enforcement
climate at the FDA, anticipated health care reform, buyer groups, government
reimbursement systems for health care costs, product liability litigation and
the rapid rate of technological change are increasingly important considerations
for existing medical device manufacturers and any potential entrants to the
industry.
RESEARCH AND DEVELOPMENT. Medtronic spent $280.2 million on research and
development (11.5% of sales) in fiscal 1997, $243.8 million on research and
development (11.2% of net sales) in fiscal 1996 and $191.4 million (11.0% of net
sales) in fiscal 1995. These amounts have been applied toward improving existing
products, expanding their applications, and developing new products. Medtronic's
research and development projects span such areas as sensing and treatment of
cardiovascular disorders (including bradycardia and tachyarrhythmia,
fibrillation, and sinus node abnormalities); improved heart valves, membrane
oxygenators and centrifugal blood pump systems; implantable drug delivery
systems for pain, spasticity and other neurological applications; muscle and
neurological stimulators; therapeutic catheters; coronary and peripheral stents
and stented grafts, and treatments for restenosis; implantable physiologic
sensors; treatments for heart failure; and materials and coatings to enhance the
blood/device interface.
Medtronic has not engaged in significant customer or government sponsored
research.
EMPLOYEES. On April 30, 1997, Medtronic and its subsidiaries employed 11,722
people on a regular, full-time basis and, including temporary and part-time
employees, a total of 13,719 employees on a full-time equivalent basis.
U.S. AND NON-U.S. OPERATIONS AND EXPORT SALES. Medtronic sells products in
more than 120 countries in three geographic areas: the Americas,
Europe/Middle East/Africa (Europe), and Asia/Pacific.
<PAGE>
For financial reporting purposes, revenues, profitability, and identifiable
assets attributable to significant geographic areas are presented in Note 13 to
the consolidated financial statements, incorporated herein by reference to
Medtronic's 1997 Annual Shareholders Report on page 58. U.S. export sales to
unaffiliated customers comprised less than two percent of Medtronic's
consolidated sales in each of fiscal 1997, 1996 and 1995.
Operation in countries outside the U.S. is accompanied by certain financial and
other risks. Relationships with customers and effective terms of sale frequently
vary by country, often with longer-term receivables than are typical in the U.S.
Inventory management is an important business concern due to the potential for
rapidly changing business conditions and currency exposure. Currency exchange
rate fluctuations can affect income from, and profitability of, non-U.S.
operations. Medtronic attempts to hedge these exposures to reduce the effects of
foreign currency fluctuations on net earnings. Certain countries also limit or
regulate the repatriation of earnings to the United States. Non-U.S. operations
in general present complex tax and money management issues requiring
sophisticated analysis to meet the company's financial objectives.
EXECUTIVE OFFICERS OF MEDTRONIC
Set forth below are the names and ages of current executive officers of
Medtronic, Inc., as well as information regarding their positions with
Medtronic, Inc., their periods of service in these capacities, and their
business experience for the past five or more years. Executive officers
generally serve terms of office of approximately one year. There are no family
relationships among any of the officers named, nor is there any arrangement or
understanding pursuant to which any person was selected as an officer.
WILLIAM W. GEORGE, age 54, has been Chairman and Chief Executive Officer since
August 1996, was President and Chief Executive Officer from May 1991 to August
1996, and was President and Chief Operating Officer from March 1989 to April
1991. He has been a director since March 1989. Prior to joining the company, Mr.
George was President, Space and Aviation Systems Business, at Honeywell Inc.
from December 1987 to March 1989. During his 11 years with Honeywell, Mr. George
served in several other executive positions including President, Industrial
Automation and Control, from May 1987 to December 1987; and Executive Vice
President of that business from January 1983 to May 1987.
GLEN D. NELSON, M.D., age 60, has been Vice Chairman since July 1988, and has
been a director since 1980. From August 1986 to July 1988, he was Executive Vice
President of the company. Dr. Nelson was Chairman and Chief Executive Officer of
American MedCenters, Inc., an HMO management corporation, from July 1984 to
August 1986.
ARTHUR D. COLLINS, JR., age 49, has been President and Chief Operating Officer
since August 1996, was Chief Operating Officer from January 1994 to August 1996
and from June 1992 to January 1994 was Executive Vice President and President of
Medtronic International. He has been a director since August 1994. Prior to
joining the company, Mr. Collins was Corporate Vice President, Diagnostic
Products, at Abbott Laboratories from October 1989 to May 1992 and Divisional
Vice President, Diagnostic Products, from May 1984 to October 1989. During his
14 years with Abbott, Mr. Collins served in various general management positions
both in the United States and Europe.
BOBBY I. GRIFFIN, age 60, has been Executive Vice President since July 1988,
and President, Pacing, since March 1991. From September 1985 to July 1988,
Mr. Griffin was Vice President of the Pacing Business Unit.
BILL K. ERICKSON, age 53, has been Senior Vice President and President,
Americas, since January 1994. From May 1992 to January 1994, Mr. Erickson was
Senior Vice President and President, U.S. Cardiovascular Sales and Marketing
Division. Mr. Erickson was Senior Vice President, U.S. Cardiovascular
Division, from January 1990 to May 1992 and was Vice President, U.S.
Cardiovascular Distribution, from January 1982 to December 1989.
JANET S. FIOLA, age 55, has been Senior Vice President, Human Resources since
March 1994. She was Vice President, Human Resources, from February 1993 to March
1994, and was Vice President, Corporate Human Resources, from February 1988 to
February 1993.
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B. KRISTINE JOHNSON, age 45, has been Senior Vice President and President,
Vascular Business since May 1996. She was Vice President and President,
Tachyarrhythmia Management from May 1995 to April 1996, and Vice President and
General Manager, Tachyarrhythmia Management from January 1990 to April 1995. She
served in various general management positions at the company from April 1982 to
December 1989. Prior to joining the company, Ms. Johnson served in several
management positions at Cargill, Inc. from 1973 to 1982.
PHILIP M. LAUGHLIN, age 50, joined the company as Senior Vice President and
President, Cardiac Surgery, in July 1995. Prior to that he served with Clintec
Nutrition company (worldwide joint venture of Baxter International and Nestle
S.A. in the field of clinical nutrition) as President, North America, from 1994
through July 1995 and as President, United States, from 1989 to 1993. From 1976
to 1989, he held numerous general management positions at Baxter International
in Europe and the Far East, and was most recently Vice President, Operations,
Global Business Group.
RONALD E. LUND, age 62, has been Senior Vice President and General Counsel since
November 1990, and Secretary since July 1992, and was Vice President and General
Counsel from February 1989 to November 1990. Prior to joining the company, Mr.
Lund served as Vice President and Associate General Counsel of The Pillsbury
Company from 1984 to February 1989.
JOHN A. MESLOW, age 58, has been Senior Vice President and President,
Neurological Business, since March 1994. He was Vice President and President,
Neurological Business, from March 1991 to March 1994, and was Vice President,
Neurological Division, from March 1985 to March 1991.
ROBERT L. RYAN, age 54, has been Senior Vice President and Chief Financial
Officer since April 1993. Prior to joining the company, Mr. Ryan was Vice
President, Finance, and Chief Financial Officer of Union Texas Petroleum Corp.
from May 1984 to April 1993, Controller from May 1983 to May 1984, and Treasurer
from March 1982 to May 1983.
ITEM 2. PROPERTIES
Medtronic's principal offices are owned by the company and located in the
Minneapolis, Minnesota metropolitan area. Manufacturing or research facilities
are located in Arizona, California, Colorado, Massachusetts, Michigan,
Minnesota, Texas, Puerto Rico, Canada, France, Germany, Israel, Italy, the
Netherlands, Sweden, Switzerland and Japan. The company's total manufacturing
and research space is approximately 1.8 million square feet, of which
approximately 79% is owned by the company and the balance is leased.
Medtronic also maintains sales and administrative offices in the United States
at 83 locations in 26 states or jurisdictions and outside the United States at
109 locations in 30 countries. Most of these locations are leased. Medtronic is
utilizing substantially all of its currently available productive space to
develop, manufacture and market its products. The company's facilities are in
good operating condition, suitable for their respective uses and adequate for
current needs.
ITEM 3. LEGAL PROCEEDINGS
Note 11 to the consolidated financial statements appearing on page 57 of
Medtronic's 1997 Annual Shareholders Report is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR MEDTRONIC'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information in the sections entitled "Price Range of Medtronic Stock" and
"Investor Information" on page 64 of Medtronic's 1997 Annual Shareholders
Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information for the fiscal years 1987 through 1997 on page 59 of Medtronic's
1997 Annual Shareholders Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information on pages 42 through 45 of Medtronic's 1997 Annual Shareholders
Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon of
independent accountants dated May 22, 1997 appearing on pages 46 through 58 of
Medtronic's 1997 Annual Shareholders Report, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF MEDTRONIC
The information on pages 1 through 5 of Medtronic's Proxy Statement for its 1997
Annual Shareholders' Meeting and on page 8 of such Proxy Statement entitled
"Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated herein
by reference. See also "Executive Officers of Medtronic" on pages 6 and 7
hereof.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Election of Directors -- Director Compensation" and
"Executive Compensation" on pages 6 and 7, and 14 through 19, respectively, of
Medtronic's Proxy Statement for its 1997 Annual Shareholders' Meeting are
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Shareholdings of Certain Owners and Management" on page 8 of Medtronic's Proxy
Statement for its 1997 Annual Shareholders' Meeting is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on page 7 of Medtronic's Proxy Statement for its 1997 Annual
Shareholders' Meeting concerning services provided to the company by directors
and executive officers in fiscal 1997 is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Report of Independent Accountants (incorporated herein by reference to page
46 of Medtronic's 1997 Annual Shareholders Report)
Statement of Consolidated Earnings -- years ended April 30, 1997, 1996, and
1995 (incorporated herein by reference to page 47 of Medtronic's 1997 Annual
Shareholders Report)
Consolidated Balance Sheet -- April 30, 1997 and 1996 (incorporated herein
by reference to page 48 of Medtronic's 1997 Annual Shareholders Report)
Statement of Consolidated Shareholders' Equity -- years ended April 30,
1997, 1996, and 1995 (incorporated herein by reference to page 49 of
Medtronic's 1997 Annual Shareholders Report)
Statement of Consolidated Cash Flows -- years ended April 30, 1997, 1996,
and 1995 (incorporated herein by reference to page 50 of Medtronic's 1997
Annual Shareholders Report)
Notes to Consolidated Financial Statements (incorporated herein by reference
to pages 51 through 58 of Medtronic's 1997 Annual Shareholders Report)
2. FINANCIAL STATEMENT SCHEDULES
II Valuation and Qualifying Accounts -- years ended April 30, 1997, 1996,
and 1995
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3. EXHIBITS
3.1 Medtronic Restated Articles of Incorporation, as amended to date (Exhibit
3.1).(a)
3.2 Medtronic Bylaws, as amended to date (Exhibit 3.2).(b)
4 Form of Rights Agreement dated as of June 27, 1991 between Medtronic and
Norwest Bank Minnesota, National Association, including as Exhibit A
thereto the form of Preferred Stock Purchase Right Certificate.
*10.1 1994 Stock Award Plan (Appendix A).(c)
*10.2 Management Incentive Plan (Appendix B).(c)
*10.3 1979 Restricted Stock and Performance Share Award Plan, as amended to
date (Exhibit 10.1).(d)
*10.4 1979 Nonqualified Stock Option Plan, as amended (Exhibit 10.4).(b)
*10.5 Form of Employment Agreement for Medtronic executive officers (Exhibit
10.5).(e)
*10.6 1991 Restricted Stock Plan for Non-Employee Directors (Exhibit 10.6).(b)
*10.7 Capital Accumulation Plan Deferral Program (Exhibit 10.7).(b)
*10.8 Postretirement Survivor Benefit Plan (Exhibit 10.7).(d)
*10.9 Amendment effective October 1, 1993 to the Directors' Retirement Plan
(Exhibit 10.9).(f)
*10.10 Executive Nonqualified Supplemental Benefit Plan (Restated May 1, 1997).
*10.11 Management Incentive Plan Stock Option Replacement Program (Exhibit
10.11).(e)
11 Computation of Earnings Per Share.
13 Those portions of Medtronic's 1997 Annual Shareholders Report expressly
incorporated by reference herein, which shall be deemed filed with the
Commission.
21 List of Subsidiaries.
23 Consent and Report of Price Waterhouse LLP (set forth on page 12 of this
report).
24 Powers of Attorney.
27 Financial Data Schedule.
- -------------------------
(a) Incorporated herein by reference to the cited exhibit in Medtronic's
Quarterly Report on Form 10-Q for the quarter ended July 28, 1995, filed
with the Commission on September 8, 1995.
(b) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1996, filed with the
Commission on July 24, 1996.
<PAGE>
(c) Incorporated herein by reference to the cited appendix in Medtronic's Proxy
Statement for its 1994 Annual Meeting of Shareholders, filed with the
Commission on July 27, 1994.
(d) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1992, filed with the
Commission under cover of Form SE dated July 24, 1992.
(e) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1995, filed with the
Commission on July 25, 1995.
(f) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1994, filed with the
Commission on July 27, 1994.
*Items that are management contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) REPORTS ON FORM 8-K
For the purpose of updating the company's outstanding Registration Statements on
Form S-3, the company filed a Report on Form 8-K dated February 18, 1997
reporting under Item 5 the announcement of financial results for the quarter
ended January 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 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.
MEDTRONIC, INC.
Dated: July 23, 1997 BY: /s/ WILLIAM W. GEORGE
----------------------------------------
WILLIAM W. GEORGE
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, the report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: July 23, 1997 BY: /s/ WILLIAM W. GEORGE
----------------------------------------
WILLIAM W. GEORGE
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
Dated: July 23, 1997 BY: /s/ ROBERT L. RYAN
----------------------------------------
ROBERT L. RYAN
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
F. CALEB BLODGETT
ARTHUR D. COLLINS, JR.
WILLIAM W. GEORGE
ANTONIO M. GOTTO, JR., M.D.
BERNADINE P. HEALY, M.D.
THOMAS E. HOLLORAN DIRECTORS
GLEN D. NELSON, M.D.
RICHARD L. SCHALL
JACK W. SCHULER
GERALD W. SIMONSON
GORDON M. SPRENGER
RICHARD W. SWALIN, PH.D.
Ronald E. Lund, by signing his name hereto, does hereby sign this document on
behalf of each of the above named directors of the registrant pursuant to
powers of attorney duly executed by such persons.
Dated: July 23, 1997 BY: /s/ RONALD E. LUND
----------------------------------------
Ronald E. Lund
Attorney-In-Fact
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Medtronic, Inc.
Our audits of the consolidated financial statements referred to in our report
dated May 22, 1997 appearing on page 46 of the 1997 Annual Shareholders Report
of Medtronic, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
May 22, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each Registration
Statement on Form S-8 (Registration Nos. 2-65157, 2-68408, 33-169, 33-36552,
2-65156, 33-24212, 33-37529, 33-44230, 33-55329, 33-63805, 33-64585, 333-04099
and 333-07385) and in each Prospectus constituting part of the Registration
Statements on Form S-3 (Registration Nos. 33-64455, 33-64521, 333-01585 and
333-04101) and Form S-4 (Registration Nos. 33-52751 and 333-04591) of Medtronic,
Inc. of our report dated May 22, 1997 appearing on page 46 of the 1997 Annual
Shareholders Report which is incorporated by reference in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report on
the Financial Statement Schedule as shown above.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
July 22, 1997
<PAGE>
<TABLE>
<CAPTION>
MEDTRONIC, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
OTHER
BALANCE AT CHARGES/ CHANGES BALANCE
BEGINNING (CREDITS) TO (DEBIT) AT END OF
OF PERIOD EARNINGS CREDIT PERIOD
--------- -------- ------ ------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended 4/30/97 ............... $18,094 $(1,952) $(1,448)(a) $13,673
(1,021)(b)
Year ended 4/30/96 ............... 22,416 (189) (1,371)(a) 18,094
(857)(b)
(1,905)(c)
Year ended 4/30/95 ............... 20,123 2,501 (1,464)(a) 22,416
1,256 (b)
- ----------------------
(a) Uncollectible accounts written off, less recoveries.
(b) Reflects primarily the effects of foreign currency fluctuations.
(c) Uncollectible accounts written off related to 1993 divestiture.
</TABLE>
<PAGE>
Commission File Number 1-7707
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF
THE SECURITIES EXCHANGE ACT 0F 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 1997
METHOD
OF
EXHIBITS INDEX FILING
3.1 Medtronic Restated Articles of Incorporation, as amended to date
(Exhibit 3.1).(a) --
3.2 Medtronic Bylaws, as amended to date (Exhibit 3.2).(b) --
4 Form of Rights Agreement dated as of June 27, 1991 between Medtronic
and Norwest Bank Minnesota, National Association, including as
Exhibit A thereto the form of Preferred Stock Purchase Right
Certificate. E
10.1 1994 Stock Award Plan (Appendix A).(c) --
10.2 Management Incentive Plan (Appendix B).(c) --
10.3 1979 Restricted Stock and Performance Share Award Plan, as amended
to date (Exhibit 10.1).(d) --
10.4 1979 Nonqualified Stock Option Plan, as amended (Exhibit 10.4).(b) --
10.5 Form of Employment Agreement for Medtronic executive officers
(Exhibit 10.5).(e) --
10.6 1991 Restricted Stock Plan for Non-Employee Directors (Exhibit
10.6).(b) --
10.7 Capital Accumulation Plan Deferral Program (Exhibit 10.7).(b) --
10.8 Postretirement Survivor Benefit Plan (Exhibit 10.7).(d) --
10.9 Amendment effective October 1, 1993 to the Directors' Retirement
Plan (Exhibit 10.9).(f) --
10.10 Executive Nonqualified Supplemental Benefit Plan (Restated May 1,
1997). E
10.11 Management Incentive Plan Stock Option Replacement Program (Exhibit
10.11).(e) --
11 Computation of Earnings Per Share. E
13 Those portions of Medtronic's 1997 Annual Shareholders Report
expressly incorporated by reference herein, which shall be deemed
filed with the Commission. E
21 List of Subsidiaries. E
23 Consent and Report of Price Waterhouse LLP (set forth on page 12
of this report). --
24 Powers of Attorney. E
27 Financial Data Schedule. E
- -------------------------
(a) Incorporated herein by reference to the cited exhibit in Medtronic's
Quarterly Report on Form 10-Q for the quarter ended July 28, 1995, filed
with the Commission on September 8, 1995.
(b) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1996, filed with the
Commission on July 24, 1996.
<PAGE>
(c) Incorporated herein by reference to the cited appendix in Medtronic's Proxy
Statement for its 1994 Annual Meeting of Shareholders, filed with the
Commission on July 27, 1994.
(d) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1992, filed with the
Commission under cover of Form SE dated July 24, 1992.
(e) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1995, filed with the
Commission on July 25, 1995.
(f) Incorporated herein by reference to the cited exhibit in Medtronic's Annual
Report on Form 10-K for the year ended April 30, 1994, filed with the
Commission on July 27, 1994.
- -------------------------------------------------------------------------------
MEDTRONIC, INC.
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Rights Agent
Rights Agreement
Dated as of June 27, 1991
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
Section 1. Certain Definitions............................................... 2
Section 2. Appointment of Rights Agent....................................... 7
Section 3. Issue of Right Certificates....................................... 7
Section 4. Form of Right Certificates........................................ 11
Section 5. Countersignature and Registration................................. 12
Section 6. Transfer, Split-Up, Combination and Exchange of Right
Certificates; Lost, Stolen, Destroyed or Mutilated
Right Certificates................................................ 13
Section 7. Exercise of Rights; Purchase Price; Expiration
Date of Rights.................................................... 14
Section 8. Cancellation and Destruction of Right Certificates................ 16
Section 9. Reservation and Availability of Preferred Shares.................. 17
Section 10. Preferred Shares Record Date...................................... 19
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights........................................ 19
Section 12. Certificate of Adjusted Purchase Price or Number of Shares........ 36
Section 13. Consolidation, Merger, Statutory Share Exchange
Sale or Transfer of Assets........................................ 37
Section 14. Fractional Rights and Fractional Shares........................... 41
Section 15. Rights of Action.................................................. 43
Section 16. Agreement of Right Holders........................................ 44
Section 17. Right Certificate Holder Not Deemed a Shareholder................. 45
Section 18. Concerning the Rights Agent....................................... 46
Section 19. Merger or Consolidation or Change of Name of
Rights Agent...................................................... 47
Section 20. Duties of Rights Agent............................................ 48
Section 21. Change of Rights Agent............................................ 51
Section 22. Issuance of New Right Certificates................................ 53
Section 23. Redemption........................................................ 53
Section 24. Exchange.......................................................... 55
Section 25. Notice of Certain Events.......................................... 57
Section 26. Notices........................................................... 59
Section 27. Supplements and Amendments........................................ 60
Section 28. Successors........................................................ 61
Section 29. Benefits of this Agreement........................................ 61
Section 30. Severability...................................................... 62
Section 31. Governing Law..................................................... 62
Section 32. Counterparts...................................................... 62
Section 33. Descriptive Headings.............................................. 62
Exhibit A -- Form of Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Shares
Exhibit B -- Form of Right Certificate
Exhibit C -- Summary of Rights to Purchase Preferred Shares
</TABLE>
RIGHTS AGREEMENT
Agreement, dated as of June 27, 1991, between MEDTRONIC, INC.,
a Minnesota corporation (the "Company"), and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, a national banking association (the "Rights Agent").
The Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (individually a
"Right" and collectively the "Rights") for each Common Share (as defined in this
Agreement) of the Company outstanding on July 10, 1991 (the "Record Date"), each
Right initially representing the right to purchase one one-hundredth of a
Preferred Share (as defined in this Agreement), upon the terms and subject to
the conditions set forth in this Agreement, and has further authorized the
issuance of one Right (as such number may hereafter be adjusted pursuant to the
provisions of Section 11) with respect to each Common Share that shall become
outstanding (i) at any time between the Record Date and the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date (as such
terms are defined in this Agreement) or (ii) upon the exercise or conversion,
prior to the earlier of the Redemption Date or the Final Expiration Date, of any
option or other security exercisable for or convertible into Common Shares,
which option or other such security is outstanding on the Distribution Date.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
defined in this Agreement) who or which, together with all Affiliates and
Associates (as such terms are defined in this Agreement) of such Person, shall
be the Beneficial Owner (as such term is defined in this Agreement) of 15% or
more of the Common Shares of the Company then outstanding, but shall not include
(i) the Company, (ii) any Subsidiary (as such term is defined in this Agreement)
of the Company, (iii) any employee benefit plan of the Company or of any
Subsidiary of the Company, or (iv) any entity holding Common Shares for or
pursuant to the terms of any such plan described in clause (iii) of this
sentence. Notwithstanding the foregoing, no Person shall become an "Acquiring
Person" as the result of an acquisition of Common Shares by the Company which,
by reducing the number of Common Shares outstanding, increases the proportionate
number of shares beneficially owned by such Person to 15% or more of the Common
Shares of the Company then outstanding; provided, however, that if a Person
shall, together with all Affiliates or Associates of such Person, become the
Beneficial Owner of 15% or more of the Common Shares of the Company then
outstanding by reason of share acquisitions by the Company and if such Person or
such Person's Affiliates or Associates shall, after such share acquisitions by
the Company, become the Beneficial Owner of any additional Common Shares of the
Company, and, immediately after becoming the Beneficial Owner of such additional
Common Shares, such Person shall, together with all Affiliates and Associates of
such Person, be the Beneficial Owner of 15% or more of the Common Shares of the
Company then outstanding, then such Person (unless such Person shall be (1) the
Company, (2) any Subsidiary of the Company, (3) any employee benefit plan of the
Company or of any Subsidiary of the Company, or (4) any entity holding Common
Shares for or pursuant to the terms of any such plan described in clause (3) of
this sentence) shall be deemed an "Acquiring Person". An entity other than the
Company or any Subsidiary of the Company holding Common Shares for or pursuant
to the terms of an employee benefit plan of the Company or of any Subsidiary of
the Company and in addition being the Beneficial Owner of Common Shares that are
not held for or pursuant to the terms of any such plan shall be deemed to
constitute an Acquiring Person, notwithstanding anything herein stated, if, but
only if, it, together with its Affiliates and Associates, shall be the
Beneficial Owner of 15% or more, exclusive of those Common Shares held by it for
or pursuant to the terms of any such plan, of the Common Shares then
outstanding. Notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith that a Person who would otherwise be an
"Acquiring Person", as defined pursuant to the foregoing provisions of this
paragraph (a), has become such inadvertently, and such Person divests as
promptly as practicable a sufficient number of Common Shares so that such Person
would no longer be an Acquiring Person, as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of, and
shall be deemed to "beneficially own" or have "beneficial ownership" of, any
securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, including without
limitation securities with respect to which such Person or any of such
Person's Affiliates or Associates has "beneficial ownership" pursuant
to Rule 13d-3 of the General Rules and Regulations under the Exchange
Act;
(ii) which such Person or any of such Person's Affiliates or
Associates has, directly or indirectly, (A) the right to acquire
(whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding, whether or not in writing (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, other rights (other
than the Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, or to have beneficial ownership of, any securities
pursuant to subparagraph (i), (ii) or (iii) of this paragraph (c)
solely because such securities are tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (B) the right to vote or dispose
of (including without limitation pursuant to any agreement, arrangement
or understanding (whether or not in writing)); provided, however, that
a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, or to have beneficial ownership of, any securities
pursuant to subparagraph (i), (ii) or (iii) of this paragraph (c)
solely because of the right to vote such securities pursuant to an
agreement, arrangement or understanding if the agreement, arrangement
or understanding to vote such securities (1) arises solely from a
revocable proxy or consent given to such Person or any of such Person's
Affiliates or Associates in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations under the Exchange Act and (2) is not also then
reportable by such Person on Schedule l3D under the Exchange Act (or
any comparable or successor report) as being beneficially owned by such
Person; or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which
such Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the purpose
of acquiring, holding, voting (except pursuant to a revocable proxy as
described in the proviso to subparagraph (ii) of this paragraph (c)) or
disposing of any voting securities of the Company.
Notwithstanding anything in these definitions of Beneficial Owner, beneficially
own or beneficial ownership to the contrary, the phrase "then outstanding," when
used with reference to a Person's beneficial ownership of securities of the
Company, shall mean the number of such securities then issued and outstanding
together with the number of such securities not then actually issued and
outstanding which such Person would be deemed to beneficially own under this
Agreement.
(d) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of New York or
Minnesota are authorized or obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00
P.M., Minneapolis, Minnesota time, on such date; provided, however, that if such
date is not a Business Day it shall mean 5:00 P.M., Minneapolis, Minnesota time,
on the next succeeding Business Day.
(f) "Common Shares", when used with reference to the Company,
shall mean Common Shares of the par value of $.10 per share (as such par value
may be changed from time to time) of the Company. "Common Shares", when used
with reference to any Person other than the Company, shall mean the capital
stock (or equity interest) with the greatest voting power of such other Person.
(g) "Distribution Date" shall have the meaning set forth in
Section 3.
(h) "Final Expiration Date" shall have the meaning set forth
in Section 7.
(i) "Person" shall mean any individual, firm, corporation,
partnership or other entity, and shall include any successor (by merger or
otherwise) of any such entity.
(j) "Preferred Shares" shall mean Series A Junior
Participating Preferred Shares of the par value of $1.00 per share (as such par
value may be changed from time to time) of the Company having the rights and
preferences set forth in the "Form of Certificate of Designation, Preferences
and Rights" attached to this Agreement as Exhibit A hereto.
(k) "Redemption Date" shall have the meaning set forth in
Section 7.
(l) "Section 11(a)(ii) Event" shall mean an event described in
the first sentence of Section 11(a)(ii).
(m) "Section 13 Event" shall mean any event described in
clauses (w), (x), (y) or (z) of Section 13(a).
(n) "Shares Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) of the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such.
(o) "Subsidiary" of any Person shall mean any corporation or
other entity of which a majority of the voting power of the voting equity
securities or other equity interests entitled to vote in the election of
directors (or Persons with comparable responsibilities if the entity has no
directors) is beneficially owned, directly or indirectly, by such Person, or
otherwise controlled by such Person.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3, shall prior to the Distribution Date
also be the holders of the Common Shares) in accordance with the terms and
conditions of this Agreement, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier
of (i) the Close of Business on the 15th day after the Shares Acquisition Date
or (ii) the Close of Business on the 15th day (or such later date as may be
determined by action of the Board of Directors of the Company prior to such time
as any Person becomes an Acquiring Person) after the date of the commencement by
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan) of, or of
the first public announcement of the intention of any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) to commence (which intention shall not
have been withdrawn within five business days (as defined in Rule 14d-1 of the
General Rules and Regulations under the Act) after such public announcement), a
tender or exchange offer the consummation of which would result in beneficial
ownership by a Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or of any Subsidiary of the Company or
any entity holding Common Shares for or pursuant to the terms of any such plan)
of 15% or more of the then outstanding Common Shares (including any such date
that is after the date of this Agreement and prior to the issuance of the
Rights, the earlier of such dates being herein referred to as the "Distribution
Date"), (x) the Rights will be evidenced (subject to the provisions of Section
3(b) hereof) by the certificates for Common Shares registered in the names of
the holders thereof (which certificates shall also be deemed to be Right
Certificates where the context so requires) and not by separate Right
Certificates, and (y) the right to receive Right Certificates will be
transferable only in connection with the transfer of Common Shares. As soon as
practicable after the Distribution Date, the Company will prepare and execute,
the Rights Agent will countersign, and the Company will send or cause to be sent
(and the Rights Agent will, if requested, send) by first-class, postage-prepaid
mail, to each record holder of Common Shares as of the close of business on the
Distribution Date, at the address of such holder shown on the records of the
Company, one or more Right Certificates, in substantially the form of Exhibit B
hereto (the "Right Certificates"), evidencing one Right for each Common Share so
held, subject to adjustment pursuant to Section 11(i). In the event that an
adjustment in the number of Rights per Common Share has been made pursuant to
Section 11(i), at the time Right Certificates are distributed, the Company may,
to the extent provided in Section 14(a), make the necessary and appropriate
rounding adjustments (as set forth in Section 14(a)) so that Right Certificates
are distributed representing only whole numbers of Rights and pay cash in lieu
of fractional Rights pursuant to Section 14(a). As of and after the Distribution
Date, the Rights will be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter,
the Company will send a copy of a Summary of Rights to Purchase Preferred
Shares, in substantially the form of Exhibit C hereto (the "Summary of Rights"),
by first-class, postage-prepaid mail, to each record holder of Common Shares as
of the Close of Business on the Record Date, at the address of such holder shown
on the records of the Company. With respect to certificates for Common Shares
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates registered in the names of the holders thereof
together with a copy of the Summary of Rights attached thereto, and the
registered holders of the Common Shares shall also be the registered holders of
the associated Rights. Until the Distribution Date (or the earlier of the
Redemption Date or the Final Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date, with or without a
copy of the Summary of Rights attached thereto, shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding
after the Record Date and (i) prior to the earliest of the Distribution Date,
the Redemption Date or the Final Expiration Date or (ii) upon the exercise or
conversion, prior to the earlier of the Redemption Date or the Final Expiration
Date, of any option or other security exercisable for or convertible into Common
Shares, which option or other security is outstanding on the Distribution Date,
shall have impressed on, printed on, written on or otherwise affixed to them the
following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between Medtronic,
Inc. and Norwest Bank Minnesota, National Association, dated as of June
27, 1991 (the "Rights Agreement"), the terms of which (including
restrictions on the transfer of such Rights) are hereby incorporated
herein by reference and a copy of which is on file with the Secretary
at the principal executive offices of Medtronic, Inc. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. Medtronic, Inc. will mail to the holder of this
certificate a copy of the Rights Agreement without charge after receipt
of a written request therefor to its Secretary from such holder. Under
certain circumstances, as set forth in the Rights Agreement, Rights
that are or were acquired or beneficially owned by an Acquiring Person
or any Associate or Affiliate thereof (as such terms are defined in the
Rights Agreement), may become null and void.
With respect to certificates containing the foregoing legend, until the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date, the
Rights associated with the Common Shares represented by such certificates shall
be evidenced by such certificates alone, the registered holders of the Common
Shares shall also be the registered holders of the associated Rights and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be in substantially the form of Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law, rule or regulation
(including, without limitation, any rule or regulation of any stock exchange on
which the Rights may from time to time be listed) or to conform to usage or to
reflect adjustments to the Rights made pursuant to this Agreement. Subject to
the provisions of Section 11 and Section 22, the initial Right Certificates,
whenever distributed, shall entitle the holders thereof to purchase such number
of one one-hundredths of a Preferred Share as shall be set forth therein at the
price per one one-hundredth of a Preferred Share set forth therein (the
"Purchase Price"), but the amount and type of securities purchasable upon the
exercise of each Right and the Purchase Price shall be subject to adjustment as
provided in this Agreement.
Section 5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its Chief Executive Officer, its
President, its Chief Financial Officer or any of its Vice Presidents, either
manually or by facsimile signature. The Right Certificates shall be
countersigned, either manually or by facsimile signature, by the Rights Agent
and shall not be valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Right Certificates shall
cease to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the person who signed
such Right Certificates had not ceased to be such officer of the Company; and
any Right Certificate may be signed on behalf of the Company by any person who,
at the actual date of the signing of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its principal office or the office or offices
designated as the appropriate place for surrender of Right Certificates upon
exercise or transfer, books for registration and transfer of the Right
Certificates. Such books shall show the names and addresses of the respective
holders of the Right Certificates, the number of Rights evidenced on its face by
each of the Right Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of
Right Certificates; Lost, Stolen, Destroyed or Mutilated Right Certificates. (a)
Subject to the provisions of Section 14 hereof, at any time after the Close of
Business on the Distribution Date, and at or prior to the Close of Business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder (or former holder in the case of a transfer) to
purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Right Certificate or Rights Certificates shall make such request in
writing delivered to the Rights Agent, and shall surrender the Right Certificate
or Right Certificates to be transferred, split up, combined or exchanged at the
office or offices of the Rights Agent designated for such purpose. Thereupon the
Rights Agent shall, subject to Section 14 hereof, countersign and deliver to the
Person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment by the registered
holder of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split-up, combination or exchange of
Right Certificates. Neither the Rights Agent nor the Company shall be obligated
to take any action whatsoever with respect to the transfer of any such
surrendered Right Certificate until the registered holder shall have duly
completed and executed the form of assignment on the reverse side of such Right
Certificate and shall have provided such additional evidence of the identity of
the Beneficial Owner (or former Beneficial Owner) of such Right Certificate or
Affiliates or Associates thereof as the Company shall reasonably request.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Right Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of a11 reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Company will make and
deliver a new Right Certificate of like tenor to the Rights Agent for
countersignature and delivery to the registered owner in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights. (a) Subject to Section 11(a)(ii) hereof, the registered holder of any
Right Certificate may exercise the Rights evidenced thereby (except as otherwise
provided in this Agreement) in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase on the reverse side thereof duly completed and executed, to
the Rights Agent at the office or offices of the Rights Agent designated for
such purpose, together with payment of the Purchase Price for each one
one-hundredth of a Preferred Share as to which the Rights are exercised, at or
prior to the earliest of (i) the close of business on July 10, 2001 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as provided in
Section 23 (the "Redemption Date"), or (iii) the time at which such Rights are
exchanged as provided in Section 24.
(b) The Purchase Price for each one one-hundredth of a
Preferred Share purchaseable pursuant to the exercise of a Right shall initially
be $600, shall be subject to adjustment from time to time as provided in
Sections 11 and 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly completed and
executed, accompanied by payment of the Purchase Price for the shares to be
purchased and an amount equal to any applicable transfer tax required to be paid
by the holder of such Right Certificate in accordance with Section 9 in cash, or
by certified check or bank cashier's check or money order payable to the order
of the Company, the Rights Agent shall, subject to Section 20(k), thereupon
promptly (i) (A) requisition from any transfer agent of the Preferred Shares (or
make available, if the Rights Agent is the transfer agent for such shares)
certificates for the number of Preferred Shares to be purchased and the Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) if the Company shall have elected to deposit the total number
of Preferred Shares issuable upon exercise of the Rights under this Agreement
with a depositary agent, requisition from the depositary agent depositary
receipts representing such number of one one-hundredths of a Preferred Share as
are to be purchased (in which case certificates for the Preferred Shares
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Company hereby directs the depositary agent to comply
with such request, (ii) when appropriate, requisition from the Company the
amount of cash to be paid in lieu of issuance of fractional interests in shares
in accordance with Section 14, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate, registered in such name or names as
may be designated by such holder and (iv) when appropriate, after receipt,
deliver such cash for fractional interests in shares to or upon the order of the
registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to the registered holder of
such Right Certificate or to such holder's duly authorized assigns, subject to
the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section unless such registered
holder shall have (i) duly completed and executed the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) of such Right Certificate or
Affiliates or Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer,
split-up, combination or exchange shall, if surrendered to the Company or to any
of its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Right Certificates after any
retention period required by the Securities and Exchange Commission has lapsed,
and in such case shall deliver a certificate of destruction thereof to the
Company.
Section 9. Reservation and Availability of Preferred Shares.
(a) The Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued Preferred Shares, the number of
Preferred Shares that will be sufficient to permit the exercise in full of all
outstanding Rights.
(b) The Company will prepare and file, as soon as practicable
following expiration of the Company's right of redemption pursuant to Section
23, a registration statement under the Securities Act of 1933, as amended (the
"Act"), with respect to the Rights and the Company's securities purchasable upon
exercise of the Rights on an appropriate form, and use its best efforts to cause
such registration statement to (i) become effective as soon as practicable after
such filing, and (ii) remain effective (with a prospectus at all times meeting
the requirements of the Act) until the earlier of (A) the date as of which the
Rights are no longer exercisable for such securities or (B) the Final Expiration
Date. The Company will also take such action as may be appropriate under, or to
ensure compliance with, the securities or "blue sky" laws of the various states
in connection with the exercisability of the Rights. The Company may temporarily
suspend, for a period of time not to exceed 90 days after the date the
registration statement is filed, the exercisability of the Rights in order to
permit the registration statement to become effective. Upon any such suspension,
the Company shall issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement at
such time as the suspension is no longer in effect. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be exercisable
in any jurisdiction if the requisite qualification in such jurisdiction shall
not have been obtained or the exercise thereof is not permitted under applicable
law.
(c) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares delivered
upon exercise of Rights shall, at the time of delivery of the certificates for
such Preferred Shares (subject to payment of the Purchase Price and any
applicable transfer taxes), be duly and validly authorized and issued and fully
paid and nonassessable shares.
(d) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the issuance or delivery of the Right
Certificates or of any Preferred Shares upon the exercise of Rights. The Company
shall not, however, be required to pay any transfer tax that may be payable in
respect of any transfer or delivery of Right Certificates to a person other
than, or the issuance or delivery of certificates or depositary receipts for the
Preferred Shares in a name other than that of, the registered holder of the
Right Certificate evidencing Rights surrendered for exercise, or to issue or to
deliver any certificates or depositary receipts for Preferred Shares upon the
exercise of any Rights, until any such tax shall have been paid (any such tax
being payable by the holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's satisfaction that no such tax
is due.
Section 10. Preferred Shares Record Date. Each person in whose
name any certificate for Preferred Shares is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
Preferred Shares represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Shares transfer books of the Company
are closed, such person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Shares transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
as such shall not be entitled to any rights of a holder of Preferred Shares for
which the Rights shall be exercisable, including without limitation, the right
to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights. The Purchase Price, the number and kind of shares
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation,
merger or statutory share exchange in which the Company is the continuing,
surviving or acquiring corporation), except as otherwise provided in this
Section 11(a), the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date pursuant to the exercise of the Rights, shall be proportionately
adjusted so that the holder of any Right exercised after such time shall be
entitled to receive, upon payment of the Purchase Price then in effect (and any
applicable transfer taxes), the aggregate number and kind of shares of capital
stock which, if such Right had been exercised immediately prior to such date and
at a time when the Preferred Shares transfer books of the Company were open,
such holder would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification; provided,
however, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
of the Company issuable upon exercise of one Right. If an event occurs which
would require an adjustment under both Section 11(a)(i) and Section 11(a)(ii),
the adjustment provided for in this Section 11(a)(i) shall be in addition to,
and shall be made prior to, any adjustment required pursuant to Section
11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in the event any
Person shall become an Acquiring Person, other than pursuant to any transaction
set forth in Section 13(a), proper provision shall be made so that each holder
of a Right, subject to paragraph 11(a)(iii), shall thereafter have a right to
receive, upon exercise thereof by payment of the amount equal to the product of
the number of one one-hundredths of a Preferred Share which would otherwise be
issuable upon exercise of a Right and the then current Purchase Price in
accordance with the terms of this Agreement, in lieu of Preferred Shares, such
number of Common Shares of the Company as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the number of one one-hundredths
of a Preferred Share for which a Right is exercisable immediately prior to the
occurrence of the Section 11(a)(ii) Event and (y) dividing that product by 50%
of the current per share market price of the Company's Common Shares (determined
pursuant to Section 11(d) hereof) on the date of such occurrence.
From and after the first occurrence of a Section 11(a)(ii)
Event, any Rights that are or were acquired or beneficially owned by any
Acquiring Person or any Associate or Affiliate of such Acquiring Person shall
become null and void without any further action and no holder of such Rights
shall thereafter have any rights to exercise such Rights or any other rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise. No Right Certificate shall be issued pursuant to Section
3 that represents Rights that would be void pursuant to the preceding sentence;
no Right Certificate shall be issued at any time upon the transfer of any Rights
to an Acquiring Person whose Rights would be void pursuant to the preceding
sentence or any Associate or Affiliate of such an Acquiring Person or to any
nominee of such Acquiring Person, Associate or Affiliate; and any Right
Certificate delivered to the Rights Agent for transfer to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence shall be
cancelled. The Company shall use all reasonable efforts to insure that the
provisions hereof are complied with, but shall have no liability to any holder
of a Right Certificate or other Person as a result of its failure in good faith
to make any determinations with respect to an Acquiring Person or its Affiliates
or Associates.
(iii) If, on the date of the occurrence of a Section 11(a)(ii)
Event (the "Adjustment Date"), the Company does not have sufficient authorized,
unissued and unreserved Common Shares available to permit the exercise in full
of all Rights that are exercisable on the Adjustment Date for the number of
Common Shares per Right provided for in Section 11(a)(ii), then the Exercise
Price (as defined below) and the number of Common Shares to be delivered by the
Company upon exercise of a Right shall be further adjusted as provided in this
subparagraph (iii).
(1) Definitions:
(A) The "Aggregate Market Value" is the product
of (i) the number of Available Shares and
(ii) the current per share market price of
the Common Shares on the Adjustment Date,
determined as provided in Section 11(d)
hereof.
(B) The "Available Shares" are all unreserved
Common Shares which are authorized and
unissued immediately prior to the Adjustment
Date.
(C) The "Exercise Price" is the amount of the
payment that must be made by the holder of a
Right in connection with the exercise of one
Right immediately prior to the Adjustment
Date.
(D) The "Deficiency" is the amount by which (i)
two times the Exercise Price exceeds (ii)
the quotient obtained by dividing the
Aggregate Market Value by the number of
Rights remaining outstanding immediately
prior to the Adjustment Date (the "Remaining
Rights") (which number shall not include the
Rights that are or were beneficially owned
by any Acquiring Person (or any Associate or
Affiliate thereof) that shall have become
void pursuant to Section 11(a)(ii) hereof).
(2) If the Deficiency is less than or equal to the
Exercise Price, then
(A) the number of Common Shares to be delivered
by the Company upon exercise of a Right
shall be adjusted to be equal to the number
of Available Shares divided by the number of
Remaining Rights; and
(B) the amount of cash required to be delivered
by the holder of a Right upon the exercise
thereof shall be adjusted (the "New Exercise
Price") to equal the Exercise Price minus
the Deficiency; provided, however, that in
no event will the New Exercise Price be less
than the aggregate par value of the Common
Shares required to be delivered upon the
exercise of one Right pursuant to
subparagraph (2)(A) above.
(3) If the Deficiency is greater than the Exercise Price,
then
(A) the number of Common Shares to be delivered
by the Company upon exercise of a Right
shall be adjusted to equal the quotient
obtained by dividing the Exercise Price by
the current per share market price of the
Common Shares on the Adjustment Date;
(B) the New Exercise Price shall equal the
aggregate par value of the Common Shares
required to be delivered upon the exercise
of one Right pursuant to subparagraph (3)(A)
above; and
(C) in lieu of issuing Common Shares (in whole
or in part upon the exercise of Rights) the
Company may issue, upon the exercise of
Rights at the New Exercise Price, other
equity securities of the Company (including,
without limitation, shares, or units or
fractions of shares, of preferred stock
which the Board of Directors of the Company
has determined to have substantially the
same value, voting rights and other rights
as Common Shares (such equity securities are
herein called "common share equivalents")).
To the extent that such common share
equivalents (or fractions thereof) are
substituted for Common Shares upon exercise
of the Rights following the occurrence of a
Section 11(a)(ii) Event, they shall be
substituted on a pro-rata basis with respect
to all Rights (other than Rights that are or
were beneficially owned by any Acquiring
Person (or any Associate or Affiliate
thereof) that shall have become void
pursuant to Section 11(a)(ii) hereof). Such
common share equivalents shall not be
included in Available Shares, and all of the
Available Shares shall be reserved, as of
the Adjustment Date, for issuance, on a
pro-rata basis, upon exercise of the Rights
and may not be substituted for with common
share equivalents upon the exercise of any
Right except to the extent that the number
of Common Shares required to be delivered
under subparagraph (3)(A) upon the exercise
of such Right exceeds the quotient of the
number of Available Shares divided by the
number of Remaining Rights.
(4) If, at the time any adjustment is required pursuant
to this Section 11(a)(iii), the Common Shares shall
have no par value, then for the purposes of this
Section 11(a)(iii) the par value of the Common Shares
shall be deemed to be $.10 per share.
(5) In the event that there shall not be sufficient
authorized but unissued and unreserved Common Shares
(or common share equivalents the issuance of which is
permitted under Section 11(a)(iii)(3)(C)) to permit
the exercise in full of the Rights in accordance with
this subparagraph (iii), the Company shall use its
best efforts to cause the authorization of sufficient
additional Common Shares or common share equivalents
to permit such exercise and, if the Board of
Directors of the Company shall determine in good
faith that it is likely that sufficient additional
Common Shares or common share equivalents could be
authorized to permit such exercise, the Company may
suspend the exercisability of the Rights for a period
not to exceed 90 days in order to seek any
authorization of additional Common Shares or other
common share equivalents. In the event of any such
suspension, the Company shall issue a public
announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is
no longer in effect.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
current per share market price of the Preferred Shares (as determined pursuant
to Section 11(d) hereof) on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of Preferred Shares outstanding on such record date,
plus the number of Preferred Shares which the aggregate offering price of the
total number of Preferred Shares and/or equivalent preferred shares so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase, at such current per share market
price, and the denominator of which shall be the number of Preferred Shares
outstanding on such record date, plus the number of additional Preferred Shares
and/or equivalent preferred shares to be offered for subscription or purchase
(or into which the convertible securities so to be offered are initially
convertible); provided, however, that in no event shall the consideration to be
paid upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of one Right. In
case such subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company), whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holders of the Rights. Preferred
Shares owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed; and in the event that
such rights or warrants are not so issued, the Purchase Price shall again be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation or in a statutory share
exchange) of evidences of indebtedness or cash or non-cash assets (other than a
regular quarterly cash dividend or a dividend payable in Preferred Shares) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the then current per
share market price of the Preferred Shares (as determined pursuant to Section
11(d) hereof) on such record date, less the fair market value (as determined in
good faith by the Board of Directors of the Company), whose determination shall
be described in a statement filed with the Rights Agent) of the portion of the
evidences of indebtedness or cash or non-cash assets so to be distributed on, or
of such subscription rights or warrants applicable to, one Preferred Share, and
the denominator of which shall be such then current per share market price of
the Preferred Shares; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company to be issued
upon exercise of one Right. Such adjustments shall be made successively whenever
such a record date is fixed; and in the event that such distribution is not so
made, the Purchase Price shall again be adjusted to be the Purchase Price that
would then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the 30 consecutive Trading
Days (as such term is hereinafter defined) immediately prior to such date;
provided, however, that in the event that the current per share market price of
the Security is determined during a period following the announcement by the
issuer of such Security of (A) a dividend or distribution on such Security
payable in such Security or securities convertible into such Security (other
than the Rights) or (B) any subdivision, combination or reclassification of such
Security, and prior to the expiration of 30 Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such day the Security
is not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Security selected by the Board of Directors of the Company). Except as provided
in Section 11(d)(ii) with respect to Preferred Shares, if on any such day the
Security is not publicly held or no market maker is making a market in the
Security, the fair value of such securities on such day as determined in good
faith by the Board of Directors of the Company (whose determination shall be
described in a statement filed with the Rights Agent) shall be used in lieu of
the closing price for such day. The term "Trading Day" shall mean a day on which
the principal national securities exchange on which the Security is listed or
admitted to trading is open for the transaction of business or, if the Security
is not listed or admitted to trading on any national securities exchange, a
Business Day.
(ii) If the Preferred Shares are not publicly held or traded
in a manner described in Section 11(d)(i) hereof, then, notwithstanding anything
to the contrary provided in Section 11(d)(i) hereof, then, notwithstanding
anything to the contrary provided in Section 11(d)(i) hereof, the "current per
share market price" of the Preferred Shares shall be conclusively deemed to be
the current per share market price of the Common Shares as determined pursuant
to Section 11(d)(i) (appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date of this Agreement)
multiplied by one hundred. If neither the Common Shares nor the Preferred Shares
are publicly held or so traded, the "current per share market price" of the
Preferred Shares shall mean the fair value per share as determined in good faith
by the Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent.
(e) Except as provided in the third sentence of this Section
11(e), no adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security, as the
case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11, but for the first sentence of this
Section 11(e), shall be made no later than the earlier of (i) three years from
the date of the transaction that requires such adjustment or (ii) the Final
Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a) or Section 13(a), the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock other than Preferred
Shares, thereafter the number of such other shares so receivable upon exercise
of any Right shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price under this Agreement shall evidence
the right to purchase, at the adjusted Purchase Price, the number of one
one-hundredths of a Preferred Share (or other securities) purchasable from time
to time under this Agreement upon exercise of the Rights, all subject to further
adjustment as provided in this Agreement.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Section 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of one
one-hundredths of a Preferred Share (calculated to the nearest one one-millionth
of a Preferred Share) obtained by (i) multiplying (x) the number of one
one-hundredths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of one one-hundredths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued on or after the Distribution Date, shall be at
least 10 days later than the date of the public announcement. If Right
Certificates have been issued on or after the Distribution Date, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for in this Agreement, shall
bear the adjusted Purchase Price, and shall be registered in the names of the
holders of record of Right Certificates on the record date specified in the
public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore issued may continue
to express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed at the time of the issuance of such Right
Certificates under this Agreement.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below one one-hundredth of the then par value, if
any, of the Preferred Shares issuable upon exercise of the Rights, the Company
shall take such corporate action, if any, which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that the Board of Directors of the Company
shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Shares, (ii) issuance wholly for cash of any of the
Preferred Shares at less than the current per share market price, (iii) issuance
wholly for cash of Preferred Shares or securities which by their terms are
convertible into or exchangeable for Preferred Shares, (iv) dividends on
Preferred Shares payable in Preferred Shares or (v) issuance of rights, options
or warrants referred to in Section 11(b) hereof, hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such shareholders.
(n) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23, 24 or 27,
take (or permit any Subsidiary of the Company to take) any action if at the time
such action is taken it is reasonably foreseeable that such action will
eliminate or diminish substantially the benefits intended to be afforded by the
Rights.
(o) Anything in this Agreement or the Rights to the contrary
notwithstanding, in the event that at any time after the date of this Agreement
and prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares (including without
limitation the dividend declared on the date of this Agreement that is payable
on August 30, 1991) or (ii) effect a subdivision, combination or consolidation
of the Common Shares (by reclassification or otherwise) into a greater or lesser
number of Common Shares, then in any such case (x) the number of one
one-hundredths of a Preferred Share purchasable after such event upon proper
exercise of each Right shall be determined by multiplying the number of one
one-hundredths of a Preferred Share so purchasable immediately prior to such
event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event and (y) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(o) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected. If an event occurs which would require an adjustment under Section
11(a)(ii) and this Section 11(o), the adjustments provided for in this Section
11(o) shall be in addition and prior to any adjustment required pursuant to
Section 11(a)(ii).
(p) If any adjustment in the Purchase Price pursuant to
paragraph (b) or (c) of this Section 11 would not be permitted by law, under the
Company's Articles of Incorporation or under the Certificate of Designation,
Preferences and Rights establishing the Preferred Shares, no such issuance of
securities or distribution of evidences of indebtedness or other assets or
subscription rights or warrants, as the case may be, that would require such an
adjustment but for the limitations established by law, the Company's Articles of
Incorporation or such Certificate of Designation, Preferences and Rights shall
be made by the Company.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Sections 11 and 13, the
Company shall (a) promptly prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) promptly
file with the Rights Agent and with each transfer agent for the Common Shares or
the Preferred Shares a copy of such certificate and (c) if such adjustment is
made after the Distribution Date, mail a brief summary thereof to each holder of
record of a Right Certificate in accordance with Section 25. The Rights Agent
shall be fully protected in relying on such certificate and on any adjustment
therein contained.
Section 13. Consolidation, Merger, Statutory Share Exchange or
Sale or Transfer of Assets or Earning Power.
(a) In the event, directly or indirectly,
(w) the Company shall consolidate with, or merge with
and into, any other Person (other than a wholly owned
Subsidiary of the Company), and the Company shall not be the
continuing or surviving corporation of such consolidation or
merger,
(x) any Person (other than a wholly owned Subsidiary
of the Company) shall consolidate with the Company, or merge
with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in
connection with such consolidation or merger, all or part of
the outstanding Common Shares of the Company held by existing
shareholders of the Company shall be changed into or exchanged
for stock or other securities of any other Person (or the
Company) or money or any other property,
(y) the Company shall effect a statutory share
exchange with the outstanding Common Shares of the Company
being exchanged for stock or other securities of any other
Person, money or other property, or
(z) the Company shall sell or otherwise transfer (or
one or more of its Subsidiaries shall sell or otherwise
transfer), in one or a series of related transactions, assets
or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a
whole) to any other Person or Persons (other than the Company
or one or more of its wholly owned Subsidiaries),
then, and in each such case, proper provision shall be made so that (i) each
holder of a Right (except as otherwise provided herein) shall thereafter have
the right to receive, upon the exercise thereof by payment of the amount equal
to the product of the number of one one-hundredths of a Preferred Share which
would otherwise be issuable upon exercise of a Right and the then current
Purchase Price in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of validly authorized and issued, fully paid,
nonassessable and freely tradeable Common Shares of the Principal Party (as
hereinafter defined), not subject to any liens, encumbrances, rights of first
refusal or adverse claims, as shall be equal to the result obtained by (x)
multiplying the then current Purchase Price by the number of one one-hundredths
of a Preferred Share for which a Right is, immediately prior to the occurrence
of the Section 13 Event, exercisable and (y) dividing that product by 50% of the
then current per share market price of the Common Shares of such Principal Party
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such Section 13 Event; (ii) such Principal Party shall thereafter be liable for,
and shall assume, by virtue of such merger, consolidation, statutory share
exchange, sale or transfer, all the obligations and duties of the Company
pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed
to refer to such Principal Party; and (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
its Common Shares to permit the exercise of all outstanding Rights) in
connection with the consummation of any such transaction as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to its Common Shares thereafter deliverable upon
the exercise of the Rights.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clauses (w),
(x) or (y) of the first sentence of Section 13(a), the Person
(including, without limitation, the Company as successor thereto or as
the surviving corporation) that is the issuer of any securities into
which Common Shares of the Company are converted in such merger,
consolidation or exchange, or if no securities are so issued, the
Person that is the other party to such merger, consolidation or
exchange; and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Shares of such
Person are not at such time or have not been continuously over the preceding 12
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Shares of which are
and have been so registered, "Principal Party" shall refer to such other Person,
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Shares of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Shares having the greatest aggregate market value.
(c) The Company shall not consummate any Section 13 Event
unless the Principal Party shall have a sufficient number of authorized,
unreserved Common Shares which have not been issued or are held in treasury to
permit the exercise in full of the Rights in accordance with this Section 13 and
unless prior thereto the Company and such Principal Party shall have executed
and delivered to the Rights Agent a supplemental agreement providing for the
terms set forth in paragraphs (a) and (b) of this Section 13 and further
providing that, as soon as practicable after the date of any Section 13 Event,
the Principal Party will:
(i) prepare and file a registration statement under the Act,
with respect to the Rights and the securities purchasable upon exercise
of the Rights, on an appropriate form, and use its best efforts to
cause such registration statement to (A) become effective as soon as
practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
earlier of (1) the date as of which the Rights are no longer
exercisable for such securities or (2) the Final Expiration Date;
(ii) take such action as may be appropriate under, or to
ensure compliance with, the securities or "blue sky" laws of the
various states in connection with the exercisability of the Rights; and
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
(d) The Company shall not enter into any transaction of the
kind referred to in this Section 13 if at the time of such transaction there are
any rights, warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights.
The provisions of this Section 13 shall similarly apply to
successive mergers, consolidations, statutory share exchanges or sales or other
transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there may be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined in good faith by
the Board of Directors of the Company shall be used in lieu of the closing price
for such day.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions that are integral multiples of one
one-hundredth of a Preferred Share, or, if a Right shall then be exercisable for
a fraction other than one one-hundredth of a Preferred Share, integral multiples
of that fraction,) upon exercise of the Rights or to distribute certificates
which evidence fractions of Preferred Shares (other than fractions that are
integral multiples of one one-hundredth of a Preferred Share or, if a Right
shall then be exercisable for a fraction other than one one-hundredth of a
Preferred Share, integral multiples of that fraction). Fractions of Preferred
Shares in integral multiples of one one-hundredth of a Preferred Share or, if a
Right shall then be exercisable for a fraction other than one one-hundredth of a
Preferred Share, integral multiples of that fraction may, at the election of the
Company, be evidenced by depositary receipts pursuant to an appropriate
agreement between the Company and a depositary selected by it, provided, that
such agreement shall provide that the holders of such depositary receipts shall
have all the rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such depositary
receipts. In lieu of fractional Preferred Shares that are not integral multiples
of one one-hundredth of a Preferred Share, or, if a Right shall then be
exercisable for a fraction other than one one-hundredth of a Preferred Share,
integral multiples of that fraction, the Company may pay to the registered
holders of Right Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of one Preferred Share. For purposes of this Section 14(b), the current
market value of a Preferred Share shall be the closing price of a Preferred
Share (as determined pursuant to Section 11(d)(ii)) for the Trading Day
immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Rights
expressly waives such holder's right to receive any fractional Rights or any
fractional shares (except as provided above) upon exercise of a Right.
Section 15. Rights of Action. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of any Common Share), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of any other Common Share), may, in such holder's own behalf
and for such holder's own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in
respect of, such holder's right to exercise the Rights evidenced by such Right
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) in the manner provided in such Right Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of the obligations of
any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office or offices of the Rights Agent designated for such purposes, duly
endorsed or accompanied by a proper instrument of transfer;
(c) the Company and the Rights Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificate or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary;
(d) the Company may issue Rights after the Record Date as
provided in this Agreement; and
(e) notwithstanding anything in this Agreement or the Rights
to the contrary, the Company, the Rights Agent and the Board of Directors of the
Company shall not have any liability to any holder of a Right or other Person as
a result of the inability of the Company or the Rights Agent to perform any of
its obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority prohibiting or otherwise restraining
performance of such obligation.
Section 17. Right Certificate Holder Not Deemed a Shareholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained in this
Agreement or in any Right Certificate be construed to confer upon the holder of
any Right Certificate, as such, any of the rights of a shareholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to give or withhold consent
to any corporate action, or to receive notice of meetings or other actions
affecting shareholders (except as provided in Section 25), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions of this Agreement.
Section 18. Concerning the Rights Agent. (a) The Company
agrees to pay to the Rights Agent reasonable compensation for all services
rendered by it under this Agreement and, from time to time, on demand of the
Rights Agent, its reasonable expenses and counsel fees and other disbursements
incurred in the administration and execution of this Agreement and the exercise
and performance of its duties under this Agreement. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability or expense (including the costs and expenses of defending against any
claim of liability), incurred without negligence, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or omitted by the
Rights Agent in connection with the acceptance and administration of this
Agreement.
(b) The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of its counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent. (a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties to this Agreement; provided, however, that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. If at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates (or, prior to the Distribution Date, the Common Shares
certificates), by their acceptance of the Rights, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of the "current per share market price") be proved or
established by the Company prior to taking or suffering any action under this
Agreement, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Financial Officer, any Vice
President, the Secretary or the Treasurer of the Company and delivered to the
Rights Agent; and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery of this
Agreement (except the due execution by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in Section 3, 11, 13 or 23 or 24, or the ascertaining of
the existence of facts that would require any such change or adjustment (except
with respect to the exercise of Rights evidenced by Right Certificates after
actual notice that such change or adjustment is required); nor shall it by any
act under this Agreement be deemed to make any representation or warranty as to
the authorization or reservation of any Preferred Shares or Common Shares to be
issued pursuant to this Agreement or any Right Certificate or as to whether any
Preferred Shares or Common Shares will, when issued, be validly authorized and
issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties under this
Agreement from any one of the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Financial Officer, any Vice President, the
Secretary or the Treasurer of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not be liable
for any action taken or suffered to be taken by it in good faith in accordance
with instructions of any such officer or for delay in acting while waiting for
those instructions.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company or its Subsidiaries may be interested, or contract with or
lend money to the Company or its Subsidiaries or otherwise act as fully and
freely as though it were not Rights Agent under this Agreement. Nothing in this
Agreement shall preclude the Rights Agent from acting in any other capacity for
the Company or its Subsidiaries or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty under this Agreement
either itself or by or through its attorneys or agents, and the Rights Agent
shall not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Company
resulting from any such act, default, neglect or misconduct, provided reasonable
care was exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties under this Agreement or in the exercise
of its rights or powers if there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered to
the Rights Agent for exercise or transfer, the form of assignment or form of
election to purchase, as the case may be, has either not been duly completed and
executed or indicates an affirmative response to enumerated clause 1 and/or 2 on
the reverse side of the applicable Right Certificate, the Rights Agent shall not
take any further action with respect to such requested exercise or transfer
without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares and Preferred Shares by registered or
certified mail, and, if such notice is mailed after the Distribution Date, to
the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares and Preferred Shares by
registered or certified mail, and, if such notice is mailed after the
Distribution Date, to the holders of the Right Certificates by first-class mail.
If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of 30 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Right Certificate (who shall, with such notice, submit such
holder's Right Certificate for inspection by the Company), then the registered
holder of any Right Certificate may apply to any court of competent jurisdiction
for the appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be (a) a corporation
organized and doing business under the laws of the United States or of the State
of Minnesota or New York (or of any other state of the United States so long as
such corporation is authorized to do business as a banking institution in the
State of Minnesota or New York), in good standing, having an office in the State
of Minnesota or New York which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million or (b) an affiliate of a corporation described in clause (a) of this
sentence. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it under this Agreement, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Not later than the
effective date of any such appointment the Company shall file notice thereof in
writing with the predecessor Rights Agent and each transfer agent of the Common
Shares and Preferred Shares, and, if such notice is filed after the Distribution
Date, mail a notice thereof in writing to the registered holders of the Right
Certificates. Failure to give any notice provided for in this Section, however,
or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
Section 23. Redemption. (a) Subject to the provisions of
Section 27, the Board of Directors of the Company may, at its option, at any
time prior to the earlier of (x) such time as any person becomes an Acquiring
Person or (y) the Close of Business on the Final Expiration Date, redeem all but
not less than all of the then outstanding Rights at a redemption price of $.01
per Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date of this Agreement, including
without limitation the dividend declared on the date of this Agreement that is
payable on August 30, 1991, (such redemption price being hereinafter referred to
as the "Redemption Price"). The Redemption Price shall be payable in cash by the
Company. The redemption of the Rights by the Board of Directors of the Company
may be made effective at such time and on such basis and with such conditions as
the Board of Directors of the Company in its sole discretion may establish. The
Board of Directors and the Company shall not have any liability to any Person as
a result of the redemption of Rights pursuant to the terms of this Section 23.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights pursuant to paragraph (a) of
this Section 23, and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price for each Right so
held. Promptly after the action of the Board of Directors of the Company
ordering the redemption of the Rights, the Company shall give notice of such
redemption to the Rights Agent and the holders of the then outstanding Rights by
mailing such notice to all such holders at their last addresses as they appear
upon the registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the transfer agent for the Common Shares; provided,
however, that the failure to give, or any defect in, any such notice shall not
affect the validity of such redemption. Any notice which is mailed in the manner
provided in this paragraph shall be deemed given whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made. Neither the Company nor
any of its Affiliates or Associates may redeem, acquire or purchase for value
any Rights at any time in any manner except as specifically set forth in this
Section or in Section 24 or in connection with the purchase of Common Shares
prior to the Distribution Date.
Section 24. Exchange. (a) The Board of Directors of the
Company may, at its option, at any time after the Adjustment Date (as defined in
Section 11(a)(iii)), exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 11(a)(ii) hereof) for Common Shares, with
each Right to be exchanged for such number of Common Shares as shall equal the
result obtained by dividing (x) the Exercise Price (as defined in Section
11(a)(iii)) by (y) the current per share market price of the Common Shares
(determined pursuant to Section 11(d) hereof on the Adjustment Date (such number
of shares being hereinafter referred to as the "Exchange Ratio")). The Exchange
Ratio shall be appropriately adjusted to reflect any stock split, stock dividend
or similar transaction affecting the Common Shares that occurs after the
Adjustment Date. Notwithstanding the foregoing, the Board of Directors of the
Company shall not be empowered to effect such exchange at any time after any
Person (other than (1) the Company, (2) any Subsidiary of the Company, (3) any
employee benefit plan of the Company or of any Subsidiary of the Company or (4)
any entity holding Common Shares for or pursuant to the terms of any plan
described in clause (3) of this sentence), together with all Affiliates and
Associates of such Person, becomes the Beneficial Owner of 50% or more of the
Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of Common Shares equal to
the number of such Rights held by such holder multiplied by the Exchange Ratio.
The Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company shall promptly mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common
Shares authorized, unissued and unreserved to permit the exchange of Rights as
contemplated in accordance with this Section 24, the Company, at its option, may
substitute Preferred Shares (or equivalent preferred shares, as such term is
defined in Section 11(b), or common share equivalents, as such term is defined
in Section 11(a)(iii)(3)(C) hereof), for Common Shares exchangeable for Rights,
at the initial rate of one one-hundredth of a Preferred Share (or equivalent
preferred share) or one common share equivalent for each Common Share, as
appropriately adjusted to reflect stock splits, stock dividends or similar
transactions affecting the Common Shares that occur after the date of this
Agreement.
(d) In the event that there shall not be sufficient Common
Shares, Preferred Shares, equivalent preferred shares or common share
equivalents, authorized, unissued and unreserved to permit the exchange of
Rights as contemplated in accordance with this Section 24, the Company shall
take all such action as may be necessary to authorize additional Common Shares
or Preferred Shares, equivalent preferred shares or common share equivalents for
issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, the Company may pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a whole Common Share. For the
purposes of this paragraph (e), the current market value of a whole Common Share
shall be the closing price of a Common Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section. The Board of Directors
and the Company shall not have any liability to any Person as a result of the
exchange of Rights pursuant to the terms of this Section.
Section 25. Notice of Certain Events. (a) In case the Company
shall propose, at any time after the Distribution Date, (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Shares or to make
any other distribution to the holders of its Preferred Shares (other than a
regular quarterly cash dividend), or (ii) to offer to the holders of its
Preferred Shares rights or warrants to subscribe for or to purchase any
additional Preferred Shares or shares of stock of any class or any other
securities, rights or options, or (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), or (iv) to effect any consolidation or merger
into or with any other Person (other than a wholly owned Subsidiary of the
Company), or to effect any sale or other transfer (or to permit one or more of
its Subsidiaries to effect any sale or other transfer), in one or a series of
related transactions, of 50% or more of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to, any other Person or Persons
(other than the Company and/or any of its wholly owned Subsidiaries), or (v) to
effect any statutory share exchange with the outstanding Common Shares of the
Company being exchanged for stock or other securities of any other corporation
or money or other property, or (vi) to effect the liquidation, dissolution or
winding up of the Company, or (vii) to declare or pay any dividend on the Common
Shares payable in Common Shares or to effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise), then, in
each such case, the Company shall give to each holder of a Right Certificate, to
the extent feasible and in accordance with Section 26, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, exchange, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.
(b) In case any Section 11(a)(ii) Event shall occur, then, in
any such case, the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which shall specify the event and the consequences
of the event to holders of Rights under Section 11(a)(ii).
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage-prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Medtronic, Inc.
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage-prepaid, addressed (until another address is
filed in writing with the Company) as follows:
Norwest Bank Minnesota, National Association
161 North Concord Exchange
Post Office Box 738
South St. Paul, Minnesota 55075-0738
Attention: Stock Transfer Manager
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage-prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may and
the Rights Agent shall, if so directed by the Company, from time to time
supplement or amend this Agreement without the approval of any holders of Common
Shares or Right Certificates in order (i) to extend the Final Expiration Date
or, provided that at the time of such amendment no Person has become an
Acquiring Person, the period during which the Rights may be redeemed,
notwithstanding anything to the contrary provided in clause (iv) hereof, (ii) to
cure any ambiguity, or to correct or supplement any provision contained in this
Agreement which may be defective or inconsistent with any other provisions in
this Agreement, (iii) prior to the Distribution Date, to otherwise change or
supplement any provision in this Agreement in any manner which the Company may
deem necessary or desirable, or (iv) following the Distribution Date, to
otherwise change or supplement any provision in this Agreement in any manner
which the Company may deem necessary or desirable and which shall not adversely
affect the interests of the holders of Right Certificates (other than Right
Certificates evidencing Rights that shall have become null and void pursuant to
Section 11(a)(ii)). Without limiting the foregoing, the Company may at any time
prior to such time as any Person becomes an Acquiring Person amend this
Agreement to lower the thresholds set forth in Sections 1(a) and 3(a) hereof
from 15% to not less than the greater of (i) the sum of .001% and the largest
percentage of the outstanding Common Shares then known by the Company to be
beneficially owned by any Person (other than (1) the Company, (2) any Subsidiary
of the Company, (3) any employee benefit plan of the Company or any Subsidiary
of the Company, or (4) any entity holding Common Shares for or pursuant to the
terms of any plan described in clause (3) of this sentence) or (ii) 10%.
Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement.
(a) Nothing in this Agreement shall be construed to give to
any Person other than the Company, the Rights Agent and the registered holders
of the Right Certificates (and, prior to the Distribution Date, the registered
holders of Common Shares) any legal or equitable right, remedy or claim under
this Agreement. This Agreement shall be for the sole and exclusive benefit of
the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of
Common Shares).
(b) The Board of Directors of the Company shall have the
exclusive power and total and complete authority to administer this Agreement
and to exercise all rights and powers specifically granted to the Board of
Directors or the Company or necessary or advisable in the administration of this
Agreement, including without limitation the right and power to interpret this
Agreement and to make conclusively all determinations deemed necessary or
advisable for the administration of this Agreement. All such acts, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) that are done or made by the Board
of Directors of the Company in good faith shall (x) be final, conclusive and
binding on the Company, the Rights Agent and the holders of the Rights and all
other parties and (y) not subject the Board of Directors to any liability to the
holders of the Rights or any other party.
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Minnesota and for all purposes shall be governed by and
construed in accordance with the laws of the State of Minnesota applicable to
contracts to be made and performed entirely within such state.
Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
MEDTRONIC, INC.
By /s/ William E. Drake
------------------------------------
Its Vice President
---------------------------------
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/ Kenneth P. Swanson
------------------------------------
Its Asst. Vice President -- Stock
Transfer Department
---------------------------------
EXHIBIT A
[Form of Right Certificate]
Certificate No. R- __________ Rights
NOT EXERCISABLE AFTER JULY 10, 2001 OR SUCH EARLIER DATE AS
THE BOARD OF DIRECTORS ORDERS REDEMPTION OR EXCHANGE OF THE
RIGHTS. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION
OF THE COMPANY, AT $.01 PER RIGHT (SUBJECT TO ADJUSTMENT) AND
TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS
AGREEMENT, RIGHTS THAT ARE OR WERE ACQUIRED OR BENEFICIALLY
OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF
AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) MAY BECOME NULL AND VOID.
Right Certificate
MEDTRONIC, INC.
This certifies that _________________ , or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of June 27, 1991 (the "Rights Agreement") between
Medtronic, Inc., a Minnesota corporation (the "Company"), and Norwest Bank
Minnesota, National Association, a national banking association (the "Rights
Agent"), to purchase from the Company at any time after the Distribution Date
(as such term is defined in the Rights Agreement) and prior to 5:00 P.M.
(Minneapolis, Minnesota time) on July 10, 2001 at the office or offices of the
Rights Agent designated for such purpose, or of its successor as Rights Agent,
one one-hundredth of a fully paid, nonassessable Series A Junior Participating
Preferred Share of the par value of $1.00 per share (the "Preferred Shares") of
the Company, at a purchase price of $ per one one-hundredth of a Preferred Share
(the "Purchase Price"), upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase duly completed and executed.
The number of Rights evidenced by this Right Certificate (and the number of one
one-hundredths of a Preferred Share which may be purchased upon exercise
thereof) set forth above, and the Purchase Price set forth above, are, except
for adjustments required pursuant to the Rights Agreement, the number and
Purchase Price as of , based on the Preferred Shares as constituted at such
date.
As provided in the Rights Agreement, the Purchase Price and
the number of one one-hundredths of a Preferred Share which may be purchased
upon the exercise of the Rights evidenced by this Right Certificate are subject
to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and which contains a full description of the rights, limitations of rights,
obligations, duties and immunities hereunder of the Rights Agent, the Company
and the holders of the Right Certificates (which limitations of rights include
the voiding of the Rights under certain circumstances specified in the Rights
Agreement). Copies of the Rights Agreement are on file with the Secretary at the
principal executive office of the Company and will be mailed without charge by
the Company or the Rights Agent to the holder of this certificate promptly
following receipt by the Company or the Rights Agent of a written request
therefor.
Upon the occurrence of a Section 11(a)(ii) Event (as such term
is defined in the Rights Agreement), any Rights evidenced by this Right
Certificate that are or were acquired or beneficially owned by an Acquiring
Person or an Associate or Affiliate of such Acquiring Person (as such terms are
defined in the Rights Agreement) shall be null and void from and after the
occurrence of such Section 11(a)(ii) Event.
This Right Certificate, with or without other Right
Certificates, upon surrender at the office or offices of the Rights Agent
designated for such purpose, may be exchanged for another Right Certificate or
Right Certificates of like tenor and date evidencing Rights entitling the holder
to purchase a like aggregate number of one one-hundredths of a Preferred Share
as the Rights evidenced by the Right Certificate or Right Certificates
surrendered then entitled such holder to purchase. If this Right Certificate
shall be exercised in part, the holder shall be entitled to receive upon
surrender hereof another Right Certificate or Right Certificates for the number
of Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may, but are not required to, be redeemed by
the Company at a redemption price of $.01 per Right, subject to adjustment as
provided in the Rights Agreement, payable in cash and (ii) may, but are not
required to, be exchanged by the Company in whole or in part for Common Shares
or other shares of capital stock of the Company. The Board of Directors of the
Company and the Company shall not have any liability to any person as a result
of the redemption or exchange of the Rights pursuant to the provisions of the
Rights Agreement.
No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractional shares
which are integral multiples of one one-hundredth of a Preferred Share or, if a
Right shall then be exercisable for a fraction other than one one-hundredth of a
Preferred Share, integral multiples of that fraction, which may, at the election
of the Company, be evidenced by depositary receipts), if in lieu thereof a cash
payment is made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder of
the Preferred Shares or of any other securities of the Company which may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a shareholder of the Company or any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
WITNESS the manual or facsimile signature of the proper
officer of the Company.
Dated:
------------------------
MEDTRONIC, INC.
By:
------------------------------------
Title:
----------------------------
Countersigned:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:
----------------------------------
Authorized Manual or
Facsimile Signature
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED __________________________ hereby sells,
assigns and transfers unto ____________________________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ____________________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated:
------------------------
--------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
CERTIFICATE
The undersigned hereby certifies (after due inquiry and to the
best of its knowledge) by checking the appropriate boxes that:
(1) the Rights evidenced by this Right Certificate
[ ] are
or
[ ] are not
beneficially owned by an Acquiring Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined in the Rights Agreement); and
(2) the undersigned
[ ] did
or
[ ] did not
acquire the Rights evidenced by this Right Certificate from any Person who, at
the time of the acquisition, is or was an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
-------------------------------------
Signature
NOTICE
The signature of the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
FORM OF ELECTION TO EXERCISE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To MEDTRONIC, INC.:
The undersigned hereby irrevocably elects to exercise
_______________ Rights represented by this Right Certificate to purchase the
Preferred Shares issuable upon the exercise of such Rights (or such other
securities of the Company or of any other person which may be issuable upon
exercise of the Rights) and requests that certificates for such shares be issued
in the name of:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated:
----------------------
-------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
CERTIFICATE
The undersigned hereby certifies (after due inquiry and to the
best of its knowledge) by checking the appropriate boxes that:
(1) the Rights evidenced by this Right Certificate
[ ] are
or
[ ] are not
beneficially owned by an Acquiring Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined in the Rights Agreement); and
(2) the undersigned
[ ] did
or
[ ] did not
acquire the Rights evidenced by this Right Certificate from any Person who, at
the time of the acquisition, is or was an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
-------------------------------------
Signature
NOTICE
The signature of the foregoing Election to Exercise and
Certificate must correspond to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
EXHIBIT 10.10
MEDTRONIC, INC.
EXECUTIVE NONQUALIFIED
SUPPLEMENTAL BENEFIT PLAN
(AS RESTATED EFFECTIVE MAY 1, 1997)
Medtronic, Inc. (the "Company") previously adopted the Medtronic, Inc.
Executive Nonqualified Supplemental Benefit Plan (the "Plan"), effective May 1,
1986. Effective May 1, 1994, the Company hereby amends and restates the Plan in
its entirety as set forth herein.
I. PURPOSE & DESCRIPTION OF PLAN
1.01 Purpose. The purpose of the Plan is to provide eligible employees
with benefits which supplement those provided under certain of the tax-qualified
plans maintained by Medtronic, Inc. More specifically, this Plan is intended to
provide certain benefits on a nonqualified plan basis which are not otherwise
provided under the tax-qualified plans as a result of the application of certain
legal limitations on contributions, benefits and includible compensation, and as
a result of the deferral of compensation by eligible employees under the
Medtronic, Inc. Capital Accumulation Plan Deferral Program or any other
nonqualified deferred compensation plan which may be established by the Company
from time to time.
1.02 Description of Plan. The Plan is intended to be (and shall be
construed and administered as) an employee benefit pension plan under the
provisions of the Employee Retirement Income Security Act of 1974, as amended,
which is unfunded and maintained primarily for the purpose of providing deferred
compensation for eligible employees who constitute a select group of management
or highly-compensated employees. The Plan is not intended to be qualified under
Internal Revenue Code Section 401(a), as amended.
The obligation of the Company to make payments under this Plan
constitutes an unsecured (but legally enforceable) promise of the Company to
make such payments and no person, including any participant or beneficiary under
the Plan, shall have any lien, prior claim or other security interest in any
property of the Company as a result of this Plan. The limitations set forth in
this paragraph are subject to the provisions of Article VII, however.
II. DEFINITIONS
2.01 Definitions. As used in the Plan, the following terms have the
meanings indicated below:
(a) "Affiliate" means any corporation or other trade or business under
common control with the Company, as further defined in the Company's
qualified plans.
<PAGE>
(b) "Capital Accumulation Plan" means the Medtronic, Inc. Capital
Accumulation Plan Deferral Program, as amended from time to time and any
successor plan.
(c) "Committee" means the Compensation Committee of the Board of
Directors of the Company, or any successor committee appointed by the
Board of Directors to perform substantially similar functions.
(d) "Company" means Medtronic, Inc. and its successors and assigns, by
merger, purchase or otherwise.
(e) "Defined Contribution Supplemental Benefits" refer to those benefits
earned by a participant under Article V of the Plan.
(f) "Eligible Employee" means an elected or appointed officer of the
Company, or any other key employee of the Company or an Affiliate as
designated by the Committee, but excludes any individual who is not
either a United States citizen or resident.
(g) "ESOP" means the Medtronic, Inc. Employee Stock Ownership Plan, as
amended from time to time, and any successor plan.
(h) "Event" means an event of change in control of the Company as
defined in Section 3.1(b)(1) through (3) of the Trust.
(i) "Participant" means an eligible employee who accrues benefits under
the Plan.
(j) "Plan Year" means the 12-month period commencing May 1 and ending
the following April 30. The initial plan year shall commence May 1,
1986.
(k) "Qualified Plans" means the Retirement Plan and the ESOP.
(l) "Restatement Date" means May 1, 1994.
(m) "Retirement Plan" means the Medtronic, Inc. and Participating
Employers Retirement Plan, as amended from time to time, and any
successor plan.
(n) "Retirement Plan Supplemental Benefits" refer to those benefits
earned by a participant under Article IV of the Plan.
(o) "Section 401(a)(17) Limitations" refer to the limitations on the
dollar amount of compensation which may be taken into account under the
qualified plans under Section 401(a)(17) of the Internal Revenue Code of
1986 or any successor provision.
(p) "Section 415 Limitations" refer to the limitations on benefits for
defined benefit pension plans, the limitations on allocations for
defined contribution plans, and the limitations on benefits and
contributions for combinations of plans which are imposed by
<PAGE>
Sections 415(b), 415(c) and 415(e), respectively, of the Internal
Revenue Code of 1986 or any successor provisions.
(q) "Termination of Employment" means the complete termination of
employment of the individual with the Company and with all Affiliates.
(r) "Trust" means the Medtronic, Inc. Compensation Trust Agreement, as
amended from time to time.
III. ELIGIBILITY TO PARTICIPATE
3.01 Eligible Employees. Each eligible employee shall be eligible for
benefits under the Plan in accordance with the otherwise applicable provisions
of the Plan relating to the accrual and payment of benefits.
IV. RETIREMENT PLAN SUPPLEMENTAL BENEFITS
4.01 Calculation of Retirement Plan Supplemental Benefits. Eligible
employees who are participants in the Retirement Plan shall earn Retirement Plan
Supplemental Benefits as of any determination date in an amount equal to the
lump sum actuarial equivalent value of the eligible employee's Unrestricted
Retirement Plan Benefit less the lump sum actuarial equivalent value of the
eligible employee's Actual Retirement Plan Benefit, determined as of the date of
determination. For purposes hereof, the date of determination is the last day of
each plan year commencing April 30, 1987. The lump sum actuarial equivalent
value shall be determined in each case by use of the otherwise applicable
interest rates and other assumptions under the Retirement Plan in determining
actuarially equivalent benefits.
For purposes of this Plan, an eligible employee's Unrestricted
Retirement Plan Benefit as of any determination date equals the vested benefit
which such individual would have accrued under the Retirement Plan as of such
date under the otherwise applicable provisions of the Retirement Plan, but
determined for periods from and after May 1, 1986, without regard to the
limitations on such benefits which result from the application of the Section
415 Limitations. Further, the eligible employee's Unrestricted Retirement Plan
Benefit shall be determined based upon such employee's compensation which is or
would otherwise be taken into account under the Retirement Plan for purposes of
calculating benefits thereunder, but without application of the Section
401(a)(17) Limitations and taking into account the compensation which would have
been paid to the eligible employee during the plan year in question but for the
employee's election to defer compensation under the Capital Accumulation Plan
(or any other nonqualified deferred compensation plan which may be established
by the Company from time to time). For purposes hereof, compensation which is
deferred under the Capital Accumulation Plan (or other nonqualified deferred
compensation plan) shall be taken into account for the plan year during which
such compensation would have been paid to the eligible employee but for his or
her election under said Plan and only to the extent that such compensation would
otherwise be taken into account under the Retirement Plan in calculating
<PAGE>
benefits thereunder had such compensation been paid directly to the eligible
employee rather than deferred (but without regard to application of the Section
401(a)(17) Limitations).
For purposes of this Plan, an eligible employee's Actual Retirement Plan
Benefit as of any determination date equals the vested benefit which the
individual has actually accrued as of such date under the provisions of the
Retirement Plan, after taking into account all applicable limitations on
contributions, benefits and compensation.
4.02 Establishment of Nonqualified Retirement Plan Account. The
participant's Retirement Plan Supplemental Benefit shall be determined as of the
last day of the plan year in which the participant terminates employment and the
lump sum value of such Retirement Plan Supplemental Benefit shall be credited as
of such date to a bookkeeping account established for such participant on the
books and records of the Company, which shall be referred to as the Nonqualified
Retirement Plan Account. For purposes hereof, a participant who becomes disabled
will not be considered to have terminated employment until such time as he or
she is considered to have terminated employment under the provisions of the
Retirement Plan. In the event the participant terminates employment as a result
of death, the value of the benefits, if any, to be credited to such Account
shall be based upon the lump sum actuarial equivalent value of the death
benefits which would be paid under the Retirement Plan under the same
assumptions used under Section 4.01 hereof in determining the participant's
Unrestricted Retirement Plan Benefit (that is, without regard to the Section 415
Limitations and the Section 401(a)(17) Limitations and without regard to the
participant's elections to defer compensation under the Capital Accumulation
Plan) (or other nonqualified deferred compensation plan), if any, less the lump
sum actuarial equivalent value of death benefits actually payable with respect
to such participant under the Retirement Plan, if any, taking into account all
applicable limitations on contributions, benefits and compensation.
Such Nonqualified Retirement Plan Account shall be used solely as a
device to measure and determine the amount of Retirement Plan Supplemental
Benefits to be paid to the participant under the Plan. All amounts which are
credited to such Account (including any interest credited with respect to such
amounts) are credited solely for accounting and computation purposes and are at
all times assets and property of the Company and subject to the claims of the
Company's creditors. No participant or beneficiary shall have any incidents of
ownership in such Account or in amounts credited to such Account, and the
participant's or beneficiary's position with respect to payments of Retirement
Plan Supplemental Benefits under the Plan is that of a general unsecured
creditor of the Company. Further, nothing contained in this Plan and no action
taken under this Plan shall create or be construed to create a trust of any
kind. The provisions of this paragraph, however, shall at all times be subject
to the provisions of Article VII hereof, providing for contributions to and
payments from the Trust under certain circumstances.
The Committee may establish any number of sub-accounts on behalf of a
participant or beneficiary as the Committee considers necessary or advisable for
purposes of maintaining a proper accounting of amounts to be credited under the
Plan on behalf of a participant or beneficiary.
4.03 Interest Credited to the Nonqualified Retirement Plan Account. All
amounts credited to the Nonqualified Retirement Plan Account from time to time
shall be credited with interest at a
<PAGE>
rate which is equal to the pre-retirement interest rate or rates used by the
Retirement Plan during the period for which interest is to be so credited for
purposes of determining actuarially equivalent benefits under the Retirement
Plan. Interest as so determined shall be compounded quarterly during the plan
year.
4.04 Payment of Nonqualified Retirement Plan Account. The value of any
Nonqualified Retirement Plan Account established hereunder as well as any
interest credited thereto shall be paid to the participant (or beneficiary, as
the case may be) on a monthly basis each plan year over a fifteen-year period
commencing as soon as administratively practicable within the plan year
commencing immediately after the date on which the Account is to be established
under Section 4.02 hereof. The initial balance in such Account at the time
benefits commence shall be paid in 180 equal monthly installments over the
fifteen-year period. Interest shall continue to be credited on the declining
balance in such Account in accordance with Section 4.03 hereof during the payout
period and such additional interest will be paid monthly in addition to the
regular monthly payments.
Notwithstanding the foregoing, the Committee (or any committee or
individual to whom the Committee has delegated such authority) may, in its
discretion, provide for an acceleration of payments under the payout schedule
which is otherwise applicable. The Committee (or its delegate) shall exercise
such discretion by taking into account factors including but not limited to the
participant's financial and retirement needs as determined by the Committee (or
its delegate), the Company's ability to make payment of such amounts, the total
value of benefits to be paid with respect to such Account, and the defraying of
costs and expenses associated with administration of the Plan.
4.05 Re-employment of Participant. In the event a participant with
respect to whom a Nonqualified Retirement Plan Account is established upon or
after termination of employment is subsequently re-employed by the Company or an
Affiliate, the payment of any amounts remaining to the credit of such
participant under his or her Nonqualified Retirement Plan Account (the "Original
Account") shall be suspended during such period of re-employment, and the value
of the Nonqualified Retirement Plan Account to be established on behalf of such
individual upon or after a subsequent termination of employment (the "Subsequent
Account") shall be determined with reference to the participant's aggregate
Unrestricted Retirement Plan Benefit and aggregate Actual Retirement Plan
Benefit, both determined as of the subsequent date of termination of employment,
offset by the value of the Original Account which remains to the credit of such
individual as of the subsequent date (including any interest credited thereto)
and further offset by the sum of the actuarial equivalent values of the amounts,
if any, which were previously paid from such Original Account to such
individual. For purposes hereof, the actuarial equivalent values of the amounts
which were previously paid from such Original Account, if any, shall be equal to
the value of each such amount so paid, credited with interest at the rate
specified in Section 4.03 for the period beginning with the date of payment of
such amount to the individual and ending on the date of establishment of the
Subsequent Account, compounded on a quarterly basis during the plan year.
<PAGE>
V. DEFINED CONTRIBUTION SUPPLEMENTAL BENEFITS
5.01 Calculation of Defined Contribution Supplemental Benefits. For plan
years beginning prior to May 1, 1996, Eligible Employees who are participants in
the ESOP shall be credited hereunder with Defined Contribution Supplemental
Benefits as of the end of each plan year commencing with the effective date of
the ESOP in an amount equal to the Eligible Employee's Unrestricted Defined
Contribution Allocation for such plan year less the Eligible Employee's Actual
Defined Contribution Allocation for such plan year. For purposes hereof, the
Eligible Employee's Unrestricted Defined Contribution Allocation for any plan
year equals the value of the common stock of the Company which would have been
allocated to the participant's account due to employer contributions,
forfeitures used to reduce employer contributions and dividends on Company stock
held in the unallocated reserve under the ESOP, determined under otherwise
applicable provisions of the ESOP, but without application of the Section 415
Limitations or the Section 401(a)(17) Limitations, and based upon the
compensation which would have been paid to the Eligible Employee during the plan
year in question but for the employee's election to defer compensation under the
Capital Accumulation Plan (or any other nonqualified deferred compensation plan
which may be established by the Company from time to time). For purposes hereof,
compensation which is deferred under the Capital Accumulation Plan (or any other
nonqualified deferred compensation plan which may be established by the Company
from time to time) shall be taken into account for the plan year during which
such compensation would have been paid to the Eligible Employee but for his or
her election under said plan and only to the extent that such compensation would
otherwise be taken into account under the ESOP in calculating the employee's
allocation of employer contributions had such compensation been paid directly to
the Eligible Employee rather than deferred (but without regard to application of
the Section 401(a)(17) Limitations).
Effective for plan years beginning on or after May 1, 1996, the Eligible
Employee's Unrestricted Defined Contribution Allocation for any plan year shall
be expressed as the right to receive at the time set forth in Section 5.06 a
number of shares of the Company's common stock equal to the number of such
shares which would have been allocated on behalf of such Eligible Employee for
the plan year under the ESOP, determined under otherwise applicable provisions
of the ESOP, but without application of the Section 415 Limitations or the
Section 401(a)(17) Limitations, and based upon the compensation which would have
been paid to the Eligible Employee during the plan year in question but for the
employee's election to defer compensation under the Capital Accumulation Plan
(or any other nonqualified deferred compensation plan which may be established
by the Company from time to time).
The employee's Actual Defined Contribution Allocation for any plan year
equals the number of shares (or for plan years beginning prior to May 1, 1996,
the value of such shares) of Company stock allocated to the Eligible Employee's
account under the ESOP attributable to employer contributions, forfeitures
allocated as reductions of employer contributions and dividends on employer
stock held in the unallocated reserve under the ESOP.
5.02 Establishment of Nonqualified Defined Contribution Account. The
Defined Contribution Supplemental Benefit to be credited to a participant for
any plan year under Section
<PAGE>
5.01 shall be credited as of the last day of such plan year to an account
established on the books and records of the Company, which shall be referred to
as the Nonqualified Defined Contribution Account.
Such Account shall be used solely as a device to measure and determine
the amount of Defined Contribution Supplemental Benefits to be paid to such
participant under the Plan and all amounts which are credited to such Account
(including any interest credited with respect to such amounts) are credited
solely for accounting and computation purposes and are at all times assets and
property of the Company and subject to the claims of the Company's creditors. No
participant shall have any incidents of ownership in the Account or in amounts
credited to the Account. The participant's position with respect to payments of
Defined Contribution Supplemental Benefits under the Plan is that of a general
unsecured creditor of the Company. Further, nothing contained in this Plan and
no action taken under this Plan shall create or be construed to create a trust
of any kind. The provisions of this paragraph, however, are subject to the
provisions of Article VII hereof, relating to contributions to and benefit
payments from the Trust under certain circumstances.
The Committee may establish any number of sub-accounts on behalf of a
participant or beneficiary as the Committee considers necessary or advisable for
purposes of maintaining a proper accounting of amounts to be credited under the
Plan on behalf of the participant or beneficiary. As of the Restatement Date,
the value of the Defined Contribution Supplemental Nonqualified Benefit to be
credited to a participant for any plan year under Section 5.01 (as in effect on
and after the Restatement Date) shall be credited to a sub-account of the
Nonqualified Defined Contribution Account referred to as the "Nonqualified ESOP
Sub-Account." This Sub-Account shall also include amounts credited to a
participant under Section 5.01 of the Plan, as in effect prior to the
Restatement Date (the "Predecessor Plan"), attributable to contributions made
with respect to the ESOP, including interest credited to such amounts prior to
the Restatement Date under Section 5.03 of the Predecessor Plan.
Effective May 1, 1996, solely for accounting and computation purposes
the value credited to this Nonqualified ESOP Sub-Account on behalf of each
participant or beneficiary shall be converted from a cash value to the right to
receive whole and fractional shares of common stock of the Company based on the
closing price as of April 30, 1996, as reported on the New York Stock Exchange.
In no event shall the Nonqualified ESOP Sub-Account be credited with actual
shares of Company stock. After May 1, 1996, the Defined Contribution
Supplemental Nonqualified Benefit to be credited to a participant for a plan
year shall be credited with the right to receive shares in accordance with
Section 5.01.
5.03 Adjustment to Nonqualified ESOP Sub-Account. For plan years
beginning prior to May 1, 1996, all amounts credited to a Nonqualified ESOP
Sub-Account established for a participant hereunder shall be credited with gains
and losses, generally, as if such Account were invested in the common stock of
the Company. Effective May 1, 1996, the Nonqualified ESOP Sub-Account shall be
expressed as the right to receive shares of the Company's common stock. The
Nonqualified ESOP Sub-Account shall also be adjusted to reflect stock splits,
stock dividends and recapitalizations in such manner as may be determined by the
Committee. The Committee may adjust the Nonqualified ESOP Sub-Account to reflect
dividends payable with respect to the
<PAGE>
Company's common stock from time to time. The Committee shall determine the
manner in which any such adjustment shall be made.
5.04 Vested Interest in Nonqualified ESOP Sub-Account. A participant's
vested interest in any Nonqualified ESOP Sub-Account established for such
participant's benefit hereunder shall be determined in the same manner as the
participant's percentage vested interest in employer contributions is determined
under the ESOP, and the Company may forfeit the nonvested portion of the
participant's Nonqualified ESOP Sub-Account under the same rules and subject to
the same limitations as provided under the ESOP. Provided, however, that a
participant shall not earn a fully-vested interest in his or her Nonqualified
ESOP Sub-Account as a result of the termination or partial termination of the
Plan in those situations where the participant is not otherwise fully vested in
such Sub-Account.
5.05 Nonqualified SRP Sub-Account. A participant's Nonqualified Defined
Contribution Account shall include amounts credited to him or her under Section
5.01 of the Predecessor Plan attributable to contributions made with respect to
the Profit Sharing Plan and the Supplemental Retirement Plan (as such terms are
defined in the Predecessor Plan), including interest credited to such amounts
prior to the Restatement Date under Section 5.03 of the Predecessor Plan. Such
amounts (together with such interest) shall be held in a separate sub-account in
the Nonqualified Defined Contribution Account, referred to as the "Nonqualified
SRP Sub-Account." As of the Restatement Date, the Nonqualified SRP Sub-Account
shall be credited with gains and losses in such manner as may be determined by
the Committee from time to time in its sole discretion. The Nonqualified SRP
Sub-Account shall be subject to the vesting provisions set forth in Section 5.04
of the Predecessor Plan, which shall continue to apply to amounts credited to
such Sub-Account. Notwithstanding anything in this Article 5 to the contrary, as
of the Restatement Date, the Company shall no longer make contributions to the
Plan with respect to the Profit Sharing Plan and the Supplemental Retirement
Plan (as those terms are defined in the Predecessor Plan).
Effective May 1, 1997, solely for accounting and computation purposes
the value credited to this Nonqualified SRP Sub-Account on behalf of each
participant or beneficiary shall be converted from a cash value to the right to
receive whole and fractional shares of common stock of the Company based on the
closing price as of April 30, 1997, as reported on the New York Stock Exchange.
In no event shall the Nonqualified SRP Sub-Account be credited with actual
shares of Company stock nor shall the value of the Nonqualified SRP Sub-Account,
at any time, be less than its value as of April 30, 1997. The Nonqualified SRP
Sub-Account shall be adjusted to reflect stock splits, stock dividends and
recapitalizations in such manner as may be determined by the Committee. The
Committee may adjust the Nonqualified SRP Sub-Account to reflect dividends
payable with respect to the Company's common stock from time to time. The
Committee shall determine the manner in which any such adjustment shall be made.
5.06 Payment of Vested Nonqualified Defined Contribution Account. The
value of a vested Nonqualified Defined Contribution Account established
hereunder (including the vested Nonqualified ESOP Sub-Account and vested
Nonqualified SRP Sub-Account) shall be paid to the participant or beneficiary,
as the case may be, on a monthly basis each plan year over a fifteen-year period
commencing as soon as is administratively practicable within the plan year
commencing
<PAGE>
immediately following the plan year in which the participant terminates
employment. The initial balance in the vested portion of such Account at the
time benefits commence shall be paid in 180 equal monthly installments over the
fifteen-year period. Interest shall continue to be credited on the declining
vested balance in accordance with Section 5.03 and Section 5.05 hereof during
the payout period, and such additional interest will be paid monthly in addition
to the regular monthly payments.
Notwithstanding the foregoing, the Committee (or any committee or
individual to whom the Committee has delegated such authority) may, in its
discretion, provide for an acceleration of payments under the payout schedule
which is otherwise applicable. The Committee (or its delegate) shall exercise
such discretion by taking into account factors including but not limited to the
participant's financial and retirement needs, as determined by the Committee (or
its delegate), the Company's ability to make payment of such amounts, and the
defraying of costs and expenses associated with the administration of the Plan.
Effective for participants who terminate employment on or after May 1,
1996, payment of the vested Nonqualified ESOP Sub-Account to the participant or
beneficiary, as the case may be, must be made in the form of whole shares of
Company stock. Fractional shares shall be paid in cash.
VI. DEATH BENEFITS
6.01 Death Before Benefit Commencement. If the participant dies prior to
the date payment of amounts credited to an Account established under the Plan
for his or her benefit has commenced, payment of the vested portion of his or
her Account balance shall be made to the participant's beneficiary at the time
and in the manner as otherwise provided under the Plan with respect to payments
to participants, but subject to the Committee's discretion to accelerate
payments in accordance with Section 4.04 or 5.06 of the Plan, as applicable.
6.02 Death After Benefit Commencement. In the event a participant dies
after the date payment of amounts credited to an Account established for his or
her benefit under the Plan has commenced, any amounts remaining to be paid under
such Account shall continue to be paid to the participant's beneficiary under
the method of distribution in effect at the date of the participant's death, but
subject to the Committee's discretion to accelerate payments under said option
in accordance with Section 4.04 or 5.06 of the Plan, as applicable.
6.03 Designation of Beneficiary. A participant may designate a
beneficiary or beneficiaries to receive any benefit payments which may be
payable hereunder following the participant's death, and may designate the
proportions in which such beneficiaries are to receive such payments. Any such
designation shall be on a form provided by the Company and filed with the
Company before the participant's death. The participant may change such
designation from time to time and the last written designation filed with the
Company prior to the participant's death will control. If the participant fails
to specifically designate a beneficiary, if no designated beneficiary survives
the participant, or if all designated beneficiaries who survive the participant
die before complete payment of benefits is made, any remaining benefits shall be
paid to the participant's surviving
<PAGE>
spouse, or if there is no surviving spouse, to the participant's issue, taking
by right of representation from the participant's natural and adoptive children,
or if there is no surviving issue, to the legal representatives of the
participant's estate.
VII. CHANGE IN CONTROL PROVISIONS
7.01 Application of Article VII. To the extent applicable, the
provisions of this Article VII relating to an Event of change in control of the
Company shall control, notwithstanding any other provisions of the Plan to the
contrary, and shall supersede any other provisions of the Plan to the extent
inconsistent with the provisions of this Article VII.
7.02 Payments to and by the Trust. If the Company determines that it is
probable that an Event may occur within the six-month period immediately
following the date of determination, or if an Event in fact occurs in those
situations where the Company has not otherwise made such a determination, the
Company shall make a contribution to the Trust (if in existence at the date of
determination or the date of the Event, as the case may be) in accordance with
the provisions of the Trust. Solely for purposes of determining the amount of
such contribution (but in no way in limitation of the Company's liability under
the Plan as determined under other provisions of the Plan), the Company's total
liability under this Plan shall be equal to the value of the current credit
balances under all Accounts established under the Plan, including any interest
credited to such Accounts under the terms of the Plan, which remain unpaid by
the Company as of the date of determination or the date of the Event, as the
case may be, whether or not amounts are otherwise currently payable to
participants or beneficiaries under the Plan. The value of the Nonqualified
Retirement Plan Account of a participant who is actively employed as of the date
of determination or of the Event, as the case may be, shall be determined for
purposes hereof as if such participant terminated employment on such date and
the Account was established on such date. All such contributions shall be made
as soon as possible after the date of determination or of the Event, as the case
may be, and shall be made in cash or property valued at fair market value.
Further, the Company may, in its discretion, make other contributions to the
Trust from time to time for purposes of providing benefits hereunder, whether or
not an Event has occurred or may occur.
Notwithstanding the foregoing, any contributions to the Trust, as well
as any income or gains thereon, shall be at all times subject to the provisions
of the Trust, including but not limited to the provisions permitting a return of
such contributions and income or gains thereon to the Company in certain
circumstances.
Payments of benefits under the Plan with respect to those participants
and their beneficiaries for whom Trust contributions are made shall be made
first from the Trust in accordance with the terms of the Trust, but, to the
extent not paid by the Trust, shall be paid by the Company.
7.03 Legal Fees and Expenses. The Company shall reimburse any
participant or his or her beneficiary for all reasonable legal fees and expenses
incurred by such participant or beneficiary after the date of any Event in
seeking to obtain any right or benefit provided by the Plan.
<PAGE>
7.04 Late Payment and Additional Payment Provisions. If after the date
of an Event there is a delay in the payment of any benefits under the Plan
beyond the final date for payment under the Plan, the amounts otherwise payable
to any participant or beneficiary shall be increased by an amount equal to the
stated interest which shall be credited to such amounts from the final date for
payment of such amounts through the date that payment of such amounts (plus such
credited interest) is actually made to the participant or beneficiary,
compounded quarterly on a calendar year basis. The amount of stated interest to
be so credited shall be equal to the lesser of (i) the prime rate plus five
percentage points, or (ii) the prime rate multiplied by two. For purposes
hereof, the prime rate shall be the prime rate of interest quoted by Norwest
Bank Minneapolis, N.A. as its prime rate, determined each calendar quarter as
the average of the daily prime rates in effect throughout such calendar quarter,
averaged for the number of days for which the prime rates are quoted during such
calendar quarter. In the event that stated interest is to be credited for some
period less than a full calendar quarter, however, the stated interest shall be
determined and compounded for the fractional quarter, with the prime rate
determined as the average of the daily prime rates in effect throughout such
fractional calendar quarter, averaged for the number of days during such
fractional calendar quarter for which prime rates are quoted.
The increase in amounts otherwise payable under the Plan by the crediting of
such stated interest represents a late payment penalty for the delay in payment.
Any payments of benefits by the Company after the final date for payment of
benefits under the Plan shall be applied first against the first due of such
payments of benefits (with application first against any applicable late payment
penalty and next against the benefit amount itself) until fully paid, and next
against the next due of such payments in the same manner, and so forth, for
purposes of calculating the late payment penalties hereunder.
Participants and their beneficiaries shall be entitled to the payment of
benefits under the Plan plus the late payment penalty referred to hereinabove
first from the Trust and secondarily from the Company, as otherwise provided in
Section 7.02.
VIII. MISCELLANEOUS PROVISIONS
8.01 Amendment and Termination. The Committee may terminate the Plan, or
the Committee (or any committee or individual to whom the Committee has
delegated such authority) may amend the Plan in any respect, and may thereby
effect a distribution in whole or in part of vested benefits under the Plan at
any date earlier than the date or dates otherwise provided for herein. In no
event shall any such amendment or termination reduce the total amount of vested
benefits credited to the Accounts of a participant or beneficiary under the Plan
(or which would be so credited with respect to a participant who is actively
employed immediately prior to the date of amendment or termination had the
participant terminated employment and had his or her Nonqualified Retirement
Plan Account been established immediately prior to such date), as determined
immediately prior to such amendment or termination (the "existing benefit"), or
reduce the rate of interest which is credited or to be credited to the existing
benefit, or modify the time for
<PAGE>
or manner of payment of such existing benefit (other than to provide for an
acceleration of distribution as otherwise provided under this Section).
8.02 Administration by Committee. The Committee has full power and
authority to administer the Plan and to establish rules and procedures for the
operation of the Plan. The Committee may delegate to one or more committees or
individuals any of its authority, power to exercise discretion, duties or
responsibilities under the Plan, except that it may not delegate the power to
terminate the Plan. The Committee shall be considered the named fiduciary of the
Plan for purposes of Section 402(a)(2) of the Employee Retirement Income
Security Act of 1974, as amended.
8.03. No Assignment. No person shall have the power to transfer, assign,
anticipate, mortgage or otherwise encumber or dispose of in advance any interest
in amounts payable hereunder or any of the payments provided for herein, nor
shall any interest in amounts payable hereunder or in any payments be subject to
seizure for payment of any debts, judgments, alimony or separate maintenance, or
be reached or transferred by operation of law in the event of bankruptcy,
insolvency, or otherwise.
8.04 Successors and Assigns. The provisions of this Plan are binding
upon and inure to the benefit of the Company and its successors and assigns, by
merger, purchase or otherwise, and the participant and the participant's
beneficiaries, heirs and personal representatives.
8.05 Claims Procedure. The Committee shall notify a participant in
writing within ninety days of the participant's written application for benefits
of the participant's eligibility or noneligibility for benefits under the Plan.
If the Committee determines that a participant is not eligible for benefits or
full benefits, the notice shall set forth (a) the specific reasons for such
denial, (b) a specific reference to the provision of the Plan on which the
denial is based, (c) a description of any additional information or material
necessary to perfect his or her claim, and a description of why it is needed,
and (d) an explanation of the Plan's claims review procedure and other
appropriate information as to the steps to be taken if the participant wishes to
have his or her claim reviewed. If the Committee determines that there are
special circumstances requiring additional time to make a decision, the
Committee shall notify the participant of the special circumstances and the date
by which a decision is expected to be made, and may extend the time for up to an
additional ninety-day period. If a participant is determined by the Committee to
be not eligible for benefits, or if the participant believes that he or she is
entitled to greater or different benefits, the participant shall have the
opportunity to have his or her claim reviewed by the Committee by filing a
petition for review with the Committee within sixty days after receipt by the
participant of the notice issued by the Committee. Said petition shall state the
specific reasons the participant believes he or she is entitled to benefits or
greater or different benefits. Within sixty days after receipt by the Committee
of said petition, the Committee shall afford the participant (and his or her
counsel, if any) an opportunity to present his or her position to the Committee
orally or in writing, and said Participant (or his or her counsel) shall have
the right to review the pertinent documents, and the Committee shall notify the
participant of its decision in writing within said sixty-day period, stating
specifically the basis of said decision written in a manner calculated to be
understood by the participant and the specific provisions of the Plan on which
the decision is based.
<PAGE>
If, because of the need for a hearing, the sixty-day period is not sufficient,
the decision may be deferred for up to another sixty-day period at the election
of the Committee, but notice of this deferral shall be given to the participant.
8.06 Construction of Agreement. This Plan shall be subject to and
construed in accordance with the laws of the State of Minnesota to the extent
not preempted by the provisions of the Employee Retirement Income Security Act
of 1974, as amended. The Committee has exclusive authority to determine
conclusively for all parties all questions arising in the administration of the
Plan. The Committee has discretionary authority to interpret and construe the
terms of the Plan and to determine all questions of eligibility of employees,
participants and beneficiaries under the Plan and the amounts of their
respective interests. Committee determinations are binding on all persons,
subject to the claims procedure under the Plan.
EXHIBIT 11
STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS
MEDTRONIC, INC.
(Unaudited)
(in thousands)
Years ended April 30, 1997 1996 1995
- --------------------------------------------------------------------------
PRIMARY
- -----------------------------------
Shares outstanding:
Weighted average outstanding 238,693 237,436 230,480
Share equivalents (1)(2) 3,858 4,161 2,754
-------- -------- --------
Adjusted shares outstanding (2) 242,551 241,597 233,234
======== ======== ========
FULLY DILUTED
- -----------------------------------
Shares outstanding:
Weighted average outstanding 238,693 237,436 230,480
Share equivalents (1)(2) 4,361 4,626 4,380
-------- -------- --------
Adjusted shares outstanding (2) 243,054 242,062 234,860
======== ======== ========
Net earnings $529,988 $428,306 $294,000
======== ======== ========
- -----------------------
(1) Share equivalents consist primarily of nonqualified stock options.
(2) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
MANAGEMENT'S DISCUSSION AND ANALYSIS
SUMMARY
Medtronic is the world's leading medical technology company specializing in
implantable and interventional therapies. Primary products include implantable
pacemaker systems used for the treatment of bradycardia, implantable
tachyarrhythmia management devices, ablation systems, mechanical and tissue
heart valves, balloon and guiding catheters used in angioplasty, coronary and
peripheral stents and stented grafts, interventional neuroradiology products,
implantable neurostimulation and drug delivery systems, hydrocephalic shunts and
other neurosurgical devices, urological and digestive diagnostic systems and
perfusion systems including blood oxygenators, centrifugal blood pumps, cannulae
products, and autotransfusion and blood monitoring systems and products used in
minimally invasive cardiac surgery. The company reports on three business units
(Pacing, Other Cardiovascular, and Neurological and Diversified Businesses) and
three geographic areas (the Americas, Europe/Middle East/Africa, and
Asia/Pacific).
Fiscal 1997 was another excellent year for the company, as evidenced by the 12th
consecutive year of increases in both revenues and earnings. Net sales of $2.44
billion represent a 12.3% increase over the $2.17 billion in fiscal 1996 after
restatement to reflect the May and June 1996 acquisitions of AneuRx, Inc. and
InStent Inc. which were accounted for as poolings of interests. Net sales
excluding the effects of foreign currency translation increased 15.2% compared
to increases of 23.5% in fiscal 1996 and 21.0% in fiscal 1995. Net earnings and
earnings per share increased 23.7% and 23.3% to $530.0 million and $2.22,
respectively. The growth during fiscal 1997 was led by the Pacing and
Neurological businesses and was the result of continued progress in gaining
market share, expanding our global operations, and significant new product and
therapy introductions in all businesses.
The company continued to improve its strategic position by taking advantage of
additional growth opportunities through acquisition. The company closed on three
acquisitions during fiscal 1997. In May 1996, the company acquired AneuRx, Inc.
(AneuRx), which provides a minimally invasive endovascular stented graft and
delivery system used to repair life-threatening abdominal aortic aneurysms. In
June 1996, the company acquired InStent Inc. (InStent), which develops,
manufactures, and markets a variety of self-expanding and balloon-expandable
stents used in a broad range of medical indications. In August 1996, the company
acquired Avalon Laboratories, Inc. (Avalon), which develops, manufactures, and
sells cannulae and other surgical products.
NET SALES
The increase in net sales from fiscal 1996 to fiscal 1997 was primarily the
result of continued unit volume increases. Selling prices for the company's
products during fiscal 1997 remained relatively stable overall despite the
medical market's continued focus on cost controls and competitive pricing. Sales
in the United States in fiscal 1997 increased 14.6% over the prior year,
compared to 28.0% in fiscal 1996. Sales outside the United States increased
16.0% on a constant currency basis compared to 17.8% in fiscal 1996. Sales in
non-U.S. markets accounted for 41.8% of worldwide net sales, compared with 43.0%
in fiscal 1996 and 43.8% in fiscal 1995. Foreign exchange rate movements had an
unfavorable year-to-year impact on international net sales of $64.4 million in
fiscal 1997 and a favorable year-to-year impact of $21.3 million and $59.1
million in fiscal 1996 and fiscal 1995, respectively. These exchange rate
movements are caused primarily by the impact of the stronger U.S. dollar in
fiscal 1997 and the relatively weaker U.S. dollar in fiscal 1996 and fiscal 1995
versus major European currencies and the Japanese yen. The impact of foreign
currency fluctuations on net sales is not necessarily indicative of the impact
on net earnings due to the offsetting foreign currency impact on operating costs
and expenses and the company's hedging activities (see Note 3 to the
consolidated financial statements for further details on foreign currency
instruments and the company's risk management strategies with respect thereto).
As reflected in Note 3, realized gains and losses on the company's hedging
activities were offset by the transactions being hedged and are therefore
consistent with the company's risk management strategies.
NET EARNINGS
In Millions of Dollars
[BAR CHART]
1997 $530.0
1996 428.3
1995 294.0
EARNINGS PER SHARE
In Dollars
[BAR CHART]
1997 $2.22
1996 1.80
1995 1.28
The following is a summary of sales by business unit as a percentage of total
net sales:
Year ended April 30, 1997 1996 1995
- --------------------------------------------------------------------------------
Pacing 65.6% 67.9% 66.0%
Other Cardiovascular 22.0 23.6 26.5
Neurological & Diversified Businesses 12.4 8.5 7.5
================================================================================
42
<PAGE>
Net sales of the Pacing Business, consisting primarily of Bradycardia Pacing,
Tachyarrhythmia Management and Ablation Systems, increased 11.5% in fiscal 1997
after removing the impact of foreign exchange rate fluctuations, versus growth
of 29.0% in fiscal 1996. The decrease in the growth rates from fiscal years 1996
to 1997 is primarily the result of the timing of new product introductions
during fiscal years 1995, 1996, and 1997. The increase in fiscal 1997 was
attributable to continued growth by Bradycardia Pacing and strong contributions
and continued market share gains from Tachyarrhythmia Management. Bradycardia
unit sales of implantable pulse generators (IPGs) achieved double digit
percentage growth. Bradycardia unit sales continued to reflect strong growth in
both U.S. and non-U.S. markets, primarily on the strength of the Thera
(i-Series) pacemakers worldwide and the new Medtronic.Kappa 400 series
pacemakers, which were released in Europe in January 1997. The Medtronic.Kappa
400 series pacemakers are currently in clinical evaluation in the U.S. The
significant sales growth in Tachyarrhythmia Management sales was primarily
attributable to the company's Micro Jewel implantable
cardioverter-defibrillators, which received U.S. Food and Drug Administration
(FDA) clearance in July 1996 and its successor product the Micro Jewel II, which
received FDA clearance in November 1996. The Micro Jewel II is currently the
world's smallest and lightest defibrillator, and has helped establish the
company as the leader in the rapidly accelerating, and highly competitive market
for tachyarrhythmia management devices.
The Thera, Kappa and Micro Jewel product lines contributed significantly to the
overall sales growth of the company in fiscal 1997, and are expected to continue
to perform well in the future. Management believes the Pacing business is well
positioned for continued growth based on the continued cost effectiveness of the
products and the commitment to continue to develop technologically advanced
products. The innovative successors to these Pacing products, the
Medtronic.Kappa 700 series family of pacemakers, which is expected to be the
world's first truly automatic pacemaker, and the Gem DR defibrillator, which
will be able to sense and pace in the atrium, as well as the ventricle, are
expected to enter clinical evaluation in Europe later this summer.
Sales within the Other Cardiovascular Business (consisting of balloon and
guiding catheters, stents, interventional neuroradiology products, heart valves,
perfusion and blood management systems, cannulae and surgical accessories)
increased 8.4% and 12.7% in fiscal 1997 and fiscal 1996, respectively, after
excluding the effects of foreign currency translation. The fiscal 1997 growth is
attributable in significant part to continued growth made by the Medtronic
Wiktor coronary stent in Japan, and gains in Europe by the Wiktor-i and beStent
stents. The beStent device was commercially released in Europe and other world
markets outside the United States in November 1996. The stent market has become
increasingly competitive outside the United States. The company received FDA
clearance of the Wiktor coronary stent for the U.S. market in late June 1997.
Balloon and guiding catheter unit sales grew in fiscal 1997. However, continued
declines in the average selling price for balloon catheters in the United States
offset the unit growth. Balloon catheter selling prices have deteriorated over
the past four years as a result of continued price competition. It is unclear to
what extent this erosion of selling prices will continue into fiscal 1998. In
March 1997, the company received European CE Mark clearance for its endovascular
stent-graft system used in the treatment of abdominal aortic aneurysms.
Contributing significantly to fiscal 1997 was growth in sales of cannulae and
tissue and mechanical heart valves. Sales of perfusion and blood management
systems were relatively flat as compared to the prior fiscal year.
U.S. VS.
INTERNATIONAL SALES
In Millions of Dollars
[BAR CHART]
1997 1996 1995
-------- -------- --------
U.S. $ 1,403.2 $ 1,241.0 $ 979.7
International 1,035.0 931.1 762.7
--------- ------- -------
$2,438.2 $2,172.1 $1,742.4
======== ======== ========
NET SALES BY BUSINESS
In Millions of Dollars
[BAR CHART]
1997 1996 1995
--------- --------- --------
Pacing $1,600.1 $ 1,474.2 $ 1,150.6
Other Cardiovascular 537.4 512.8 461.6
Neurological & Diversified 300.7 185.1 130.2
------- ------- -------
$2,438.2 $2,172.1 $1,742.4
======== ======== ========
Net sales of the Neurological and Diversified Businesses, consisting primarily
of implantable neurostimulation devices, drug administration systems,
neurosurgery products, diagnostic systems, and developing businesses, continued
to experience significant growth. Exclusive of the effects of foreign currency
translation, net sales grew 63.4% over the previous year compared to growth of
27.8% in fiscal 1996. PS Medical and Synectics, which were acquired in November
1995 and April 1996, respectively, contributed to the growth over the prior
year. Another strong contributing growth factor was rapid sales growth in Europe
of Activa tremor control therapy for control of essential tremor and tremor
associated with Parkinson's disease. This therapy is currently awaiting FDA
clearance in the United States. Another therapy, delivery of Lioresal (baclofen,
USP) Intrathecal by the SynchroMed drug infusion system for spasticity of
cerebral origin, which received FDA clearance in June 1996, continues to gain
worldwide acceptance. In addition, the Mattrix and Itrel 3 spinal cord
stimulation systems continue to hold strong market share positions. In December
1996, the AlgoMed implantable drug infusion system, a new patient-activated
device for cancer patients, was launched in European markets.
43
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
COSTS AND EXPENSES
The following is a summary of major costs and expenses as a percentage of net
sales:
Year ended April 30, 1997 1996 1995
- --------------------------------------------------------------------------------
Cost of Products Sold 25.0% 27.2% 31.0%
Research & Development 11.5 11.2 11.0
Selling, General & Administrative 31.3 32.3 33.0
================================================================================
Cost of products sold as a percentage of net sales decreased in fiscal 1997 as
compared to fiscal 1996. This decrease resulted from the impact of favorable
product and geographic mixes combined with increased volumes, and the favorable
impact of foreign exchange rate fluctuations between the time products are
shipped and sold, partially offset by pricing pressures on certain products and
costs related to new product introductions. The decrease in cost of products
sold as a percentage of net sales from fiscal 1995 to fiscal 1996 resulted from
increased productivity, substantially increased volumes, favorable product and
geographic mix and the favorable impact of foreign exchange rate fluctuations,
partially offset by increased start-up costs related to new product
introductions. Gross margins will continue to be impacted by regulatory and
competitive pricing pressures, new product introductions, the mix of products
both within and between businesses and geographies, and the effects of foreign
currency fluctuations.
R & D EXPENSE
In Millions of Dollars
[BAR CHART]
1997 $280.2
1996 243.8
1995 191.4
The company continued its commitment to long-term growth, in part, by investing
in research and development (R&D). R&D expense was $280.2 million in fiscal
1997, an increase of 14.9% from fiscal 1996 R&D expense of $243.8 million. This
increase reflects the company's continued financial commitment and strategy to
grow revenue and market share by developing technological enhancements and new
indications for existing products, as well as developing less invasive and new
technologies to address unmet patient needs. The continued success of this
strategy is reflected in the rapid market acceptance of new, technologically
advanced products during fiscal 1997.
Selling, general, and administrative expense (SG&A) as a percent of sales
decreased in both fiscal 1997 and 1996 primarily due to continued overall cost
efficiencies and accelerated revenue growth. The fiscal 1997 decrease was also
impacted by gains recognized from the sale of certain available-for-sale equity
securities and increased royalty income offset in part by increased legal costs,
additional investments in information technology, and marketing initiatives.
INCOME TAXES
The company's effective income tax rate in fiscal 1997 was 34.5% compared to an
effective rate of 35.0% in fiscal 1996, after restatement for the acquisitions
of AneuRx and InStent, and 33.5% in fiscal 1995. The company continues to
experience upward pressure on the tax rate, resulting from recent tax
legislation which reduces U.S. tax benefits derived from the company's
operations in Puerto Rico. Management believes that further adverse impact can
be minimized by other tax planning initiatives.
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY
The company retained its strong financial position even after the repurchase of
$476.6 million of stock during fiscal 1997 compared to stock repurchases of
$33.6 million and $59.1 million in fiscal 1996 and 1995, respectively. At April
30, 1997, working capital, the excess of current assets over current
liabilities, totaled $719.2 million compared to $862.1 million at April 30,
1996. The current ratio at April 30, 1997, was 2.4:1 compared with 2.6:1 and
2.4:1 at April 30, 1996 and 1995, respectively. The company's net cash position,
defined as the sum of cash, cash equivalents, and short-term investments less
short-term borrowings and long-term debt was $130.2 million at April 30, 1997,
compared to $430.8 million at April 30, 1996, and $276.0 million at April 30,
1995. Because of its strong financial condition, the company is well positioned
to execute its growth strategies which include research and development
spending, internal ventures, and acquisitions.
CASH FLOW
Cash provided by operating activities was $463.6 million in fiscal 1997 compared
to $500.9 million in fiscal 1996 and $387.2 million in fiscal 1995. These
operating cash flows were more than sufficient to fund the company's stock
repurchases, capital expenditures, acquisitions and dividends to shareholders.
Repurchases of common stock totaled $476.6 million in fiscal 1997, compared to
$33.6 million and $59.1 million in fiscal 1996 and fiscal 1995, respectively.
The significant stock repurchases during fiscal 1997 were supported by the
company's existing strong cash position. Additions to property, plant and
equipment totaled $171.3 million in fiscal 1997, compared to $165.1 million and
$96.9 million in fiscal 1996 and 1995, respectively. The increase in additions
to property, plant and equipment from fiscal 1995 to fiscal 1996 was mainly
associated with increased spending on the enhanced 9790 programmer. The company
expects future growth in capital spending to support increased manufacturing
capacity and operational requirements. This spending will be financed primarily
by funds from operations.
In addition to capital spending and stock repurchase activity, significant items
affecting cash flows during fiscal 1997 included net sales and maturities of
marketable securities of $367.3 million, other investing activities of $99.1
million and dividends to shareholders totaling $90.7 million. Significant items
affecting cash flows during fiscal 1996 included the cash purchase price paid
for the acquisition of Synectics of approximately $56.0 million, net purchases
of marketable securities totaling $190.3 million, and dividends to shareholders
totaling $60.4 million. For further details related to the acquisition of
Synectics, see Note 2 to the consolidated financial statements.
In addition to capital spending and stock repurchase activity, significant items
affecting cash flows in fiscal 1995 included $39.1 million paid for settlement
of payables related to fiscal 1994 acquisitions, dividends to shareholders
totaling $47.2 million, and $36.2 million net reduction of debt. Cash flows from
increases and decreases in operating assets and liabilities essentially offset
each other.
44
<PAGE>
DEBT AND CAPITAL
At April 30, 1997, the total number of shares of common stock authorized by the
Board of Directors for repurchase was approximately 6.7 million shares. In May
1997, the company's Board of Directors authorized an additional 6.0 million
shares for repurchase. During fiscal 1997, approximately 7.4 million shares were
repurchased at an average price of $64.35. During fiscal 1996, approximately 0.7
million shares were repurchased at an average cost of $51.21 per share. The
company repurchased shares in fiscal 1997 and 1996 to offset dilution resulting
from shares issued in conjunction with purchased acquisitions over the past
several years, the issuance of stock under employee benefit plans and to take
advantage of market conditions. Future repurchases of common stock will depend
upon market conditions, the company's cash position, restrictions related to
pooling transactions, and other factors.
Dividends to shareholders were $90.7 million, $60.4 million, and $47.2 million
in fiscal years 1997, 1996, and 1995, respectively. Consistent with the
company's financial objectives, the company expects to continue paying dividends
at a rate of approximately 20% of the previous year's net earnings.
The company's capital structure consists of equity and interest-bearing debt.
Interest-bearing debt as a percent of total capital was 6.4% at April 30, 1997,
compared with 4.0% and 3.4% at April 30, 1996, and 1995, respectively.
One of the company's key financial objectives is achieving an annual return on
equity (ROE) of at least 20%. ROE compares net earnings to average shareholders'
equity and is a key measure of management's ability to utilize the shareholders'
investment in the company effectively. In fiscal 1997, ROE was 29.6%, up 2.6
percentage points over the 27.0% in fiscal 1996. In fiscal 1995, ROE was 24.6%
and in each of the preceding seven years, ROE exceeded 20%.
DIVIDENDS TO
SHAREHOLDERS
In Millions of Dollars
[BAR CHART]
1997 $90.7
1996 60.4
1995 47.2
GOVERNMENT REGULATION AND OTHER MATTERS
Government and private sector initiatives to limit the growth of health care
costs, including price regulation and competitive pricing, are continuing in
several countries where the company does business, including the United States.
These changes are causing the marketplace to put increased emphasis on the
delivery of more cost-effective medical therapies. Although the company believes
it is well positioned to respond to changes resulting from this worldwide trend
toward cost containment, the uncertainty as to the outcome of any proposed
legislation or changes in the marketplace precludes the company from predicting
the impact these changes may have on future operating results.
In the early 1990s, the review time by the FDA to clear medical devices for
commercial release lengthened and the number of clearances, both of 510(k)
submissions and pre-market approval applications (PMAs), decreased. In response
to public and congressional concern, the FDA has attempted to address these
issues by clearing more 510(k) submissions and clearing them more quickly. Some
progress has also been made in the number of PMAs and PMA-Supplements cleared,
but review times for leading-edge, innovative products remain long. While the
trend is in the right direction, the lengthy clearance time remains a
significant issue and various legislative solutions to resolve this are
currently before the U.S. Congress.
In keeping with the increased emphasis on cost effectiveness in health care
delivery, the current trend among hospitals and other customers of medical
device manufacturers is to consolidate into larger purchasing groups to enhance
purchasing power. The medical device industry has also been consolidating
rapidly, partly in order to offer a broader range of products to large
purchasers. As a result, transactions with customers are more significant, more
complex and tend to involve more long-term contracts than in the past. This
enhanced purchasing power may also increase the pressure on product pricing,
although management is unable to estimate the potential impact at this time.
Management believes that in this climate it is increasingly important to offer a
full line of products in order to better serve the many requirements of
multi-hospital purchasers.
Medtronic is also subject to various environmental laws and regulations both in
the United States and abroad. The operations of the company, like those of other
medical device companies, involve the use of substances regulated under
environmental laws, primarily in manufacturing and sterilization processes.
While it is difficult to quantify the potential impact of compliance with
environmental protection laws, management believes that such compliance will not
have a material impact on the company's financial position, results of
operations or liquidity.
The company operates in an industry susceptible to significant product liability
claims. In recent years, there has been an increased public interest in product
liability claims for implanted medical devices, including pacemakers and leads.
These claims may be brought by individuals seeking relief for themselves or,
increasingly, by groups seeking to represent a class, and the company has
experienced an increase in such claims. During the past year, United States
District Courts in California, Florida, and Kentucky have refused to certify
class actions in cases brought against the company. This is consistent with the
trend in class action law as it applies to the medical device industry
generally. In addition, product liability claims may be asserted against the
company in the future relative to events not known to management at the present
time. Management believes that the company's risk management practices,
including insurance coverage, are reasonably adequate to protect against
potential product liability losses.
In 1994, governmental authorities in Germany began an investigation into certain
business and accounting practices by heart valve manufacturers. As part of this
investigation, documents were seized from the company and certain other
manufacturers. Subsequently, the United States Securities and Exchange
Commission (SEC) also began an inquiry into this matter. In August 1996, the SEC
issued a formal non-public order of investigation to the company, as it had to
at least one other manufacturer. Based upon currently available information, the
company does not expect these investigations to have a materially adverse impact
on the company's financial position, results of operations, or liquidity.
45
<PAGE>
REPORT OF MANAGEMENT
The management of Medtronic, Inc., is responsible for the integrity of the
financial information presented in the annual report. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles. Where necessary, they reflect estimates based on management's
judgment.
Management relies upon established accounting procedures and related systems of
internal control for meeting its responsibilities to maintain reliable financial
records. These systems are designed to provide reasonable assurance that assets
are safeguarded and that transactions are properly recorded and executed in
accordance with management's intentions. Internal auditors periodically review
the accounting and control systems, and these systems are revised if and when
weaknesses or deficiencies are found.
The Audit Committee of the Board of Directors, composed of directors from
outside the company, meets regularly with management, the company's internal
auditors, and its independent accountants to discuss audit scope and results,
internal control evaluations, and other accounting, reporting, and financial
matters. The independent accountants and internal auditors have access to the
Audit Committee without management's presence.
/S/ William W. George
William W. George
Chairman and Chief Executive Officer
/S/ Arthur D. Collins, Jr.
Arthur D. Collins, Jr.
President and Chief Operating Officer
/S/ Robert L. Ryan
Robert L. Ryan
Senior Vice President and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of Medtronic, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
statements of consolidated earnings, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Medtronic, Inc., and
its subsidiaries at April 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/S/ Price Waterhouse LLP
Price Waterhouse LLP
Minneapolis, Minnesota
May 22, 1997
46
<PAGE>
FINANCIALS
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED EARNINGS
(in thousands of dollars, except per share data) Medtronic, Inc.
- ----------------------------------------------------------------------------------------------------------
Year ended April 30, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 2,438,224 $ 2,172,100 $ 1,742,392
COSTS AND EXPENSES:
Cost of products sold 610,190 591,433 540,080
Research and development expense 280,214 243,829 191,351
Selling, general, and administrative expense 763,347 700,876 574,624
Interest expense 9,375 8,089 9,007
Interest income (34,045) (31,124) (14,775)
- ----------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 1,629,081 1,513,103 1,300,287
- ----------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 809,143 658,997 442,105
PROVISION FOR INCOME TAXES 279,155 230,691 148,105
- ----------------------------------------------------------------------------------------------------------
NET EARNINGS $ 529,988 $ 428,306 $ 294,000
==========================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 238,693 237,436 230,480
EARNINGS PER SHARE $ 2.22 $ 1.80 $ 1.28
==========================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
47
<PAGE>
FINANCIALS
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(in thousands of dollars) Medtronic, Inc.
- -------------------------------------------------------------------------------------------------------------------
April 30, 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 197,388 $ 151,050
Short-term investments 53,181 355,741
Accounts receivable, less allowance for doubtful accounts of $13,673 and $18,094 516,984 458,090
Inventories:
Finished goods 123,282 118,952
Work in process 68,034 61,000
Raw materials 91,235 77,526
- -------------------------------------------------------------------------------------------------------------------
Total Inventories 282,551 257,478
Deferred tax assets 121,087 120,899
Prepaid expenses and other current assets 66,718 48,015
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,237,909 1,391,273
PROPERTY, PLANT, AND EQUIPMENT:
Land and land improvements 25,449 22,931
Buildings and leasehold improvements 223,398 189,920
Equipment 655,719 561,083
Construction in progress 60,436 61,805
- -------------------------------------------------------------------------------------------------------------------
965,002 835,739
Accumulated depreciation (477,786) (418,826)
- -------------------------------------------------------------------------------------------------------------------
Net Property, Plant, and Equipment 487,216 416,913
GOODWILL, net of accumulated amortization of $71,700 and $52,589 394,238 387,296
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $53,325 and $40,738 96,730 85,731
LONG-TERM INVESTMENTS 125,847 219,964
OTHER ASSETS 67,270 53,523
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,409,210 $ 2,554,700
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 106,375 $ 60,690
Accounts payable 110,337 100,149
Accrued compensation 124,603 116,375
Accrued income taxes 68,814 110,365
Other accrued expenses 108,562 141,569
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 518,691 529,148
LONG-TERM DEBT 13,980 15,336
DEFERRED TAX LIABILITIES 2,163 45,744
OTHER LONG-TERM LIABILITIES 128,155 128,181
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock--par value $1.00; 2,500,000 shares authorized, none
outstanding
Common stock--par value $.10; 800,000,000 shares authorized,
233,813,505 and 239,307,689 shares issued and outstanding 23,381 23,931
Retained earnings 1,807,700 1,843,707
Cumulative translation adjustments (56,960) (2,675)
- -------------------------------------------------------------------------------------------------------------------
1,774,121 1,864,963
Receivable from Employee Stock Ownership Plan (27,900) (28,672)
- -------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,746,221 1,836,291
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,409,210 $ 2,554,700
===================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
48
<PAGE>
FINANCIALS
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(in thousands of dollars) Medtronic,Inc.
- -----------------------------------------------------------------------------------------------------------------------
Cumulative Receivable
Common Retained Translation from
Stock Earnings Adjustments ESOP
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, APRIL 30, 1994 $5,813 $1,089,681 $(9,702) $(32,300)
Net earnings 294,000
Dividends paid (47,226)
Two-for-one stock split 5,745 (5,745)
Issuance of common stock under employee benefit
and incentive plans 70 21,804
Repurchases of common stock (77) (59,002)
Change in unrealized gain (loss) on investments, net of tax 28,742
Income tax benefit from restricted stock and nonstatutory
stock options 7,340
Translation adjustments 33,550
Repayment from ESOP 2,320
Adjustment for pooling of interests (3,757)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, APRIL 30, 1995 $11,551 $1,325,837 $23,848 $(29,980)
Net earnings 428,306
Dividends paid (60,427)
Two-for-one stock split 11,560 (11,560)
Issuance of common stock under employee benefit
and incentive plans 126 24,720
Issuance of common stock in acquisition of subsidiaries 261 80,666
Repurchases of common stock (66) (33,508)
Change in unrealized gain (loss) on investments, net of tax 27,187
Income tax benefit from restricted stock and nonstatutory
stock options 6,501
Translation adjustments (26,523)
Repayment from ESOP 1,308
Adjustment for pooling of interests 499 55,985
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, APRIL 30, 1996 $23,931 $1,843,707 $(2,675) $(28,672)
Net earnings 529,988
Dividends paid (90,716)
Issuance of common stock under employee benefit
and incentive plans 190 44,048
Repurchases of common stock (740) (475,825)
Change in unrealized gain (loss) on investments, net of tax (57,864)
Income tax benefit from restricted stock and nonstatutory
stock options 14,362
Translation adjustments (54,285)
Repayment from ESOP 772
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, APRIL 30, 1997 $23,381 $1,807,700 $(56,960) $(27,900)
======================================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
49
<PAGE>
FINANCIALS
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED CASH FLOWS
(in thousands of dollars Medtronic, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Year ended April 30, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 529,988 $ 428,306 $ 294,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 116,893 112,003 106,502
Deferred income taxes 2,043 (33,106) 692
Changes in operating assets and liabilities:
Increase in accounts receivable (52,176) (46,873) (48,534)
Decrease (increase) in inventories (16,904) (30,439) 7,165
(Increase) decrease in prepaid expenses and other assets (30,626) 18,922 (37,609)
(Decrease) increase in accounts payable and accrued liabilities (42,996) 34,809 62,103
(Decrease) increase in accrued income taxes (41,791) (5,174) 7,931
(Decrease) increase in deferred income (1,621) 1,230 (24,775)
(Decrease) increase in postretirement benefit accrual 1,337 2,272 (452)
(Decrease) increase in other long-term liabilities (530) 18,909 20,154
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 463,617 500,859 387,177
INVESTING ACTIVITIES
Additions to property, plant, and equipment (171,329) (165,066) (96,862)
Acquisitions, net of cash acquired (18,873) (55,958) --
Sales and maturities of marketable securities 866,911 465,215 158,462
Purchases of marketable securities (499,640) (655,510) (289,235)
Other investing activities (99,069) (19,896) (12,361)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 78,000 (431,215) (239,996)
FINANCING ACTIVITIES
(Decrease) increase in short-term borrowings 33,404 14,330 (29,270)
Payments on long-term debt (3,064) (4,062) (8,150)
Issuance of long-term debt 1,601 681 1,265
Decrease in acquisition price payable -- -- (39,130)
Proceeds from stock offering of acquired subsidiary -- 41,538 --
Dividends to shareholders (90,716) (60,427) (47,226)
Repurchases of common stock (476,565) (33,574) (59,079)
Issuance of common stock 44,238 24,846 21,874
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (491,102) (16,668) (159,716)
Effect of exchange rate changes on cash and cash equivalents (4,177) (218) 2,107
- ---------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 46,338 52,758 (10,428)
Cash and cash equivalents at beginning of year 151,050 98,292 108,720
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 197,388 $ 151,050 $ 98,292
=====================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 309,659 $ 258,795 $ 131,731
Interest 9,263 8,134 9,249
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for acquisition of
subsidiary, net of cash acquired $ -- $ 73,951 $ --
=====================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars, except per share data)
- --------------------------------------------------------------------------------
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Medtronic operates in a single industry segment as the world's leading medical
technology company specializing in implantable and interventional therapies. The
company does business in more than 120 countries. Primary products include
implantable pacemaker systems used for the treatment of bradycardia, implantable
tachyarrhythmia management devices, ablation systems, mechanical and tissue
heart valves, balloon and guiding catheters used in angioplasty, coronary and
peripheral stents and stented grafts, interventional neuroradiology products,
implantable neurostimulation and drug delivery systems, hydrocephalic shunts and
other neurosurgical devices, urological and digestive diagnostic systems and
perfusion systems including blood oxygenators, centrifugal blood pumps, cannulae
products, and autotransfusion and blood monitoring systems and products used in
minimally invasive cardiac surgery. The company generally markets its products
through a direct sales force in the United States and a combination of direct
sales representatives and independent distributors in international markets. The
main markets for products are the United States, Western Europe and Japan.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Medtronic, Inc.,
and all of its subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally accept
ed accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
The company considers temporary cash investments with maturities of three months
or less from the date of purchase to be cash equivalents.
REVENUE RECOGNITION
The company recognizes revenue from product sales when the goods are shipped to
its customers. For certain products, the company maintains consigned inventory
at customer locations. For these products, revenue is recognized at the time the
company is notified that the device has been used.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost determined on a
first-in, first-out basis.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated at cost. Additions and improvements
extending asset lives are capitalized while maintenance and repairs are expensed
as incurred. Depreciation is provided using the straight-line method over the
estimated useful lives of the various assets.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of cost over net assets of businesses acquired,
while other intangible assets consist primarily of purchased technology and
patents. These assets are being amortized using the straight-line method over
their estimated useful lives, of which periods up to 25 years remain.
LONG-LIVED ASSETS
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. SFAS No. 121 requires that impairment losses be
recorded when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company adopted SFAS No. 121 in fiscal 1996. Such adoption
did not have a material effect on the Company's results of operations, cash
flows or financial position.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred.
STOCK-BASED COMPENSATION
The company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation",
effective for fiscal 1997, which disclosures are presented in Note 7 "Stock
Purchase and Award Plans". Accordingly, the company continues to account for
stock-based compensation using the intrinsic value method as prescribed under
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees" and related Interpretations.
FOREIGN CURRENCY TRANSLATION
Essentially all assets and liabilities are translated to U.S. dollars at
year-end exchange rates, while elements of the income statement are translated
at average exchange rates in effect during the year. Adjustments arising from
the translation of most net assets located outside the United States are
recorded as a component of shareholders' equity.
ROYALTY INCOME
Income earned from royalty and license agreements is recorded as a reduction of
selling, general, and administrative expense.
EARNINGS PER SHARE
Earnings per share of common stock are computed by dividing net income by the
weighted average number of shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 128, "Earnings per Share." SFAS No. 128
requires dual presentation of basic earnings per share and diluted earnings per
share and is required to be adopted by the company during fiscal 1998.
Implementation of SFAS No. 128 is not expected to have a material effect on
reported earnings per share.
NOTE 2--ACQUISITIONS
On May 3, 1996, the company issued approximately 1,154,000 shares of its common
stock for all of the outstanding capital stock of AneuRx, Inc. (AneuRx), which
provides a minimally invasive endovascular stented graft and delivery system
used to repair life-threatening abdominal aortic aneurysms.
On June 28, 1996, the company issued approximately 3,852,000 shares of its
common stock for all of the outstanding capital stock of InStent Inc. (InStent).
InStent develops, manufactures, and markets a variety of self-expanding and
balloon-expandable stents used in a broad range of medical indications.
On August 29, 1996, the company acquired substantially all of the assets and
liabilities of Avalon Laboratories, Inc. (Avalon) for approximately $19.0
million in cash. Avalon develops, manufactures, and sells cannulae and other
surgical products.
51
<PAGE>
In November 1995, the company acquired all of the outstanding capital stock of
Pudenz-Schulte Medical Corporation (PS Medical) for approximately 1,262,000
shares of the company's common stock. In March 1996, upon the achievement of a
specified milestone, the company made an additional payment of approximately
96,000 shares of the company's common stock. In addition, the company may pay
additional future payments of the company's common stock contingent upon
achieving specified milestones. These contingent payments, if any, will be
reflected as acquisition costs when the contingencies are resolved. PS Medical
manufactures and distributes cerebrospinal fluid shunts and neurosurgical
implants such as catheters, reservoirs, and fluid drainage systems.
In November 1995, the company issued approximately 1,246,000 shares of the
company's common stock for all of the outstanding common stock of Micro
Interventional Systems, Inc. (MIS) a developer of products for the minimally
invasive treatment of stroke and other diseases.
In April 1996, the company acquired the remaining outstanding stock of Synectics
Medical AB (Synectics) at a cost of approximately $59.3 million in cash. The
company had previously purchased approximately 8% of the outstanding stock of
Synectics. Synectics, of Stockholm, Sweden, is a world leader in the development
and marketing of computer-supported systems used to diagnose disorders of the
urological and digestive systems and sleep apnea.
The acquisitions of AneuRx, InStent and MIS have been accounted for as
poolings-of-interests, and, accordingly, the company's consolidated financial
statements for fiscal year 1996 have been restated to include the results of
AneuRx, InStent and MIS. Activity for years prior to fiscal year 1996 has not
been restated as the impact of these acquisitions in such years is not
considered material, and restatement is therefore not required. Net sales and
net results for the individual entities are not presented as the activity is not
deemed to be material.
The acquisitions of Avalon, PS Medical and Synectics were accounted for as
purchases. Accordingly, the results of operations of the acquired entities have
been included in the company's consolidated financial statements since the
respective dates of acquisition. Acquired goodwill, patents, trademarks, and
other intangible assets associated with these acquisitions are being amortized
using the straight-line method over periods ranging from 8 to 25 years.
NOTE 3--FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents, receivables, and short-term debt
approximate their carrying value due to their short maturities. The carrying
amounts and estimated fair values of the company's other significant financial
instruments were as follows:
April 30, 1997 1996
- -----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -----------------------------------------------------------------------------
ASSETS
Short-term investments $53,181 $53,181 $355,741 $355,741
Long-term investments 125,847 125,847 219,964 219,964
Net purchased currency
options 4,698 4,698 210 210
Forward exchange contracts 5,721 5,721 -- --
LIABILITIES
Short-term debt 106,375 106,375 60,690 60,690
Long-term debt 13,980 15,588 15,336 17,181
=============================================================================
The fair value of certain short-term and long-term investments are based on
quoted market prices for those or similar investments. For long-term investments
which have no quoted market prices and are accounted for on a cost basis, a
reasonable estimate of fair value was made using available market and financial
information. The fair value of long-term debt is based on the current rates
offered to the company for debt of similar maturities. The estimates presented
on long-term financial instruments are not necessarily indicative of the amounts
that would be realized in a current market exchange. The fair value of foreign
currency instruments were estimated based on quoted market prices at April 30,
1997 and 1996.
Investments in debt and equity securities that have readily determinable fair
values are classified and accounted for in one of three categories:
held-to-maturity, trading, or available-for-sale. Held-to-maturity securities
are recorded at amortized cost in short-term and long-term investments.
Available-for-sale securities are recorded at fair value in short-term or
long-term investments with the change in fair value during the period excluded
from earnings and recorded net of tax as a component of shareholders' equity.
Management determines the appropriate classification of its investments in debt
and equity securities at the time of purchase and reevaluates such
determinations at each balance sheet date.
At April 30, 1997 and 1996, available-for-sale investments included only equity
securities. The cost, gross unrealized holding gains, gross unrealized holding
losses and fair value for available-for-sale securities at April 30, 1997 and
1996 were as follows:
Gross Gross
Unrealized Unrealized
Holding Holding
Cost Gains Losses Fair Value
- -----------------------------------------------------------------------------
April 30, 1997 $61,314 $15,058 $(18,035) $58,337
April 30, 1996 32,046 87,795 (1,524) 118,317
=============================================================================
At April 30, 1997 and 1996, the net unrealized gain (loss) associated with
available-for-sale securities of $(1,935) and $55,929 respectively, net of tax
expense (benefit) of $(1,042) and $30,342, was included in retained earnings.
Proceeds from the sale of available-for-sale securities during fiscal 1997 and
1996 were $45,965 and $2,829, respectively. Net gains included in income in
fiscal 1997 and 1996 were $32,275 and $1,014, respectively. In addition, during
fiscal 1997 the company donated equity securities with a cost of $2,000 and fair
value of $13,400 to fund commitments to the Medtronic Foundation (See Note 11).
The remaining decrease in gross unrealized holding gains and related increase in
gross unrealized holding losses from fiscal 1996 to fiscal 1997 was primarily
attributable to share-price volatility experienced during fiscal 1997 for
certain equity securities held by the company.
Held-to-maturity investments at April 30, 1997 consisted primarily of U.S.
government and corporate debt securities, all of which mature within three
years. Debt securities are classified as held-to-maturity when the company has
the positive intent and ability to hold the securities to maturity. These
securities were carried at amortized cost of $223,302 and have a fair value of
$223,302. During the fourth quarter of fiscal 1997, the company sold previously
categorized held-to-maturity investments with an amortized cost of $316,075 to
fund repurchases of company common stock, resulting in a loss that was not
material. Election of this funding option does not affect the classification of
the April 30, 1997 balance of the securities in the held-to-maturity portfolio
as the company retains the intent and ability to hold those securities until
they mature.
FOREIGN CURRENCY INSTRUMENTS
A significant portion of the company's cash flows is derived from sales
denominated in foreign currencies. In order to reduce the uncertainty of foreign
exchange rate movements on sales denominated in foreign currencies, the company
enters into Derivative Financial Instruments in the form of forward exchange and
option contracts with major international financial institutions. These forward
and option contracts, which typically
52
<PAGE>
expire within one year, are designed to hedge anticipated foreign currency
transactions. Such transactions, primarily export intercompany sales, occur
throughout the year and are probable but not firmly committed.
The company had contracts to exchange foreign currencies, principally the
Japanese Yen and German Mark, for U.S. dollars in the following notional
amounts:
April 30, 1997 1996
- -----------------------------------------------------------------------------
Forward exchange contracts $ 150,635 $ --
- -----------------------------------------------------------------------------
Put options 4,841 1,896
Call options (143) (1,686)
- -----------------------------------------------------------------------------
Net purchased currency options $ 4,698 $ 210
=============================================================================
The company had aggregate foreign currency transaction gains (losses), primarily
related to purchased currency options and forward contracts, of $1,926,
$(20,789), and $(57,715), in fiscal 1997, 1996, and 1995, respectively. Realized
gains (losses) on these contracts were offset by the (losses) gains on assets,
liabilities, and transactions being hedged. Forward contracts and net premium on
range forward option contracts in existence at the balance sheet date are
recorded at their fair value. Gains and losses on forward and option contracts
are recorded in selling, general, and administrative expense.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the company to significant
concentrations of credit risk, consist principally of cash investments, foreign
currency exchange contracts, and trade accounts receivable.
The company maintains cash and cash equivalents, investments, and certain other
financial instruments with various major financial institutions. The company
performs periodic evaluations of the relative credit standing of these financial
institutions and limits the amount of credit exposure with any institution.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers and their dispersion across many
geographic areas. However, a significant amount of trade receivables are with
national health care systems in several countries. Although the company does not
currently foresee a credit risk associated with these receivables, repayment is
dependent upon the financial stability of those countries' national economies.
NOTE 4--DEBT
DEBT CONSISTED OF THE FOLLOWING AT APRIL 30:
Average
Short-Term Debt Interest Rate 1997 1996
- -----------------------------------------------------------------------------
Bank borrowings 2.1% $ 99,716 $ 58,046
Current portion of
long-term debt 7.4% 6,659 2,644
- -----------------------------------------------------------------------------
Total Short-Term Debt $106,375 $ 60,690
=============================================================================
Average Maturity
Long-Term Debt Interest Rate Date 1997 1996
- -----------------------------------------------------------------------------
Various notes 3.7% 1998-2007 $ 10,387 $ 11,371
Capitalized lease
obligations 9.7% 1998-2008 3,593 3,965
- -----------------------------------------------------------------------------
Total Long-Term Debt $ 13,980 $ 15,336
=============================================================================
Short-term borrowings consisted primarily of borrowings from non-U.S. banks at
favorable interest rates and where natural hedges can be gained for foreign
exchange purposes. The company has existing committed lines of credit of $383
million with various banks, of which $283 million was unused at April 30, 1997.
Maturities of long-term debt for the next five fiscal years are as follows:
1998, $6,659; 1999, $2,632; 2000, $2,700; 2001, $1,180; 2002, $1,160,
thereafter, $6,308.
NOTE 5--SHAREHOLDERS' EQUITY
At April 30, 1997, Board of Directors' authorization existed to repurchase
approximately 6.7 million shares of the company's common stock. In May 1997, the
company's Board of Directors authorized an additional 6.0 million shares for
repurchase.
On August 30, 1995, the Board of Directors approved a two-for-one common stock
split, paid September 29, 1995 in the form of a 100 percent stock dividend to
shareholders of record at the close of business on September 14, 1995. The stock
split resulted in the issuance of 115,601 thousand additional shares and the
reclass of $11,560 from retained earnings to common stock, representing the par
value of the shares issued.
On August 31, 1994, the Board of Directors approved a two-for-one common stock
split, paid September 30, 1994 in the form of a 100 percent stock dividend to
shareholders of record at the close of business on September 15, 1994. The stock
split resulted in the issuance of 57,452 thousand additional shares and the
reclass of $5,745 from retained earnings to common stock, representing the par
value of the shares issued. All references in the financial statements to per
share information, number of shares, except shares authorized, and related share
prices have been restated to reflect these stock splits.
A shareholder rights plan exists which provides for a dividend distribution of
one right to be attached to each share of common stock. The rights are currently
not exercisable or transferable apart from the common stock. The basic right
entitles the holder to purchase one eight-hundredth of a share of a new series
of participating preferred stock, which is substantially equivalent to one share
of common stock, at an exercise price of $75 per share. These rights would
become exercisable if a person or group acquires 15% or more of the company's
common stock or announces a tender offer which would increase the person's or
group's beneficial ownership to 15% or more of the company's common stock,
subject to certain exceptions. After the rights become exercisable, each right
entitles the holder, (other than the 15% holder) instead, to purchase common
stock having a market price of two times the exercise price. If the company is
acquired in a merger or other business combination transaction, each exercisable
right entitles the holder to purchase common stock of the acquiring company or
an affiliate having a market price of two times the exercise price of the right.
In certain events the Board of Directors may exchange rights for common stock or
equivalent securities having a market price equal to the exercise price of the
rights. Each right is redeemable at $.00125 any time before a person or group
triggers the 15% ownership threshold. The rights expire on July 10, 2001.
NOTE 6--EMPLOYEE STOCK OWNERSHIP PLAN
The company has an Employee Stock Ownership Plan (ESOP) for eligible U.S.
employees. In December 1989, the ESOP borrowed $40,000 from the company and used
the proceeds to purchase 4,733,232 shares of the company's common stock. The
company makes annual contributions to the plan which are used, in part, by the
ESOP to make loan and interest payments. Expenses related to the ESOP are based
on debt service requirements less any dividends received by the ESOP on the
company's common stock. This amount is further adjusted by any additional
company contribution necessary to meet an annual targeted benefit level.
53
<PAGE>
Compensation and interest expense recognized were as follows:
Year ended April 30, 1997 1996 1995
- -----------------------------------------------------------------------------
Interest expense $2,580 $2,698 $2,907
Dividends paid 1,798 1,310 992
- -----------------------------------------------------------------------------
Net interest expense 782 1,388 1,915
Compensation expense 779 1,316 2,327
- -----------------------------------------------------------------------------
Total expense $1,561 $2,704 $4,242
=============================================================================
Shares of common stock acquired by the plan are allocated to each employee in
amounts based on company performance and the employee's annual compensation. At
April 30, 1997 and 1996, allocated shares were 2,144,895 and 1,910,422,
respectively, shares committed-to-be released were 196,213 and 234,473,
respectively, and unallocated shares were 2,894,220 and 3,128,693, respectively.
Unallocated shares are released based on the ratio of current debt service to
total remaining principal and interest. The loan from the company to the ESOP is
repayable over 20 years, ending on April 30, 2010. Interest is payable annually
at a rate of 9.0%. The receivable from the ESOP is recorded as a reduction of
the company's shareholders' equity and allocated and unallocated shares of the
ESOP are treated as outstanding common stock in the computation of earnings per
share.
NOTE 7--STOCK PURCHASE AND AWARD PLANS
1994 STOCK AWARD PLAN
Effective April 29, 1994, the Board of Directors and shareholders approved the
1994 stock award plan which replaced the stock option, stock award, and
non-employee director restricted stock plans. The 1994 stock award plan provides
for the grant of nonqualified and incentive stock options, stock appreciation
rights, performance shares, restricted stock in lieu of the annual retainer to
non-employee directors, and other stock-based awards. There were 8,046,128
shares available under this plan for future grants at April 30, 1997.
Under the provisions of the 1994 stock award plan, nonqualified stock options
and other stock awards are granted to officers and key employees at prices not
less than fair market value at the date of grant. In addition, awards granted
under the previous nonqualified stock option and stock award plans as well as
stock options assumed as a result of acquisition transactions remain outstanding
though no additional awards will be made under these plans.
A summary of nonqualified option transactions is as follows:
Option Price
Range Per Number of Expiration
Share Shares Date
- -----------------------------------------------------------------------------
Outstanding at
April 30, 1995 $ 2.67 - 35.00 6,510,284 1996 - 2005
Granted 36.69 - 59.25 708,216 2001 - 2006
Exercised 2.67 - 26.50 621,671 1996 - 2006
Cancelled 7.53 - 54.13 66,459 2001 - 2006
- -----------------------------------------------------------------------------
Outstanding at
April 30, 1996 $ 4.88 - 59.25 6,530,370 1997 - 2006
Granted 49.75 - 69.13 791,775 2002 - 2007
Exercised 4.88 - 59.25 1,195,073 1997 - 2007
Cancelled 7.53 - 68.50 88,522 2002 - 2007
- -----------------------------------------------------------------------------
Outstanding at
April 30, 1997 $ 4.88 - 69.13 6,038,550 1998 - 2007
=============================================================================
Option Price
Range Per Number of Expiration
Share Shares Date
- -----------------------------------------------------------------------------
Exercisable at
April 30, 1996 $ 4.88 - 54.13 4,185,351 1997 - 2006
April 30, 1997 4.88 - 68.38 4,110,726 1998 - 2007
=============================================================================
In addition, stock options outstanding at April 30, 1997 assumed as part of
certain 1997 and 1996 acquisitions were 200,917 and 20,567, respectively. Stock
options exercisable under these plans were 159,194 and 3,529 at April 30, 1997.
These options have an exercisable price range per share of $0.02 - 57.16 at
April 30, 1997 and expire 1998-2007. No additional awards will be made under
these plans.
Nonqualified options are generally exercisable beginning one year from the date
of grant in cumulative yearly amounts of 25 percent of the shares under option
and generally have a contractual option term of 10 years. However, certain
nonqualified options granted in foreign locations are exercisable immediately
due to local tax law requirements.
Restricted stock and performance share awards are dependent upon continued
employment and, in the case of performance shares, achievement of certain
performance objectives. In 1997, 88,789 restricted shares were issued and 87,012
shares of common stock were issued pursuant to previous performance share
grants. At April 30, 1997, total restricted shares outstanding under both the
1994 stock award plan and the previous restricted stock and performance share
award plans were 863,446. Performance share awards for up to 337,161 shares,
assuming maximum performance payout, were outstanding under the two plans at
April 30, 1997. The actual number of performance shares awarded may vary
depending on the degree to which the performance objectives are met. The cost of
the restricted stock is generally expensed over five years from the date of
issuance ($4,761 in 1997, $4,375 in 1996, and $3,797 in 1995). The estimated
cost of the performance shares is expensed over the three year performance
period from the date of grant ($7,582 in 1997, $10,313 in 1996, and $8,840 in
1995).
In 1997, the company adopted Statement of Financial Accounting Standard (SFAS)
No. 123 "Accounting for Stock-Based Compensation" which encourages, but does not
require companies to recognize compensation cost for stock-based compensation
plans over the vesting period based upon the fair value of awards on the date of
grant. However, the statement allows the alternative of the continued use of the
intrinsic value method as prescribed in Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees." Therefore, as
permitted, the company will continue to apply APB No. 25, and related
Interpretations in accounting for its stock based compensation plans.
Accordingly, no compensation expense has been recognized by the company for its
nonqualified stock options and its stock purchase plan.
Had compensation expense for the company's stock-based compensation plans been
determined based on the fair value at the grant dates consistent with the method
of SFAS No. 123, the company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
1997 1996
- -----------------------------------------------------------------------------
Net Income As reported $ 529,988 $ 428,306
Pro forma 517,470 421,147
Earnings Per Share As reported $ 2.22 $ 1.80
Pro forma 2.17 1.77
=============================================================================
54
<PAGE>
Pro forma net income reflects only options and other stock based awards granted
in 1997 and 1996. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma net
income amounts presented because compensation cost is reflected over the
options' vesting period, which is normally four years, and compensation cost for
options granted prior to fiscal year 1996 is not considered.
The weighted-average fair value per option at the date of grant for options
granted in 1997 and 1996 was $26.11 and $24.14, respectively. The fair value was
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions for 1997 and 1996:
1997 1996
- -----------------------------------------------------------------------------
Risk-free interest rate 6.26% 6.00%
Expected dividend yield 0.61% 0.50%
Expected volatility factor 28.9% 26.3%
Expected option term 7 years 7 years
=============================================================================
STOCK PURCHASE PLAN
The stock purchase plan enables employees to contribute up to 10% of their wages
toward purchase of the company's common stock at 85% of the market value.
Employees purchased 421,291 shares at $50.89 per share in 1997. As of April 30,
1997, plan participants have had approximately $14,617 withheld to purchase
shares at a price of $54.40 per share, or 85% of the market value of the
company's common stock at October 31, 1997, whichever is less.
NOTE 8--INCOME TAXES
The company provides for income taxes in accordance with Statement of Financial
Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109
is an asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of other assets and
liabilities.
The provision for income taxes is based on earnings before income taxes reported
for financial statement purposes. The components of earnings before income taxes
were:
Year ended April 30, 1997 1996 1995
- -----------------------------------------------------------------------------
United States $773,287 $532,297 $356,758
Non-U.S. 35,856 126,700 85,347
- -----------------------------------------------------------------------------
Earnings before income taxes $809,143 $658,997 $442,105
=============================================================================
The provision for income taxes consisted of:
Year ended April 30, 1997 1996 1995
- -----------------------------------------------------------------------------
Taxes currently payable:
U.S. federal $186,599 $154,941 $ 80,023
U.S. state and other 55,638 35,696 22,297
Non-U.S. 28,443 62,750 45,717
- -----------------------------------------------------------------------------
Total currently payable 270,680 253,387 148,037
Deferred tax (benefit) expense:
U.S. federal (4,581) (34,232) (1,955)
U.S. state and other (8,047) (2,526) 2,755
Non-U.S. 962 3,495 (9,925)
- -----------------------------------------------------------------------------
Net deferred tax benefit (11,666) (33,263) (9,125)
Tax expense credited directly to
shareholders' equity 20,141 10,567 9,193
- -----------------------------------------------------------------------------
Total provision $279,155 $230,691 $148,105
=============================================================================
Deferred tax assets (liabilities) were comprised of the following:
April 30, 1997 1996
- -----------------------------------------------------------------------------
Deferred tax assets:
Inventory (Intercompany profit in inventory
and excess of tax over book valuation) $98,333 $98,753
Accrued liabilities 42,167 35,071
Other 17,881 13,437
- -----------------------------------------------------------------------------
Total deferred tax assets 158,381 147,261
- -----------------------------------------------------------------------------
Deferred tax liabilities:
Intangible assets (6,458) (6,835)
Undistributed earnings of subsidiaries (7,048) (14,645)
Accumulated depreciation (12,340) (13,198)
Unrealized (gain) loss on investments 1,042 (30,342)
Other (14,653) (7,086)
- -----------------------------------------------------------------------------
Total deferred tax liabilities (39,457) (72,106)
- -----------------------------------------------------------------------------
Net deferred tax assets $118,924 $75,155
=============================================================================
The company's effective income tax rate varied from the U.S. federal statutory
tax rate as follows:
Year ended April 30, 1997 1996 1995
- -----------------------------------------------------------------------------
U.S. federal statutory tax rate 35.0% 35.0% 35.0%
Increase (decrease) in tax rate
resulting from:
U.S. state taxes, net of federal
tax benefit 2.3 2.3 2.2
Tax benefits from operations in
Puerto Rico (2.3) (3.4) (4.2)
Non-U.S. taxes 0.6 1.6 1.5
Other, net (1.1) (0.5) (1.0)
- -----------------------------------------------------------------------------
Effective tax rate 34.5% 35.0% 33.5%
=============================================================================
Taxes are not provided on undistributed earnings of non-U.S. subsidiaries
because such earnings are either permanently reinvested or do not exceed
available foreign tax credits. Current U.S. tax regulations provide that
earnings of the company's manufacturing subsidiaries in Puerto Rico may be
repatriated tax free; however, the Commonwealth of Puerto Rico will assess a tax
of up to 10% in the event of repatriation of earnings prior to liquidation. The
company has provided for the anticipated tax attributable to earnings intended
for dividend repatriation. At April 30, 1997, earnings permanently reinvested in
subsidiaries outside the United States were $136,019.
At April 30, 1997, approximately $13,513 of non-U.S. tax losses were available
for carryforward. These carryforwards are subject to valuation allowances and
generally expire within a period of one to five years.
NOTE 9--RETIREMENT BENEFIT PLANS
The company has various retirement benefit plans covering substantially all U.S.
employees and many employees outside the United States. The cost of these plans
was $36,525 in 1997, $36,598 in 1996, and $28,483 in 1995.
55
<PAGE>
DEFINED BENEFIT PLAN (UNITED STATES)
In the United States, the company maintains a qualified pension plan designed to
provide guaranteed minimum retirement benefits to substantially all U.S.
employees. Plan benefits are calculated using a combination of years of service,
final average earnings, primary social security benefits, and age. It is the
company's policy to fund retirement costs within the limits of allowable tax
deductions. Contributions to the plan were $9,392, $11,925, and $13,784 in 1997,
1996, and 1995, respectively. Plan assets consist of a diversified portfolio of
fixed-income investments, debt and equity securities, and cash equivalents. Plan
assets include investments in the company's common stock of $22,160 and $17,000
at April 30, 1997 and 1996, respectively.
Net pension cost for the U.S. plan included the following components:
Year ended April 30, 1997 1996 1995
- -----------------------------------------------------------------------------
Service cost--benefits earned
during the year $ 8,093 $ 6,653 $ 6,391
Interest cost on projected
benefit obligation 7,969 6,516 5,680
Return on assets (16,592) (21,061) (9,775)
Net amortization and deferral 6,161 11,459 2,155
- -----------------------------------------------------------------------------
Net pension cost $ 5,631 $ 3,567 $ 4,451
=============================================================================
The funded status of the U.S. plan was as follows:
April 30, 1997 1996
- -----------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested benefits $(73,160) $(65,725)
Nonvested benefits (8,421) (8,245)
- -----------------------------------------------------------------------------
Accumulated benefit obligation (81,581) (73,970)
Excess of projected benefit obligation
over accumulated benefit obligation (34,442) (31,560)
- -----------------------------------------------------------------------------
Projected benefit obligation (116,023) (105,530)
Plan assets at fair value 151,320 126,913
- -----------------------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 35,297 21,383
Unrecognized May 1, 1986, net asset -- (432)
Unrecognized net actuarial (gain) loss (6,336) 4,309
Unrecognized prior service cost (416) (476)
- -----------------------------------------------------------------------------
Net prepaid pension cost asset $ 28,545 $ 24,784
=============================================================================
The actuarial assumptions were as follows:
Year ended April 30, 1997 1996 1995
- -----------------------------------------------------------------------------
Discount rate 7.75% 7.5% 8.0%
Expected long-term return on assets 9.0% 9.0% 9.0%
Average increase in compensation 5.0% 5.0% 5.0%
=============================================================================
In addition to the benefits provided under the qualified pension plan,
retirement benefits associated with wages in excess of the IRS allowable wages
are provided to certain employees under non-qualified plans. The net periodic
cost of non-qualified pension plans was $1,770 in 1997. The unfunded accrued
pension cost totaled $7,746 at April 30, 1997.
DEFINED BENEFIT PLANS (NON-U.S.)
Retirement coverage for non-U.S. employees of the company is provided, to the
extent deemed appropriate, through separate plans. Funding policies are based on
local statutes. Retirement benefits are based on years of service, final average
earnings, and social security benefits.
Net pension cost for the non-U.S. plans included the following components:
Year ended April 30, 1997 1996 1995
- -----------------------------------------------------------------------------
Service cost--benefits earned
during the year $5,004 $5,096 $2,032
Interest cost on projected
benefit obligation 1,789 1,357 666
Return on assets (gain) loss 116 (36) (27)
Net amortization and deferral 363 374 135
- -----------------------------------------------------------------------------
Net pension cost $7,272 $6,791 $2,806
=============================================================================
In certain countries, the funding of pension plans is not a common practice as
funding provides no economic benefit. Consequently, the company has pension
plans which are underfunded. The following table sets forth the funded status of
the non-U.S. plans:
April 30, 1997 1996
- -----------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested benefits $ (9,413) $(11,034)
Nonvested benefits (1,241) (657)
- -----------------------------------------------------------------------------
Accumulated benefit obligation (10,654) (11,691)
Excess of projected benefit obligation
over accumulated benefit obligation (16,602) (20,317)
- -----------------------------------------------------------------------------
Projected benefit obligation (27,256) (32,008)
Plan assets at fair value 1,044 608
- -----------------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (26,212) (31,400)
Unrecognized May 1, 1994,
net obligation 9,301 10,148
Unrecognized net actuarial loss 1,579 7,955
- -----------------------------------------------------------------------------
Net accrued pension liability $(15,332) $(13,297)
=============================================================================
The range of assumptions for the non-U.S. plans, reflecting the different
economic environments within the various countries, was as follows:
Year ended April 30, 1997 1996 1995
- ----------------------------------------------------------------------------
Discount rate 4.0%-8.5% 6.5%-8.5% 6.5%-8.5%
Expected long-term
return on assets 8.5% 8.5% 8.5%
Average increase
in compensation 3.0%-6.0% 3.0%-4.5% 4.5%
=============================================================================
DEFINED CONTRIBUTION PLANS
The Company has defined contribution savings plans that cover substantially all
U.S. employees and certain non-U.S. employees. The general purpose of these
plans is to provide additional financial security during retirement by providing
employees with an incentive to make regular savings. Company contributions to
the plans are based on employee contributions and company performance. Expense
under these plans was $16,402 in 1997, $17,786 in 1996, and $15,452 in 1995.
RETIREE HEALTH CARE BENEFITS
U.S. and non-U.S. employees of the company are currently eligible to receive
specified company-paid health care and life insurance benefits during retirement
based on their age and years of service. The health care benefits include
cost-sharing features based on years of service and retirement age. The life
insurance plans require minimum retiree contributions.
56
<PAGE>
The company adopted Statement of Financial Accounting Standard (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," for
U.S. plans in 1993 and for Non-U.S. plans in 1996, resulting in a one-time
transition obligation expense in 1996 of $1,237. SFAS No. 106 requires the
company to recognize expense as employees earn postretirement benefits, rather
than on the cash basis.
The net postretirement benefit cost of U.S. and Non-U.S. plans included the
following components:
NON-U.S.
U.S. PLANS PLANS
Year ended April 30, 1997 1996 1995 1997 1996
- -----------------------------------------------------------------------------
Service cost--benefits earned
during the year $1,847 $1,585 $1,446 $135 $106
Interest cost on accumulated
benefit obligation 2,088 1,915 1,425 121 99
Return on assets (858) (737) (255) -- --
Net amortization and
deferral 265 497 299 1 1,237
- -----------------------------------------------------------------------------
Postretirement benefit cost $3,342 $3,260 $2,915 $257 $1,442
=============================================================================
The company's policy has been to fund the cost of postretirement benefits as
they are paid. In 1995, the company also began funding a trust within the limits
of allowable tax deductions for the cost of these benefits.
The funded status of the U.S. and Non-U.S. plans was as follows:
NON-U.S.
U.S. PLANS PLANS
Year ended April 30, 1997 1996 1997 1996
- -----------------------------------------------------------------------------
Actuarial present value of
postretirement benefit obligation:
Retirees $ (5,280) $ (6,262) $ (104) $(88)
Other fully eligible
participants (6,287) (4,938) (248) (157)
Other active
participants (19,351) (17,751) (1,444) (1,327)
- -----------------------------------------------------------------------------
(30,918) (28,951) (1,796) (1,572)
Plan assets at fair value 12,080 5,926 -- --
Unrecognized net loss 1,706 3,669 97 130
- -----------------------------------------------------------------------------
Net accrued postretirement
benefit liability $(17,132) $(19,356) $(1,699) $(1,442)
=============================================================================
The actuarial assumptions were as follows:
NON-U.S.
U.S. PLANS PLANS
Year ended April 30, 1997 1996 1995 1997 1996
- -----------------------------------------------------------------------------
Discount rate 7.75% 7.5% 8.0% 7.75% 7.5%
Expected long-term return
on assets 9.0% 9.0% 9.0% -- --
Health care cost trend rate 8.0% 10.0% 10.0% 8.0% 10.0%
=============================================================================
The health care cost trend rate is assumed to decrease gradually to 6% by 2002.
Based on current estimates, increasing the health care cost trend rate by one
percentage point each year would increase the accumulated post retirement
benefit obligation for U.S. and Non-U.S. plans by $2,992 and $262, respectively,
and the annual postretirement benefit cost by $493 and $43, respectively.
NOTE 10--LEASES
The company leases offices, manufacturing and research facilities, and
warehouses, as well as transportation, data processing, and other equipment,
under capital and operating leases. A substantial number of these leases contain
options that allow the company to renew at the then fair rental value.
Future minimum payments under capitalized leases and noncancelable operating
leases at April 30, 1997, were:
Capitalized Operating
Leases Leases
- -----------------------------------------------------------------------------
1998 $1,085 $21,540
1999 893 17,336
2000 717 11,492
2001 485 9,318
2002 438 8,962
2003 and thereafter 2,422 6,986
- -----------------------------------------------------------------------------
Total minimum lease payments 6,040 $75,634
=======
Less amounts representing interest (1,681)
- -------------------------------------------------------
Present value of net minimum lease
payments $4,359
=======================================================
Rent expense for all operating leases was $32,832 in 1997, $27,406 in 1996 and
$22,366 in 1995.
NOTE 11--COMMITMENTS AND CONTINGENCIES
The company is involved in litigation and disputes which are normal to its
business. Management believes losses that might eventually be sustained from
such litigation and disputes would not be material to future years. Further,
product liability claims may be asserted in the future relative to events not
known to management at the present time. Management believes that the company's
risk management practices, including insurance coverage, are reasonably adequate
to protect against potential product liability losses.
The Medtronic Foundation, funded entirely by the company, was established to
maintain good corporate citizenship in its communities. In 1993, the company
made a commitment to contribute $12,000 over an approximate five-year period.
During fiscal 1997, the company donated equity securities with a cost of $2,000
and a fair value of $13,400 to fund the remaining balance under the 1993
commitment. This donation is expected to also fund the Medtronic Foundation's
operating needs through the end of fiscal 1998. Commitments to the Medtronic
Foundation are expensed when authorized and approved by the company's Board of
Directors.
NOTE 12--QUARTERLY FINANCIAL DATA (UNAUDITED, IN MILLIONS OF DOLLARS, EXCEPT PER
SHARE DATA)
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
- -----------------------------------------------------------------------------
Net Sales
1997 $600.9 $598.2 $598.7 $640.5 $2,438.2
1996 524.9 520.0 530.1 597.1 2,172.1
Gross Profit
1997 445.3 447.1 446.4 489.2 1,828.0
1996 373.9 374.0 386.4 446.4 1,580.7
Net Earnings
1997 127.4 128.3 128.7 145.5 530.0
1996 97.3 102.8 106.6 121.6 428.3
Earnings per Share:
1997 .53 .54 .54 .62 2.22
1996 .41 .43 .45 .51 1.80
=============================================================================
57
<PAGE>
Quarterly and annual earnings per share are calculated independently based on
the weighted average number of shares outstanding during the period. Fiscal year
1996 has been restated to reflect the November 1995 acquisition of Micro
Interventional Systems, Inc., the May 1996 acquisition of AneuRx, Inc. and the
June 1996 acquisition of InStent, which were accounted for as
poolings-of-interests.
NOTE 13--SEGMENT REPORTING
The company operates in a single industry segment -- providing medical products
and services. For management purposes, the company is segmented into three
geographic areas -- the Americas, Europe/Middle East/Africa (Europe), and
Asia/Pacific markets. The geographic areas are, to a significant degree,
interdependent with respect to research, product supply, and business expertise.
Sales between geographic areas are made at prices which would approximate
transfers to unaffiliated distributors. In the presentation below, the profit
derived from such transfers is attributed to the area in which the sale to the
unaffiliated customer is eventually made. Because of the interdependence of the
geographic areas, the operating profit as presented may not be representative of
the geographic distribution which would occur if the areas were not
interdependent. In addition, comparison of operating results between geographic
areas and between years may be significantly impacted by foreign currency
fluctuations.
<TABLE>
<CAPTION>
GEOGRAPHIC AREA INFORMATION
United Asia Other Elimi- Consoli-
States Europe Pacific Americas nations dated
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997
Sales to unaffiliated
customers $1,403,162 $701,255 $268,360 $65,447 $ -- $2,438,224
Intergeographic
sales 216,773 68,936 20 4,182 (289,911) --
- ---------------------------------------------------------------------------------------------
Total sales 1,619,935 770,191 268,380 69,629 (289,911) 2,438,224
- ---------------------------------------------------------------------------------------------
Operating profit 504,660 156,950 102,759 10,733 -- 775,102
Nonoperating
income 34,041
- ---------------------------------------------------------------------------------------------
Earnings before
income taxes 809,143
- ---------------------------------------------------------------------------------------------
Identifiable assets 1,548,821 449,991 185,498 43,489 (160,224) 2,067,575
Corporate assets 341,635
- ---------------------------------------------------------------------------------------------
Total assets $2,409,210
=============================================================================================
1996
Sales to unaffiliated
customers $1,240,975 $617,554 $257,018 $56,553 $ -- $2,172,100
Intergeographic
sales 148,515 87,187 -- 5,061 (240,763) --
- ---------------------------------------------------------------------------------------------
Total sales 1,389,490 704,741 257,018 61,614 (240,763) 2,172,100
- ---------------------------------------------------------------------------------------------
Operating profit 405,707 158,983 108,805 8,223 -- 681,718
Nonoperating
expense (22,721)
- ---------------------------------------------------------------------------------------------
Earnings before
income taxes 658,997
- ---------------------------------------------------------------------------------------------
Identifiable assets 1,371,170 424,415 179,595 35,785 (161,047) 1,849,918
Corporate assets 704,782
- ---------------------------------------------------------------------------------------------
Total assets $2,554,700
=============================================================================================
1995
Sales to unaffiliated
customers $976,589 $505,914 $212,725 $47,164 $ -- $1,742,392
Intergeographic
sales 132,105 52,002 -- 3,020 (187,127) --
- ---------------------------------------------------------------------------------------------
Total sales 1,108,694 557,916 212,725 50,184 (187,127) 1,742,392
- ---------------------------------------------------------------------------------------------
Operating profit 287,824 106,243 91,046 4,746 -- 489,859
Nonoperating
expense (47,754)
- ---------------------------------------------------------------------------------------------
Earnings before
income taxes 442,105
- ---------------------------------------------------------------------------------------------
Identifiable assets 1,206,912 308,579 149,394 30,515 (123,220) 1,572,180
Corporate assets 374,552
- ---------------------------------------------------------------------------------------------
Total assets $1,946,732
=============================================================================================
</TABLE>
Nonoperating income and expenses consist principally of non-allocable corporate
activities. Intergeographic sales and the intergeographic profit remaining in
ending inventories are the principal items reflected as eliminations.
58
<PAGE>
FINANCIALS
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(in millions of dollars, except per share data)
- ---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS FOR THE YEAR:
Net sales $2,438.2 $2,172.1 $1,742.4 $1,390.9 $1,328.2 $1,176.9 $1,021.4
Cost of products sold 610.2 591.4 540.1 431.7 420.1 381.8 331.7
Research and development
expense 280.2 243.8 191.4 156.3 133.0 109.2 89.5
Selling, general, and
administrative expense 763.3 700.9 574.6 456.3* 460.0* 439.9 399.9*
Interest expense 9.4 8.1 9.0 8.2 10.4 13.4 13.8
Interest income (34.0) (31.1) (14.8) (8.4) (8.8) (10.3) (9.7)
- ----------------------------------------------------------------------------------------------
Earnings from continuing
operations before
income taxes 809.1 659.0 442.1 346.8 313.5 242.9 196.2
Provision for income
taxes 279.2 230.7 148.1 114.4 101.9 81.4 62.9
- ----------------------------------------------------------------------------------------------
Earnings from continuing
operations 530.0 428.3 294.0 232.4 211.6 161.5 133.4
Cumulative effect of
accounting changes (net) -- -- -- -- (14.4) -- --
- ----------------------------------------------------------------------------------------------
Net earnings $530.0 $428.3 $294.0 $232.4 $197.2 $161.5 $133.4
==============================================================================================
Net earnings as a percent
of net sales 21.7% 19.7% 16.9% 16.7% 14.8% 13.7% 13.1%
Net earnings as a percent
of average shareholders'
equity 29.6% 27.0% 24.6% 24.5% 24.1% 21.8% 21.4%
- ----------------------------------------------------------------------------------------------
Per share of common stock:
Earnings from continuing
operations before
cumulative effects
of accounting changes $2.22 $1.80 $1.28 $1.01 $.89 $.68 $.56
Net earnings 2.22 1.80 1.28 1.01 .83 .68 .56
Cash dividends declared .38 .26 .21 .17 .14 .12 .10
- ----------------------------------------------------------------------------------------------
Gross margin percentage 75.0% 72.8% 69.0% 69.0% 68.4% 67.6% 67.5%
FINANCIAL POSITION AT APRIL 30:
Working capital $719.2 $862.1 $647.8 $406.4 $426.6 $387.3 $320.1
Current ratio 2.4:1 2.6:1 2.4:1 1.9:1 2.2:1 2.3:1 2.1:1
Property, plant, and
equipment, net 487.2 416.9 331.1 301.8 282.8 256.8 217.2
Total assets 2,409.2 2,554.7 1,946.7 1,623.3 1,292.5 1,163.5 1,024.1
Long-term debt 14.0 15.3 14.2 20.2 10.9 8.6 7.9
Long-term debt as a percent
of shareholders' equity 0.8% 0.8% 1.1% 1.9% 1.3% 1.1% 1.2%
Shareholders' equity 1,746.2 1,836.3 1,335.0 1,053.5 841.5 796.5 683.2
Shareholders' equity
per common share 7.47 7.67 5.78 4.53 3.64 3.35 2.87
ADDITIONAL INFORMATION:
Expenditures for property,
plant, and equipment $178.6 $171.5 $104.0 $86.0 $87.4 $83.2 $73.7
Full-time employees at
year-end 11,722 10,666 8,896 8,709 8,334 8,314 7,560
Full-time equivalent
employees at year-end 13,719 12,499 10,313 9,856 9,247 9,392 8,470
==============================================================================================
[WIDE TABLE CONTINUED FROM ABOVE]
Medtronic, Inc.
- ------------------------------------------------------------
1990 1989 1988 1987
- ------------------------------------------------------------
OPERATING RESULTS FOR THE YEAR:
Net sales $865.9 $765.8 $669.9 $515.4
Cost of products sold 281.7 248.5 217.4 176.9
Research and development
expense 81.5 67.7 55.1 43.6
Selling, general, and
administrative expense 331.3* 291.9* 267.2 187.7
Interest expense 10.1 8.4 5.9 4.3
Interest income (6.2) (5.6) (7.1) (7.2)
- ------------------------------------------------------------
Earnings from continuing
operations before
income taxes 167.5 155.0 131.4 110.2
Provision for income
taxes 54.6 54.7 44.8 34.8
- ------------------------------------------------------------
Earnings from continuing
operations 112.9 100.3 86.6 75.3
Cumulative effect of
accounting changes (net) -- -- -- --
- ------------------------------------------------------------
Net earnings $112.9 $100.3 $86.6 $75.3
============================================================
Net earnings as a percent
of net sales 13.0% 13.1% 12.9% 14.6%
Net earnings as a percent
of average shareholders'
equity 21.3% 22.2% 21.2% 19.8%
- ------------------------------------------------------------
Per share of common stock:
Earnings from continuing
operations before
cumulative effects
of accounting changes $.48 $.43 $.37 $.31
Net earnings .48 .43 .37 .31
Cash dividends declared .09 .07 .06 .05
- ------------------------------------------------------------
Gross margin percentage 67.5% 67.6% 67.5% 65.7%
FINANCIAL POSITION AT APRIL 30:
Working capital $240.4 $206.1 $244.6 $250.2
Current ratio 1.9:1 1.9:1 2.3:1 3.0:1
Property, plant, and
equipment, net 183.6 157.2 134.6 121.1
Total assets 885.3 783.0 661.3 580.0
Long-term debt 8.0 8.2 11.1 7.6
Long-term debt as a percent
of shareholders' equity 1.4% 1.7% 2.7% 1.9%
Shareholders' equity 565.2 492.7 412.0 403.1
Shareholders' equity
per common share 2.40 2.12 1.72 1.61
ADDITIONAL INFORMATION:
Expenditures for property,
plant, and equipment $59.3 $57.4 $39.1 $28.5
Full-time employees at
year-end 7,030 6,529 5,939 5,156
Full-time equivalent
employees at year-end 7,717 7,152 6,471 5,587
============================================================
*Certain costs and income separately disclosed on the statement of consolidated
earnings are included in selling, general, and administrative expense.
</TABLE>
59
<PAGE>
INVESTOR INFORMATION
ANNUAL MEETING
The annual meeting of Medtronic shareholders will take place on Wednesday,
August 27, 1997, beginning at 10:30 a.m. at the Corporate Center, 7000 Central
Avenue, NE, Minneapolis (Fridley), Minnesota. The Notice of Annual Meeting and
Proxy Statement are mailed to shareholders with the annual report.
INVESTOR INFORMATION
Shareholders, securities analysts, and investors seeking additional information
about the company should call Investor Relations at 612-514-3035.
The following information may be obtained upon request from the Medtronic
Investor Relations Department MS-206, 7000 Central Avenue, NE, Minneapolis,
Minnesota 55432, USA:
* News releases describing significant company events and sales and
earnings results for each quarter and the fiscal year.
* Form 10-K Annual and Form 10-Q Quarterly Reports to the Securities and
Exchange Commission detailing Medtronic's business and financial
condition.
You may also learn more about Medtronic via the Internet. Contact us at
"www.medtronic.com".
STOCK EXCHANGE LISTING
New York Stock Exchange
(symbol: MDT)
The following are registered and unregistered trademarks of Medtronic, Inc. and
its affiliated companies: Activa(TM), Act II(TM), AlgoMed(TM), Amazr(TM),
Atakr(R), beStent(TM), Bio-Medicus(R), Bio-Pump(R), Bioglide(R), Biotrend(TM),
CapSure(R), CapSure(R) Z, CapSureFix(R), CardioRhythm(R), Cardiotherm(TM),
Champion(TM), Chronicle(TM), Clearcut 2(R), Collection(TM), Delta(R),
Diamond(TM) II, DLP(R), Dual Stim(TM), Dual4(TM), Dualscreen(TM), EZ(TM),
Flashback(TM), Freestyle(R), Gem(TM), Hancock(R), Hemodoppler(TM), Hemopump(R),
Hemostatus(TM), Hepamed(TM), Hepcon(R), ImPort(R), Inspire(TM), InStent(R),
Interstim(TM), IsoMed(TM), ITB(TM), Itrel(R) 3, Itrel(R) EZ(TM), Itrel(R) II,
Jewel(R), Jewel Plus(TM), Kappa(TM), Marinr(R), Marker Channel(TM), Mattrix(R),
Maxima(R), MC2(TM), Medtronic Hall(TM), Medtronic(R), Medtronic(R)
Cardiovascular Alliance, Medtronic.Kappa(TM), Micro Jewel(R), Micro Jewel(R) II,
Millenia(R), Minimax Plus(R), Minimax(R), MIS(R), Mosaic(R), Octopus(TM), OPT
Optimal Pacing Therapy(R), PAR (Patient Activated Reservoir)(R), Performr(TM),
Reveal(TM), Rivas(TM), Sculptor(R), Sequestra(TM), SynchroMed(R), Thera(R) i,
Thera(R) i Series(TM), Transform(R), Vascucoil(TM), Vector(TM), Vision(TM),
Vitatron(R), Wiktor(R), Wiktor(R)-i, and Zeppelin(TM).
Carmeda(R) is a registered trademark of Carmeda AB, Sweden.
Lioresal(R) is a registered trademark of Novartis Pharmaceutical Corporation of
Summit, NJ, USA.
UC9700637EN
(C)Medtronic, Inc. 1997
All Rights Reserved
Printed in USA
STOCK TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A., acts as transfer agent and registrar, dividend
paying agent and dividend reinvestment plan agent for Medtronic and maintains
all shareholder records for the company. If you have questions regarding the
Medtronic stock you own, stock transfers, address or name changes, direct
deposit of dividends, lost dividend checks, lost stock certificates or duplicate
mailings, please contact Norwest's Shareowner Services by writing or calling:
Norwest Bank Minnesota, N.A.
Shareowner Services
161 North Concord Exchange
P.O. Box 64854
St. Paul, MN 55164-0854
Telephone: 1-800-468-9716 or
1-612-450-4064
Fax: 1-612-450-4078
DIVIDEND REINVESTMENT PLAN
Medtronic shareholders can take advantage of this plan that permits automatic
reinvestment of dividends to purchase whole or fractional shares of Medtronic
stock. The plan also permits cash contributions ranging from $25 to $4,000 per
month to purchase additional stock. All registered holders of Medtronic stock
may participate. For more information, please contact the transfer agent.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, Minneapolis
[STOCK LOGO]
PRICE RANGE OF MEDTRONIC STOCK
Fiscal Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- -----------------------------------------------------------------
1997
High $57.50 $66.25 $70.50 $71.38
Low 47.38 50.00 61.38 58.38
1996
High 41.19 59.88 59.88 61.75
Low 35.88 40.06 47.13 51.25
- -----------------------------------------------------------------
Prices are closing quotations. On July 3, 1997 there were 27,684 holders of
record of the company's common stock. The regular quarterly cash dividend was
9.5 cents per share for fiscal 1997 and 6.5 cents per share for fiscal 1996.
64
EXHIBIT 21
NAME OF SUBSIDIARY JURISDICTION OF
INCORPORATION
ABS Synectics Sarl France
Bakken Research Center, B.V. Netherlands
Biotec International S.r.l. Italy
Cardiotron Medizintechnik G.m.b.H. Germany
CTD Synectics Ltd. Hong Kong
Dantec Electronique S.A. Belgium
Dantec Electronique S.A. France
Dantec Elettronica Srl Italy
Dantec Medical, Inc. California
Dantec Medizinelektronik GmbH Germany
India Biomedical Investment, Ltd. Minnesota
India Medtronic Private Limited India
InStent Europe B.V. Netherlands
Interamerica Medtronic, Inc. Illinois
Interbank Leasing Colorado
International Finance C.V. (INFIN C.V.) Netherlands
International Medical Education Corporation Colorado
MDTRNC-Vingmed AB Sweden
Med Rel, Inc. Minnesota
Medtronic (Africa) (Proprietary) Limited South Africa
Medtronic AneuRx, Inc. Minnesota
Medtronic Asia, Ltd. Minnesota
Medtronic Asset Managment, Inc. Minnesota
Medtronic Australasia Pty. Limited Austraila
Medtronic Avalon, Inc. Delaware
Medtronic B.V. Netherlands
Medtronic Belgium, S.A. Belgium
Medtronic Bio-Medicus, Inc. Minnesota
Medtronic do Brasil Ltda. Brazil
Medtronic of Canada, Ltd. Canada
Medtronic Carbon Implants, Inc. Delaware
Medtronic CardioRhythm California
Medtronic China, Ltd. Minnesota
Medtronic Commercial Ltda. Brazil
Medtronic Dominicana C. por A. Dominican Republic
Medtronic Electromedics, Inc. Minnesota
Medtronic Export, Inc. Delaware
Medtronic Europe, N.V. Belgium
Medtronic Europe S.A. Switzerland
Medtronic FSC B.V. Netherlands
Medtronic France S.A. France
Medtronic G.m.b.H. Germany
Medtronic Heart Valves, Inc. Minnesota
Medtronic HemoTec, Inc. Colorado
Medtronic Iberica, S.A. Spain
Medtronic InStent, Inc. Minnesota
Medtronic InStent (Israel), Inc. Israel
Medtronic International, Ltd. Delaware
Medtronic International Technology, Inc. Minnesota
Medtronic Interventional Vascular, Inc. Delaware
Medtronic Interventional Vascular, Inc. Massachussetts
Medtronic Italia S.p.A. Italy
Medtronic Japan Co., Ltd. Japan
Medtronic Korea Co., Ltd. South Korea
<PAGE>
NAME OF SUBSIDIARY JURISDICTION OF
INCORPORATION
Medtronic Latin America, Inc. Minnesota
Medtronic Limited United Kingdom
Medtronic Medical Device Hellas S.A. Greece
Medtronic Mediterranean SAL Lebanon
Medtronic Micro Interventional Systems, Inc. Minnesota
Medtronic Milaca, Inc. Minnesota
Medtronic Osterreich Ges.m.b.H. Austria
Medtronic Overseas, Inc. Delaware
Medtronic PS Medical, Inc. California
Medtronic Puerto Rico, Inc. Minnesota
Medtronic S. de R.L. de C.V. Mexico
Medtronic S.A.I.C. Argentina
Medtronic (Shanghai) Ltd. China
Medtronic (Schweiz) A.G. Switzerland
Medtronic (S) Pte., Ltd. Singapore
Medtronic Treasury International, Inc. Minnesota
Medtronic Treasury Management, Inc. Minnesota
Medtronic de Venezuela S.A. Venezuela
Medtronic-Vicare AS Denmark
Medtronic-Vingmed AS Norway
Medtronic World Trade Corporation Minnesota
Omikcron Ltd. Hungary
OSMED, Inc. Michigan
Sentron Europe BV Netherlands
Sentron Incorporated Washington
Synectics-Dantec Finland OY Finland
Synectics-Dantec France S.A. France
Synectics GmbH Germany
Synectics IR SA Luxembourg
Synectics Medical A.B. Sweden
Synectics Medical B.V. Netherlands
Synectics Medical bvba Belgium
Synectics Medical Co., Ltd. South Korea
Synectics Medical Inc. New Jersey
Synectics Medical Limited United Kingdom
Synectics Medical Poland Spolka Z.O.O. (Ltd.) Poland
Synectics Medical Srl Italy
Telecardiocontrol, C.A. Venezuela
Vitafin N.V. Netherlands
Vitatron Austria GmbH Austria
Vitatron Beheersmaatschappij B.V. Netherlands
Vitatron Belgium N.V. Belgium
Vitatron G.m.b.H. Germany
Vitatron, Incorporated Delaware
Vitatron Japan Co., Ltd. Japan
Vitatron Medical B.V. Netherlands
Vitatron Medical Espana S.A. Spain
Vitatron Nederland B.V. Netherlands
Vitatron N.V. Netherlands
Vitatron S.A.R.L. France
Vitatron Scientific B.V. Netherlands
Vitatron Sweden A.B. Sweden
Vitatron U.K. Limited United Kingdom
Zinetics Medical, Inc. Utah
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors of
Medtronic, Inc., a Minnesota corporation, hereby constitute and appoint each of
William W. George and Ronald E. Lund, acting individually or jointly, their true
and lawful attorney-in-fact and agent, with full power to act for them and in
their name, place and stead, in any and all capacities, to do any and all acts
and things and execute any and all instruments which either said attorney and
agent may deem necessary or desirable to enable Medtronic, Inc. to comply with
the Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing with said Commission of its annual report on Form
10-K for the fiscal year ended April 30, 1997, including specifically, but
without limiting the generality of the foregoing, power and authority to sign
the names of the undersigned directors to the Form 10-K and to any instruments
and documents filed as part of or in connection with said Form 10-K or
amendments thereto; and the undersigned hereby ratify and confirm all that each
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have set their hands this 26th day
of June, 1997.
/s/ F. Caleb Blodgett /s/ Glen D. Nelson, M.D.
--------------------------------- ---------------------------------
F. Caleb Blodgett Glen D. Nelson, M.D.
/s/ Arthur D. Collins, Jr. /s/ Richard L. Schall
--------------------------------- ---------------------------------
Arthur D. Collins, Jr. Richard L. Schall
/s/ William W. George /s/ Jack W. Schuler
--------------------------------- ---------------------------------
William W. George Jack W. Schuler
/s/ Antonio M. Gotto, Jr., M.D. /s/ Gerald W. Simonson
--------------------------------- ---------------------------------
Antonio M. Gotto, Jr., M.D. Gerald W. Simonson
/s/ Bernadine P. Healy, M.D. /s/ Gordon M. Sprenger
--------------------------------- ---------------------------------
Bernadine P. Healy, M.D. Gordon M. Sprenger
/s/ Thomas E. Holloran /s/ Richard A. Swalin, Ph. D.
--------------------------------- ---------------------------------
Thomas E. Holloran Richard A. Swalin, Ph.D.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF CONSOLIDATED EARNINGS AND CONSOLIDATED BALANCE SHEET FOR THE YEAR
ENDED APRIL 30, 1997 FILED WITH THE SEC ON FORM 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<CASH> 197,388
<SECURITIES> 53,181
<RECEIVABLES> 530,657
<ALLOWANCES> (13,673)
<INVENTORY> 282,551
<CURRENT-ASSETS> 1,237,909
<PP&E> 965,002
<DEPRECIATION> (477,786)
<TOTAL-ASSETS> 2,409,210
<CURRENT-LIABILITIES> 518,691
<BONDS> 0
0
0
<COMMON> 23,381
<OTHER-SE> 1,722,840
<TOTAL-LIABILITY-AND-EQUITY> 2,409,210
<SALES> 2,438,224
<TOTAL-REVENUES> 2,438,224
<CGS> 610,190
<TOTAL-COSTS> 610,190
<OTHER-EXPENSES> 1,009,516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,375
<INCOME-PRETAX> 809,143
<INCOME-TAX> 279,155
<INCOME-CONTINUING> 529,988
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 529,988
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.18
</TABLE>
