<PAGE> 1
Filed Pursuant to
Rule 424(b)(2)
Registration No. 333-64887
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 3, 1999)
13,000,000 SHARES
[BOSTON SCIENTIFIC LOGO]
COMMON STOCK
------------------------
All of the shares of common stock are being sold by Boston Scientific
Corporation. The U.S. underwriters are offering 10,400,000 shares in the United
States and Canada and the international managers are offering 2,600,000 shares
outside the United States and Canada.
The common stock trades on The New York Stock Exchange under the symbol
"BSX". On June 24, 1999, the last sale price of the common stock as reported on
the New York Stock Exchange was $39 7/8 per share.
----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price...................................... $39.875 $518,375,000
Underwriting Discount...................................... $1.20 $15,600,000
Proceeds, before expenses, to Boston Scientific
Corporation.............................................. $38.675 $502,775,000
</TABLE>
The U.S. underwriters may also purchase up to an additional 1,560,000
shares of common stock from Boston Scientific Corporation at the public offering
price, less the underwriting discount, within 30 days from the date of this
prospectus supplement to cover over-allotments. The international managers may
similarly purchase up to an additional 390,000 shares of common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about June 30, 1999.
----------------------
MERRILL LYNCH & CO. PAINEWEBBER INCORPORATED
BANC OF AMERICA SECURITIES LLC
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
a division of Dain
Rauscher
Incorporated
DEUTSCHE BANC ALEX. BROWN
U.S. BANCORP PIPER JAFFRAY
----------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE 24, 1999.
<PAGE> 2
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements.................................. S-2
Summary..................................................... S-5
Use of Proceeds............................................. S-9
Price Range of Common Stock and Dividend Policy............. S-9
Capitalization.............................................. S-10
Selected Consolidated Financial Information................. S-11
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. S-13
Boston Scientific Corporation............................... S-27
United States Tax Considerations For Non-United States
Holders................................................... S-37
Underwriting................................................ S-40
Legal Matters............................................... S-43
Experts..................................................... S-43
PROSPECTUS
Available Information....................................... 4
Incorporation of Certain Documents by Reference............. 5
Certain Forward-Looking Statements.......................... 5
The Company................................................. 7
Trusts...................................................... 7
Use of Proceeds............................................. 9
Ratio of Earnings to Fixed Charges.......................... 9
Description of Debt Securities.............................. 10
Description of Preferred Stock.............................. 19
Description of Depositary Shares............................ 21
Description of Common Stock................................. 24
Description of Warrants..................................... 26
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 27
Description of Trust Preferred Securities................... 27
Description of Trust Guarantee.............................. 29
Plan of Distribution........................................ 32
Legal Matters............................................... 33
Experts..................................................... 33
</TABLE>
----------------------
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus and the
documents incorporated herein by reference, collectively called the
"Prospectus," include forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. We intend such forward-looking statements to
be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995, and we are
including this statement for purposes of complying with these safe harbor
provisions. We have based these forward-looking statements on our current
expectations and projections about future
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<PAGE> 3
events. These forward-looking statements are not guarantees of future
performance and our business and these statements are subject to risks,
uncertainties and assumptions, including, among other things:
- our ability to obtain benefits from the acquisition of Schneider
Worldwide, formerly a member of the Medical Technologies Group of Pfizer
Inc., including purchased research and development and physician and
hospital relationships;
- the process, outlays and plan for the integration of businesses acquired
by us, and the successful and timely implementation of the related plans
of rationalization;
- the impact and timing of our supply chain initiatives and the ability of
our global information systems to improve supply chain management;
- the potential impacts of continued consolidation among healthcare
providers, trends towards managed care and economically motivated buyers,
healthcare cost containment, more stringent regulatory requirements and
more vigorous enforcement activities;
- our belief that we are well positioned to take advantage of opportunities
for growth that exist in the markets we serve;
- our continued commitment to refine existing products and procedures and
to develop new technologies that provide simpler, less traumatic, less
costly and more efficient diagnosis and treatment;
- risks associated with international operations;
- the potential effect of foreign currency fluctuations on revenues,
expenses and resulting margins and the trend toward increasing sales and
expenses denominated in foreign currencies;
- our belief that our effective tax rate for 1999 will only increase
slightly from 1998;
- our ability to manage accounts receivable, manufacturing costs and
inventory levels and mix and to react effectively to the changing managed
care environment and worldwide economic conditions;
- our ability to meet our projected cash needs through the end of 1999;
- the effect of litigation and compliance activities on our legal
provision;
- costs and risks associated with implementing Year 2000 compliance and
business process reengineering;
- unforeseen delays, stoppages or interruptions in the supply and/or mix of
the NIR(R) stent and our cost to purchase the NIR(R) stent;
- the development of competing or technologically advanced products by our
competitors;
- the ability to realize improved long-term returns on our investments with
a direct selling presence in emerging markets;
- our ability to obtain more permanent financing to re-finance our
revolving credit facilities or any of our commercial paper;
- our ability to place commercial paper at reasonable rates and to roll
over sufficient amounts of our existing 364-day revolving credit
facilities;
- our ability to comply with the debt ratio under our revolving credit
facilities;
- our expectation as of March 31, 1999 that a minimum of $700 million of
short-term debt supported by our revolving credit facilities will remain
outstanding through the next twelve months;
- our ability to fund development of purchased technology at currently
estimated costs and, beginning in 1999, to realize value assigned to
in-process research and development and other intangible assets;
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<PAGE> 4
- our ability to launch products on a timely basis, including products
resulting from purchased research and development;
- the impact of stockholder class action, patent, product liability and
other litigation, including patent litigation with respect to the NIR(R)
stent, the outcome of the U.S. Department of Justice investigation, and
the adequacy of our product liability insurance;
- the potential impact resulting from the euro conversion, including
adaptation of information technology systems, competitive implications
related to pricing and foreign currency considerations; and
- the timing, size and nature of strategic initiatives available to us.
Words such as "expect," "anticipate," "intend," "plan," "believe,"
"estimate" and variations of such words and similar expressions are intended to
identify such forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed or incorporated by
reference in the Prospectus may not occur. For additional information relating
to these and other risks, uncertainties and assumptions, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Boston Scientific Corporation" in this prospectus supplement and similar
discussions in our Annual Report on Form 10-K for the year ended December 31,
1998, as amended by our Form 10-K/A dated April 28, 1999 and our Form 10-K/A2
dated June 2, 1999 (collectively called the "1998 Form 10-K"), and our Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1999 (the "March
1999 Form 10-Q"), each incorporated by reference herein.
----------------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement is accurate only as of
the date on the front cover of this prospectus supplement and the information in
the accompanying prospectus is accurate only as of the date on the first page of
the accompanying prospectus. Our business, financial condition, results of
operations and prospects may have changed since these dates.
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<PAGE> 5
SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire Prospectus, including the financial data and
related notes included or incorporated by reference in the prospectus and the
prospectus supplement, before making an investment decision. The terms "Boston
Scientific," "our company" and "we" as used in this prospectus supplement refer
to "Boston Scientific Corporation" and its subsidiaries and predecessors as a
combined entity, except where it is made clear that such term means only the
parent company. Unless otherwise indicated, all information in this prospectus
supplement reflects a 2-for-1 stock split effected in the form of a 100% stock
dividend paid by Boston Scientific in the fourth quarter of 1998.
BOSTON SCIENTIFIC CORPORATION
Boston Scientific is a leading worldwide developer, manufacturer and
marketer of innovative minimally invasive medical devices. Our products are used
in a broad range of interventional medical specialties, including cardiology,
electrophysiology, gastroenterology, neuro-endovascular therapy, pulmonary
medicine, radiology, urology and vascular surgery. Our products are generally
inserted into the human body through natural openings or small incisions in the
skin and can be guided to most areas of the anatomy to diagnose and treat a wide
range of medical problems. These products provide effective alternatives to
traditional surgery by reducing procedural trauma, complexity, risk to the
patient, cost and recovery time. We recorded net sales of $2.2 billion in 1998
and $708 million in the first quarter of 1999.
Our strategy is to grow by identifying specific minimally invasive
therapeutic and diagnostic areas that improve the quality of patient care and
the productivity of healthcare delivery and by making the investments necessary
to capitalize on these opportunities. Our internal development and, over the
past few years, our strategic acquisitions and alliances have fueled the growth
of our company. This growth has enabled us to offer one of the broadest product
lines in the world in products for minimally invasive procedures and to compete
more effectively in the current healthcare environment of cost containment,
managed care, large buying groups and hospital consolidations. By employing a
strategy designed to build strategic mass, we now maintain leadership positions
in each of our markets.
Our products are broadly categorized as vascular or nonvascular, depending
on the anatomical system and procedure in which a product is intended to be
used. We provide our innovative and diverse products through six principal
divisions: Scimed, Boston Scientific Vascular (formerly operating as Medi-tech
and Meadox), Target Therapeutics, EP Technologies (collectively referred to as
our vascular business), Microvasive Endoscopy and Microvasive Urology
(collectively referred to as our nonvascular business). In 1998, approximately
80% of our net sales were derived from our vascular business. Each of our
divisions focuses on developing close professional relationships with physicians
who specialize in the diagnosis and treatment of different medical conditions
and offering products that satisfy their needs. With direct marketing and sales
subsidiaries in more than 35 countries and distribution arrangements in more
than 45 countries, approximately 38% of our 1998 sales were international.
S-5
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RECENT DEVELOPMENTS
On March 17, 1999, James R. Tobin joined Boston Scientific as Director,
President and Chief Executive Officer. Prior to joining Boston Scientific, Mr.
Tobin served as President and Chief Executive Officer of Biogen, Inc. from 1997
to 1998 and Chief Operating Officer of Biogen from 1994 to 1997. From 1972 to
1994, Mr. Tobin was a career executive with Baxter International, rising from
financial analyst to President and Chief Operating Officer in 1992. Before
becoming Baxter's President and Chief Operating Officer, he served as Managing
Director in Japan, Managing Director in Spain, President of Baxter's I.V.
Systems Group and Executive Vice President, responsible for running Baxter's
worldwide business groups and then its U.S. manufacturing and distribution
operations. Mr. Tobin currently serves on the Boards of Directors of Creative
Biomolecules, Inc. and PathoGenesis Corporation. Mr. Tobin holds an A.B. from
Harvard College and an M.B.A. from Harvard Business School. Mr. Tobin also
served as a lieutenant in the U.S. Navy from 1968 to 1972.
On September 10, 1998, Boston Scientific acquired Schneider Worldwide,
formerly a member of the Medical Technology Group of Pfizer Inc., for
approximately $2.1 billion in cash. Our acquisition of Schneider, a pioneer in
less invasive medicine, enables us to become a participant in a number of high
growth areas of interventional medicine in which we formerly did not compete.
With the technology and intellectual property platform of Schneider, we can
offer rapid exchange catheters in the U.S. with both a wide range of balloon
angioplasty catheter devices and coronary stent delivery systems. We also have
rights to broaden our product offerings to include nylon balloon technology.
Also, with the Schneider WALLSTENT(R), we now offer, for the first time, a
number of new non-coronary stent products. Schneider brought with it its NAMIC
subsidiary, a global leader in the manufacture and sale of a broad line of
products used for controlled delivery and monitoring of fluids during
angiography and angioplasty procedures. The NAMIC product line broadens our
product offerings to catheterization labs around the world as a full service
specialty supplier. The acquisition should also complement many research and
development programs at Boston Scientific. Schneider has been investing in many
new technology areas of interest including carotid stenting, stent grafting,
coronary radiation therapy, and biomaterials and coatings.
BUSINESS STRATEGY
Our mission is to improve the quality of patient care and the productivity
of healthcare delivery by the development and advocacy of minimally invasive
medical devices and procedures. Our strategy for accomplishing this mission is
to refine our existing products and procedures and to investigate, develop and
acquire new technologies that reduce risk, trauma, cost, procedure time and the
need for patient aftercare. Key elements of our strategy are as follows:
- Product Diversity. We offer products in numerous categories for
application throughout the human body. The breadth and diversity of our
product lines permit medical specialists throughout the world to satisfy
many of their minimally invasive medical device requirements from a
single source. The scope of our products and markets also reduces our
vulnerability to change in the competitive, regulatory and technological
environments for any single product or market.
- Product Innovation. We maintain an aggressive product development
program designed to regularly introduce new products and new applications
for existing technologies. Our product management teams and sales
representatives interact with the worldwide medical community and
generate market information that we may use to develop the specifications
and features of new products. To expedite the design and development of
new products, we employ our proprietary core technologies and
applications knowledge across our product lines. Technological
innovations that we develop for a particular application are often
applied to procedures used in other markets that we serve.
S-6
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- Focused Marketing. We market our products through six principal
divisions. Each of these divisions offers products to satisfy the needs
of physicians specializing in the diagnosis and treatment of particular
medical conditions. We believe that this focused marketing approach
cultivates highly knowledgeable and dedicated sales representatives and
fosters close professional relationships with physicians.
- International Presence. Maintaining and expanding our international
presence is important to our long-term growth plan. Through our
international presence, we seek to increase net sales and market share,
accelerate the time within which new products can be brought to market
and gain access to worldwide technological developments that we may
implement across our product lines.
- Active Participation in the Medical Community. We believe that we have
excellent working relationships with physicians and others in the medical
industry. These relationships enable us to gain a detailed understanding
of new therapeutic and diagnostic alternatives and to respond quickly to
the changing needs of physicians and patients. To enhance our presence in
the medical community, our employees actively participate in medical
meetings, engage in comprehensive training and educational activities and
write articles for publication in medical journals and textbooks. We
believe that these activities contribute to the medical community's
understanding and adoption of minimally invasive techniques and to the
expansion of these techniques into new therapeutic and diagnostic areas.
- Corporate Culture. We believe that success and leadership evolve from a
motivating corporate culture that rewards achievement, respects and
values individual employees and customers and has a long-term focus on
quality, technology, integrity and service. We believe that our success
derives in large part from our commitment to these principles and from
the high caliber of our employees.
- Strategic Acquisitions and Alliances. In recent years, we have sought
out strategic acquisitions, alliances and venture opportunities to
complement or expand our existing product lines or enhance our
technological position. Although we do not expect to make any significant
acquisitions in 1999, we expect that we will continue to seek out and
review opportunities for acquisitions and strategic alliances that are
consistent with our goals.
For additional information with respect to our business, see "Boston
Scientific Corporation" below and "Item 1 -- Business" in our 1998 Form 10-K and
March 1999 Form 10-Q.
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- --------------------------------------------------------------------------------
THE OFFERING
Common stock offered by Boston
Scientific:
U.S. offering.................. 10,400,000 shares
International offering......... 2,600,000 shares
Total....................... 13,000,000 shares
Common stock to be outstanding
after the offering............... 410,941,993 shares
Use of proceeds.................. The net proceeds from this offering
(without exercise of the over-allotment
options) will be approximately $500
million. We intend to use these net
proceeds to repay indebtedness under
certain of our revolving credit facilities.
NYSE symbol...................... BSX
The number of shares outstanding after the offering excludes approximately
32,000,000 shares of common stock issuable upon exercise of vested and unvested
options outstanding at May 31, 1999. The number of shares outstanding after the
offering also assumes that the over-allotment options are not exercised. If the
over-allotment options are exercised in full, we will issue and sell an
additional 1,950,000 shares.
- --------------------------------------------------------------------------------
S-8
<PAGE> 9
USE OF PROCEEDS
The net proceeds to Boston Scientific from the sale of the common stock
offered hereby (without exercise of the over-allotment options) will be
approximately $500 million after deducting underwriting discounts and
commissions and estimated expenses of this offering. The net proceeds from the
sale of the common stock will be used for the repayment of short-term
indebtedness incurred in connection with the Schneider acquisition under certain
of our revolving credit facilities. To the extent that the net proceeds are not
used immediately for such purposes, we will invest them in short and/or medium
term investment grade securities. As of May 31, 1999, we had $1.7 billion
outstanding under such revolving credit facilities at an average rate of 5.43%
per annum, which rate is subject to change over time.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed on the New York Stock Exchange under the symbol
"BSX". The following table indicates the high and low sales prices of our common
stock as reported by the NYSE for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1997
First Quarter............................................... $35.750 $29.313
Second Quarter.............................................. 31.469 20.500
Third Quarter............................................... 39.219 26.625
Fourth Quarter.............................................. 29.875 20.500
1998
First Quarter............................................... 35.844 21.125
Second Quarter.............................................. 37.281 30.219
Third Quarter............................................... 40.844 25.125
Fourth Quarter.............................................. 29.500 20.125
1999
First Quarter............................................... 41.500 23.313
Second Quarter (through June 24, 1999)...................... 44.938 33.625
</TABLE>
The last reported sales price of our common stock on the NYSE as of a
recent date is set forth on the cover page of this prospectus supplement.
We have not paid a cash dividend on our common stock during the past five
years. We currently intend to retain all of our earnings to finance the
continued growth of our business. We may consider declaring and paying a
dividend in the future; however, we cannot assure you that we will do so.
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<PAGE> 10
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 and
as adjusted to reflect the issuance of common stock offered hereby (without
exercise of the overallotment options) and application of the net proceeds of
the offering as described above under "Use of Proceeds." For further discussion
of our capitalization, see our March 1999 Form 10-Q.
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------
ACTUAL AS ADJUSTED
------ -----------
(IN MILLIONS)
<S> <C> <C>
Short-term bank obligations (including current portion of
long-term debt)........................................... $1,027 $ 525
Long-term debt, net of current portion...................... 1,260 1,260
Obligations under capital leases............................ 12 12
------ ------
Total debt and obligations under capital leases............. 2,299 1,797
Stockholders' equity:
Preferred stock, $.01 par value -- 50,000,000 shares
authorized, none issued and outstanding...................
Common stock, $.01 par value -- 600,000,000 shares
authorized, 395,663,154 shares issued and outstanding;
408,663,154 shares issued and outstanding as adjusted..... 4 4
Additional paid-in capital.................................. 537 1,039
Retained earnings........................................... 481 481
Foreign currency translation adjustment..................... (101) (101)
------ ------
Total stockholders' equity.................................. 921 1,423
------ ------
Total capitalization........................................ $3,220 $3,220
====== ======
</TABLE>
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SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain of our financial information and
other operating information. The consolidated financial information for each of
the five years ended December 31, 1998, set forth below, is derived from the
consolidated financial statements incorporated by reference in our 1998 Form
10-K. The consolidated financial statements for the five years ended December
31, 1998 have been audited by Ernst & Young LLP, independent auditors. The
selected financial information for the three-month periods ended March 31, 1999
and 1998 is derived from unaudited consolidated financial statements included in
our March 1999 Form 10-Q which, in the opinion of our management, include all
adjustments (consisting only of normal recurring adjustments) that are necessary
for a fair presentation of results of operations for such periods. The operating
results for all periods presented are not necessarily indicative of the results
that may be expected for any future periods and reflect merger-related and
special charges recorded in conjunction with our acquisitions and strategic
alliances. The following information should be read in conjunction with the
consolidated financial statements (including the notes thereto) included in our
1998 Form 10-K and our unaudited condensed consolidated financial statements
(including notes thereto) included in our March 1999 Form 10-Q.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.......................... $ 708 $ 453 $ 2,234 $ 1,831 $ 1,551 $ 1,191 $ 933
Gross profit....................... 478 315 1,499 1,285 1,123 848 639
Selling, general and administrative
expenses......................... 207 159 755 663 492 386 309
Amortization expense............... 23 8 53 33 24 6 2
Royalties.......................... 10 7 31 22 17 26 26
Research and development
expenses......................... 49 45 200 167 135 106 86
Purchased research and
development...................... -- -- 682 29 110 68 --
Restructuring and merger-related
charges (credits)................ -- -- (15) 146 32 204 --
-------- -------- -------- -------- -------- -------- --------
Total operating expenses........... 289 219 1,706 1,060 810 796 423
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)............ 189 96 (207) 225 313 52 216
Income (loss) before cumulative
effect of change in accounting... 100 60 (264) 131 167 (18) 142
Cumulative effect of change in
accounting (net of tax).......... -- -- -- (21) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................. $ 100 $ 60 $ (264) $ 110 $ 167 $ (18) $ 142
======== ======== ======== ======== ======== ======== ========
Income (loss) per common share
before cumulative effect of
change in accounting:
Basic............................ $ 0.25 $ 0.15 $ (0.68) $ 0.34 $ 0.43 $ (0.05) $ 0.38
Assuming dilution................ $ 0.25 $ 0.15 $ (0.68) $ 0.33 $ 0.42 $ (0.05) $ 0.38
Net income (loss) per common share:
Basic............................ $ 0.25 $ 0.15 $ (0.68) $ 0.28 $ 0.43 $ (0.05) $ 0.38
Assuming dilution................ $ 0.25 $ 0.15 $ (0.68) $ 0.28 $ 0.42 $ (0.05) $ 0.38
Weighted average shares
outstanding -- assuming dilution
(in thousands)................... 401,802 396,814 390,836 399,776 398,706 381,574 379,126
</TABLE>
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<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................... $ (304) $ 783 $ (353) $ 227 $ 335 $ 345 $ 475
Total assets....................... 3,876 2,067 3,893 1,924 1,585 1,159 1,114
Commercial paper................... -- -- 1,016 423 213 -- --
Short-term bank obligations........ 1,027 18 11 24 28 58 89
Long-term debt, net of current
portion.......................... 1,260 555 1,364 46 -- 4 17
Stockholders' equity............... 921 1,026 821 957 995 808 794
Book value per common share........ 2.33 2.64 2.08 2.47 2.50 2.12 2.10
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On September 10, 1998, we consummated our acquisition of Schneider,
formerly a member of the Medical Technology Group of Pfizer Inc., for $2.1
billion in cash. The acquisition was accounted for using the purchase method of
accounting. The selected consolidated financial information below and the
consolidated financial statements included in our 1998 Form 10-K, which is
incorporated by reference herein, include Schneider's operating results from the
date of acquisition.
Three Months Ended March 31, 1999 and 1998
Net sales for the first quarter increased 56% to $708 million as compared
to $453 million in the first quarter of 1998. The first quarter results include
the operations of Schneider, which we acquired in the third quarter of 1998. On
a pro forma basis, assuming Schneider revenues had been included in the first
quarter of 1998, net sales in the first quarter of 1999 increased 30%. Net
income for the first quarter increased 67% to $100 million, or $.25 per share
(diluted). This compares to net income of $60 million, or $.15 per share,
reported in the first quarter of 1998.
During the first quarter of 1999, U.S. revenues increased approximately 66%
to $441 million, while international revenues increased approximately 43% to
$267 million compared to the same period in the prior year. U.S. revenues as a
percentage of worldwide sales increased from 59% in the first quarter of 1998 to
62% in the first quarter of 1999. Worldwide vascular and nonvascular sales
increased 65% and 27%, respectively, compared to the same period in the prior
year. Without the impact of foreign currency exchange rates on translation of
international revenues, worldwide sales for the first quarter increased
approximately 53% compared to the same period in the prior year. The increases
in U.S. sales as a percentage of worldwide sales and in vascular sales were
primarily attributable to our domestic sales of coronary stents. U.S. coronary
stent revenues, primarily sales of the NIR(R) stent, were approximately $105
million during the first quarter of 1999. Worldwide NIR(R) coronary stent sales
as a percentage of worldwide sales were approximately 20% in the first quarter
of 1999. The NIR(R) coronary stent is supplied by Medinol and unforeseen delays,
stoppages or interruptions in the supply and/or mix of the NIR(R) stent could
adversely affect our operating results. We are committed to purchase
approximately $120 million of NIR(R) stents for the remainder of 1999.
Gross profit as a percentage of net sales decreased from 69.5% in the first
quarter of 1998 to 67.5% in the first quarter of 1999. As a result of multiple
acquisitions, our supply chain has been weakened and there has been continued
pressure on gross margins, including write-downs for excess and obsolete
inventory, and high manufacturing costs. During 1998, we initiated a full-time
global program to focus on supply chain optimization. The program is designed to
lower inventory levels and the cost of manufacturing, improve absorption and
minimize inventory write-downs. By addressing the entire supply chain, including
application of lean manufacturing techniques, we seek to return gross margins to
more acceptable levels and to improve working capital. The program should be
completed by the end of 1999. The decrease in gross margins during the first
quarter of 1999 compared to the first quarter of 1998 was partially offset by
favorable pricing on new products and mix.
Success of the global supply chain initiative is critical to realizing
improved gross margins and reducing our inventory to an acceptable level. In
addition, gross margins could be significantly impacted by the purchase price of
NIR(R) coronary stents and the amount of NIR(R) coronary stent sales as a
percentage of worldwide sales. As average selling prices for the NIR(R) stents
fluctuate, our cost to purchase the stents will change because cost is based on
a constant percentage of average selling prices.
Selling, general and administrative expenses as a percentage of net sales
decreased from 35% of net sales in the first quarter of 1998 to 29% of net sales
in the first quarter of 1999, while increasing from $159 million in the first
quarter of 1998 to $207 million in the first quarter of 1999. The decrease as a
percent of net sales is primarily attributable to the launch of coronary stents
in the U.S. and Japan, the realization
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of synergies as we integrate Schneider into our organization, and improved
returns in certain geographic regions as we continue to leverage our direct
sales infrastructure. The increase in expense dollars is primarily attributable
to higher selling expenses as a result of the launch of coronary stents in the
U.S., the results of Schneider operations in the period, and increased costs to
expand our direct sales presence in certain geographic regions. Additionally,
legal costs associated with asserting our patent portfolio and defending against
claims that our products infringe the intellectual property of others are
increasing. Similarly, legal costs associated with non-patent litigation and
compliance activities are also rising. Depending upon the prevalence,
significance and complexity of these matters, our legal provision could be
adversely impacted in the future.
Amortization expense increased 188% from $8 million in the first quarter of
1998 to $23 million in the first quarter of 1999 and increased as a percentage
of net sales from 1.8% to 3.2%. The increase is primarily a result of the
amortization of intangibles related to the purchase of Schneider.
Royalties increased approximately 43% from $7 million in the first quarter
of 1998 to $10 million in the first quarter of 1999. We continue to enter into
strategic technological alliances, some of which include royalty commitments.
Research and development expense dollars increased approximately 9% from
$45 million in the first quarter of 1998 to $49 million in the first quarter of
1999, while decreasing as a percentage of net sales from 10% in the first
quarter of 1998 to 7% in the first quarter of 1999. The increase in research and
development dollars reflects increased spending on new product development
programs and regulatory and clinical research, and reflects our continued
commitment to refine existing products and procedures and to develop new
technologies that provide simpler, less traumatic, less costly and more
efficient diagnosis and treatment. The decrease as a percent of net sales is
primarily attributable to the launch of coronary stents in the U.S. and Japan.
Our research and development projects acquired in connection with our prior
business combinations are generally progressing in line with the schedules and
cost estimates previously reported in our most recent filings with the SEC. The
trend in countries around the world toward more stringent regulatory
requirements for product clearance and more vigorous enforcement activities has
generally caused or may cause medical device manufacturers to experience more
uncertainty, greater risk and higher expenses.
Interest expense increased from $6 million in the first quarter of 1998 to
$35 million in the first quarter of 1999. The overall increase in interest
expense is primarily attributable to a significantly higher outstanding debt
balance due primarily to the Schneider acquisition.
Our effective tax rate increased from approximately 32% in the first
quarter of 1998 to 34% in the first quarter of 1999. The increase is primarily
attributable to a shift in the mix of U.S. and international business.
We have substantially completed the integration of all mergers and
acquisitions consummated prior to 1998 and expect to complete the integration of
Schneider by the end of 1999. Our management believes it has developed a sound
plan for continuing and concluding the integration process, and that it will
achieve that plan. However, in view of the number of major transactions that we
have undertaken, the dramatic change in our size and the complexity of our
organization resulting from these transactions, our management also believes
that the successful implementation of its plan presents a significant degree of
difficulty. The failure to integrate these businesses effectively could
adversely affect our operating results in the near term, and could impair our
ability to realize the strategic and financial objectives of these transactions.
Uncertainty remains with regard to future changes within the healthcare
industry. The trend towards managed care and economically motivated buyers in
the U.S. may result in continued pressure on selling prices of certain products
and resulting compression on gross margins. In addition to impacting selling
prices, the trend to managed care in the U.S. has also resulted in more complex
billing and collection procedures. Our ability to effectively react to the
changing environment may impact our bad debt and sales return provision in the
future. Further, the U.S. marketplace is increasingly characterized by
consolidation
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among healthcare providers and purchasers of medical devices who prefer to limit
the number of suppliers from whom they purchase medical products. We cannot
assure you that these entities will continue to purchase our products.
International markets are also being affected by economic pressure to
contain reimbursement levels and healthcare costs. Our ability to benefit from
our international expansion may be limited by risks and uncertainties related to
economic conditions in these regions, competitive offerings, infrastructure
development, rights to intellectual property, and our ability to implement our
overall business strategy. Any significant changes in the political, regulatory
or economic environment where we conduct international operations may have a
material impact on revenues and profits. Specifically, the deterioration in the
Japan economy may impact our ability to collect our outstanding Japan
receivables.
These factors pertain not only to the quarterly comparative periods
discussed above, but also to the yearly comparative periods discussed below.
Although these factors may impact the rate at which we can grow, we believe that
we are well positioned to take advantage of opportunities for growth that exist
in the markets we serve.
Years Ended December 31, 1998 and 1997
Net sales increased 22% in 1998 to $2,234 million from $1,831 million in
1997. Without the impact of foreign currency exchange rates on translation of
international revenues, net sales for 1998 increased 25%. International sales
during 1998 were negatively impacted compared to 1997 by approximately $47
million of unfavorable exchange rate movements caused primarily by the
strengthening of the U.S. dollar versus the Japanese yen. Net income for the
year ended December 31, 1998, excluding merger-related and special charges, was
$262 million or $0.66 per share (diluted) compared to $266 million or $0.67 per
share in 1997. For 1998, we reported a net loss of $264 million or $0.68 per
share (diluted), including merger-related and special charges of $527 million,
net of tax, as compared to 1997 net income of $110 million, or $0.28 per share,
including merger-related and special charges of $156 million, net of tax.
U.S. revenues increased approximately 30% from 1997 to $1,394 million in
1998, while international revenues increased approximately 11% from 1997 to $840
million in 1998. U.S. sales as a percentage of worldwide sales increased from
59% in 1997 to 62% in 1998. Worldwide vascular and nonvascular sales increased
25% and 13%, respectively, from 1997 to 1998. The increases in U.S. sales as a
percentage of worldwide sales and in vascular sales were primarily attributable
to our 1998 third quarter introduction of U.S. coronary stents. U.S. coronary
stent revenues, primarily sales of the NIR(R) stent, were approximately $211
million during the second half of 1998. Worldwide NIR(R) coronary stent sales as
a percentage of worldwide sales were approximately 13% in 1998 and could exceed
20% during 1999. The NIR(R) coronary stent is supplied by Medinol and unforeseen
delays, stoppages or interruptions in the supply and/or mix of the NIR(R) stent
could adversely affect our operating results.
On November 3, 1998, we announced that we had detected the occurrence of
business irregularities in the operations of our Japanese subsidiary. The
irregularities detected involved shipments of products that were improperly
recorded as sales to the subsidiary's dealer network in Japan. We have recently
completed our investigation of the irregularities and believe that the
irregularities were limited to the operations of the Japan subsidiary. Our
financial statements reflect our management's estimate of the timing and impact
of the Japan business irregularities.
Gross profit as a percentage of net sales was approximately 67.1% and 70.2%
during 1998 and 1997, respectively. As a result of multiple acquisitions, our
supply chain has been weakened and there has been continued pressure on gross
margins, including write-downs for excess and obsolete inventory and high
manufacturing costs. During 1998, we initiated a full time global program to
focus on supply chain optimization. The program is designed to lower inventory
levels and the cost of manufacturing, improve absorption and minimize inventory
write-downs. By addressing the entire supply chain, including application of
lean manufacturing techniques, we seek to return gross margins to more
acceptable levels and to improve working capital. The program should be
completed by the end of 1999.
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The decrease in gross margins during 1998 compared to 1997 was also
attributable to a decline in average selling prices due to continuing pressure
on healthcare costs and increased competition, and the significant increase in
sales of the NIR(R) coronary stent which have lower gross margins than the
corporate average. As average selling prices for the NIR(R) stents fluctuate,
our cost to purchase the stents will change because cost is based on a constant
percentage of average selling prices. In the third quarter of 1998, we provided
$31 million ($21 million, net of tax) for costs associated with our decision to
voluntarily recall the NIR ON(TM) Ranger(TM) with Sox(TM) coronary stent system
in the U.S.
Success of the global supply chain initiative is critical to realizing
improved gross margins. In addition, gross margins could be significantly
impacted by the purchase price of NIR(R) coronary stents and the amount of
NIR(R) coronary stent sales as a percentage of worldwide sales.
Selling, general and administrative expenses as a percentage of net sales
decreased from 36% in 1997 to 34% in 1998, while increasing approximately $92
million from $663 million in 1997 to $755 million in 1998. The decrease as a
percent of sales is primarily attributable to the increase in net sales related
to the launch of coronary stents in the U.S. In addition, during the past three
years, we have expanded our direct sales presence in Europe and emerging markets
so as to be in a position to take advantage of market opportunities in those
regions. The costs of expansion have negatively impacted our operating margins.
During the second half of 1998, our rate of investment slowed and we have begun
to realize improved returns in certain geographic regions. We believe that,
during 1999, we will continue to leverage our direct sales infrastructure.
Approximately $17 million of the 1998 increase in expense dollars is
attributable to results of Schneider operations from the date of acquisition
through December 31, 1998. In addition, the increase in expense dollars reflects
costs to operate our new global information system and increased costs of
domestic distribution.
Amortization expense increased 63% from $32 million in 1997 to $53 million
in 1998 and increased as a percentage of sales from 1.8% to 2.4% of net sales.
The increase is primarily a result of the amortization of intangibles related to
the purchase of Schneider from the date of acquisition through December 31,
1998.
Royalties remained at approximately 1% of net sales while increasing 41%
from $22 million in 1997 to $31 million in 1998. We continue to enter into
strategic technological alliances, some of which include royalty commitments.
Research and development expenses remained at 9% of net sales while
increasing 20% from $167 million in 1997 to $200 million in 1998. Approximately
$7 million of the increase in 1998 is attributable to research and development
of Schneider from the date of acquisition through December 31, 1998. The
increase in research and development reflects increased spending on new product
development programs and regulatory and clinical research, and reflects our
continued commitment to refine existing products and procedures and to develop
new technologies that provide simpler, less traumatic, less costly and more
efficient diagnosis and treatment. The trend in countries around the world
toward more stringent regulatory requirements for product clearance and more
vigorous enforcement activities has generally caused or may cause medical device
manufacturers to experience more uncertainty, greater risk and higher expenses.
The aggregate purchase price of the Schneider acquisition has been
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition. The estimated excess of
purchase price over the fair value of the net tangible assets acquired was
allocated to specific intangible asset categories with the remainder assigned to
excess of cost over net assets acquired. Core technology, developed technology,
assembled workforce, trademarks and patents are being amortized on a
straight-line basis over periods ranging from 9 to 25 years. We are amortizing
the value assigned to customer lists (relationships) over 25 years because it
has been our experience that physician and hospital relationships are built for
the long term and fundamental to our business of bringing innovative products to
market. We realize that maintaining these and similar relationships will require
ongoing efforts. However, both Schneider and we have over a 20 year history of
working closely with interventionalists and their
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institutions for both vascular and nonvascular applications and our management
believes these relationships will continue to benefit us. In addition, after
considering the long-term prospects for the less invasive medical device
industry and the fundamental role of catheter-based interventional medicine, as
well as Schneider's competitive position within the industry, our management has
concluded that it is appropriate to amortize the excess of the Schneider
purchase price over the fair value of the assets acquired over 40 years.
Finally, we recorded a $671 million charge ($524 million, net of tax) to account
for purchased research and development acquired. The valuation of purchased
research and development represents the estimated fair value related to
incomplete projects. At the date of the acquisition, the development of these
projects had not reached technological feasibility and the research and
development in progress had no alternative future uses. Accordingly, these costs
were expensed as of the date of acquisition.
The income approach was used to establish the fair values of the intangible
assets. This approach establishes the fair value of an asset by estimating the
after-tax cash flows attributable to the asset over its useful life and then
discounting these after-tax cash flows back to a present value. The discounting
process uses a rate of return commensurate with the time value of money and
investment risk factors. Accordingly, for the purpose of establishing the fair
value of each asset in the Schneider analysis, revenues for each future period
were estimated, along with costs, expenses, taxes and other charges. Revenue
estimates were based on estimates of relevant market sizes and growth factors,
expected trends in technology, and the nature and expected timing of new product
introductions by us and our competitors. With respect to the value of purchased
research and development, we considered, among other factors, the research and
development project's stage of completion, the complexity of the work completed
to date, the costs already incurred, the projected costs to complete, the
contribution of core technologies and other acquired assets, the projected
product introduction date and the estimated useful life of the technology. The
respective after-tax cash flows were then discounted back to present value using
a risk-adjusted discount rate. The discount rates used in the Schneider analysis
ranged from 16% to 28% depending upon the risk profile of the particular asset.
We believe that the assumptions used in the forecasts were reasonable at
the time of the acquisition. We cannot assure you, however, that the underlying
assumptions used to estimate expected project revenues, development costs or
profitability, or the events associated with such projects, will transpire as
estimated. For these reasons, among others, actual results may vary from the
projected results.
The in-process technology acquired in the Schneider acquisition consisted
of 20 significant research and development projects, ranging in stage of
completion from 46% to 95%. One project reached completion in late 1998, while
the others are expected to reach completion in 1999, 2000 and 2001. New
in-process technologies include brachytherapy for the prevention of restenosis,
devices for the treatment of carotid disease, devices for the treatment of
coronary artery disease, devices for peripheral vascular disease, devices for
aneurysmal disease and devices for nonvascular disease. Remaining efforts to
complete the projects include product validation, the successful completion of
clinical trials and governmental regulatory approvals. Through the acquisition
date, approximately $65 million had been spent by Schneider on the in-process
research and development projects. We intend to incur in excess of $50 million,
related primarily to salaries, materials, clinical trials and regulatory costs,
to develop the in-process technology into commercially viable projects over the
next three years. The value assigned to in-process research and development is
reasonable in light of the amounts invested to date and expected to be incurred
because we believe that the technologies associated with the purchased research
and development are well positioned in high potential, high growth markets that
are highly valued in the medical device industry. The degree of uncertainty
regarding the future benefits of the acquired in-process research and
development was lessened because of the advanced state of the projects at the
date of acquisition. We also believe that the amount invested as of the
acquisition date and/or the amount needed to complete the projects do not bear
directly on the fair value of the underlying technologies. We expect to begin to
realize significant revenue and cash flows from the in-process technology
beginning in 1999.
The most significant purchased research and development projects that were
in-process at the date of acquisition were brachytherapy, devices for aneurysmal
disease and coronary stents which in the aggregate represent over 60% of the
in-process value. The brachytherapy project represents approximately 26% of the
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purchased research and development value. Key assumptions used in the analysis
of brachytherapy included gross margins excluding depreciation of approximately
87% and a discount rate of 28%. The brachytherapy system is an intravascular
radiation system designed to reduce clinical restenosis after PTCA and/or
stenting. The system consists of a computer controlled afterloader, beta
radiation source, centering catheter, source delivery wire and dummy wire. As of
the date of acquisition, the project was expected to be completed and the
products commercially available in the U.S. within two to three years, with an
estimated cost to complete of approximately $5 to $10 million.
The coronary stent projects represent approximately 16% of the purchased
research and development value. Key assumptions used in the analysis of coronary
stents included gross margins excluding depreciation of approximately 87% and a
discount rate of 28%. Projects underway at the date of acquisition were stent
systems for native coronary artery disease, saphenous vein graft disease, and
versions with novel delivery systems. The stent systems in-process are designed
to conform to the arterial anatomy resulting in remodeling of the vessel. An
atraumatic tip reduces vessel trauma and enhances trackability, while position
markers together with a high degree of stent radiopacity facilitate proper
placement. The stent systems also use a unique reconstrainable delivery system.
The Company believes that the stent systems will be especially helpful in the
treatment of saphenous vein graft disease. As of the date of acquisition, the
projects were expected to be completed and the products commercially available
for sale in the U.S. within one year with an estimated cost to complete of
approximately $1 to $3 million.
The aneurysmal disease projects represent approximately 20% of the
purchased research and development value. Key assumptions used in the analysis
of the aneurysmal disease projects included gross margins excluding depreciation
of approximately 86% and a discount rate of 28%. The objective of the projects
is to develop endoluminal grafts for the treatment of late stage vascular
aneurysms and occlusions. The most significant of the projects in this category
at the date of acquisition was the endoluminal graft for the treatment of
abdominal aortic aneurysms. The device consists of an endoluminal graft trunk
where the lumen is formed into two sockets which, after placement of the trunk
in the proximal neck of the aneurysm, accepts two endoluminal graft legs which
extend to the iliac arteries. Valuable elements of the abdominal aortic device
at the date of acquisition include the spun Corethane(R) graft covering, the
self-expanding scaffold design, and the delivery systems. Other projects in this
category included the endoluminal graft for thoracic aortic aneurysmal disease,
which is a tubular endoluminal graft to be used in the aorta distal to the
aortic arch. As of the date of acquisition, the projects were expected to be
completed and the products commercially available in the U.S. within two to
three years, with an estimated cost to complete of approximately $10 to $15
million.
Our management expects to continue supporting these research and
development efforts and believes we have a reasonable chance of completing the
in-process technology. However, the development of the in-process technology is
subject to risks and uncertainties. These include the inherent difficulties in
completing the projects on a timely basis, potential changes in future target
markets, technology and governmental regulation, third party intellectual
property, and product introductions or other actions by competitors. If the
projects are not successfully developed, we may not realize the value assigned
to the in-process technology. In addition, the value of the other acquired
intangible assets may also become impaired.
We are in the process of implementing a rationalization plan established in
conjunction with the consummation of the Schneider acquisition. The
rationalization plan takes into consideration duplicate capacity and
opportunities for further leveraging of cost and technology platforms. Our
actions approved and committed to in the fourth quarter of 1998 will result in
the displacement in 1999 of approximately 2,000 current positions, over half of
which are manufacturing positions. We have decided to close five Schneider
facilities, as well as transition the manufacturing of selected Boston
Scientific product lines to different sites. We expect that approximately 1,000
positions will be added in 1999 as a result of the transition plan. In addition,
we will continue to challenge our plant network strategy during 1999. We
estimate that the costs associated with these activities, excluding transition
costs, will be approximately $62 million, most of which represent severance and
related costs. Approximately $36 million of the total has been capitalized as
part of the purchase price of Schneider. The remaining $26 million ($17 million,
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net of tax) has been charged to operations. The rationalization plan also
resulted in the decision to expand, not close, certain Target Therapeutics
facilities originally provided for in a 1997 merger-related charge and to
relocate other product lines to these Target Therapeutics facilities. These
actions are anticipated to result in annualized cost savings of approximately
$50 to $75 million. In the fourth quarter of 1998, we reversed $21 million ($14
million, net of tax) of previously recorded merger-related charges of which
approximately $4 million related to facility costs and which also included
revised estimates of contractual commitment payments, associated legal costs and
other asset write-downs originally provided for in a 1997 merger-related charge.
In the second quarter of 1998, we realigned our operating units and decided
to operate Target Therapeutics independently instead of as a part of our
vascular division as was planned at the date of the Target Therapeutics
acquisition. Our management believed that an independent Target Therapeutics
would allow the business unit to develop its technologies and markets more
effectively than it would as part of the vascular division. As a result of this
decision, in the second quarter of 1998, we reversed $20 million ($13 million,
net of tax) of 1997 Target Therapeutics merger-related charges primarily related
to revised estimates for costs of workforce reductions and costs of cancelling
contractual commitments. In addition, in the second quarter of 1998, we recorded
purchased research and development of approximately $11 million in connection
with another acquisition consummated during 1998 and in the fourth quarter of
1998, we recorded $30 million ($20 million, net of tax) of year-end adjustments
related primarily to write-downs of assets no longer deemed to be strategic. The
assets relate primarily to inventory, long lived and intangible assets that we
do not believe will be sold or realized, respectively, because of revisions to
and terminations of strategic alliances. The provisions have been recorded as
costs of sales ($12 million), selling, general and administrative expenses ($12
million), amortization expenses ($2 million), royalties ($2 million), research
and development expenses ($1 million) and other expenses ($1 million).
As discussed previously, results for the year ended December 31, 1998
include a provision of $31 million for costs associated with our decision to
voluntarily recall the NIR ON(TM) Ranger(TM) with Sox(TM) coronary stent system
in the U.S. We are aware that the U.S. Department of Justice is conducting an
investigation of matters that include this recall. We are cooperating fully in
the investigation.
During 1997, we recorded merger-related charges of $146 million ($106
million, net of tax) primarily related to our acquisition of Target
Therapeutics, purchased research and development of $29 million, net of tax, in
conjunction with accounting for our additional investment in Medinol and other
strategic investments, and a charge of $31 million ($21 million, net of tax) to
reflect the impact of implementing a new accounting standard. 1997 results also
include provisions related to inventory write-downs of $19 million ($13 million,
net of tax) and litigation-related reserves of $34 million ($23 million, net of
tax). Our Target Therapeutics merger-related charges reflect estimated costs to
integrate all aspects of the Target Therapeutics business into the vascular
business, and include those costs typical in a merging of operations, such as
rationalization of facilities, workforce reductions, unwinding of various
contractual commitments, asset write-downs and other integration costs. The
Target Therapeutics restructuring plan was initiated to gain expanded market
opportunities and reduce costs. We planned to integrate the Target Therapeutics
business into our vascular business, terminate the Target Therapeutics
distributors in countries where we had a direct sales presence, move the Target
Therapeutics manufacturing and research and development operations to Ireland
and other vascular facilities, and manage Target Therapeutics' administrative
and corporate activities at our headquarters. Specifically, we planned to exit
Target Therapeutics' leased headquarters, manufacturing and research locations
in California, as well as terminate Target Therapeutics' sales offices in
Germany, Japan and the United Kingdom. The lease terminations were planned to
begin during 1997 and to be completed by the end of 1998. In conjunction with
the exit plan, we planned to terminate approximately 500 people, of which
approximately 100 were corporate/administrative, 300 were manufacturing and 100
were research and development personnel. At the date of the Target Therapeutics
acquisition, we also provided for the excess cost over fair market value of
selected Target Therapeutics leasehold improvements, machinery and computer
equipment, and other assets ($8 million). As discussed above, we reversed our
decision to integrate the Target Therapeutics business into the vascular
division in the second quarter of 1998. The merger and integration activities,
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including the reversal of previously recorded charges related to the integration
of Target Therapeutics into the vascular division, were substantially completed
during 1998. The most significant costs (approximately $50 million) relate to
estimated costs to cancel contractual obligations with distributors. During 1996
and 1997, we expanded our direct sales presence outside the U.S. so as to be in
position to take advantage of expanded market opportunities and the cancellation
of Target Therapeutics' distributor contractual obligations is consistent with
this strategy. Benefits from the strategy began to be realized in 1998 as we
were able to eliminate duplicate sales infrastructure and to transition the
businesses to a seasoned sales force. In the second quarter of 1997, we decided
not to reintroduce a vascular product that had been previously withdrawn from
the European market. As a result, we determined that there would be no future
sales of the product, thus no projected cash flows. We wrote off the
intellectual property ($8 million) associated with the product as a result of
this analysis. Finally, in conjunction with the implementation of a global
information system, we provided for the estimated residual value of its legacy
systems ($8 million), based on the date which the systems were planned to be
removed from service. During 1996, we recorded merger-related and other unusual
charges of approximately $32 million. Charges include estimated direct
transaction costs ($5 million) of the merger with EP Technologies, Inc. and
estimated costs to be incurred in merging EP Technologies with subsidiaries of
the Company ($12 million). Estimated costs include those typical in merging of
operations and relate to, among other things, rationalization of facilities,
workforce reductions, unwinding of various contractual commitments, asset
writedowns and other integration costs. The EP Technologies restructuring plan
was initiated to gain expanded market opportunities and reduce overhead related
costs and the plan was substantially complete in 1997. The remaining $15
million, which is primarily nondeductible for tax purposes, represents primarily
a change in prior year estimates of merger-related charges ($7 million), and a
provision related to costs associated with a joint venture arrangement ($8
million). Due to the revised estimates for costs of workforce reductions
discussed previously, the number of Target Therapeutics employees actually
displaced was approximately 40 (approximately 35 of whom were terminated in 1997
and the remainder subsequent to 1997) as compared to the original estimate of
500 employees. Less than 10 employees were terminated under the EP Technologies
plan.
In 1996, we acquired Symbiosis Corporation, an original equipment
manufacturer and formerly a wholly-owned subsidiary of American Home Products
Corporation, for approximately $153 million. In 1996, we also purchased the
assets of Endotech/Mintec for approximately $72 million. Both acquisitions were
cash transactions and were accounted for using the purchase method of
accounting. Accordingly, the aggregate purchase prices have been allocated among
the assets acquired based on their estimated fair values at the date of
acquisition. The allocations of the purchase prices resulted in provision for
in-process research and development of $39 million and $57 million,
respectively.
The valuations of the purchased research and development represent the
estimated fair value related to incomplete projects at the dates of acquisition.
At the dates of acquisition, in our management's opinion, the development of
these projects had not reached technological feasibility and the research and
development in process had no alternative future uses. Accordingly, these costs
were expensed at date of acquisition. The valuations of in-process research and
development projects for both acquisitions were performed using the income
approach. Each project's expected cash flows were evaluated separately and
discounted back to the present at risk-adjusted discount rates.
The most significant project valued for the Symbiosis acquisition related
to a guidewire project (approximately 80% of the in-process value). Key
assumptions used in the analysis of the guidewire project included gross margins
excluding depreciation of approximately 65% and a discount rate of 18%. Other
expenses were based on estimated costs to complete the project. Symbiosis's
historical pricing, margin and expense levels were adjusted to reflect end user
market rates. As of the date of acquisition, we expected to continue development
of the Symbiosis guidewire project through the balance of 1996 at a cost of an
additional $3 million. Product commercialization was anticipated in 1997. Delays
have occurred which have lengthened the development period and increased the
completion costs by approximately $1 million. Product launch is now expected to
occur sometime in late 1999.
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The most significant Endotech/Mintec project related to an abdominal aortic
aneurysm repair device (approximately 90% of the in-process value). Key
assumptions used in the analysis of the project were gross margins excluding
depreciation of approximately 80% and discount rates of 20-23%. Other expenses
were based on estimated costs to complete the project. Endotech/Mintec was a
start-up operation at the date of acquisition, thus, the valuation used
estimated end user market prices. Initial market availability of the device was
anticipated by us in Europe in 1996, Japan in 1999, and the U.S. in 2000. The
staggered timing reflected the need to conduct clinical evaluations and receive
regulatory approvals in the respective countries. Expected aggregate cost for
completion was $17 million to be spent between 1996 and 2000. The
Endotech/Mintec product provided a proprietary technology; however, additional
development and clinical work was still necessary to address and improve product
components, product performance and clinical efficacy. Product offering in
Europe commenced approximately a year from the date of the acquisition. The
timeline for product availability in the U.S. and Japan has slipped by
approximately one year due to technology issues. Estimated costs to December 31,
1998 have been approximately $11 million and total costs to complete the project
are uncertain.
Interest expense increased from $14 million in 1997 to $68 million in 1998.
The overall increase in interest expense is primarily attributable to a higher
outstanding debt balance, including the issuance of $2.1 billion in commercial
paper on September 10, 1998 to finance the acquisition of Schneider and the
issuance of $500 million in fixed rate debt securities during the first quarter
of 1998. Other income (expense), net, changed from income of less than $1
million in 1997 to expense of $5 million in 1998. The change is primarily
attributable to net gains on sales of equity investments in 1997 that were more
significant than in 1998.
Our effective tax rate, including the impact of special charges, was
approximately 39% in 1997 and 4% in 1998. Excluding these special charges, the
pro forma effective tax rate increased from approximately 32% during 1997 to 33%
during 1998. The increase is primarily attributable to a shift in the mix of
U.S. and international business. The effective rate for 1999 is expected to
increase slightly due to the continued shift in the geographic mix of our
business.
Years Ended December 31, 1997 and 1996
Net sales increased 18% in 1997 to $1,831 million from $1,551 million in
1996. International sales for the year were adversely impacted by changes in
foreign currency exchange rates. Without the impact of changes in exchange
rates, net sales for the year increased approximately 23%. Net income for the
year ended December 31, 1997, excluding merger-related and special charges,
decreased approximately 10% to $266 million from $295 million during the year
ended December 31, 1996.
In 1997, we recorded merger-related charges of $146 million ($106 million,
net of tax) and purchased research and development of $29 million, net of tax,
and we recorded a charge of $31 million ($21 million, net of tax) to reflect the
impact of implementing an accounting standard issued in 1997 related to business
process reengineering. 1997 results also include provisions related to inventory
write-downs of $19 million ($13 million, net of tax) and litigation-related
reserves of $34 million ($23 million, net of tax). During 1996, we recorded
merger-related charges of $32 million ($29 million, net of tax) and purchased
research and development of $110 million ($99 million, net of tax). Reported net
income for 1997 was $110 million, or $0.28 per share (diluted), as compared to
$167 million, or $0.42 per share, for the prior year.
U.S. revenues increased approximately 16% from 1996 to $1,076 million in
1997, while international revenues, increased approximately 20% from 1996 to
$755 million in 1997. International sales as a percentage of worldwide sales
increased from 40% in 1996 to 41% in 1997. International sales during 1997 were
negatively impacted compared to 1996 by approximately $77 million of unfavorable
exchange rate movements caused primarily by the strengthening of the U.S. dollar
versus major European currencies and the Japanese yen. Worldwide vascular and
nonvascular sales increased 16% and 26%, respectively, from 1996 to 1997.
Gross profit as a percentage of net sales was approximately 70.2% and 72.4%
during 1997 and 1996, respectively. The decline in gross margins during 1997 is
primarily attributable to write-downs for excess
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and obsolete inventory and a decline in average selling prices as a result of
continuing pressure on healthcare costs and increased competition. In addition,
gross margins were negatively impacted by the unfavorable foreign exchange rate
movements discussed above. The negative impact of the above conditions was
partially offset by our U.S. cost containment programs and the positive gross
margin impact of selected new product offerings.
Selling, general and administrative expenses increased 35% from $492
million in 1996 to $663 million in 1997, and increased as a percentage of sales
from 32% to 36% of net sales. The increase includes $34 million in
litigation-related reserves recorded in 1997. In addition, we continued to
expand our domestic and international sales and distribution organizations.
Amortization expense increased 37% from $24 million in 1996 to $32 million
in 1997, and increased as a percentage of sales from 1.5% to 1.8% of net sales.
The increase in dollars is primarily a result of several strategic alliances
that we initiated during 1997.
Royalties remained at approximately 1% of net sales while increasing 30%
from $17 million in 1996 to $22 million in 1997. The increase in overall royalty
expense dollars is due to increased sales and royalties due under several
strategic alliances that we initiated in 1997 and prior years.
Research and development expenses remained at approximately 9% of net sales
while increasing 24% from $135 million in 1996 to $167 million in 1997. The
increase in research and development dollars reflects increased spending in
regulatory, clinical research and various other product development programs,
and reflects our continued commitment to refine existing products and procedures
and to develop new technologies that provide simpler, less traumatic, less
costly and more efficient diagnosis and treatment.
Interest and dividend income was $4 million as compared to $6 million in
1996. The decrease is primarily attributable to a decrease in our average cash
and marketable securities balance resulting from the use of cash to fund our
working capital, finance several of our recent acquisitions and alliances and to
repurchase our common stock. Interest expense increased from $12 million in 1996
to $14 million in 1997. The overall increase in interest expense is primarily
attributable to a higher outstanding balance related to our commercial paper
borrowings. Other income (expense), net, changed from expense of $5 million in
1996 to less than $1 million of income in 1997. The change is primarily
attributable to net gains on sales of equity investments of approximately $11
million compared to net gains of $1 million in 1996.
Our effective tax rate, including the impact of special charges, was
approximately 45% in 1996 and 39% in 1997. Excluding these special charges, the
pro forma effective tax rate improved from approximately 34% during 1996 to 32%
during 1997. The reduction in our effective tax rate, excluding the impact of
special charges, is primarily due to increased business in lower tax geographies
and certain tax planning initiatives.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments totaled $114 million at March 31, 1999
compared to $75 million at December 31, 1998. The increase in cash and
short-term investments is primarily attributable to cash provided by operating
activities and proceeds from the exercise of stock options. Cash proceeds were
partially offset by the repayment of approximately $100 million of outstanding
debt obligations and capital expenditures of approximately $27 million to expand
the capacity of certain manufacturing facilities and to purchase machinery and
equipment. Working capital improved from current liabilities exceeding current
assets by $353 million at December 31, 1998 to current liabilities exceeding
current assets by $304 million at March 31, 1999. The improvement in working
capital is primarily attributable to the increase in cash and short-term
investments.
During the first quarter of 1999, we refinanced $1.7 billion of commercial
paper borrowings with proceeds from borrowings under our revolving credit
facilities (the "Facilities") due to the limited market for our commercial
paper. The weighted average interest rate on the borrowings is approximately
5.5%. We intend to continue to borrow under our Facilities until we are able to
issue commercial paper at reasonable
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rates. At March 31, 1999, we had no commercial paper outstanding. We have the
ability to refinance a portion of our short-term debt on a long-term basis
through our Facilities and expect a minimum of $700 million will remain
outstanding through the next twelve months, and, accordingly, we have classified
this portion of borrowings as long-term at March 31, 1999. The Facilities
require us to maintain a specific ratio of consolidated funded debt (as defined)
to consolidated net worth (as defined) plus consolidated funded debt. The ratio
requirement is 70% through December 31, 1999 and 60% thereafter. As of March 31,
1999, the ratio was approximately 61%. We currently intend to comply with the
reduction in the ratio through the issuance of common stock pursuant to this
offering.
In March 1998, we issued $500 million of 6.625% debt securities due March
2005 under a public debt registration statement filed with the SEC. These debt
securities are not redeemable prior to maturity and are not subject to any
sinking fund requirements. A significant portion of the net proceeds from the
sale of these debt securities (approximately $496 million) was used for
repayment of indebtedness under our commercial paper program.
During March 1998, we borrowed 1.2 billion yen (the equivalent of
approximately $11 million) under a financing arrangement with a Japanese bank at
a fixed interest rate of 2.1%. The term of the borrowing extends through 2012.
At March 31, 1999, we had an additional 6 billion Japanese yen borrowings
(approximately $50 million) outstanding with a syndicate of Japanese banks. The
interest rate on the borrowings is 2.44%. The borrowings are payable in 2002.
Furthermore, we had uncommitted Japanese credit facilities with several Japanese
banks to provide for borrowings and promissory notes discounting of up to 7.5
billion Japanese yen (approximately $62 million). At March 31, 1999, there were
no borrowings under these facilities and approximately $31 million of
receivables were discounted at average interest rates of approximately 1.5%.
Since early 1995, we have entered into several transactions involving
acquisitions and alliances, certain of which have involved equity investments.
As the healthcare environment continues to undergo rapid change, our management
expects that it will continue to focus on strategic initiatives and/or make
additional investments in existing relationships. In connection with these
acquisitions, we have acquired numerous in-process research and development
projects. As we continue to build our research base in future years, it is
reasonable to assume that we will acquire additional in-process research and
development platforms. Our management does not expect the acquisitions and
alliances to be significant during 1999. As of March 31, 1999, our cash
obligations required to complete the balance of our initiatives to integrate
businesses related to our mergers and acquisitions and our 1998 rationalization
plan are estimated to be approximately $61 million. Substantially all of these
cash outlays will occur during 1999. In addition, we have outstanding $128
million of acquisition-related cash obligations which will be paid during the
second quarter of 1999. Further, we expect to make estimated tax payments in the
second quarter of 1999 of approximately $40 million and to incur capital
expenditures of approximately $100 million during the remainder of 1999.
We expect that our cash and cash equivalents, marketable securities, cash
flows from operating activities, proceeds from the issuance of debt and equity
securities discussed previously and borrowing capacity will be sufficient to
meet our projected operating cash needs, including integration costs, through
the end of 1999. Of the $2.2 billion of borrowings available under our
Facilities, $1.7 billion are outstanding as of May 31, 1999. Approximately $700
million are borrowed under our $1.2 billion 364-day Facilities. Up to $600
million of one of these Facilities must be mandatorily prepaid with the proceeds
of this offering. Borrowing availability under that Facility will be reduced by
the amount of net proceeds from this offering. The remaining availability under
our 364-day Facilities will expire in September 1999. The 364-day Facilities
expiring in September may be extended for an additional 364 days under certain
conditions. We intend to seek an extension of up to $600 million of such
Facilities later this year. To the extent that we cannot obtain such an
extension, we will need to refinance approximately $100 million of these
Facilities. We cannot assure you that we can or will obtain additional
financing.
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YEAR 2000 READINESS
The inability of business processes to continue to function correctly after
the beginning of the Year 2000 could have serious adverse effects on companies
and entities throughout the world. We have undertaken a global effort to
identify and mitigate Year 2000 issues in our information systems, products,
facilities and suppliers.
We established a multidisciplinary Year 2000 Task Force in 1998, comprised
of management from each of our principal functional areas, including Finance,
Information Technology, Regulatory Affairs, Customer Service, Manufacturing,
Distribution, Purchasing, Facilities, Legal and Communications. We have also
established a core team and a program management office for coordinating and
tracking all Year 2000 issues. This office is comprised of our management and
staff and representatives of an experienced Year 2000 consulting firm. These
efforts report directly to members of our Executive Committee.
An independent consulting firm has been working with us for over two years
to implement a global information system that is designed to be Year 2000
compliant. In addition to our information systems project, other internal
systems are being addressed largely through the replacement and testing of much
of our older systems. The efforts are both company-wide and site specific,
spanning the range from the Information Technology department systems to
manufacturing operations (including production facilities, support equipment,
and process control) and infrastructure technologies.
The vast majority of our products are not date-sensitive and are therefore
unaffected by Year 2000 issues. Steps have been taken to correct non-compliance
which affects the functional performance of the few remaining products.
Through March 31, 1999, we have expended in excess of $100 million to
implement and operate a Year 2000 compliant global information system, and other
costs relating to Year 2000 compliance. We do not anticipate that additional
compliance costs will have a material impact on our business operations or our
financial condition.
We rely on third party providers for services such as telecommunications,
Internet service, utilities, certain product components and other key services.
Interruption of those services due to Year 2000 issues could affect our
operations. We have initiated an evaluation of the status of third party service
providers' compliance efforts and of alternative and contingency requirements.
While approaches to reducing risks of interruption of business operations vary
by business unit, options include identification of alternative service
providers available to provide such services if a service provider fails to
become Year 2000 compliant within an acceptable time frame. Based on our
evaluation to date, our management believes that in most cases redundant
capacity exists at the supplier or that alternative sources of supply are
available or could be developed within a reasonable amount of time should
compliance become an issue for individual suppliers.
We believe that our Year 2000 program will identify and correct all
material non-compliant systems and operations before the end of 1999. Third
party service providers are being assessed and we expect to have contingency
plans that will avoid failures having a material effect on our business
operations or financial condition in place before the end of 1999.
We cannot assure you that our Year 2000 program will identify and correct
all of our non-compliant systems and our third party service providers or that
any such failure will not have a material effect on our business operations or
financial condition.
MARKET RISK DISCLOSURES
In the normal course of business, we are exposed to market risk from
changes in interest rates and foreign currency exchange rates. We address these
risks through a risk management program that includes the use of derivative
financial instruments. The use of derivative financial instruments are initiated
within the guidelines of documented corporate risk management policies. We do
not enter into any derivative transactions for speculative purposes.
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Our floating and fixed rate debt obligations are subject to interest rate
risk. A 100 basis point increase in interest rates related to our floating rate
borrowings, assuming the amount borrowed remains constant, would result in an
annual increase in our then current interest expense of approximately $17
million. A 100 basis point increase in interest rates related to our fixed
long-term debt would not result in a material change in its fair value.
We enter into foreign exchange contracts to hedge foreign currency
transactions on a continuing basis for periods consistent with commitments,
generally one to six months. We do not engage in speculation. Our foreign
exchange contracts should not subject us to material risk due to exchange rate
movements because gains and losses on these contracts should offset losses and
gains on the assets and liabilities being hedged. We had spot and forward
foreign exchange contracts outstanding in the notional amounts of $242 million
as of March 31, 1999. Although we engage in hedging transactions that may offset
the effect of fluctuations in foreign currency exchange rates on foreign
currency denominated assets and liabilities, financial exposure may nonetheless
result, primarily from the timing of transactions and the movement of exchange
rates. The short-term nature of these contracts has resulted in these
instruments having insignificant fair values at March 31, 1999.
A sensitivity analysis of changes in the fair value of foreign currency
exchange contracts outstanding at March 31, 1999 indicates that, if the U.S.
dollar uniformly weakened by 10% against all currencies, the fair value of these
contracts would decrease by approximately $14 million. While these hedging
instruments are subject to fluctuations in value, such fluctuations are
generally offset by changes in the value of the underlying exposures being
hedged. In addition, unhedged foreign currency balance sheet exposures as of
March 31, 1999 are not expected to result in a significant loss of earnings or
cash flows. As we have expanded our international operations, our sales and
expenses denominated in foreign currencies have expanded and we expect that
trend to continue. Therefore, most international sales and expenses have been,
and are expected to be, subject to the effect of foreign currency fluctuations
and these fluctuations may have an impact on margins. Our sensitivity analysis
of the effects of changes in foreign currency exchange rates does not factor in
a potential change in sales levels or local currency selling prices.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the euro. The participating countries agreed to adopt the euro as
their common legal currency on that date. Fixed conversion rates between these
participating countries' existing currencies (the legacy currencies) and the
euro were established as of that date. The legacy currencies are scheduled to
remain legal tender as denominations of the euro until at least January 1, 2002
(but not later than July 1, 2002). During this transition period, parties may
settle transactions using either the euro or a participating country's legacy
currency. We are addressing the potential impact resulting from the euro
conversion, including adaptation of information technology systems, competitive
implications related to pricing and foreign currency considerations.
Our management currently believes that the euro will not have a material
impact related to the adaptation of information technology systems or foreign
currency exposures. The increased price transparency resulting from the use of a
single currency in the eleven participating countries may affect our ability to
price our products differently in the various European markets. A possible
result of this is price harmonization at lower average prices for products sold
in some markets. However, uncertainty exists as to the effects the euro will
have on the marketplace.
LITIGATION
The United States District Court for the Northern District of California
issued on June 22, 1999 and docketed on June 24, 1999 an order relating to a
patent infringement suit filed by Advanced Cardiovascular Systems against Scimed
with respect to Scimed's BANDIT(TM) PTCA catheter. The court granted ACS's
motions for summary judgment asserting the validity and infringement of ACS's
patent. The court denied ACS's motion for summary judgment on the enforceability
of its patent and Scimed's
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motions for summary judgment asserting the invalidity of, and Scimed's failure
to willfully infringe, ACS's patent. Trial on the remaining issues is scheduled
to commence in February 2000. ACS has not yet advanced damage contentions in the
case and an estimate of damages cannot be made; however, if we are unsuccessful
at trial and/or on appeal, monetary damages could reach a material level.
We believe that we have several grounds on which to appeal the court's
order and we intend to do so. We continue to believe that we have meritorious
defenses against the claims alleged in this litigation, and that ultimately an
adverse outcome is not probable. Our management believes that an accounting
provision for this contingency is therefore unnecessary.
Sales of the BANDIT(TM) PTCA catheter at issue in this case were
approximately $190 million in 1996. Primarily due to the introduction of our
Ranger(TM) PTCA catheter products in September 1996, sales of the BANDIT(TM)
PTCA catheter declined to approximately $155 million in 1997, $45 million in
1998 and have been insignificant in 1999. Our other products, including the
Ranger(TM) catheter, are unaffected by this litigation.
We are involved in various lawsuits, including patent infringement and
product liability suits, from time to time in the normal course of business. In
our management's opinion, we are not currently involved in any legal proceeding
other than those specifically identified in Note K to our 1998 Consolidated
Financial Statements or under "Item 3 -- Legal Proceedings -- Recent Patent
Proceedings" in our 1998 Form 10-K or under Note H to our March 31, 1999
Condensed Consolidated Financial Statements (Unaudited) included in our March
1999 Form 10-Q, each incorporated by reference herein, which, individually or in
the aggregate, could have a material adverse effect on our financial condition,
operations and cash flows. We believe that we have meritorious defenses against
claims that we have infringed patents of others. However, we cannot assure you
that we will prevail in any particular case. An adverse outcome in one or more
cases in which our products are accused of patent infringement could have a
material adverse effect on us.
Further, product liability claims may be asserted in the future relative to
events not known to our management at the present time. We have insurance
coverage which our management believes is adequate to protect against such
product liability losses as could otherwise materially affect our financial
position. We are aware that the U.S. Department of Justice is conducting an
investigation of matters that include our decision to voluntarily recall the NIR
ON(TM) Ranger(TM) with SOX(TM) coronary stent system in the U.S. We are
cooperating fully in the investigation. For additional information with respect
to litigation matters, see "Boston Scientific Corporation -- Patents and
Proprietary Rights" and "-- Product Liability" contained herein.
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BOSTON SCIENTIFIC CORPORATION
Boston Scientific is a worldwide developer, manufacturer and marketer of
minimally invasive medical devices. Our products are used in a broad range of
interventional medical specialties, including cardiology, electrophysiology,
gastroenterology, neuro-endovascular therapy, pulmonary medicine, radiology,
urology and vascular surgery. Our products are generally inserted into the human
body through natural openings or small incisions in the skin and can be guided
to most areas of the anatomy to diagnose and treat a wide range of medical
problems. These products provide effective alternatives to traditional surgery
by reducing procedural trauma, complexity, risk to the patient, cost and
recovery time.
Our history began in the late 1960s when our co-founder, John Abele,
acquired an equity interest in Medi-tech, Inc., a development company.
Medi-tech's initial products, a family of steerable catheters, were introduced
in 1969. They were used in some of the first minimally invasive procedures
performed, and versions of these catheters are still being sold today. In 1979,
John Abele joined with Pete Nicholas to form Boston Scientific, which indirectly
acquired Medi-tech, Inc. This acquisition began a period of active, focused
marketing, new product development and organizational growth. Since then, our
net sales have increased substantially, growing from $1.8 million in 1979 to
over $2.2 billion in 1998.
Our growth in the past few years has been fueled in part by strategic
acquisitions and alliances, designed to improve our ability to take advantage of
future growth opportunities in less invasive medicine. In 1998, we completed two
acquisitions. On June 30, 1998, we acquired CardioGene Therapeutics, Inc., a
development stage company focused on the application of gene therapy for
treatment of cardiovascular diseases, and on September 10, 1998, we acquired
Schneider, a pioneer in less invasive medicine and formerly a member of the
Medical Technology Group of Pfizer Inc.
These acquisitions, together with our earlier acquisitions and alliances,
have helped us achieve a strategic mass that allows us to offer one of the
broadest product lines in the world for use in minimally invasive procedures. We
now maintain leadership positions in each of the markets we serve. Our strategic
mass has also enabled us to compete more effectively in, and better absorb the
pressures of, the current healthcare environment of cost containment, managed
care, large buying groups and hospital consolidations.
We have substantially completed the integration of all mergers and
acquisitions consummated in 1996 and 1997. We expect to complete the integration
of Schneider by the end of 1999. Our management believes it has developed a
sound plan for continuing and concluding the integration process, and that it
will achieve that plan. However, in view of the number of major transactions
that we have undertaken, the dramatic change in our size and the complexity of
our organization resulting from these transactions, our management also believes
that the successful implementation of its plan presents a significant degree of
difficulty. The failure to integrate these businesses effectively could
adversely affect our operating results in the near term, and could impair our
ability to realize the strategic and financial objectives of these transactions.
BUSINESS STRATEGY
Our mission is to improve the quality of patient care and the productivity
of healthcare delivery through the development and advocacy of minimally
invasive medical devices and procedures. We seek to accomplish this mission
through the continuing refinement of existing products and procedures and the
investigation and development, as well as the acquisition, of new technologies
that can reduce risk, trauma, cost, procedure time and the need for aftercare.
Our strategy has been, and will continue to be, to grow by identifying those
specific therapeutic and diagnostic areas that satisfy our mission and provide
attractive opportunities for long-term growth and by making the investments
necessary to capitalize on these opportunities. Key elements of our strategy are
as follows:
Product Diversity. We offer products in numerous categories for
application throughout the human body. Physicians throughout the world use our
products in a broad range of diagnostic and therapeutic vascular and nonvascular
procedures. The breadth and diversity of our product lines permit medical
specialists to satisfy many of their minimally invasive medical device
requirements from a single source.
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The scope of our products and markets also reduces our vulnerability to change
in the competitive, regulatory and technological environments for any single
product or market.
Product Innovation. We maintain an aggressive product development program
designed to introduce new products and new applications for existing
technologies on a regular basis. The interaction of our product management teams
and sales representatives with the worldwide medical community generates market
information that often allows us to develop the specifications and features of
new products. We seek to expedite the design and development of new products by
leveraging our proprietary core technologies and applications knowledge across
our product lines. We often apply technological innovations developed for a
particular application to procedures used in other markets that we serve.
Focused Marketing. We market our products through six principal divisions:
Scimed, Boston Scientific Vascular (formerly operating as Medi-tech and Meadox),
Target Therapeutics, EP Technologies, Microvasive Endoscopy and Microvasive
Urology. Each of our divisions focuses on physicians who specialize in the
diagnosis and treatment of different medical conditions, and each offers
products to satisfy their needs. We believe that this focused marketing approach
enables us to develop highly knowledgeable and dedicated sales representatives
and to foster close professional relationships with physicians.
International Presence. Maintaining and expanding our international
presence is an important component of our long-term growth plan. In 1998,
international sales accounted for approximately 38% of our net sales. Currently,
we operate three international manufacturing facilities in Ireland and one in
Switzerland, have direct marketing and sales subsidiaries in more than 35
countries and have distribution arrangements in more than 45 countries. Through
our international presence, we seek to increase net sales and market share,
accelerate the time within which new products can be brought to market and gain
access to worldwide technological developments that may be implemented across
our product lines.
Active Participation in the Medical Community. We believe that we have
excellent working relationships with physicians and others in the medical
industry that enable us to gain a detailed understanding of new therapeutic and
diagnostic alternatives and to respond quickly to the changing needs of
physicians and patients. We enhance our presence in the medical community
through active participation in medical meetings, by conducting comprehensive
training and educational activities and through employee-authored articles in
medical journals and textbooks. Each year, numerous scientific papers are
published and presentations are made describing clinical applications of our
products. We believe that these activities and our advocacy positions contribute
to the medical community's understanding and adoption of minimally invasive
techniques and the expansion of these techniques into new therapeutic and
diagnostic areas.
Corporate Culture. Our management believes that success and leadership
evolve from a motivating corporate culture that rewards achievement, respects
and values individual employees and customers, and has a long-term focus on
quality, technology, integrity and service. We believe that our success is
attributable in large part to the high caliber of our employees and our
commitment to maintaining the values on which our success has been based.
Strategic Acquisitions and Alliances. In recent years, we have sought out
strategic acquisitions, alliances and venture opportunities to complement or
expand our existing product lines or enhance our technological position.
Although we do not expect to make any significant acquisitions in 1999, we
expect that we will continue to seek out and review opportunities for
acquisitions and strategic alliances consistent with our corporate mission.
PRODUCTS
Our products are broadly categorized as vascular or nonvascular, depending
on the anatomical system and procedure in which a product is intended to be
used. Generally, physicians employ vascular products in procedures affecting the
heart and systems which carry blood and employ nonvascular products in
procedures affecting other systems and organs. In 1998, approximately 80% of our
net sales were derived
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from our vascular business, approximately 19% from our nonvascular business and
approximately 1% from other businesses. Our principal vascular and nonvascular
products are offered in the following medical areas:
Vascular
Coronary Revascularization. We market a broad line of products used to
treat patients with atherosclerosis. Atherosclerosis, a coronary vessel disease
and a principal cause of heart attacks, is characterized by a thickening of the
walls of the arteries and a narrowing of arterial lumens (openings) caused by
the progressive development of deposits of plaque. Atherosclerosis results in
reduced blood flow to the muscle of the heart. The majority of our products in
this market are used in percutaneous transluminal coronary angioplasty ("PTCA")
and percutaneous transluminal coronary rotational atherectomy ("PTCRA"). Our
products in this market include PTCA balloon catheters, the Rotablator(R)
rotational atherectomy system, guide wires, guide catheters, diagnostic
catheters and fluid management systems.
Coronary Stents. We market both balloon-expandable and self-expanding
coronary stent systems. Our most important products in this category incorporate
the NIR(R) balloon-expandable coronary stent developed and manufactured by
Medinol Ltd., with which we have an exclusive worldwide distribution agreement
for stent products. These products were introduced in Europe in 1996 and in the
United States and Japan in 1998. Recently, we also introduced the NIR(R)
Primo(TM) coronary stent using Monorail(TM) rapid exchange technology in the
United States. We also plan to reintroduce the NIR ON(TM) Ranger(TM) with
SOX(TM) stent delivery system in the United States later in 1999, pending
approval from the United States Food and Drug Administration.
Gene Therapy and Drug Delivery. We have made a significant commitment to
the field of cardiovascular gene therapy. Through our recent acquisition of
CardioGene Therapeutics, Inc., we have rights to an extensive patent portfolio
directed to the delivery of genes to treat restenosis and induce angiogenesis
through endoluminal catheter-based delivery and direct injection into the heart.
Also, through a strategic alliance with Angiotech Pharmaceuticals, Inc., we hold
a co-exclusive license for the use of paclitaxel on intraluminal devices to
inhibit restenosis.
Peripheral Vascular Intervention and Vascular Access. We sell various
products designed to treat patients with peripheral vascular disease (disease
which appears in blood vessels other than in the heart), including a broad line
of catheters used in percutaneous transluminal angioplasty ("PTA").
Additionally, our peripheral vascular product line includes medical devices used
in thrombolysis (the catheter-based delivery of clot dissolving agents directly
to the site of a blood clot) and thrombectomy catheters. We also offer stents to
maintain patency of peripheral lumens, including the WALLSTENT(R)
endoprosthesis, the only stent approved by the FDA for more than two peripheral
indications.
Caval Interruption Systems. We market the Greenfield(R) vena cava filter
system for use in patients who are at risk of developing a pulmonary embolism
due to an existing medical condition or post-surgical complications. Once the
filter is implanted, circulating emboli (blood clots) can be captured and held
by the lattice design of the filter, allowing the clots to dissolve naturally
before they can reach the pulmonary system.
Surgical and Endovascular Grafts. We market vascular grafts and
endovascular stent grafts for the treatment of thoracic dissection, abdominal
aortic aneurysms and peripheral vascular occlusive diseases.
Intraluminal Ultrasound Imaging. We market a family of intraluminal
catheter-directed ultrasound imaging systems for diagnostic use in blood
vessels, heart chambers and coronary arteries, as well as certain nonvascular
systems.
Electrophysiology. Our electrophysiology product offerings include
catheters and systems for use in minimally invasive procedures to diagnose and
treat tachyarrhythmias (abnormally fast heart rhythms). We market radio
frequency generators and steerable ablation catheters, many of which incorporate
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proprietary steering, temperature monitoring and control technology, as well as
a line of diagnostic catheters and associated accessories.
Neuro-Endovascular Therapy. We market a line of micro-guidewires,
micro-catheters, guiding catheters and embolics to treat diseases of the
neurovascular system. We also market the Guglielmi Detachable Coil(TM) system to
treat and prevent the rupture of cerebral aneurysms that are otherwise either
considered to be inoperable or high risk for surgery.
Nonvascular
Esophageal, Gastric and Duodenal Intervention. We market a broad range of
products to diagnose, treat and palliate a variety of esophageal, gastric and
duodenal diseases, including esophogitis, gastric esophageal reflux disease,
portal hypertension, peptic ulcers and esophageal cancer. Our products in this
area include disposable single and multiple biopsy forceps, balloon dilatation
catheters, banding ligation devices and enteral feeding devices. We also market
a family of esophogeal stents designed to offer improved dilatation force and
greater resistance to tumor in-growth.
Colorectal Intervention. We market a line of hemostatic catheters,
polypectomy snares and dilatation catheters for the diagnosis and treatment of
polyps, inflammatory bowel disease, diverticulitis and colon cancer.
Pancreatico-Biliary Intervention. We sell a variety of products to
diagnose, treat and palliate benign and malignant strictures of the
pancreatico-biliary system (the gall bladder, common bile duct, hepatic duct,
pancreatic duct and the pancreas) and to remove stones found in the common bile
and hepatic ducts. Our products include diagnostic catheters used with contrast
media, balloon dilatation catheters and sphincterotomes. We also market a
temporary biliary stent for palliation and drainage of the common bile duct.
Pulmonary Intervention. We market devices to diagnose, treat and palliate
chronic bronchitis and lung cancer, including pulmonary biopsy forceps and
balloon catheters used to dilate strictures or for tumor management.
Urinary Tract Intervention. We sell a variety of products designed
primarily to treat patients with urinary stone disease, either via ureteroscopy
or percutaneous nephrolithotomy. Products within this category include ureteral
dilatation balloons used to dilate strictures or openings for scope access;
stone baskets used to manipulate, crush, or remove the stone; intracorporeal
shock wave lithotripsy devices and holmium laser systems used to disintegrate
stones ureteroscopically; ureteral stents implanted temporarily in the urinary
tract to provide either short-term or long-term drainage; and a wide variety of
guidewires used to gain access to a specific site.
Prostate Intervention. For the treatment of benign prostatic hypertrophy
("BPH"), we currently market electro-surgical resection devices designed to
resect large diseased tissue sites and reduce the bleeding attributable to the
resection procedure (a major cause of patient morbidity in connection with
traditional surgical treatments for BPH) and an automatic disposable needle
biopsy system, designed to take rapid core prostate biopsies.
Urinary Incontinence and Bladder Disease. We market a line of minimally
invasive devices to treat stress urinary incontinence. This affliction is
commonly treated with various surgical procedures. Our Vesica(R) system offers
less invasive alternatives for treating incontinence. We have also developed
other devices to diagnose and treat bladder cancer and bladder obstruction.
INTERNATIONAL OPERATIONS
In 1998, international sales accounted for approximately 38% of our net
sales. Net sales, operating income and identifiable assets attributable to
significant geographic areas are presented in Note N to our 1998 Consolidated
Financial Statements, included within our 1998 Form 10-K, which is incorporated
by reference herein.
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As of December 31, 1998, we had direct marketing and sales operations in
more than 35 countries. During the past three years, we have expanded our direct
sales presence in Europe and emerging markets so as to be in a position to take
advantage of market opportunities in those regions. We believe that we will
continue to leverage our direct sales infrastructure and will continue to use
distributors in those smaller markets where it is not economical or strategic to
establish a direct presence.
We have three international manufacturing facilities in Ireland and one in
Switzerland. We have announced our intention to close our Swiss facility by the
end of 1999. As of December 31, 1998, approximately 50% of our products sold
internationally are manufactured at these facilities. We also maintain an
international research and development facility in Galway, Ireland and a
training center in Miyazaki, Japan.
Our expanded international presence exposes us to certain financial and
other risks. Principal among these is the potentially negative impact of foreign
currency fluctuations on our sales and expenses. Although we engage in hedging
transactions that may offset the effect of fluctuations in foreign currency
exchange rates on foreign currency denominated assets and liabilities, financial
exposure may nonetheless result, primarily from the timing of transactions and
the movement of exchange rates. As we have expanded our international
operations, our sales and expenses denominated in foreign currencies have
expanded, and that trend is expected to continue. Therefore, most international
sales and expenses have been, and are expected to be, subject to the effect of
foreign currency fluctuations, and these fluctuations may have an impact on
margins. Further, any significant changes in the political, regulatory or
economic environment where we conduct international operations could have a
material impact on revenues and profits.
MARKETING AND SALES
A dedicated sales force of in excess of 1,800 individuals, including over
800 in the United States, markets our products worldwide. This dedicated sales
force accounted for approximately 99% of our net sales during 1998. A network of
over 70 dealers who offer our products in more than 45 countries worldwide
accounted for the remaining sales. We have also established a dedicated U.S.
corporate sales organization focused principally on selling to major buying
groups and large integrated healthcare networks.
Our worldwide customer base includes interventional medical specialists,
including cardiologists, radiologists, neuroradiologists, neurosurgeons,
gastroenterologists, urologists, electrophysiologists, pulmonologists, vascular
surgeons and gynecologists. In 1998, we sold our products to over 10,000
hospitals, clinics, out-patient facilities and medical offices. We are not
dependent on any single institution and no single institution accounted for more
than 10% of our net sales in 1998. Large group purchasing organizations,
hospital networks and other buying groups are, however, becoming increasingly
important to our business. These organizations have exerted increased pressure
on selling prices throughout the medical device industry. We cannot assure you
that the impact of doing business with such organizations will not adversely
impact our future sales margins, or that such organizations will continue to do
business with us.
We market our products through six principal divisions, each focusing on
physicians who specialize in the diagnosis and treatment of different medical
conditions.
Vascular
Scimed markets devices to cardiologists for the nonsurgical diagnosis and
treatment of coronary and peripheral vascular disease and other cardiac
disorders.
EP Technologies offers a line of electrophysiology catheters and systems
for use by interventional electrophysiologists in the diagnosis and treatment of
cardiac tachyarrhythmias.
Boston Scientific Vascular markets therapeutic and diagnostic devices to
physicians who perform interventional image-guided procedures primarily in the
fields of radiology, pulmonary medicine and vascular surgery, and markets woven,
knitted and collagen-sealed vascular and endovascular grafts to
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vascular, cardiothoracic and general surgeons for use in patients with vessels
damaged by artherosclerosis or aneurysms which need to be bypassed or replaced.
Target Therapeutics markets a line of micro-guidewires, micro-catheters,
coils, embolics and other medical devices which aid neuroradiologists and
neurosurgeons in the treatment of neurovascular diseases.
Nonvascular
Microvasive Endoscopy markets therapeutic and diagnostic devices which aid
gastroenterologists and pulmonologists in performing flexible endoscopic
procedures involving the digestive tract and lungs.
Microvasive Urology offers a line of therapeutic and diagnostic devices
which aid urologists in performing ureteroscopic and other minimally invasive
endoscopic procedures as well as devices to treat urinary incontinence.
We market the NIR ON(TM) Ranger(TM) and NIR(R) Primo(TM) coronary stent
systems which, together with other NIR(R) stent systems, represented
approximately 13% of our worldwide sales in 1998 and approximately 20% in the
first quarter of 1999. These stent systems include the NIR(R) coronary stent
that is developed and manufactured by Medinol and a balloon delivery system that
is developed and manufactured by Boston Scientific. We also distribute several
other products for third parties, including radio frequency generators, an
introducer sheath and certain guidewires. None of these other products
represented more than 10% of our 1998 net sales. Leveraging our sales and
marketing strength, we expect to continue to seek out new opportunities for
distributing complementary products as well as new technologies. Certain of the
products that we distribute, such as the NIR(R) stent, are very important to us
strategically. Unforeseen delays, stoppages or interruptions in the supply
and/or mix of the NIR(R) stent or certain other distributed products could
adversely affect our operating results.
MANUFACTURING; RAW MATERIALS
We currently design and manufacture the majority of our products in 13
manufacturing sites in the U.S. and Europe. The majority of the raw materials
used in the manufacture of our products are off-the-shelf items readily
available from several supply sources. Several items are, however, custom made
for us to meet our specifications. We believe that, in most of these cases,
redundant capacity exists at the supplier and that alternative sources of supply
are available or could be developed within a reasonable period of time. We have
generally been able to obtain adequate supplies of all materials, parts and
components in a timely manner from existing sources. However, the inability to
develop alternative sources, if required, or a reduction or interruption in
supply or a significant increase in the price of materials, parts or components
could adversely affect our operations and financial condition.
During 1998, we initiated a full time global program to focus on supply
chain optimization. The program is designed to lower inventory levels and the
cost of manufacturing, improve absorption, enhance customer service levels and
minimize inventory write-downs. By addressing the entire supply chain, including
application of lean manufacturing techniques, we seek to return gross margins to
more acceptable levels and to improve working capital. The program should be
implemented by the end of 1999.
COMPETITION
We encounter significant competition from various entities across our
product lines and in each market in which our products are sold. Our primary
competitors include C.R. Bard, Inc., Cook, Inc., Guidant Corporation, Johnson &
Johnson (including its subsidiary, Cordis Corporation), and Medtronic, Inc.
(including its subsidiary, Medtronic AVE, Inc., formerly known as Arterial
Vascular Engineering Inc.), as well as a wide range of companies which sell a
single or limited number of competitive products.
In addition, we face competition from non-medical device companies, such as
pharmaceutical companies, which may offer non-surgical alternative therapies for
disease states which are currently treated using our products.
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We believe that our products compete primarily on the basis of their
ability safely and effectively to perform diagnostic and therapeutic procedures
in a minimally invasive manner, ease of product use, product reliability and
physician familiarity. Our industry is subject to rapid change, and the
introduction of competitive products can have a significant impact on our
operations. In the current environment of managed care, economically motivated
buyers, consolidation among health care providers, increased competition and
declining reimbursement rates, we have also been increasingly required to
compete on the basis of price. We believe that our continued competitive success
will depend upon our ability to create or acquire scientifically advanced
technology, apply our technology cost-effectively across product lines and
markets, develop or acquire proprietary products, attract and retain skilled
development personnel, obtain patent or other protection for our products,
obtain required regulatory approvals, and manufacture and successfully market
our products either directly or through outside parties. We cannot assure you
that we will be able to accomplish these objectives or that we will be able to
compete successfully in the future against existing or new competitors. We
cannot assure you that our operating results will not be adversely affected by
increased price competition or competition from purveyors of alternative
therapies.
RESEARCH AND DEVELOPMENT
We maintain an active program of new product and technology research and
development. By leveraging the technical and applications knowledge gained in
one medical specialty to other specialties, we believe that we accelerate our
product development process and make it more cost effective. Enhancements of
existing products or expansions of existing product lines, which are typically
developed within our manufacturing and marketing operations, account for a
significant portion of each year's sales growth.
For the year ended 1998 and the first quarter of 1999, we expended $200
million and $49 million, respectively, on research and development. These
expenditures funded clinical research, licensed technology, regulatory
activities and various product development programs, including, without
limitation, carotid stenting, molecular intervention technology (using
paclitaxel, radiation, angiogenesis technology and gene therapy) and stent
grafting.
We maintain several research and development facilities around the globe.
See "Item 2 -- Properties" in the 1998 Form 10-K. In addition to internal
development, we work with hundreds of leading research institutions,
universities and clinicians around the world in developing, evaluating and
clinically testing our products.
We believe our future success will depend upon the strength of our
development efforts. We cannot assure you that we will realize financial benefit
from our development programs, will continue to be successful in identifying,
developing and marketing new products or enhancing our existing products, or
that products or technologies developed by others will not render our products
or technologies non-competitive or obsolete.
REGULATION
The medical devices that we manufacture and market are subject to
regulation by numerous regulatory bodies, including the FDA and comparable
international regulatory agencies. These agencies require manufacturers of
medical devices to comply with applicable laws and regulations governing the
testing, manufacturing, labeling, marketing and distribution of medical devices.
Devices are generally subject to varying levels of regulatory control, the most
comprehensive of which requires that a clinical evaluation program be conducted
before a device receives approval for commercial distribution.
In the United States, permission to distribute a new device generally can
be met in one of two ways. The first, less rigorous, process applies to any new
device that is substantially equivalent to a device first marketed prior to May
1976 and does not require pre-market approval. In this case, FDA permission to
distribute the device can be accomplished by submission of a pre-market
notification called a 510(k) Submission, and issuance by the FDA of an order
permitting commercial distribution. A 510(k)
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Submission must provide information supporting its claim of substantial
equivalence. If clinical data from human experience is required to support a
510(k) Submission, this data must be gathered in compliance with investigational
device exemption ("IDE") regulations for investigations performed in the United
States. The FDA must issue an order finding substantial equivalence before
commercial distribution can occur. Without making additional 510(k) Submissions,
we generally can make changes to existing devices if the changes do not
significantly affect safety or effectiveness.
The second, more comprehensive, approval process applies to a new device
that is not substantially equivalent to an existing product. In this case, two
steps of FDA approval are generally required before marketing in the United
States can begin. First, we must comply with IDE regulations in connection with
any clinical investigation of the device in the United States. Second, the FDA
must review our pre-market approval application, which contains, among other
things, clinical information acquired under the IDE. The FDA will approve the
pre-market approval application if it finds that there is a reasonable assurance
that the device is safe and effective for its intended purpose.
The FDA can ban certain medical devices, detain or seize adulterated or
misbranded medical devices, order repair, replacement or refund of these
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.
International sales of medical devices manufactured in the United States
that are not approved by the FDA for use in the United States, or are banned or
deviate from lawful performance standards, are subject to FDA export
requirements. The Export Reform Act of 1996 has simplified the process of
exporting devices which have not been approved for sale in the United States.
Exported devices are subject to the regulatory requirements of each country to
which the device is exported. In many foreign countries, all regulated medical
products are treated as drugs and the majority of our products are expected to
be so regulated in these countries. Frequently, regulatory approval may first be
obtained in a foreign country prior to application in the United States to take
advantage of differing regulatory requirements. We have achieved International
Standards Organization or European Union certification for our Irish and most of
our U.S. manufacturing facilities. In addition, we have completed CE Mark
registrations for most of our products in accordance with the implementation of
various medical device directives in the European Union.
The process of obtaining clearance to market products is costly and
time-consuming in virtually all of the major markets in which we sell products
and can delay the marketing and sale of new products. Countries around the world
have recently adopted more stringent regulatory requirements that are expected
to add to the delays and uncertainties associated with new product releases, as
well as the clinical and regulatory costs of supporting such releases. We cannot
assure you that any of our new medical devices will be approved on a timely
basis, if at all.
In addition, regulations regarding the manufacture and sale of medical
devices are subject to future change. We cannot predict what impact, if any,
such changes might have on our business. Failure to comply with regulatory
requirements could have a material adverse effect on our business, financial
condition and results of operations.
We are also subject to environmental laws and regulations both in the
United States and abroad. Our operations, like those of other medical device
companies, involve the use of substances regulated under environmental laws,
primarily in manufacturing and sterilization processes. We believe that
compliance with such laws will not have a material impact on our financial
position, results of operations, or liquidity. Given the scope and nature of
such laws, we cannot, however, assure you that such laws will not have a
material impact on Boston Scientific.
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THIRD-PARTY REIMBURSEMENT
Our products are purchased by hospitals, doctors and other health care
providers who receive reimbursement for the health care services they provide
from third-party payors, such as governmental programs (e.g., Medicare and
Medicaid), private insurance plans and managed care programs. These third-party
payors may deny reimbursement if they should determine that a device used in a
procedure was not used in accordance with cost-effective treatment methods, as
determined by such third-party payor, or was used for an unapproved indication.
Also, third-party payors are increasingly challenging the prices charged for
medical products and services. We cannot assure you that our products will be
considered cost-effective by third-party payors, that reimbursement will be
available or, if available, that the third-party payors' reimbursement policies
will not adversely affect our ability to sell our products profitably.
PATENTS AND PROPRIETARY RIGHTS
We rely on a combination of patents, trade secrets and non-disclosure
agreements to protect our intellectual property. We hold in excess of 1,000
patents in the United States and abroad and have pending in excess of 2,500
patent applications that cover various aspects of our technology. In addition,
we hold exclusive and non-exclusive licenses to a variety of third party
technologies covered by patents and patent applications. We cannot assure you
that pending patents will result in issued patents, that patents issued to or
licensed by us will not be challenged or circumvented by competitors, or that
such patents will be found to be valid or sufficiently broad to protect our
technology or to provide us with a competitive advantage. We rely on
non-disclosure and non-competition agreements with certain employees,
consultants and other parties to protect, in part, trade secrets and other
proprietary technology. We cannot assure you that these agreements will not be
breached, that we will have adequate remedies for any breach, that others will
not independently develop equivalent proprietary information or that
third-parties will not otherwise gain access to our trade secrets and
proprietary knowledge.
There has been, and we expect there will continue to be, substantial
litigation regarding patent and other intellectual property rights in the
medical device industry generally, particularly in the areas in which we
compete. We have defended, and will likely continue to defend, ourselves against
claims and legal actions alleging infringement of the patent rights of others.
Adverse determinations in any such litigation could subject us to significant
liabilities to third parties (including treble damages should an infringement be
found to be willful), could require us to seek licenses from third parties and
could, if such licenses are not available, prevent us from manufacturing,
selling or using certain of our products, any of which could have a material
adverse effect on Boston Scientific. An adverse determination in the NIR(R)
stent cases (including the possible removal of the product from the marketplace)
could have a material adverse effect on our company. Additionally, we may find
it necessary to initiate litigation to enforce our patent rights, to protect our
trade secrets or know-how and to determine the scope and validity of the
proprietary rights of others. Patent litigation can be costly and
time-consuming. We cannot assure you that our litigation expenses or any damage
payments will not be significant. For additional information, see Note K to our
1998 Consolidated Financial Statements and "Item 3 -- Legal
Proceedings -- Recent Patent Proceedings" in our 1998 Form 10-K, Note H to our
March 31, 1999 Condensed Consolidated Financial Statements (Unaudited) in our
March 1999 Form 10-Q and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Litigation" contained herein.
PRODUCT LIABILITY
The testing, marketing and sale of human health care products entails an
inherent risk of product liability claims. We are involved in various lawsuits
arising in the normal course of business from product liability claims, and
product liability claims may be asserted in the future relative to events not
known to our management at the present time. We have insurance coverage that our
management believes is adequate to protect against product liability losses as
could otherwise materially affect our financial position. However, we cannot
assure you that product liability claims will not exceed such insurance
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coverage limits or that such insurance will be available in the future on
commercially reasonable terms, if at all.
EMPLOYEES
As of April 30, 1999, we had nearly 13,200 employees, including
approximately 8,300 in operations, 1,000 in administration, 1,300 in research
and development and 2,600 in selling, marketing, distribution and related
administrative support. Of these employees, approximately 3,700 were employed in
our international operations. There will likely be some minor reduction to the
number of employees by year end given our rationalization plan initiated in
connection with the Schneider acquisition. We believe that the continued success
of our business will depend, in part, on our ability to attract and retain
qualified personnel. Competition for qualified, skilled personnel is intense in
the medical device industry. We cannot assure you that we will be able in the
future to attract and retain such personnel.
SEASONALITY
Our business, taken as a whole, is not materially affected by seasonal
factors.
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UNITED STATES TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of principal U.S. federal income and
estate tax consequences of the ownership and disposition of common stock by
holders who are non-United States holders and who acquire and own common stock
as capital assets within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended (the "Code"). For this purpose, a "non-United States
holder" is a beneficial owner of common stock other than, for U.S. federal
income tax purposes, (i) a citizen or individual resident of the United States,
(ii) a corporation or partnership created or organized in the United States or
under the laws of the United States or of any political subdivision of the
United States, (iii) an estate whose income is includible in gross income for
U.S. federal income tax purposes regardless of its source, or (iv) a trust if
(A) its administration is subject to the primary supervision of a U.S. court and
one or more U.S. persons have the authority to control all substantial decisions
of the trust or (B) the trust has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a U.S. person. This discussion does
not address all aspects of U.S. federal income and estate taxation that may be
relevant in light of any non-United States holder's particular facts and
circumstances (such as being a U.S. expatriate) and does not address any tax
consequences arising under the laws of any state, local or non-U.S. taxing
jurisdiction. Furthermore, the following discussion is based on current
provisions of the Code, Treasury regulations promulgated thereunder, and
administrative and judicial interpretations, all as in effect on the date of
this prospectus supplement, and all of which are subject to change, possibly
with retroactive effect. PROSPECTIVE NON-U.S. INVESTORS ARE URGED TO CONSULT
THEIR TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME,
ESTATE, AND OTHER TAX CONSEQUENCES OF OWNING AND DISPOSING OF THE COMMON STOCK.
DISTRIBUTIONS
If distributions are made on our common stock, these distributions will
generally constitute dividends for U.S. federal income tax purposes to the
extent paid from our current or accumulated earnings and profits, as determined
under U.S. federal income tax principles, and then will constitute a return of
capital that is applied against your basis in the common stock to the extent
these distributions exceed those earnings and profits. If we make a distribution
before January 1, 2001, the amount payable to a non-United States holder of
common stock will generally be subject to U.S. withholding tax either at a rate
of 30% of the gross amount of the distribution (regardless of whether we have
sufficient earnings and profits to cause the distribution to be a dividend for
U.S. federal income tax purposes) or such lower rate as may be specified by an
applicable tax treaty. However, withholding on distributions made after December
31, 2000 may be on a lesser amount than the gross amount of the distribution if
the distribution exceeds a reasonable estimate made by us of our current and
accumulated earnings and profits. Before January 1, 2001 we will be able to rely
on a non-United States holder's address to determine if a tax treaty applies to
dividends, but after that date a non-United States holder will be required to
furnish a Form W-8BEN or other permitted documentation certifying its
entitlement to treaty relief from withholding. Non-United States holders should
consult their tax advisors on submission of such documentation.
Dividends received by a non-United States holder that are effectively
connected with a U.S. trade or business conducted by such non-United States
holder and, if a tax treaty applies, are attributable to a U.S. permanent
establishment of the non-United States holder, are exempt from withholding tax,
provided such holder furnishes proper certification demonstrating the exemption.
However, such dividends, net of certain deductions and credits, are taxed at the
same graduated rates applicable to U.S. persons.
In addition to the graduated tax described above, dividends received by a
corporate non-United States holder that are effectively connected with a U.S.
trade or business of the corporate non-United States holder may also be subject
to a branch profits tax at a rate of 30% or such lower rate as may be specified
by an applicable tax treaty.
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GAIN ON DISPOSITION OF COMMON STOCK
A non-United States holder will generally not be subject to U.S. federal
income tax on any gain realized upon the sale or other disposition of common
stock unless: (i) such gain is effectively connected with a U.S. trade or
business of the non-United States holder and, if a tax treaty so provides, that
business is conducted through a permanent establishment in the United States,
(ii) the non-United States holder is an individual who holds common stock as a
capital asset and who is present in the United States for a period or periods
aggregating 183 days or more during the calendar year in which such sale or
disposition occurs and certain other conditions are met, or (iii) we are or have
been a "United States real property holding corporation" for federal income tax
purposes at any time within the shorter of the five-year period preceding such
disposition or such holder's holding period. Although we believe we are not and
are unlikely to become a United States real property holding corporation, we may
be one, or we may become one, because of our ownership of substantial real
estate assets in the United States. Even if we were to become a U.S. real
property holding corporation, any gain recognized by a non-United States holder
still would not be subject to U.S. tax if the common stock were considered to be
"regularly traded on an established securities market" and the non-United States
holder did not own, actually or constructively, at any time during the shorter
of the periods described above, more than five percent of our common stock.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, we must report to the IRS the amount of dividends paid, the name
and address of the recipient, and the amount, if any, of tax withheld. A similar
report is sent to the holder. Pursuant to tax treaties or other agreements, the
IRS may make its reports available to tax authorities in the recipient's country
of residence.
Backup withholding (which is generally imposed at a rate of 31% on certain
payments to persons who fail to furnish certain information to the payer) will
generally not apply to dividends paid before January 1, 2001 to non-United
States holders at an address outside the United States (unless the payer has
knowledge that the payee is a U.S. person). Dividends paid before January 1,
2001 to a non-United States holder at an address within the United States may be
subject to backup withholding at a rate of 31% if the non-United States holder
fails to establish that it is entitled to an exemption or to provide a correct
taxpayer identification number and other information to the payer. In order to
remain exempt from backup withholding with respect to dividends paid after
December 31, 2000, a non-United States holder will be required to comply with
certain modified certification procedures. Non-United States holders should
consult their tax advisors on submission of such documentation.
Under certain Treasury regulations, the payment of the proceeds of the
disposition of common stock to or through the U.S. office of a broker is subject
to information reporting and backup withholding at a rate of 31% unless the
holder certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Generally, the payment of the proceeds of the
disposition by a non-United States holder of common stock outside the United
States to or through a foreign office of a broker will not be subject to backup
withholding but will be subject to information reporting requirements if the
broker is (a) a U.S. person, (b) a "controlled foreign corporation" for U.S. tax
purposes or (c) a foreign person 50% or more of whose gross income for certain
periods is from the conduct of a U.S. trade or business unless such broker has
documentary evidence in its files of the holder's non-U.S. status and certain
conditions are met or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
The U.S. Treasury Department has promulgated final regulations regarding
the withholding, backup withholding and information reporting rules for payments
made after December 31, 2000. In general, these final regulations do not
significantly alter the substantive withholding, backup withholding and
information reporting requirements but would alter the procedures for claiming
benefits of an income tax treaty for payments made after December 31, 2000 and
change the certification procedures relating to the receipt by
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intermediaries of payments on behalf of the beneficial owner of shares of common
stock. Non-United States holders should consult their tax advisors regarding the
effect, if any, of the final regulations on an investment in the common stock.
ESTATE TAX
Individuals who own common stock at the time of their deaths or made
certain lifetime transfers of interests in common stock will be required to
include the value of such common stock in their gross estates for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
THE FOREGOING DISCUSSION IS A SUMMARY OF THE PRINCIPAL FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION OF COMMON
STOCK BY NON-UNITED STATES HOLDERS. ACCORDINGLY, INVESTORS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE INCOME TAX CONSEQUENCES OF THE
OWNERSHIP AND DISPOSITION OF COMMON STOCK, INCLUDING THE APPLICATION AND EFFECT
OF THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION.
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UNDERWRITING
We intend to offer our common stock in the United States and Canada through
U.S. underwriters as well as elsewhere through international managers. Subject
to the terms and conditions set forth in a U.S. purchase agreement among our
company and Merrill Lynch, Pierce, Fenner & Smith Incorporated, PaineWebber
Incorporated, Banc of America Securities LLC, Bear, Stearns & Co. Inc., Dain
Rauscher Wessels, a division of Dain Rauscher Incorporated, Deutsche Bank
Securities Inc. and U.S. Bancorp Piper Jaffray Inc., and concurrently with the
sale of 2,600,000 shares of our common stock to the international managers, we
have agreed to sell to the U.S. underwriters, and each of the U.S. underwriters
severally and not jointly has agreed to purchase from our company, the number of
shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
U.S. UNDERWRITER ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 4,388,800
PaineWebber Incorporated.................................... 2,007,200
Banc of America Securities LLC.............................. 800,800
Bear, Stearns & Co. Inc..................................... 800,800
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated................... 800,800
Deutsche Bank Securities Inc................................ 800,800
U.S. Bancorp Piper Jaffray Inc.............................. 800,800
----------
Total.......................................... 10,400,000
==========
</TABLE>
We have also entered into an international purchase agreement with Merrill
Lynch International, PaineWebber International (U.K.) Ltd., Bank of America
International Limited, Bear, Stearns International Limited, Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, Deutsche Bank AG London and
U.S. Bancorp Piper Jaffray Inc. Subject to the terms and conditions set forth in
the international purchase agreement, and concurrently with the sale of
10,400,000 shares of common stock to the U.S. underwriters pursuant to the U.S.
purchase agreement, we have agreed to sell to the international managers, and
the international managers severally have agreed to purchase from us, an
aggregate of 2,600,000 shares of common stock. The initial public offering price
per share and the total underwriting discount per share of common stock are
identical under the U.S. purchase agreement and the international purchase
agreement.
In the U.S. purchase agreement and the international purchase agreement,
the several U.S. underwriters and the several international managers,
respectively, have agreed, subject to the terms and conditions set forth in
those agreements, to purchase all of the shares of common stock being sold under
the terms of each such agreement if any of the shares of common stock being sold
under the terms of that agreement are purchased. In the event of a default by an
underwriter, the U.S. purchase agreement and the international purchase
agreement provide that, in certain circumstances, the purchase commitments of
the nondefaulting underwriters may be increased. The closings with respect to
the sale of shares of common stock to be purchased by the U.S. underwriters and
the international managers are conditioned upon one another.
We have agreed to indemnify the U.S. underwriters and the international
managers against some liabilities, including some liabilities under the
Securities Act, or to contribute to payments the U.S. underwriters and
international managers may be required to make in respect of those liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
S-40
<PAGE> 41
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors and certain stockholders have
agreed, with certain exceptions, not to directly or indirectly, without the
prior written consent of Merrill Lynch on behalf of the underwriters, for a
period of 90 days after the date of this prospectus supplement:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock (other
than transfers for no value or without consideration for charitable and
estate planning purposes or transactions with respect to shares
previously pledged and, in the case of two stockholders, pledges in
connection with certain future financings), whether now owned or later
acquired by the person executing the agreement or with respect to which
the person executing the agreement later acquires the power of
disposition, or file a registration statement under the Securities Act
relating to any shares of our common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise, other than, in the case
of two stockholders, an equity collar and, in the case of a third
stockholder, an exchange of shares for beneficial interests in an equity
exchange hedge fund.
COMMISSIONS AND DISCOUNTS
The U.S. underwriters have advised us that they propose initially to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus supplement, and to certain dealers at such
price less a concession not in excess of $.71 per share of common stock. The
U.S. underwriters may allow, and such dealers may reallow, a discount not in
excess of $.10 per share of common stock to certain other dealers. After the
initial offering, the public offering price, concession and discount may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the U.S. underwriters and the
international managers and the proceeds before expenses to us. This information
is presented assuming either no exercise or full exercise by the U.S.
underwriters and the international managers of their over-allotment options.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTIONS OPTIONS
--------- ------------ ------------
<S> <C> <C> <C>
Public Offering Price................................ $39.875 $518,375,000 $596,131,250
Underwriting Discount................................ $1.20 $15,600,000 $17,940,000
Proceeds, before expenses, to Boston Scientific...... $38.675 $502,775,000 $578,191,250
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $949,000 and are payable by us.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the U.S. underwriters and the
international managers are permitted to sell shares of our common stock to each
other for purposes of resale at the public offering price, less an amount not
greater than the selling concession. Under the terms of the intersyndicate
agreement, the U.S. underwriters and any dealer to whom they sell shares of our
common stock will not offer to sell or sell shares of our common stock to
persons who are non-U.S. or non-Canadian persons or to persons they believe
intend to resell to persons who are non-U.S. or non-Canadian persons, and the
international managers and any dealer to whom they sell shares of common stock
will not offer to sell or sell shares of common stock to U.S. persons or to
Canadian persons or to persons they believe intend to resell to U.S. or Canadian
persons, except in the case of transactions under the terms of the
intersyndicate agreement.
S-41
<PAGE> 42
OVER-ALLOTMENT OPTIONS
We have granted an option to the U.S. underwriters, exercisable for 30 days
after the date of this prospectus supplement, to purchase up to an aggregate of
1,560,000 additional shares of our common stock at the public offering price set
forth on the cover page of this prospectus supplement, less the underwriting
discount. The U.S. underwriters may exercise this option solely to cover
over-allotments, if any, made on the sale of our common stock offered hereby. To
the extent that the U.S. underwriters exercise this option, each U.S.
underwriter will be obligated, subject to certain conditions, to purchase a
number of additional shares of our common stock proportionate to such U.S.
underwriter's initial amount reflected in the foregoing table.
We also have granted an option to the international managers, exercisable
for 30 days after the date of this prospectus supplement, to purchase up to an
aggregate of 390,000 additional shares of common stock to cover over-allotments,
if any, on terms similar to those granted to the U.S. underwriters.
NEW YORK STOCK EXCHANGE LISTING
Our common stock is listed on the New York Stock Exchange under the symbol
"BSX".
NASD REGULATIONS
Because more than ten percent of the net proceeds of the offering may be
paid to members or affiliates of members of the National Association of
Securities Dealers, Inc. participating in the offering, the offering will be
conducted in accordance with NASD Conduct Rule 2710(c)(8).
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the SEC
may limit the ability of the underwriters and certain selling group members to
bid for and purchase our common stock. As an exception to these rules, Merrill
Lynch is permitted to engage in certain transactions that stabilize the price of
our common stock. Such transactions consist of bids or purchases for the purpose
of pegging, fixing or maintaining the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common stock
than are set forth on the cover page of this prospectus supplement, Merrill
Lynch may reduce that short position by purchasing our common stock in the open
market. Merrill Lynch may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.
Merrill Lynch may also impose a penalty bid on certain underwriters and
selling group members. This means that if Merrill Lynch purchases shares of our
common stock in the open market to reduce the underwriters' short position or to
stabilize the price of our common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither our company nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
our company nor any of the underwriters makes any representation that the U.S.
underwriters or the international managers will engage in such transactions or
that such transactions, once commenced, will not be discontinued without notice.
S-42
<PAGE> 43
OTHER RELATIONSHIPS
Certain of the underwriters and their affiliates engage in transactions
with, and perform services for, our company in the ordinary course of business
and have engaged, and may in the future engage, in commercial banking
transactions with our company, for which they have received customary
compensation. Merrill Lynch Capital Corp., an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, serves as administrative agent under one of
our $600 million 364-day credit facilities. By its terms, this credit facility
requires us to use the net proceeds of this offering first to repay all amounts
outstanding under the facility. Bank of America N.T. & S.A., an affiliate of
Banc of America Securities LLC, serves as syndication agent, and each of
Deutsche Bank AG, an affiliate of Deutsche Bank Securities Inc., and U.S. Bank,
N.A., an affiliate of U.S. Bancorp Piper Jaffray Inc., is a participant, under
our other $600 million 364-day credit facility and under our $1.0 billion 5-year
credit facility. In addition, Merrill Lynch Money Markets, Inc., an affiliate of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Bank of America N.T. &
S.A. each serve as a dealer under our commercial paper program.
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for us
by Shearman & Sterling, New York, New York. Certain legal matters relating to
our common stock will be passed upon for the underwriters by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company incorporated by reference and included, respectively, in the
Company's 1998 Form 10-K, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon incorporated by reference and
included therein and incorporated herein by reference. Such consolidated
financial statements and financial statement schedule have been incorporated
herein by reference in reliance upon such reports, given on the authority of
such firm as experts in accounting and auditing.
The combined balance sheets of Schneider Worldwide, formerly a business of
Pfizer Inc., as of December 31, 1997 and 1996, and the related combined
statements of income and cash flows for each of the years in the three-year
period ended December 31, 1997, are incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
S-43
<PAGE> 44
PROSPECTUS
BOSTON SCIENTIFIC CORPORATION
Senior Debt Securities, Subordinated Debt Securities,
Preferred Stock, Depositary Shares, Common Stock, Warrants,
Stock Purchase Contracts and Stock Purchase Units
BSC CAPITAL TRUST
BSC CAPITAL TRUST II
BSC CAPITAL TRUST III
TRUST PREFERRED SECURITIES
GUARANTEED AS SET FORTH HEREIN BY
BOSTON SCIENTIFIC CORPORATION
Boston Scientific Corporation ("Boston Scientific" or the "Company") may
offer and sell from time to time, together or separately, the following
securities in one or more series: (i) its unsecured senior debt securities (the
"Senior Debt Securities") and its unsecured subordinated debt securities (the
"Subordinated Debt Securities" and, together with the Senior Debt Securities,
the "Debt Securities"), consisting of debentures, notes or other evidences of
indebtedness; (ii) shares of its preferred stock, par value $0.01 per share (the
"Preferred Stock"); (iii) depositary shares representing entitlement to all
rights and preferences of a fraction of a share of Preferred Stock of a specific
series (the "Depositary Shares"); (iv) shares of its common stock, par value
$0.01 per share (the "Common Stock"); (v) warrants to purchase any of the
foregoing Debt Securities, Preferred Stock, Depositary Shares or Common Stock
(the "Warrants"); (vi) stock purchase contracts (the "Stock Purchase Contracts")
to purchase Common Stock or Preferred Stock; (vii) stock purchase units (the
"Stock Purchase Units"), each Stock Purchase Unit representing ownership of a
Stock Purchase Contract and Trust Preferred Securities (as defined below) or
other debt obligations of third parties, including U.S. government or government
agency securities securing the holder's obligation to purchase Common Stock or
Preferred Stock under the Stock Purchase Contracts. The Senior Debt Securities,
Subordinated Debt Securities, Preferred Stock, Depositary Shares, Warrants,
Common Stock, Stock Purchase Contracts, Stock Purchase Units and the Trust
Preferred Securities are collectively called the "Securities."
(Continued on next page)
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
The Securities may be offered and sold to or through underwriters, dealers
or agents as designated from time to time, or directly to one or more other
purchasers or through a combination of such methods. See "Plan of Distribution."
If any underwriters, dealers or agents are involved in the sale of any of the
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangements between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution" for indemnification arrangements for
agents, dealers and underwriters.
The date of this Prospectus is June 3, 1999.
<PAGE> 45
(Continued from front page)
BSC Capital Trust, BSC Capital Trust II and BSC Capital Trust III (each a
"Trust"), each a statutory business trust formed under the laws of the State of
Delaware, may each offer and sell from time to time, preferred securities,
representing preferred undivided beneficial interests in the assets of their
respective Trust ("Trust Preferred Securities"). The Company will own all of the
undivided beneficial ownership interests represented by the common securities of
each Trust ("Trust Common Securities" and, together with the Trust Preferred
Securities, the "Trust Securities"). To the extent described herein, the Company
will guarantee (each, a "Trust Guarantee") the payment of periodic cash
distributions ("Distributions") with respect to Trust Preferred Securities out
of monies held by the Trusts and payments on liquidation, redemption or
otherwise with respect to the Trust Preferred Securities. See "Description of
Trust Preferred Securities" and "Description of Trust Guarantee." Each Trust
Guarantee (i) will rank junior and subordinate in right of payment to all other
liabilities of the Company, except indebtedness of the Company that by its terms
is subordinate or pari passu to such Trust Guarantee, and (ii) will rank pari
passu with most senior preferred or preference stock of the Company. See
"Description of Trust Guarantee -- Status of Trust Guarantee."
This prospectus may not be used to consummate sales of securities unless
accompanied by a prospectus supplement.
The Company may issue and sell Subordinated Debt Securities from time to
time in one or more series to a Trust or a trustee of a Trust in connection with
the investment of proceeds from an offering of Trust Securities. Subordinated
Debt Securities purchased by a Trust may be subsequently distributed pro rata to
holders of Trust Securities of such Trust in connection with the dissolution of
such Trust upon the occurrence of certain events as may be described in one or
more supplements to this Prospectus (each, a "Prospectus Supplement"). See
"Description of Trust Preferred Securities" and "Description of Trust
Guarantee -- Status of the Trust Guarantee."
One or more related Prospectus Supplements will set forth the form in which
the Securities are to be issued and certain specific terms of the particular
Securities described in this Prospectus, including, where applicable, the
following: (i) in the case of Debt Securities, the specific designation,
aggregate principal amount, ranking as Senior Debt Securities or Subordinated
Debt Securities, maturity, premium, if any, interest rate, time and method of
calculating interest, if any, date on which interest, if any, shall be payable,
place where principal of, premium, if any, and interest, if any, on such Debt
Securities will be payable, the currencies or currency units in which principal
of, premium, if any, and interest, if any, on such Debt Securities will be
payable, any terms of redemption or conversion, any sinking fund provisions, the
purchase price, any right of the Company to defer payment of interest on the
Debt Securities and the maximum length of such deferral period and other special
terms; (ii) in the case of Preferred Stock or Depositary Shares, the specific
designation, stated value and liquidation preference per share and number of
shares offered, the purchase price, dividend rate (which may be fixed or
variable), method of calculating payment of dividends, place where dividends on
such Preferred Stock will be payable, any terms of redemption or conversion,
dates on which dividends shall be payable and dates from which dividends shall
accrue, voting and other rights, including whether interests in the Preferred
Stock will be represented by Depositary Shares and, if so, the fraction of a
share of Preferred Stock represented by each Depositary Share; (iii) in the case
of Common Stock, the number of shares offered, the initial offering price,
market price and dividend information; (iv) in the case of Warrants, the
specific designation, the number, purchase price, exercise price and other terms
thereof, as well as the terms on which, and the securities for which, the
Warrants may be exercised; (v) in the case of Stock Purchase Contracts, the
number of shares of Common Stock issuable thereunder, the purchase price of the
Common Stock, the date on which the Common Stock is required to be purchased by
the holders of the Stock Purchase Contracts, any periodic payments required to
be made by the Company to the holders of the Stock Purchase Contracts or vice
versa, and the terms of the offering and sale thereof; (vi) in the case of Stock
Purchase Units, the specific terms of the Stock Purchase Contracts and any Trust
Preferred Securities or debt obligations of third parties securing the holder's
obligation to purchase the Common Stock under the Stock Purchase Contracts, and
the terms of the offering and sale thereof; and (vii) in the case of Trust
2
<PAGE> 46
Preferred Securities, the specific designation, number of securities,
liquidation amount per security, purchase price, distribution rate (or method of
calculation thereof), dates on which distributions shall be payable and dates
from which distributions shall accrue, any voting rights, terms for any
conversion or exchange into other securities, any redemption, exchange or
sinking fund provisions, any other rights, preferences, privileges, limitations
or restrictions relating to the Trust Preferred Securities, specific terms and
provisions of the Trust Guarantee and the terms upon which the proceeds of the
sale of the Trust Preferred Securities shall be used to purchase a specific
series of Subordinated Debt Securities.
The Company, by filing the Registration Statement of which this Prospectus
is a part, is seeking flexibility with respect to the offering of the Securities
to the public. While it is likely that the offering price to the public of the
Securities will be less, in no event will the offering price to the public of
the Securities exceed U.S.$1.2 billion in the aggregate (or its equivalent
(based on the applicable exchange rate of the time of issue), if the Securities
are offered for consideration denominated in one or more foreign currencies or
currency units as shall be designated by the Company). The Securities may be
offered, separately or together, in separate series, in amounts at prices and on
terms to be determined at the time of sale and set forth in an accompanying
Prospectus Supplement. The applicable Prospectus Supplement will also contain
information, where applicable, about certain U.S. federal income tax
considerations.
The Common Stock is listed on the New York Stock Exchange under the trading
symbol "BSX." The Prospectus Supplement will state whether any Securities
offered thereby will be listed on any national securities exchange.
----------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICES OF THE SECURITIES
OFFERED HEREBY, INCLUDING STABILIZING TRANSACTIONS, THE PURCHASE OF SECURITIES
TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. THE
UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN
THE MARKET PRICES OF THE SECURITIES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION."
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE TRUSTS OR ANY UNDERWRITER,
DEALER OR AGENT. NEITHER THIS PROSPECTUS NOR ANY ACCOMPANYING PROSPECTUS
SUPPLEMENT CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY
ANY OF THE SECURITIES HEREBY OR THEREBY OFFERED IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT, NOR
ANY SALE MADE HEREUNDER OR THEREUNDER SHALL CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
OR ANY OF THE TRUSTS SINCE SUCH DATE OR, IN THE CASE OF INFORMATION INCORPORATED
HEREIN OR THEREIN BY REFERENCE, THE DATE OF FILING SUCH INFORMATION WITH THE
COMMISSION.
3
<PAGE> 47
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following regional
offices: in Chicago, at Citicorp Center, 500 W. Madison, Suite 1400, Chicago,
Illinois 60661 and in New York, at Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission also maintains a site on the world
wide web at http://www.sec.gov that contains reports, proxy and information
statements and other information filed electronically by the Company. In
addition, reports, proxy statements and other information concerning the Company
may be inspected at the offices of the New York Stock Exchange, 20 Broad Street,
New York, New York 10005.
This Prospectus constitutes part of a combined Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company and each of the Trusts with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). As
permitted by the rules and regulations of the Commission, this Prospectus and
any accompanying Prospectus Supplement omits certain of the information
contained in the Registration Statement. For further information with respect to
the Company, each of the Trusts and the Securities offered hereby, reference is
hereby made to the Registration Statement and to the exhibits and the financial
statements, notes and schedules filed as a part thereof or incorporated by
reference therein, copies of which may be obtained as provided in the preceding
paragraph. Statements contained herein and any accompanying Prospectus
Supplement concerning the provisions of any documents are necessarily summaries
of such documents and are not necessarily complete, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission, which may be obtained as described above.
No separate financial statements of any of the Trusts have been included or
incorporated by reference herein. The Company and the Trusts do not consider
that such financial statements would be material to holders of Trust Preferred
Securities because (i) all of the voting securities of each Trust are owned,
directly or indirectly, by the Company, a reporting company under the Exchange
Act, (ii) each of the Trusts has and will have no independent operations, but
exists for the sole purpose of issuing securities representing undivided
beneficial interests in its assets and investing the proceeds thereof in
Subordinated Debt Securities issued by the Company, and (iii) the Company's
obligations, which are described herein and in any accompanying Prospectus
Supplement, pursuant to each Declaration (as defined herein) (including the
obligation to pay the expenses of each Trust), the Indenture and any
supplemental indentures thereto, the Subordinated Debt Securities issued to any
of the Trusts and the Trust Guarantees, taken together, constitute a full and
unconditional guarantee, on a subordinated basis, by the Company of payments due
on the Trust Preferred Securities. See "The Trusts," "Description of Trust
Preferred Securities" and "Description of Trust Guarantee."
None of the Trusts are currently subject to the information reporting
requirements of the Exchange Act. Upon the effectiveness of the Registration
Statement, each Trust will become subject to such requirements; however, each of
the Trusts intends to seek and expects to receive exemption therefrom. Each of
the Trusts is a newly formed special purpose entity, has no operating history or
independent operations and is not engaged in and does not propose to engage in
any activity other than its holding as trust assets the Subordinated Debt
Securities and the issuance of the Trust Securities.
4
<PAGE> 48
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-11083) are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, as amended by a Form 10-K/A dated April 28, 1999 and a
Form 10-K/A2 dated June 2, 1999 (collectively, the "1998 Form 10-K").
2. The Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999 (the "March 1999 Form 10-Q").
3. The description of the Common Stock set forth in the Company's
Registration Statement on Form 8-A filed pursuant to Section 12 of the
Exchange Act on April 3, 1992, and any amendment or report filed for the
purpose of updating such description.
4. The Company's Current Report filed on Form 8-K dated September 25,
1998, as amended by a Form 8-K/A dated November 24, 1998 and a Form 8-K/A2
dated March 31, 1999.
All documents and reports filed with the Commission by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the Securities
offered hereby shall be deemed to be incorporated by reference in this
Prospectus and to be a part of this Prospectus from the dates of filing of such
documents or reports. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein, in any other subsequently filed document which also
is or is deemed to be incorporated by reference herein or in the accompanying
Prospectus Supplement modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified and
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a Prospectus
is delivered, upon written or oral request of such person, a copy of any of the
documents incorporated herein by reference (other than exhibits to such
documents that are not specifically incorporated by reference therein). Written
requests should be directed to Investor Relations, Boston Scientific
Corporation, One Boston Scientific Place, Natick, Massachusetts 01760-1537.
Telephone requests may be directed to (508) 650-8000.
CERTAIN FORWARD-LOOKING STATEMENTS
This Prospectus, the accompanying Prospectus Supplement and the documents
incorporated herein by reference contain forward-looking statements. The Company
desires to take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and is including this statement for the
express purpose of availing itself of the protections of the safe harbor with
respect to all forward-looking statements. Forward-looking statements contained
in this Prospectus, the accompanying Prospectus Supplement and the documents
incorporated herein by reference include, but are not limited to, statements
with respect to, and the Company's performance may be affected by: (a) the
Company's ability to obtain benefits from the acquisition of Schneider
Worldwide, formerly a member of the Medical Technologies Group of Pfizer, Inc.
(the "Schneider Acquisition"), including purchased research and development and
physician and hospital relationships; (b) the process, outlays and plan for the
integration of businesses acquired by the Company, and the successful and timely
implementation of the related plans of rationalization; (c) the impact and
timing of the Company's supply chain initiatives; (d) the potential impacts of
continued consolidation among healthcare providers, trends towards managed care
and economically motivated buyers, healthcare cost containment, more stringent
regulatory requirements and more vigorous enforcement activities; (e) the
Company's belief that it is well positioned to take advantage of opportunities
for growth that exist in the markets it serves; (f) the Company's continued
commitment to refine existing products and procedures and to develop new
technologies that provide simpler, less
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<PAGE> 49
traumatic, less costly and more efficient diagnosis and treatment; (g) the
Company's ability to launch products on a timely basis, including products
resulting from purchased research and development; (h) risks associated with
international operations; (i) the potential effect of foreign currency
fluctuations on revenues, expenses and resulting margins and the trend toward
increasing sales and expenses denominated in foreign currencies; (j) the
Company's belief that its effective tax rate for 1999 will only increase
slightly from 1998; (k) the ability of the Company to manage accounts
receivable, manufacturing costs and inventory levels and mix and to react
effectively to the changing managed care environment and worldwide economic
conditions; (l) the ability of the Company to meet its projected cash needs
through the end of 1999; (m) the ability of the global information systems to
improve supply chain management; (n) the effect of litigation and compliance
activities on the Company's legal provision; (o) costs and risks associated with
implementing Year 2000 compliance and business process reengineering; (p) timely
and uninterrupted supply of the NIR(R) coronary stent and the Company's cost to
purchase the NIR(R) stent; (q) the ability to realize improved long-term returns
on the Company's investments with a direct selling presence in emerging markets;
(r) the ability of the Company to obtain more permanent financing to re-finance
a portion of its commercial paper and amounts borrowed under the Company's
revolving credit facilities, to comply with its debt ratio through an equity
issuance and to place its commercial paper at reasonable rates; (s) the
Company's expectation that a minimum of $700 million of short-term debt
supported by the Company's revolving credit facilities will remain outstanding
through the next twelve months; (t) the Company's ability to fund development of
purchased technology and to realize value assigned to in-process research and
development and other intangible assets; (u) the impact of stockholder class
action, patent, product liability and other litigation, the outcome of the U.S.
Department of Justice investigation, and the adequacy of the Company's product
liability insurance; (v) the potential impact resulting from the euro
conversion, including adaptation of information technology systems, competitive
implications related to pricing and foreign currency considerations; and (w) the
timing, size and nature of strategic initiatives available to the Company.
Several important factors, in addition to the specific factors discussed in
connection with each of the forward-looking statements contained herein, in the
accompanying Prospectus Supplement and in the documents incorporated herein by
reference, could affect the future results of the Company and could cause those
results to differ materially from those expressed in the forward-looking
statements contained herein, in the accompanying Prospectus Supplement and in
the documents incorporated herein by reference. Such additional factors include,
among other things, future economic, competitive and regulatory conditions,
demographic trends, third-party intellectual property, financial market
conditions and future business decisions of Boston Scientific and its
competitors, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of Boston Scientific. Therefore, the
Company wishes to caution each reader of this Prospectus, the accompanying
Prospectus Supplement and the documents incorporated herein by reference to
consider carefully these factors as well as the specific factors discussed with
each forward-looking statement and as disclosed in the Company's filings with
the Securities and Exchange Commission as such factors, in some cases, have
affected, and in the future (together with other factors) could affect, the
ability of the Company to implement its business strategy and may cause actual
results to differ materially from those contemplated by the statements expressed
herein and in the documents incorporated herein by reference.
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<PAGE> 50
THE COMPANY
The Company is a worldwide developer, manufacturer and marketer of
minimally invasive medical devices. Medical professionals use the Company's
products in a broad range of interventional medical specialties, including
cardiology, gastroenterology, neuro-endovascular therapy, pulmonary medicine,
radiology, urology and vascular surgery. The Company's products are generally
inserted into the human body through natural openings or small incisions in the
skin and can be guided to most areas of the anatomy to diagnose and treat a wide
range of medical problems. These products provide effective alternatives to
traditional surgery by reducing procedural trauma, complexity, risk to the
patient, cost and recovery time. In recent years, the Company has bolstered its
growth through several strategic acquisitions and alliances. Most recently, on
September 10, 1998, the Company acquired Schneider Worldwide, formerly a member
of the Medical Technology Group of Pfizer Inc. ("Pfizer"), for approximately
$2.1 billion in cash. The purchase price was funded by the issuance of
commercial paper.
The principal executive offices of the Company are located at One Boston
Scientific Place, Natick, Massachusetts 01760-1537. Its telephone number is
(508) 650-8000.
TRUSTS
Each Trust is a statutory business trust formed under Delaware law pursuant
to (i) a separate declaration of trust (each, as amended and restated, a
"Declaration") executed by the Company as sponsor for such trust (the
"Sponsor"), the Regular Trustees (as defined herein) and the Delaware Trustee
(as defined herein) of such trust and (ii) the filing of a certificate of trust
with the Secretary of State of the State of Delaware on September 25, 1998, with
respect to BSC Capital Trust, and on September 29, 1998, with respect to the
other Trusts. The Company and each Institutional Trustee (as defined herein)
will qualify the applicable Declaration as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Each Trust exists
for the exclusive purposes of (i) issuing and selling Trust Securities, (ii)
investing the gross proceeds from the sale of such Trust Securities in
Subordinated Debt Securities and (iii) engaging in only those other activities
necessary or incidental thereto.
The Company will own directly or indirectly all of the Trust Common
Securities of each Trust. The Trust Common Securities of each Trust will rank
pari passu, and the applicable Trust will make payments thereon pro rata, with
the Trust Preferred Securities of such Trust except that, if any event of
default has occurred and is continuing under its Declaration, the rights of
holders of the Trust Common Securities to payment in respect of distributions
and payments upon liquidation, redemption or otherwise will be subordinated to
the rights of holders of the Trust Preferred Securities of such Trust. The
Company will acquire Trust Common Securities of each of the Trusts in an
aggregate liquidation amount equal to at least 3% of the total capital of each
such Trust.
The term of each Trust is approximately 45 years, but each Trust may be
dissolved earlier as provided in its Declaration. The business and affairs of
each of the Trusts will be conducted by the trustees (the "Capital Trustees")
appointed by the Company as the direct or indirect holder of all of the Trust
Common Securities of each such Trust. As holder of the Trust Common Securities,
the Company will be entitled to appoint, remove or replace any of, or increase
or reduce the number of Capital Trustees of each of the Trusts. The applicable
Declaration governs the duties and obligations of the Capital Trustees. A
majority of the Capital Trustees (the "Regular Trustees") of each of the Trusts
will be persons who are employees or officers of, or who are affiliated with,
the Company. One Capital Trustee of each Trust will be a financial institution
that is unaffiliated with the Company and has minimum capital and surplus of not
less than $50.0 million. That institution acts as property trustee and as
indenture trustee (the "Institutional Trustee") for the purpose of compliance
with the provisions of the Trust Indenture Act pursuant to terms set forth in
the applicable Prospectus Supplement. In addition, unless the Institutional
Trustee for a Trust maintains a principal place of business in the State of
Delaware and otherwise meets the requirements of applicable law, one Capital
Trustee of such Trust will be an entity having a principal place of business in,
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<PAGE> 51
or a natural person resident of, the State of Delaware (the "Delaware Trustee").
The Company will pay all fees and expenses related to the Trusts and any
offering of Trust Securities.
The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in
Declaration, the Delaware Business Trust Act, as amended (the "Trust Act"), and
the Trust Indenture Act. See "Description of Trust Preferred Securities."
Unless otherwise specified in the applicable Prospectus Supplement, the
Institutional Trustee for each of the Trusts is The Chase Manhattan Bank;
Attention: Corporate Trust Administration. Unless otherwise specified in the
applicable Prospectus Supplement, The Chase Manhattan Bank Delaware will serve
as the Delaware Trustee for each of the Trusts, and its address in the State of
Delaware is 1201 North Market Street, Wilmington, New Castle County, Delaware
19801, Attention: Corporate Trust Administration. The principal place of
business of each of the Trusts is c/o Boston Scientific Corporation, One Boston
Scientific Place, Natick, Massachusetts 01760-1537, telephone number (508)
650-8000.
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<PAGE> 52
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Securities
(including Subordinated Debt Securities issued to any of the Trusts in
connection with the investment by any such Trust of all of the proceeds from the
sale of Trust Preferred Securities) for general corporate purposes, including,
without limitation, repurchases or redemptions of the Company's outstanding debt
securities or other reductions of the Company's outstanding borrowings, working
capital, business acquisitions, investments in or loans to subsidiaries, capital
expenditures or for such other purposes as may be specified in the applicable
Prospectus Supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges of the Company on a consolidated
basis for the periods indicated were as follows (unaudited):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ---------------------------------------
1999 1998 1998 1997 1996 1995 1994
----- ----- ---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges........ 4.99 8.44 7.24 15.76 5.07 16.98
Coverage deficiency (in thousands)........ $(279,774)
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges,
"earnings" consist of income (loss) before income taxes and the cumulative
effect of a change in accounting plus net distributed equity in earnings of
equity investees and fixed charges less capitalized interest. "Fixed charges"
consist of interest expense, capitalized interest, amortization of debt issuance
expenses and discount and an appropriate portion of rental expense that
represents a reasonable approximation of the interest factor. "Coverage
deficiency" consists of earnings, as defined above, less fixed charges.
The ratios of earnings to fixed charges for all periods presented are not
necessarily indicative of the results that may be expected for any future
periods, and reflect merger-related and special charges recorded in conjunction
with the Company's acquisitions and strategic alliances consummated through
March 31, 1999. The Company had a coverage deficiency in 1998 as a result of
noncash special charges of $646 million recorded in connection with the
acquisition of Schneider Worldwide and other merger-related initiatives. These
ratios should be read in conjunction with the Company's consolidated financial
statements (including notes thereto) included in the 1998 Form 10-K and the
Company's condensed consolidated financial statements (including notes thereto)
included in the March 1999 Form 10-Q.
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<PAGE> 53
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. Particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may apply to any series of Debt Securities will be described
in the Prospectus Supplement relating to such Debt Securities. This description
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all of the provisions of the Indenture (as defined herein),
including the definitions therein of certain terms and those terms made part of
such Indenture by reference to the Trust Indenture Act, as in effect on the date
of such Indenture, and to such Debt Securities. Unless otherwise indicated,
certain capitalized terms used below and not defined have the respective
meanings assigned to them in the Indenture.
The Company may issue Debt Securities from time to time in one or more
series. Senior Debt Securities and/or Subordinated Debt Securities may be issued
under an indenture, as amended or supplemented from time to time (as so
supplemented or amended, the "Indenture") between the Company and The Chase
Manhattan Bank, as trustee (the "Trustee"), and in the form that has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
The Indenture will be subject to and governed by the Trust Indenture Act.
GENERAL
The Debt Securities will be unsecured obligations of the Company. The
Indebtedness represented by (i) Senior Debt Securities will rank on a parity
with all other unsecured and unsubordinated Indebtedness of the Company and (ii)
Subordinated Debt Securities will be unsecured and subordinated in right of
payment to the prior payment in full of all Senior Indebtedness (as defined
below) of the Company. See "-- Subordination."
The Indenture will provide for the issuance by the Company from time to
time of Debt Securities in one or more series. The aggregate principal amount of
Debt Securities which may be issued under the Indenture will be unlimited and
the Indenture will set forth the specific terms of any series of Debt Securities
or provide that such terms shall be set forth in, or determined pursuant to, an
authorizing resolution and/or a supplemental indenture, if any, relating to such
series.
Reference is made to the Prospectus Supplement relating to the particular
series of Debt Securities offered thereby for a description of the terms of such
Debt Securities in respect of which this Prospectus is being delivered,
including the following, as applicable:
(i) the form and title of such Debt Securities and whether such Debt
Securities are Senior Debt Securities or Subordinated Debt Securities;
(ii) any limit on the aggregate principal amount of such series of
Debt Securities;
(iii) the date or dates on which the principal of such Debt Securities
is payable, or the method by which such dates will be determined or
extended;
(iv) the rate or rates at which such Debt Securities shall bear
interest, if any, the date or dates from which such interest will accrue,
the Interest Payment Dates on which such interest will be payable, the
right, if any, of the Company to defer or extend an Interest Payment Date
and the Regular Record Date, if any, for interest payable on any Registered
Security on any Interest Payment Date, or the method by which any of the
foregoing shall be determined, and the basis upon which interest will be
calculated if other than on the basis of a 360-day year of twelve 30-day
months;
(v) the place or places, if any, other than or in addition to the
Borough of Manhattan, The City of New York, where the principal of, and
premium, if any, and interest, if any, on such Debt Securities will be
payable, where any Registered Securities of the series may be surrendered
for registration of transfer, where such Debt Securities may be surrendered
for exchange, where such Debt Securities that are convertible or
exchangeable may be surrendered for conversion or exchange,
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<PAGE> 54
as applicable and, if different than the location specified in the
Indenture, the place or places where notices or demands to or upon the
Company in respect of such Debt Securities and such Indenture may be
served;
(vi) the period or periods within which, the price or prices at which,
the currency or currencies in which, and other terms and conditions upon
which such Debt Securities may be redeemed, in whole or in part, at the
option of the Company or a Holder, if the Company or a Holder thereof is to
have that option;
(vii) the obligation or the right, if any, of the Company to redeem,
repay or purchase such Debt Securities pursuant to any sinking fund or
analogous provision or at the option of a Holder thereof, and the period or
periods within which, the price or prices at which, the currency or
currencies in which, and other terms and conditions upon which such Debt
Securities will be redeemed, repaid or purchased, in whole or in part,
pursuant to such obligation;
(viii) if other than denominations of $1,000 and any integral multiple
thereof, the denomination or denominations in which any Registered
Securities of such series will be issuable and, if other than denominations
of $5,000, the denomination or denominations in which any Bearer Securities
of such series will be issuable;
(ix) if other than the Trustee, the identity of each Security
Registrar and/or Paying Agent;
(x) if other than the principal amount thereof, the portion of the
principal amount of such Debt Securities that will be payable upon
declaration of acceleration of the Maturity thereof under the Indenture, or
the method by which such portion shall be determined;
(xi) if other than U.S. dollars, the currency or currencies (including
currency unit or units) in which payment of principal of, or premium, if
any, or interest, if any, on such Debt Securities will be payable or in
which such Debt Securities will be denominated, and the particular
provisions applicable thereto in accordance with, in addition to or in lieu
of any provisions of the Indenture;
(xii) whether the amount of payments of principal of, or premium, if
any, or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may be based, without limitation, on one or more currencies,
commodities, equity indices or other indices), and the manner in which such
amounts will be determined;
(xiii) whether the principal of, or premium, if any, or interest, if
any, on such Debt Securities are to be payable, at the election of the
Company or a Holder thereof, in a currency or currencies other than that in
which such Debt Securities are denominated or stated to be payable, the
period or periods within which (including the Election Date), and the terms
and conditions upon which such election may be made, and the time and
manner of determining the exchange rate between the currency in which such
Debt Securities are denominated or stated to be payable and the currency or
currencies in which such Debt Securities are to be so payable, in each case
in accordance with, in addition to or in lieu of any of the provisions of
the Indenture;
(xiv) the designation of the initial Exchange Rate Agent, if any;
(xv) the applicability, if any, of the defeasance or covenant
defeasance provisions of the Indenture to such Debt Securities, and any
provisions in modification of, in addition to or in lieu of any of the
provisions of the Indenture;
(xvi) provisions, if any, granting special rights to Holders of such
Debt Securities upon the occurrence of such events as may be specified;
(xvii) any deletions from, modifications of or additions to the Events
of Default or covenants of the Company specified in the Indenture with
respect to such Debt Securities, whether or not such Events of Default or
covenants are consistent with the Events of Default or covenants set forth
herein;
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<PAGE> 55
(xviii) whether such Debt Securities are to be issuable as Registered
Securities, Bearer Securities (with or without coupons), or both, any
restrictions applicable to the offer, sale or delivery of Bearer
Securities, whether any such Debt Securities are to be issuable initially
in temporary global form and whether any such Debt Securities are to be
issuable in permanent global form with or without coupons and, if so,
whether beneficial owners of interests in any such permanent global
Security may exchange such interests for Debt Securities of such series and
of like tenor of any authorized form and denomination and the circumstances
under which any such exchanges may occur, if other than in the manner
provided in the Indenture, whether Registered Securities of the series may
be exchanged for Bearer Securities of the series (if permitted by
applicable laws and regulations), and the circumstances under which and the
place or places where any such exchanges may be made and if Debt Securities
of any series are to be issuable in global form, the identity of any
initial depository therefor;
(xix) the date as of which any Bearer Securities of the series and any
temporary global Security representing Outstanding Securities of the series
will be dated if other than the date of original issuance of the first Debt
Security of the series to be issued;
(xx) the Person to whom any interest in any Registered Security of the
series will be payable, if other than the Person in whose name that Debt
Security (or one or more Predecessor Securities) is registered at the close
of business on the Regular Record Date for such interest, the manner in
which, or the Person to whom, any interest on any Bearer Security of the
series shall be payable, if other than upon presentation and surrender of
the coupons appertaining thereto as they severally mature, and the extent
to which, or the manner in which, any interest payable on a temporary
global Security on an Interest Payment Date will be paid if other than in
the manner provided in the Indenture;
(xxi) if such Debt Securities are to be issuable in definitive form
(whether upon original issue or upon exchange of a temporary Security of
such series) only upon receipt of certain certificates or other documents
or satisfaction of other conditions, the form and/or terms of such
certificates, documents or conditions;
(xxii) if such Debt Securities are to be issued upon the exercise of
warrants, the time, manner and place for such Debt Securities to be
authenticated and delivered;
(xxiii) whether, under what circumstances and the currency or
currencies in which the Company will pay Additional Amounts as contemplated
by the Indenture on such Debt Securities to any Holder who is not a United
States person (including any modification to the definition of such term)
in respect of any tax, assessment or governmental charge and, if so,
whether the Company will have the option to redeem such Debt Securities
rather than pay such Additional Amounts (and the terms of any such option);
(xxiv) if such Debt Securities are to be convertible into or
exchangeable for any securities of any Person (including the Company), the
terms and conditions upon which such Debt Securities will be so convertible
or exchangeable;
(xxv) whether the Debt Securities are subject to subordination and the
terms of such subordination; and
(xxvi) any other terms, conditions, rights and preferences relating to
such Debt Securities.
With respect to Debt Securities of any series denominated in U.S. dollars,
the Registered Securities of such series, other than Registered Securities
issued in global form (which may be of any denomination), will be issuable in
denominations of $1,000 and any integral multiple thereof and the Bearer
Securities of such series, other than Bearer Securities issued in global form
(which may be of any denomination), will be issuable in a denomination of
$5,000, unless otherwise provided in the applicable Prospectus Supplement. The
Prospectus Supplement relating to a series of Debt Securities denominated in any
currency other than U.S. dollars or a composite currency will specify the
denominations thereof.
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<PAGE> 56
One or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
which is below market rates at the time of issuance. One or more series of Debt
Securities may be floating rate debt securities which are exchangeable for fixed
rate debt securities. The Company will describe certain federal income tax
consequences and special considerations, if any, applicable to each series of
Debt Securities in the Prospectus Supplement relating thereto.
Unless otherwise indicated in the applicable Prospectus Supplement,
interest, if any, on any Registered Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date will be paid to the
Person in whose name such Security is registered at the close of business on the
Regular Record Date for such interest at the office or agency of the Company
maintained for such purpose as set forth in the Indenture; provided, however,
that the Company may, at its option, pay each installment of interest, if any,
on any Registered Security by (i) mailing a check for such interest installment,
payable to or upon the written order of the Person entitled thereto as set forth
in the Indenture, to the address of such Person as it appears on the Security
Register or (ii) transferring an amount equal to such interest installment to an
account located in the United States maintained by the payee.
Holders may present Debt Securities for exchange and may present registered
Debt Securities for transfer, in the manner, at the places and subject to the
restrictions set forth in the Indenture and the Debt Securities and described in
the applicable Prospectus Supplement. The Company will charge no service fees
for any transfer or exchange of the Debt Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more fully registered Global Securities that will be deposited
with, or on behalf of, a depositary (the "Depositary") identified in the
Prospectus Supplement relating to such series. Unless and until it is exchanged
in whole or in part for Debt Securities in definitive registered form, a Global
Security may not be transferred except as a whole by the Depositary for such
Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a nominee of
such successor.
The specific terms of the Depositary arrangement with respect to any Debt
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will apply
to all Depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Debt Securities represented by such Global
Security to the accounts of persons that have accounts with such Depositary
("participants"). The accounts to be credited shall be designated by the
underwriters or agents with respect to such Debt Securities or by the Company if
such Debt Securities are offered and sold directly by the Company. Ownership of
beneficial interests in a Global Security will be limited to participants or
persons that may hold interests through participants. Ownership of participant's
interests in a Global Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the Depositary
for such Global Security. Ownership of beneficial interests in a Global Security
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by participants or persons that hold through
participants. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Except as set forth below, owners of beneficial interests in a Global
Security will not be entitled to have Debt Securities of the series represented
by such Global Security registered in their names, will not
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<PAGE> 57
receive or be entitled to receive physical delivery of Debt Securities of such
series in definitive form and will not be considered the owners or holders
thereof under the Indenture.
Principal, premium, if any, and any interest payments on Debt Securities
registered in the name of a Depositary or its nominee will be made to the
Depositary or its nominee, as the case may be, as the registered owner of a
Global Security representing such Debt Securities. None of the Company, the
Trustee, any Paying Agent or the Security Registrar for such Debt Securities
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Security or Securities for such Debt Securities or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
The Company expects that the Depositary for a series of Debt Securities,
upon receipt of any payment of principal, premium or interest, will credit
immediately participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of the Global
Security or Securities for such Debt Securities as shown on the records of such
Depositary. The Company also expects that payments by participants to owners of
beneficial interests in such Global Security or Securities held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name," and will be the responsibility of such
participants.
Further, if the Company so specifies with respect to the Debt Securities of
a series, an owner of a beneficial interest in a Global Security representing
Debt Securities of such series may, on terms acceptable to the Company, receive
Debt Securities of such series in definitive form. In any such instance, an
owner of a beneficial interest in a Global Security will be entitled to have
Debt Securities of the series represented by such Global Security equal in
principal amount to such beneficial interest registered in its name and will be
entitled to physical delivery of such Debt Securities in definitive form.
EVENTS OF DEFAULT
The Indenture provides that the following shall constitute Events of
Default with respect to any series of Debt Securities thereunder:
(i) default in the payment of any interest on any Debt Security of
such series, when it becomes due and payable, and continuance of such
default for a period of 30 days;
(ii) default in the payment of the principal of or premium, if any, on
any Debt Security of such series when due either at its Maturity, upon
acceleration, redemption or otherwise;
(iii) default in the deposit of any sinking fund payment, when and as
due by the terms of the Debt Securities of such series and the Indenture;
(iv) default in the performance, or breach, of any covenant or
agreement of the Company in the Indenture which affects or is applicable to
Debt Securities of such series (other than a default in the performance, or
breach of a covenant or agreement which is specifically dealt with
elsewhere in the Indenture), and continuance of such default or breach for
a period of 60 days after there has been given to the Company by the
Trustee, or to the Company and the Trustee by Holders of at least 25% in
aggregate principal amount of all outstanding Securities of such series, a
written notice thereof;
(v) certain events in bankruptcy, insolvency or reorganization of the
Company; and
(vi) any other Event of Default provided with respect to Debt
Securities of such series.
No Event of Default with respect to a particular series of Debt Securities
issued under the Indenture necessarily constitutes an Event of Default with
respect to any other series of Debt Securities issued thereunder.
The Indenture provides that if an Event of Default specified in clause (i),
(ii), (iii), (iv) or (vi) above occurs and is continuing, either the Trustee or
the Holders of at least 25% in aggregate principal amount of the Outstanding
Debt Securities of such series may declare the principal of all such Debt
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Securities (or, in the case of Original Issue Discount Securities or Indexed
Securities, such portion of the principal amount thereof as may be specified in
the terms thereof) to be due and payable immediately. If an Event of Default
specified in clause (v) above occurs and is continuing, then the principal of
all such Debt Securities (or, in the case of Original Issue Discount Securities
or Indexed Securities, such portion of the principal amount thereof as may be
specified in the terms thereof) will be due and payable immediately, without any
declaration or other act on the part of the Trustee or any Holder. In certain
cases, Holders of a majority in principal amount of the outstanding Debt
Securities of any series may, on behalf of Holders of all such Debt Securities,
rescind and annul a declaration of acceleration.
The Indenture provides that the Trustee will not be liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it by the
Indenture. The Indenture provides that no Holder of Debt Securities of any
series may institute any proceedings, judicial or otherwise, to enforce the
Indenture except in the case of failure of the Trustee thereunder to act for 60
days after it has received a request to enforce the Indenture by Holders of at
least 25% in aggregate principal amount of the then Outstanding Debt Securities
of such series (in the case of an Event of Default specified in clause (i),
(ii), (iii), (iv) or (vi) above) or a request to enforce the Indenture by
Holders of at least 25% in aggregate principal amount of all of the Debt
Securities then Outstanding (in the case of an Event of Default specified in
clause (v) above), and an offer of reasonable indemnity. This provision will not
prevent any Holder of Debt Securities from enforcing payment of principal
thereof, and premium, if any, and interest, if any, thereon at the respective
due dates thereof. Holders of a majority in aggregate principal amount of the
Debt Securities of any series then outstanding may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it with respect to Debt Securities of
such series. The Trustee may, however, refuse to follow any direction that it
determines may not lawfully be taken or would be illegal or in conflict with
such Indenture or involve it in personal liability or which would be unjustly
prejudicial to Holders not joining therein.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default with respect to any series of Debt Securities
thereunder, give to Holders of Debt Securities of such series notice of such
default if such default has not been cured or waived. Except in the case of a
default in the payment of principal of, or premium, if any, or interest on, or
in the payment of any sinking fund installment in respect of, any Debt
Securities of such series, the Trustee will be protected in withholding such
notice if it determines in good faith that the withholding of such notice is in
the interest of Holders of the Debt Securities of such series.
The Company will be required to file annually with the Trustee an Officers'
Certificate as to compliance with all conditions and covenants under the terms
of the Indenture.
MODIFICATION AND WAIVER
Modifications of and amendments to the Indenture may be made by the Company
and the Trustee thereunder with the consent of Holders of a majority in
principal amount of the outstanding Debt Securities of each series issued under
the Indenture that is affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each Outstanding Debt Security affected thereby: (i) change the Stated
Maturity of the principal of, or premium, if any, or any installment of interest
on any Debt Security of such series, or reduce the principal amount thereof, or
premium, if any, or the rate of interest, if any, thereon, or change any
obligation of the Company to pay Additional Amounts (except as contemplated or
permitted by the Indenture), or reduce the amount of principal of an Original
Issue Discount Security of such series that would be due and payable upon a
declaration of acceleration of the Maturity thereof or the amount thereof
provable in bankruptcy, or adversely affect any right of repayment at the option
of any Holder of any Debt Security of such series, or change any Place of
Payment where, or the currency in which, any Debt Security of such series or
premium, if any, or interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption or repayment at the option of
the Holder, on or after the Redemption Date or Repayment Date, as the case
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may be), or adversely affect any right to convert or exchange any Debt Security;
(ii) reduce the percentage in principal amount of the Outstanding Debt
Securities of any series, the consent of whose Holders is required for any
supplemental indenture, for any waiver of compliance with certain provisions of
the Indenture or certain defaults applicable to such series thereunder and their
consequences provided for in the Indenture, or reduce the quorum or voting with
respect to Debt Securities of such series; or (iii) modify any of the provisions
relating to supplemental indentures requiring the consent of Holders or relating
to the waiver of past defaults or relating to the waiver of certain covenants,
except to increase any such percentage or to provide that certain other
provisions of the Indenture which affect such series cannot be modified or
waived without the consent of the Holder of each Outstanding Debt Security
affected thereby.
The Company may, with respect to any series of Debt Securities, omit in any
particular instance to comply with certain restrictive provisions of the
Indenture if Holders of at least a majority in principal amount of all
Outstanding Debt Securities affected by such term, provision or condition, by
Act of such Holders, waive such compliance in such instance with such term,
provision or condition, but no such waiver will extend to or affect such term,
provision or condition except to the extent so expressly waived, and, until such
waiver will become effective, the obligations of the Company and the duties of
the Trustee to Holders of Debt Securities of such series in respect of any such
term, provision or condition will remain in full force and effect. Holders of a
majority in principal amount of the outstanding Debt Securities of each series
(in the case of an Event of Default specified in clause (i), (ii), (iii), (iv)
or (vi) in "Events of Default," above) or the Holders of a majority in principal
amount of all of the Debt Securities then Outstanding (in the case of an Event
of Default specified in clause (v) in "Events of Default," above) may, on behalf
of all such Holders, waive any past default under the Indenture with respect to
Debt Securities of that series except a default in the payment of the principal
of, or premium, if any, or interest, if any, on any such Debt Security and
except a default in respect of a covenant or provision the modification or
amendment of which would require the consent of the Holder of each outstanding
Debt Security affected thereby.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Company shall not consolidate with or merge with or into any other
corporation or transfer all or substantially all of its property and assets as
an entirety to any Person, unless (i) either the Company shall be the continuing
Person, or the Person (if other than the Company) formed by such consolidation
or into which the Company is merged or to which all or substantially all of the
properties and assets of the Company as an entirety are transferred is a
corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia which expressly assumes all of the
obligations of the Company under each series of Debt Securities and the
Indenture with respect to each such series and (ii) immediately before and
immediately after giving effect to such transaction, no Event of Default and no
event which, after notice or passage of time or both, would become an Event of
Default shall have occurred and be continuing. Notwithstanding the foregoing,
any Subsidiary may consolidate with, merge with or into or transfer all or part
of its properties and assets to the Company or any other Subsidiary or
Subsidiaries.
LIMITATION ON LIENS
The Indenture will provide that with respect to each series of Senior Debt
Securities, unless otherwise set forth in the related Prospectus Supplement, the
Company will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien upon any of its
property, assets or revenues, whether now owned or hereafter acquired, except
for: (i) Liens for taxes not yet due or which are being contested in good faith
by appropriate proceedings; provided that adequate reserves with respect thereto
are maintained on the books of the Company or its Subsidiaries, as the case may
be, in conformity with GAAP; (ii) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the ordinary course of
business that are not overdue for a period of more than 60 days or which are
being contested in good faith by appropriate proceedings; (iii) pledges or
deposits in
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connection with workers' compensation, unemployment insurance and other social
security legislation and deposits securing liability to insurance carriers under
insurance or self-insurance arrangements; (iv) deposits to secure the
performance of bids, trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business; (v)
easements, rights-of-way, restrictions and other similar encumbrances incurred
in the ordinary course of business which, in the aggregate, are not substantial
in amount and which do not in any case materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of the Company or such Subsidiary; (vi) Liens in existence on the
date of the first issuance by the Company of Senior Debt Securities issued
pursuant to the Indenture; provided that no such Lien is spread to cover any
additional property after such date and that the amount of Debt secured thereby
is not increased; (vii) Liens securing Debt of the Company and its Subsidiaries
incurred to finance the acquisition of fixed or capital assets; provided that
(A) such Liens will be created substantially simultaneously with the acquisition
of such fixed or capital assets, (B) such Liens do not at any time encumber any
property other than the property financed by such Debt and (C) the amount of
Debt secured thereby is not increased; (viii) Liens on the property or assets of
a corporation that becomes a Subsidiary after the date hereof; provided that (A)
such Liens existed at the time such corporation became a Subsidiary and were not
created in anticipation thereof, (B) any such Lien is not spread to cover any
property or assets or such corporation after the time such corporation becomes a
Subsidiary, and (C) the amount of Debt secured thereby is not increased; and
(ix) Liens (not otherwise permitted hereunder) (A) which secure obligations not
exceeding the greater of $100.0 million or 15% of Consolidated Net Worth of the
Company, in each case in aggregate amount at any time outstanding, or (B) with
respect to which the Company effectively provides that the Senior Debt
Securities outstanding hereunder are secured equally and ratably with (or, at
the option of the Company, prior to) the Debt secured by such Lien.
DEFEASANCE
If so specified in the Prospectus Supplement with respect to Debt
Securities of any series, the Company at its option, (i) will be discharged from
any and all obligations in respect of the Debt Securities of such series (except
for certain obligations to register the transfer or exchange of Debt Securities
of such series, replace stolen, lost or mutilated Debt Securities of such
series, maintain Paying Agencies, and hold money for payment in trust) or (ii)
will not be subject to certain specified covenants with respect to the Debt
Securities of such series as set forth in the related Prospectus Supplement, in
each case if the Company deposits with the Trustee, in trust, money or
Government Obligations which through the payment of interest thereon and
principal thereof in accordance with their terms will provide money in an amount
sufficient to pay all the principal (including any mandatory sinking fund
payments) of, and interest on, the Outstanding Debt Securities of such series on
the dates such payments are due in accordance with the terms of such Debt
Securities. To exercise any such option, the Company is required to deliver to
the Trustee an Opinion of Counsel to the effect that the deposit and related
defeasance would not cause the Holders of the Debt Securities of such series to
recognize income, gain or loss for federal income tax purposes and, in the case
of a discharge pursuant to clause (i), either a ruling to such effect received
from or published by the U.S. Internal Revenue Service or an opinion that there
has been a change in applicable federal income tax law to such effect. The
Company is required to deliver to the Trustee an Officer's Certificate stating
that no Event of Default with respect to the Debt Securities of such series has
occurred and is continuing.
CONVERSION RIGHTS AND EXCHANGE RIGHTS
The terms and conditions, if any, upon which any of the Debt Securities are
convertible into or exchangeable for Common Stock or other securities or
property of the Company will be set forth in the related Prospectus Supplement.
Such terms shall include the conversion or exchange price (or manner of
calculation thereof), the exchange or conversion period, provisions as to
whether conversion or exchange is mandatory at the option of the Holder or at
the option of the Company, and may include provisions pursuant to which the
number of shares, other securities or property of the Company to be received by
the
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Holders of Debt Securities would be calculated. The conversion or exchange price
of any Debt Securities of any series that is convertible into Common Stock,
Preferred Stock or Depositary Shares of the Company may be adjusted for any
stock dividends, stock splits, reclassification, combinations or similar
transactions, as set forth in the applicable Prospectus Supplement.
SUBORDINATION
Certain provisions of the Indenture relating to the subordination of the
Subordinated Debt Securities are summarized below. The extent to which a
particular series of Subordinated Debt Securities is subordinated to other
indebtedness of the Company will be set forth in the Prospectus Supplement for
that series and the Indenture may be modified by a supplemental indenture to
reflect such subordination provisions. The particular terms of subordination of
an issue of Subordinated Debt Securities may supersede the general provisions of
the Indenture summarized below.
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, payment of the principal of, premium, if any, and
interest, if any, on the Subordinated Debt Securities will be subordinated to
the extent provided in the Indenture in right of payment to the prior payment in
full of all Senior Indebtedness, but the obligation of the Company to make
payment of the principal of and premium, if any, and interest, if any, on the
Subordinated Debt Securities will not otherwise be affected. Except as provided
in a Prospectus Supplement and the related supplemental indenture, if any, no
payment of principal or interest may be made on the Subordinated Debt Securities
at any time if a default on Senior Indebtedness exists that permits the holders
of such Senior Indebtedness to accelerate its maturity and the default is the
subject of judicial proceedings or the Company has received notice of such
default. Such supplemental indenture may also provide that Subordinated Debt
Securities issued thereunder are subordinated and junior in right of payment to
the prior payment in full of future senior subordinated debt securities, if any.
After all Senior Indebtedness is paid in full and until the Subordinated Debt
Securities are paid in full, Holders of the Subordinated Debt Securities will be
subrogated to the rights of holders of Senior Indebtedness to the extent that
distributions otherwise payable to such Holders have been applied to the payment
of Senior Indebtedness. By reason of such subordination, in the event of any
distribution of assets upon insolvency, certain general creditors of the Company
may recover more, ratably, than holders of Subordinated Debt Securities.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
The Indenture and the provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in other transactions
with the Company or any Affiliate; provided, however, that if such Trustee
acquires any conflicting interest (as defined in the Indenture or in the Trust
Indenture Act), it must eliminate such conflict or resign.
NO PERSONAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES OR STOCKHOLDERS
No director, officer, employee or stockholder, as such, of the Company or
any of its affiliates will have any personal liability in respect of the
obligations of the Company under the Indenture or the Debt Securities by reason
of his, her or its status as such.
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APPLICABLE LAW
The Indenture is, and the Debt Securities offered hereby will be, governed
by and construed in accordance with the laws of the State of New York.
DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of any series of Preferred Stock to which
any Prospectus Supplement may relate. Particular terms of the Preferred Stock
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may apply to any series of Preferred Stock so offered will be
described in the Prospectus Supplement relating to such Preferred Stock. This
description does not purport to be complete and is subject to and qualified in
its entirety by reference to the provisions of the Second Restated Certificate
of Incorporation of the Company as amended (the "Charter"), and the Certificate
of Designation (the "Certificate of Designation") relating to a particular
series of Preferred Stock which will be in the form filed or incorporated by
reference in the Registration Statement of which this Prospectus is a part at or
prior to the time of the issuance of such series of Preferred Stock.
GENERAL
Under the Charter and the Restated By-laws of the Company (the "By-laws"),
which are filed as exhibits to the Registration Statement of which this
Prospectus is a part, the board of directors of the Company (the "Board of
Directors") is authorized without further shareholder action to adopt
resolutions providing for the issuance of up to 50,000,000 shares of Preferred
Stock, in one or more series, and to fix by resolution any of the powers,
designations, preferences and relative dividend participation, option or other
rights thereof, including dividend rights, conversion rights, voting rights,
redemption terms and liquidation preferences, and the number of shares
constituting each such series. Preferred Stock, upon issuance against full
payment of the purchase price therefor, will be fully paid and nonassessable. As
of the date of this Prospectus, the Company had no shares of Preferred Stock
outstanding.
The Prospectus Supplement relating to a particular series of Preferred
Stock offered will describe the specific terms, including, where applicable: (i)
the title, designation, number of shares and stated value of such Preferred
Stock; (ii) the price at which such Preferred Stock will be issued; (iii) the
dividend rates, if any (or method of calculation), whether such rate is fixed or
variable or both, and the dates on which dividends will be payable, whether such
dividends will be cumulative or noncumulative and, if cumulative, the dates from
which dividends shall commence to cumulate; (iv) the dates on which the
Preferred Stock will be subject to redemption and the applicable redemption
prices; (v) any redemption or sinking fund provisions; (vi) the convertibility
or exchangeability of such Preferred Stock; (vii) if other than United States
dollars, the currency or currencies (including composite currencies) in which
such Preferred Stock is denominated and/or in which payments will or may be
payable; (viii) the method by which amounts in respect of such Preferred Stock
may be calculated and any commodities, currencies or indices, or the value, rate
or price relevant to such calculation; (ix) the place where dividends and other
payments on the Preferred Stock are payable and the identity of the transfer
agent, registrar and dividend disbursement agent for the Preferred Stock; (x)
any listing of such Preferred Stock on any securities exchange; and (xi) any
additional dividend, liquidation, redemption, sinking fund, voting and other
rights, preferences, privileges, limitations and restrictions.
The federal income tax consequences and special considerations applicable
to any such series of Preferred Stock will be generally described in the
Prospectus Supplement related thereto.
RANK
Unless otherwise specified in the Prospectus Supplement relating to a
particular series of Preferred Stock, each series of Preferred Stock will rank
pari passu as to dividends and liquidation rights in all respects with each
other series of Preferred Stock.
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DIVIDENDS
Holders of Preferred Stock of each series will be entitled to receive cash
dividends, when and as declared by the Board of Directors out of assets of the
Company legally available for payment, at such rates and on such dates as will
be set forth in the Prospectus Supplement relating to such series of Preferred
Stock. Each dividend will be payable to holders of record as they appear on the
stock books of the Company on the record dates fixed by the Board of Directors
or a duly authorized committee thereof. Different series of the Preferred Stock
may be entitled to dividends at different rates or based upon different methods
of determination. Such rates may be fixed or variable or both. Dividends on any
series of the Preferred Stock may be cumulative or noncumulative as provided in
the Prospectus Supplement relating thereto. Except as provided in the related
Prospectus Supplement, no series of Preferred Stock will be entitled to
participate in the Company's earnings or assets.
LIQUIDATION RIGHTS
Unless otherwise stated in the related Prospectus Supplement, in the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
Company, holders of each series of Preferred Stock will be entitled to receive
out of assets of the Company available for distribution to shareholders, before
any distribution of assets is made to holders of the Common Stock or any other
class of stock ranking junior to such series of Preferred Stock upon
liquidation, liquidating distributions in an amount set forth in the Prospectus
Supplement related to such series of Preferred Stock, plus an amount equal to
all accrued and unpaid dividends up to the date fixed for distribution for the
current dividend period and, if such series of the Preferred Stock is
cumulative, for all dividend periods prior thereto, all as set forth in the
Prospectus Supplement with respect to such series of Preferred Stock. If, upon
any voluntary or involuntary liquidation, dissolution or winding up of the
Company, amounts payable with respect to a series of Preferred Stock and any
other shares of capital stock of the Company ranking pari passu as to any
distribution with such series of Preferred Stock are not paid in full, holders
of such series of Preferred Stock and of such other shares will share ratably in
any such distribution of assets of the Company in proportion to the full
respective preferential amounts to which they are entitled. After payment in
full of the liquidating distribution to which they are entitled, holders of
Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Company.
Neither the sale, conveyance, exchange or transfer of all or substantially
all of the property and assets of the Company, the consolidation or merger of
the Company with or into any other corporation, nor the merger or consolidation
of any other corporation into or with the Company, will be deemed to be a
liquidation, dissolution or winding up of the Company.
REDEMPTION AND SINKING FUND
The terms, if any, on which shares of a series of Preferred Stock may be
subject to optional or mandatory redemption, in whole or in part, or may have
the benefit of a sinking fund, will be set forth in the Prospectus Supplement
relating to such series.
VOTING RIGHTS
Except as indicated below or in the applicable Prospectus Supplement, or
except as expressly required by applicable law, holders of Preferred Stock
issued pursuant to this Prospectus and any related Prospectus Supplement will
not be entitled to vote.
CONVERSION AND EXCHANGE RIGHTS
The terms, if any, on which shares of any series of Preferred Stock are
convertible or exchangeable will be set forth in the Prospectus Supplement
relating thereto. The Prospectus Supplement will describe the securities or
rights into which such shares of Preferred Stock are convertible or exchangeable
(which may include other Preferred Stock, Debt Securities, Depositary Shares,
Common Stock or other securities or rights of the Company (including rights to
receive payment in cash or securities based on the value,
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rate or price of one or more specified commodities, currencies or indices) or
securities of other issuers or a combination of the foregoing), and the terms
and conditions upon which such conversions or exchanges will be effected
including the initial conversion or exchange prices or rules, the conversion or
exchange period and any other related provisions. Such terms may include
provisions for conversion or exchange, either mandatory, at the option of the
holder, or at the option of the Company, in which case the consideration to be
received by holders of such series of Preferred Stock would be calculated as of
a time and in the manner stated in such Prospectus Supplement.
TRANSFER AGENT AND REGISTRAR
The transfer agent, registrar and dividend disbursement agent for each
series of Preferred Stock will be designated in the related Prospectus
Supplement.
DESCRIPTION OF DEPOSITARY SHARES
The following description of the terms of the Depository Shares sets forth
certain general terms and provisions of Depositary Shares to which any
Prospectus Supplement may relate. Particular terms of the Depositary Shares
offered by any Prospectus Supplement, and the related Deposit Agreement and
Depositary Receipt, and the extent, if any, to which such general provisions may
apply to such Deposit Agreement, Depositary Shares and Depositary Receipt, will
be described in the Prospectus Supplement relating to such Depositary Shares.
This description does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the provisions of the applicable
Deposit Agreement, which will be in the form filed or incorporated by reference
in the Registration Statement of which this Prospectus is a part at or prior to
the time of the issuance of such Depositary Shares, as well as the Charter or
any Certificate of Designation describing the applicable series of Preferred
Stock.
GENERAL
The Company may, at its option, elect to offer fractional interests in
shares of a series of Preferred Stock as Depositary Shares, rather than full
shares of Preferred Stock. In such event, receipts ("Depositary Receipts") for
such Depositary Shares will be issued by the Company, each of which will
represent a fraction of a share of a particular class or series of Preferred
Stock, as described in the related Prospectus Supplement.
Shares of any series of Preferred Stock represented by Depositary Shares
will be deposited under a separate deposit agreement (a "Deposit Agreement"),
between the Company and a bank or trust company selected by the Company having
its principal office in the United States and having a combined capital and
surplus of at least $50 million (a "Preferred Stock Depositary"). The Prospectus
Supplement relating to a series of Depositary Shares will set forth the name and
address of the Depositary with respect to such Depositary Shares. Subject to the
terms of the Deposit Agreement, each owner of a Depositary Share will be
entitled, in proportion to the applicable fraction of a share of Preferred Stock
represented by such Depositary Share, to all of the rights, preferences and
privileges of the Preferred Stock represented thereby (including dividend,
voting, conversion, exchange, redemption, and liquidation rights, if any).
Depositary Shares will be evidenced by Depositary Receipts issued pursuant
to the applicable Deposit Agreement. Depositary Receipts will be distributed to
those persons purchasing the fractional interests in shares of Preferred Stock
as described in the applicable Prospectus Supplement.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of a series of Preferred Stock to the
record holders of Depositary Receipts relating to such Preferred Stock in
proportion, insofar as possible, to the number of such Depositary Receipts owned
by such holders on the relevant record date (subject to certain obligations of
holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary). The
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Preferred Stock Depositary will distribute only such amount, however, as can be
distributed without attributing to any holder of Depositary Shares a fraction of
one cent, and the balance not so distributed will be held by the Preferred Stock
Depositary and added to and treated as part of the next sum received by such
Preferred Stock Depositary for distribution to record holders of Depositary
Shares then outstanding.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Shares entitled thereto, in proportion to the number of such
Depositary Shares owned by such holders, unless the Preferred Stock Depositary
determines that it is not feasible to make such distribution, in which case the
Preferred Stock Depositary may, with the approval of the Company, adopt such
method as it deems equitable and practicable to effect such distribution,
including the public or private sale of such property and distribution of the
net proceeds from such sale to such holders.
The amount so distributed to record holders of Depositary Receipts in any
of the foregoing cases will be reduced by any amount required to be withheld by
the Company or the Preferred Stock Depositary on account of taxes.
The Deposit Agreement will also contain provisions relating to the manner
in which any subscription or similar rights offered by the Company to holders of
the Preferred Stock will be made available to holders of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
If a series of Preferred Stock represented by Depositary Shares is subject
to redemption, the Depositary Shares will be redeemed from the proceeds received
by the Preferred Stock Depositary resulting from redemption, in whole or in
part, of such class or series of Preferred Stock held by the Preferred Stock
Depositary. The redemption price per Depositary Share will be equal to the
applicable fraction of the redemption price and other amounts per share, if any,
payable in respect of such class or series of Preferred Stock. Whenever the
Company redeems Preferred Stock held by the Preferred Stock Depositary, the
Preferred Stock Depositary will redeem as of the same redemption date the number
of Depositary Shares representing shares of Preferred Stock so redeemed. If
fewer than all of the Depositary Shares are to be redeemed, the Depositary
Shares to be redeemed will be selected by lot or pro rata as may be determined
to be equitable by the Preferred Stock Depositary.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
redemption price upon such redemption. Any funds deposited by the Company with
the Preferred Stock Depositary for any Depositary Shares which the holders
thereof fail to redeem shall be returned to the Company after a period of two
years from the date such funds are so deposited.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of a class or
series of Preferred Stock are entitled to vote, the Preferred Stock Depositary
will mail the information contained in such notice of meeting to record holders
of the Depositary Receipts evidencing the Depositary Shares of such class or
series of Preferred Stock. Each record holder of such Depositary Receipts on the
record date (which will be the same date as the record date for the related
class or series of Preferred Stock) will be entitled to instruct the Preferred
Stock Depositary as to the exercise of the voting rights pertaining to the
amount of Preferred Stock represented by such holder's Depositary Shares. The
Preferred Stock Depositary will endeavor, insofar as practicable, to vote the
number of shares of Preferred Stock represented by such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the Preferred Stock to the
extent it does not receive specific instructions from the holder of Depositary
Shares representing such shares of Preferred Stock. The Preferred Stock
Depositary will not be responsible for any failure to carry
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out any instruction to vote, or for the manner or effect of any such vote made,
as long as any such action or non-action is taken in good faith and does not
result from the negligence or willful misconduct of the Preferred Stock
Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
related Preferred Stock as set forth in the related Prospectus Supplement.
CONVERSION AND EXCHANGE OF PREFERRED STOCK
If any series of Preferred Stock underlying the Depositary Shares is
subject to provisions relating to its conversion or exchange, as set forth in
the applicable Prospectus Supplement relating thereto, each record holder of
Depositary Receipts will have the right or obligation to convert or exchange the
Depositary Shares represented by such Depositary Receipts pursuant to the terms
thereof.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may be amended at any time by agreement
between the Company and the Preferred Stock Depositary. However, amendments, if
any, which materially and adversely alter the rights of holders of Depositary
Receipts or that would be materially and adversely inconsistent with the rights
of holders of the underlying Preferred Stock, will be ineffective unless such
amendment has been approved by holders of at least a majority of the Depositary
Shares then outstanding under such Deposit Agreement. Every holder of
outstanding Depositary Receipts at the time such amendment, if any, becomes
effective will be deemed, by continuing to hold such Depositary Receipt, to
consent to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Stock Depositary if a majority of
each class or series of Preferred Stock subject to such Deposit Agreement
consents to such termination, whereupon the Preferred Stock Depositary will
deliver or make available to each holder of Depositary Receipts, upon surrender
of the Depositary Receipts held by such holder, such number of whole or
fractional shares of Preferred Stock as are represented by the Depositary Shares
evidenced by such Depositary Receipts, together with any other property held by
the Preferred Stock Depositary with respect to such Depositary Receipts.
Additionally, a Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares related thereto have been redeemed, (ii) there has
been a final distribution in respect of the Preferred Stock underlying such
Depositary Shares in connection with any liquidation, dissolution or winding up
of the Company and such distribution has been distributed to the holders of the
related Depositary Receipts or (iii) each share of related Preferred Stock has
been converted into capital stock of the Company not so represented by
Depositary Shares.
CHARGES OF DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay the Preferred Stock Depositary's fees and charges in connection with
the initial deposit of the Preferred Stock and initial issuance of Depositary
Receipts and any redemption or conversion of the Preferred Stock. Holders of
Depositary Receipts will pay all other transfer and other taxes, governmental
charges and fees and charges of the Preferred Stock Depositary that are not
expressly provided for in the Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
any Preferred Stock Depositary. Any such
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resignation or removal will take effect upon the appointment of a successor
Depositary and such successor Depositary's acceptance of the appointment. Such
successor Depositary must be appointed within 60 days after delivery of the
notice of resignation or removal and must be a bank or trust company having its
principal office in the United States and having a combined capital and surplus
of at least $50.0 million.
MISCELLANEOUS
The Preferred Stock Depositary will forward all reports and communications
from the Company which are delivered to the Preferred Stock Depositary and which
the Company is required or otherwise determines to furnish to holders of the
Preferred Stock.
Neither any Preferred Stock Depositary nor the Company will be liable if it
is prevented or delayed by law or any circumstance beyond its control in
performing its obligations under a Deposit Agreement. The obligations of the
Company and any Preferred Stock Depositary under a Deposit Agreement will be
limited to performing in good faith their duties thereunder (in the case of any
action or inaction in the voting of a class or series of Preferred Stock
represented by the Depositary Shares), gross negligence or willful misconduct
excepted. The Company and any Preferred Stock Depositary will not be obligated
under the Deposit Agreement to prosecute or defend any legal proceeding in
respect of any Depositary Shares, Depositary Receipts or shares of any Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and the Preferred Stock Depositary may rely upon written advice of
counsel or accountants, or information provided by persons presenting shares of
Preferred Stock for deposit, holders of Depositary Receipts or other persons
believed to be competent to give such information and on documents believed to
be genuine and to have been signed and presented by the proper party or parties.
DESCRIPTION OF COMMON STOCK
The following description of the terms of the Common Stock sets forth
certain general provisions of the Common Stock as contained in the Charter and
By-laws and is qualified in its entirety by reference to the Charter and
By-laws.
GENERAL
The Company is currently authorized to issue up to of 600,000,000 shares of
Common Stock. As of March 31, 1999, there were approximately 395.7 million
shares of Common Stock outstanding. All outstanding shares of Common Stock are
fully paid and nonassessable. The Common Stock is listed on the NYSE under the
symbol "BSX."
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights and the Common Stock is not subject to redemption. The rights,
preferences and privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of holders of any series of Preferred Stock,
whether currently outstanding or designated and issued in the future. See
"Description of Preferred Stock."
DIVIDENDS
Subject to the preferences of holders of Preferred Stock, holders of Common
Stock are entitled to dividends and other distributions when, as and if declared
by the Board of Directors out of funds legally available therefor and shall
share equally on a per share basis in all such dividends and other
distributions.
VOTING RIGHTS
Except as otherwise provided by law or by the designation of the
preferences, limitations and relative rights of any series of Preferred Stock,
the voting power of the Company is held by holders of the Common Stock. Each
holder of Common Stock is entitled to one vote for each share held. Holders of
Common Stock are not entitled to cumulative voting rights and, therefore,
holders of a plurality of shares voting in the election of directors may elect
the entire class of the Board of Directors standing for election
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at a shareholders' meeting at which a quorum is present. In that event, holders
of the remaining shares of Common Stock would not be able to elect any director
to the Board of Directors. The Company's Charter requires that the Board of
Directors be staggered, consisting of three classes of directors which are as
nearly equal in number as possible.
LIQUIDATION AND DISSOLUTION
Except as otherwise provided by the designation of the preferences,
limitations and relative rights of any series of Preferred Stock, in the event
of any liquidation, dissolution, or winding up of the Company, whether voluntary
or involuntary, after payment has been made to holders of each series of
Preferred Stock of the full amount to which they are entitled, holders of shares
of Common Stock will be entitled to share, ratably according to the number of
shares of Common Stock held by them, in all remaining assets available for
distribution to holders of the Common Stock.
CERTAIN PROVISIONS OF DELAWARE LAW, THE CHARTER AND THE BY-LAWS
The Company is subject to the provisions of the General Corporate Law of
Delaware. Section 203 of the General Corporate Law of Delaware prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combinations are approved in a prescribed manner. A "business
combination" includes mergers, assets sales, and other transactions resulting in
a financial benefit to the interested stockholder. Subject to certain
exceptions, an "interested stockholder" is a person who, together with
affiliates owns, or within three years did own, 15% or more of the corporation's
voting stock.
As permitted by the General Corporation Law of Delaware, the Company's
Charter provides that Directors of the Company will not be personally liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except in certain circumstances involving wrongful acts,
such as the breach of a directors duty of loyalty or acts or omissions which
involve intentional misconduct or a knowing violation of law. The Company's
Charter and By-laws also contain provisions requiring the Company to indemnify
the Company Directors and officers to the fullest extent permitted by the
General Corporate Law of Delaware. In addition, the Company has entered into
indemnification agreements with each of its Directors and executive officers.
These agreements provide rights of indemnification substantially similar to and
in certain respects broader than those provided by the Charter and By-laws.
The Certificate and the By-laws provide that the Board of Directors be
divided into three classes of Directors as nearly equal in size as possible,
with staggered three year terms. The Charter provides that vacancies on the
Board may only be filled by a majority of the Board then in office and further
provides that Directors may only be removed by the affirmative vote of holders
of at least 80% of the voting power of all the then outstanding shares of stock
entitled to vote generally in the election of Directors.
The Charter provides that stockholder action can only be taken at an annual
or special meeting of stockholders and that the business permitted to be
conducted at any meeting of stockholders is limited to the business brought
before the meeting by the Chairman of the Board or the President of the Company
or at the request of a majority of the members of the Board. The Charter and
By-laws provide that special meetings of stockholders can be called only by the
Chairman of the Board of the Company or pursuant to a resolution approved by a
majority of the total number of Directors which the Company would have if there
were no vacancies on the Board. Stockholders are not permitted to call a special
meeting or to require that the Board call a special meeting of stockholders.
The Charter prohibits the Company, with certain exceptions, from purchasing
any shares of the Company's stock from any person, entity or group that
beneficially owns 5% or more of the Company's voting stock at an above-market
price, unless a majority of the Company's disinterested stockholders approve the
transaction. In addition, the Charter empowers the Board, when considering a
tender offer or merger or acquisition proposal, to take into account factors in
addition to potential economic benefits to stockholders and to consider
constituencies other than stockholders.
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The General Corporation Law of Delaware provides generally that the vote of
a majority of shares entitled to vote is required to act on most matters and to
amend a corporation's certificate of incorporation. The Certificate and the
By-laws contain provisions requiring the affirmative vote of the holders of at
least 80% of the voting stock, voting together as a single class, to amend
certain provisions of the Charter and the By-laws, including certain of the
foregoing provisions. Such a supermajority vote would be in addition to any
separate class vote that might in the future be required with respect to shares
of Preferred Stock then outstanding.
The foregoing and other provisions of Delaware law and the Company's
Charter and By-laws could make more difficult the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise. These provisions may have
the effect of delaying, deferring or preventing a change in control of the
Company, may discourage bids for the Common Stock at a premium over the market
price of the Common Stock and may adversely affect the market price of the
Common Stock.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Boston Equiserve.
DESCRIPTION OF WARRANTS
The following description of the terms of the Warrants sets forth certain
general terms and provisions of the Warrants to which any Prospectus Supplement
may relate. Particular terms of the Warrants offered by any Prospectus
Supplement and the extent, if any, to which such general provisions may apply to
the Warrants so offered will be described in the Prospectus Supplement relating
to such Warrants. This description does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions of the
Warrant Agreement relating to each series of Warrants, which will be in the form
filed or incorporated by reference in the Registration Statement at or prior to
the time of the issuance of such series of Warrants.
GENERAL
The Company may issue Warrants to purchase Debt Securities, Preferred
Stock, Depositary Shares, Common Stock or any combination thereof (collectively,
the "Underlying Warrant Securities"). Such Warrants may be issued independently
or together with any such series of Underlying Warrant Securities and may be
attached or separate from such Underlying Warrant Securities. Each series of
Warrants will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between the Company and a warrant agent ("Warrant
Agent"). The Warrant Agent will act solely as an agent of the Company in
connection with the Warrants of such series and will not assume any obligation
or relationship of agency for or with holders or beneficial owners of Warrants.
An applicable Prospectus Supplement will describe the terms of any series
of Warrants in respect of which this Prospectus is being delivered, including
the following: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued; (iv)
the currency or currencies, including composite currencies, in which the price
of such Warrants may be payable; (v) the designation and terms of the Underlying
Warrant Securities purchasable upon exercise of such Warrants and the number of
such Underlying Warrant Securities issuable upon exercise of such Warrants; (vi)
the price at which and the currency or currencies, including composite
currencies, in which the Underlying Warrant Securities purchasable upon exercise
of such Warrants may be purchased; (vii) the date on which the right to exercise
such Warrants shall commence and the date on which such right will expire;
(viii) whether such Warrants will be issued in registered form or bearer form;
(ix) if applicable, the minimum or maximum amount of such Warrants which may be
exercised at any one time; (x) if applicable, the designation and terms of the
Underlying Warrant Securities with which such Warrants are issued and the number
of such Warrants issued with each such Underlying Warrant Security; (xi) if
applicable, the date on and after which such Warrants and the related Underlying
Warrant Securities will be separately transferable; (xii) information with
respect to book-entry procedures, if any;
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(xiii) if applicable, a discussion of certain U.S. federal income tax
considerations; and (xiv) any other terms of such Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The Warrant Agreement for a series of Warrants may be amended or
supplemented without the consent of the holders of the Warrants issued
thereunder to effect changes that are not inconsistent with the provisions of
the Warrants and that do not adversely affect the interests of the holders of
the Warrants.
DESCRIPTION OF STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS
The following description of the terms of the Stock Purchase Contracts and
Stock Purchase Units sets forth certain general terms and provisions of the
Stock Purchase Contracts and/or Stock Purchase Units to which any Prospectus
Supplement may relate. Particular terms of the Stock Purchase Contracts and/or
Stock Purchase Units offered by any Prospectus Supplement and the extent, if
any, to which such general provisions may apply to the Stock Purchase Contracts
and/or Stock Purchase Units so offered will be described in the Prospectus
Supplement relating to such Stock Purchase Contracts and/or Stock Purchase
Units.
The Company may issue Stock Purchase Contracts, including contracts
obligating holders to purchase from the Company, and the Company to sell to
holders, a specified number of shares of Common Stock, Preferred Stock or
Depositary Shares at a future date. The consideration per share of Common Stock,
Preferred Stock or Depositary Shares may be fixed at the time that the Stock
Purchase Contracts are issued or may be determined by reference to a specific
formula set forth in the Stock Purchase Contracts. Any such formula may include
anti-dilution provisions to adjust the number of shares issuable pursuant to
such Stock Purchase Contract upon the occurrence of certain events. The Stock
Purchase Contracts may be issued separately or as a part of units ("Stock
Purchase Units"), consisting of a Stock Purchase Contract and Debt Securities,
Trust Preferred Securities or debt obligations of third parties, including U.S.
Treasury securities, in each case securing holders' obligations to purchase
Common Stock, Preferred Stock or Depositary Shares under the Stock Purchase
Contracts. The Stock Purchase Contracts may require the Company to make periodic
payments to holders of the Stock Purchase Units, or vice versa, and such
payments may be unsecured or prefunded. The Stock Purchase Contracts may require
holders to secure their obligations thereunder in a specified manner.
Each applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the Prospectus
Supplement will not purport to be complete and will be qualified in its entirety
by reference to the Stock Purchase Contracts, and, if applicable, collateral
arrangements and depositary arrangements, relating to such Stock Purchase
Contracts or Stock Purchase Units.
DESCRIPTION OF TRUST PREFERRED SECURITIES
The following description of the terms of the Trust Preferred Securities
sets forth certain general terms and provisions of the Trust Preferred
Securities to which any Prospectus Supplement may relate. Particular terms of
the Trust Preferred Securities offered by any Prospectus Supplement and the
extent, if any, to which such general terms and provisions may apply to the
Trust Preferred Securities so offered will be described in the Prospectus
Supplement relating to such Trust Preferred Securities.
Each Trust may issue, from time to time, one or more series of Trust
Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Declaration authorizes the Regular Trustees of each Trust
to issue one or more series of Trust Preferred Securities on behalf of the
respective Trust. Each Declaration will be qualified as an indenture under the
Trust Indenture Act. The Institutional
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Trustee for each Trust, an independent trustee, will act as indenture trustee
for the Trust Preferred Securities to be issued by such Trust for purposes of
compliance with the Trust Indenture Act.
The Trust Preferred Securities will have such terms, including with respect
to distributions, redemption, voting, liquidation rights and such other
preferred, deferred or other special rights or such restrictions as shall
established by the Regular Trustees of the applicable Trust in accordance with
the Declaration of such Trust or as shall be set forth in such Declaration or
made part of such Declaration by the Trust Indenture Act.
Reference is made to the Prospectus Supplement relating to the Trust
Preferred Securities of the applicable Trust for specific terms of such Trust
Preferred Securities, including (i) the distinctive designation of such Trust
Preferred Securities; (ii) the aggregate number of Trust Preferred Securities to
be issued by such Trust; (iii) the annual distribution rate (or method of
determining such rate) for such Trust Preferred Securities and the date or dates
upon which such distributions will be payable; provided, however, that
distributions on the Trust Preferred Securities shall, subject to any deferral
provisions, and any provisions for payment of defaulted distributions, be
payable on a periodic basis to holders of Trust Preferred Securities as of a
record date in each period during which Trust Preferred Securities are
outstanding; (iv) any right of such Trust to defer periodic distributions on
such Trust Preferred Securities as a result of any interest deferral right
exercised by the Company on the Subordinated Debt Securities held by such Trust;
(v) whether distributions on such Trust Preferred Securities will be cumulative,
and, in the case of Trust Preferred Securities having such cumulative
distribution rights, the date or dates or the method of determining the date or
dates from which distributions on such Trust Preferred Securities will be
cumulative; (vi) the amount or amounts which will be paid out of the assets of
such Trust to holders of Trust Preferred Securities upon voluntary or
involuntary dissolution, winding-up or termination of such Trust; (vii) the
obligation or option, if any, of such Trust to purchase or redeem Trust
Preferred Securities and the price or prices at which, the period or periods
within which, and the terms and conditions upon which, such Trust Preferred
Securities will be purchased or redeemed, in whole or in part, pursuant to such
obligation or option; (viii) the voting rights, if any, of such Trust Preferred
Securities in addition to those required by law, including the number of votes
per Trust Preferred Security and any requirement for the approval by holders of
such Trust Preferred Securities as a condition to specified action or amendments
to the applicable Declaration; (ix) the terms and conditions, if any, upon which
the Subordinated Debt Securities may be distributed to holders of Trust
Preferred Securities; (x) if applicable, any securities exchange upon which such
Trust Preferred Securities shall be listed; (xi) whether such Trust Preferred
Securities are convertible or exchangeable, and if so, the securities or rights
into which such Trust Preferred Securities are convertible or exchangeable, and
the terms and conditions upon which such conversions or exchanges will be
effected; (xii) the method by which amounts payable in respect of such Trust
Preferred Securities may be calculated and any commodities, currencies, currency
units or composite currencies, or indices, or value, rate or price, relevant to
such calculation; and (xiii) any other relevant rights, preferences, privileges,
limitations or restrictions of such Trust Preferred Securities not inconsistent
with the applicable Declaration or with applicable law.
All Trust Preferred Securities offered will be guaranteed by the Company to
the extent set forth below under "Description of Trust Guarantee." The Trust
Guarantees of the Company, when taken together with the Company's obligations
under the Subordinated Debt Securities and the relevant supplemental indenture,
and its obligations under each Declaration, including the Company's obligations
to pay costs, expenses, debts and liabilities of each Trust (other than with
respect to the Trust Securities), will provide a full and unconditional
guarantee, on a subordinated basis, of amounts due on the Trust Preferred
Securities. The payment terms of the Trust Preferred Securities issued by a
Trust will be the same as the Subordinated Debt Securities issued to such Trust
by the Company. The Prospectus Supplement relating to any offering of Trust
Preferred Securities will describe certain U.S. federal income tax
considerations applicable thereto.
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TRUST COMMON SECURITIES
In connection with the issuance of Trust Preferred Securities, a Trust will
issue Trust Common Securities. Each Declaration authorizes the Regular Trustees
to issue on behalf of a Trust one or more series of Trust Common Securities
having such terms, including with respect to distributions, redemption, voting,
liquidation rights or other restrictions as shall be established by such Regular
Trustees in accordance with such Declaration or as shall otherwise be set forth
therein. The terms of Trust Common Securities of a Trust will be substantially
identical to the terms of the related Trust Preferred Securities of such Trust,
and such Trust Common Securities will rank pari passu, and payments will be made
thereon pro rata, with such Trust Preferred Securities except that, upon an
event of default under its Declaration, the rights of holders of such Trust
Common Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of
holders of such Trust Preferred Securities. Except in certain limited
circumstances, Trust Common Securities will also carry the right to vote to
appoint, remove or replace any of the Capital Trustees of the applicable Trust.
The Company will own directly or indirectly all of the Trust Common Securities
of each of the Trusts.
DESCRIPTION OF TRUST GUARANTEE
The following description of the terms of the Trust Guarantees which will
be executed and delivered by the Company for the benefit of holders from time to
time of Trust Preferred Securities sets forth certain general terms and
provisions of the Trust Guarantees to which any Prospectus Supplement may
relate. This description does not purport to be complete and is subject to, and
qualified in its entirety by reference to all of the provisions in each Trust
Guarantee, which will be in the form filed with or incorporated by reference in
the Registration Statement of which this Prospectus is a part at or prior to the
time of issuance of Trust Preferred Securities, and those made part of the Trust
Guarantee by the Trust Indenture Act, as in effect on the date of such Trust
Guarantee, and to such Trust Preferred Securities.
GENERAL
Each Trust Guarantee will be qualified as an indenture under the Trust
Indenture Act. Chase Manhattan Bank, an independent trustee, will act as
indenture trustee under each Trust Guarantee (the "Guarantee Trustee") for the
purposes of compliance with the provisions of the Trust Indenture Act. Pursuant
to each Trust Guarantee, unless otherwise specified in the applicable Prospectus
Supplement, the Company will agree, to the extent set forth therein, to pay in
full, on a subordinated basis, to holders of Trust Preferred Securities, the
Trust Guarantee Payments (as defined herein) (except to the extent paid by the
applicable Trust), as and when due, regardless of any defense, right of set-off
or counterclaim which such Trust may have or assert. The following payments or
distributions with respect to Trust Preferred Securities, to the extent not paid
by or on behalf of the applicable Trust (the "Guarantee Payments"), will be
subject to a Trust Guarantee (without duplication): (i) any accrued and unpaid
distributions which are required to be paid on Trust Preferred Securities, to
the extent the applicable Trust has funds available therefor; (ii) with respect
to any Trust Preferred Securities called for redemption by a Trust, the
redemption price (the "Redemption Price") and all accrued and unpaid
distributions to the date of redemption, to the extent such Trust has funds
available therefor and (iii) upon a voluntary or involuntary dissolution,
winding-up or termination of a Trust (other than in connection with the
distribution of Subordinated Debt Securities to holders of Trust Preferred
Securities or the redemption of all of the Trust Preferred Securities), the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the Trust Preferred Securities to the date of payment, to the
extent such Trust has funds available therefor, and (b) the amount of assets of
such Trust remaining available for distribution to holders of Trust Preferred
Securities in liquidation of such Trust. The Company's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
the Company to holders of Trust Preferred Securities or by causing the
applicable Trust to pay such amounts to such holders.
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The Trust Guarantees will not apply to any payment of distributions except
to the extent a Trust has funds available therefor. If the Company does not make
interest or principal payments on the Subordinated Debt Securities purchased by
a Trust, such Trust will not have funds available for, and will not pay,
distributions on Trust Preferred Securities.
The Company has also agreed separately to guarantee the obligations of each
Trust with respect to Trust Common Securities (the "Common Securities
Guarantee") to the same extent as a Trust Guarantee, except that upon an Event
of Default under a Declaration, holders of Trust Preferred Securities shall have
priority over holders of Trust Common Securities with respect to distributions
and payments on liquidation, redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
Unless otherwise specified in the applicable Prospectus Supplement, in the
applicable Trust Guarantee, the Company will covenant that, so long as any
applicable Trust Preferred Securities remain outstanding, if there shall have
occurred any event that would constitute an event of default under such Trust
Guarantee or Declaration, then (a) the Company will not declare or pay any
dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of capital stock of the Company in
satisfaction of the Company's obligations under any employee benefit plans,
systematic stock repurchase program, or in satisfaction of its obligations
pursuant to any contract or security outstanding on the date of such event
requiring the Company to purchase its capital stock, (ii) as a result of a
reclassification of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's capital stock, (iii) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being so converted or
exchanged, (iv) dividends or distributions in capital stock of the Company (or
rights to acquire capital stock) or repurchases or redemptions of capital stock
solely from the issuance or exchange of capital stock, and (v) redemptions or
repurchases of any rights outstanding under a shareholder rights plan), (b) the
Company will not make any payment of interest, principal or premium, if any, on
or repay, repurchase or redeem any of its debt securities which rank junior to
the Subordinated Debt Securities and (c) the Company will not make any guarantee
payments with respect to the foregoing (other than payments pursuant to a Trust
Guarantee or a Common Securities Guarantee).
MODIFICATION OF THE TRUST GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Trust Preferred Securities (in which case no consent will be
required), a Trust Guarantee may be amended only with the prior approval of
holders of not less than a majority in liquidation amount of the outstanding
Trust Preferred Securities issued by the applicable Trust. The manner of
obtaining any such approval of holders of the Trust Preferred Securities will be
set forth in the accompanying Prospectus Supplement. All guarantees and
agreements contained in the Trust Guarantee will bind the successors, assigns,
receivers, trustees and representatives of the Company and will inure to the
benefit of holders of the applicable Trust Preferred Securities then
outstanding.
TERMINATION
A Trust Guarantee will terminate (a) upon full payment of the Redemption
Price of all applicable Trust Preferred Securities then outstanding, (b) upon
distribution of the Subordinated Debt Securities held by such Trust to the
applicable holders of Trust Preferred Securities or (c) upon full payment of the
amounts payable in accordance with the Declaration upon liquidation of a Trust.
A Trust Guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of Trust Preferred Securities must
restore payment of any sums paid to it under Trust Preferred Securities or a
Trust Guarantee.
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EVENTS OF DEFAULT
An event of default under a Trust Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder.
Holders of a majority in liquidation amount of the Trust Preferred
Securities issued by a Trust will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the applicable
Guarantee Trustee or to direct the exercise of any trust or power conferred upon
such Guarantee Trustee. If a Guarantee Trustee fails to enforce a Trust
Guarantee, any record holder of Trust Preferred Securities may institute a legal
proceeding directly against the Company to enforce such holder's rights under
such Trust Guarantee without first instituting a legal proceeding against the
applicable Trust, such Guarantee Trustee or any other person or entity.
Notwithstanding the foregoing, if the Company has failed to make a payment
required under a Trust Guarantee, a record holder of Trust Preferred Securities
may directly institute a proceeding against the Company for enforcement of such
Trust Guarantee for such payment to the record holder of Trust Preferred
Securities of the principal of or interest on the applicable Debt Securities on
or after the respective due dates specified in the Debt Securities, and the
amount of the payment will be based on the holder's pro rata share of the amount
due and owing on all Trust Preferred Securities issued by the applicable Trust.
The Company waives any right or remedy to require that any action be brought
first against each Trust or any other person or entity before proceeding
directly against the Company.
STATUS OF THE TRUST GUARANTEES
Each of the Trust Guarantees will constitute an unsecured obligation of the
Company and will rank (i) subordinate and junior in right of payment to all
other liabilities of the Company, except those liabilities of the Company made
pari passu or subordinate by their terms; (ii) pari passu with most senior
preferred or preference stock now or hereafter issued by the Company and with
any guarantee now or hereafter entered by the Company in respect of any
preferred or preference stock of any affiliate of the Company; and (iii) senior
to the Common Stock of the Company. The terms of the Trust Preferred Securities
provide that each holder of Trust Preferred Securities, by acceptance thereof,
agrees to the subordination provisions and other terms of the Trust Guarantee
relating thereto.
Each Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under the guarantee without
instituting a legal proceeding against any other person or entity).
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
a Trust Guarantee, undertakes to perform only such duties as are specifically
set forth in the applicable Trust Guarantee and, after default, will exercise
the same degree of care as a prudent individual would exercise in the conduct of
his or her own affairs. Subject to such provisions, the Guarantee Trustee is
under no obligation to exercise any of the powers vested in it by a Trust
Guarantee at the request of any holder of Trust Preferred Securities, unless
offered reasonable indemnity against the costs, expenses and liabilities which
might be incurred thereby. The foregoing will not relieve the Guarantee Trustee,
upon the occurrence of an event of default under a Trust Guarantee, from
exercising the rights and powers vested in it by such Trust Guarantee.
APPLICABLE LAW
The Trust Guarantees will be governed by and construed in accordance with
the laws of the State of New York.
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PLAN OF DISTRIBUTION
The Company may sell the Securities and the Trusts may sell the Trust
Preferred Securities being offered hereby may be sold in any one or more of the
following ways from time to time: (i) through agents; (ii) to or through
underwriters; (iii) through dealers; and/or (iv) directly by the Company or, in
the case of Trust Preferred Securities, by the Trusts, to purchasers.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
Offers to purchase Securities may be solicited directly by the Company or
the Trusts or by agents designated by the Company or the Trusts from time to
time. Any such agent involved in the offer or sale of the Securities in respect
of which this Prospectus is delivered will be named, and any commissions payable
by the Company or by any Trust to such agent will be set forth, in the
applicable Prospectus Supplement. Unless otherwise indicated in such Prospectus
Supplement, any such agent will be acting on a reasonable best efforts basis for
the period of its appointment (ordinarily five business days or less). Any such
agent may be deemed to be an underwriter, as that term is defined in the
Securities Act, of the Securities so offered and sold.
If Securities are sold by means of an underwritten offering, the Company
and, in the case of an offering of Trust Preferred Securities, the applicable
Trust, will execute an underwriting agreement with an underwriter or
underwriters at the time an agreement for such sale is reached, and the names of
the specific managing underwriter or underwriters, as well as any other
underwriters, the respective amounts underwritten and the terms of the
transaction, including commissions, discounts and any other compensation of the
underwriters and dealers, if any, will be set forth in the applicable Prospectus
Supplement which will be used by the underwriters to make resales of the
Securities in respect of which this Prospectus is being delivered to the public.
If underwriters are utilized in the sale of any Securities in respect of which
this Prospectus is being delivered, such Securities will be acquired by the
underwriters for their own account and may be resold from time to time in one or
more transactions, including negotiated transactions, at fixed public offering
prices or at varying prices determined by the underwriters at the time of sale.
Securities may be offered to the public either through underwriting syndicates
represented by managing underwriters or directly by one or more underwriters. If
any underwriter or underwriters are utilized in the sale of Securities, unless
otherwise indicated in the applicable Prospectus Supplement, the underwriting
agreement will provide that the obligations of the underwriters are subject to
certain conditions precedent and that the underwriters with respect to a sale of
such Securities will be obligated to purchase all such Securities if any are
purchased.
The Company or any of the Trusts, as applicable, may grant to the
underwriters options to purchase additional Securities, to cover
over-allotments, if any, at the initial public offering price (with additional
underwriting commissions or discounts), as may be set forth in the Prospectus
Supplement relating thereto. If the Company or any such Trust, as applicable,
grants any over-allotment option, the terms of such over-allotment option will
be set forth in the Prospectus Supplement for such Securities.
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Company or any of the Trusts, as applicable,
will sell such Securities to the dealer, as principal. The dealer may then
resell such Securities to the public at varying prices to be determined by such
dealer at the time of resale. Any such dealer may be deemed to be an
underwriter, as such term is defined in the Securities Act, of the Securities so
offered and sold. The name of the dealer and the terms of the transaction will
be set forth in the Prospectus Supplement relating thereto.
Offers to purchase Securities may be solicited directly by the Company or
any of the Trusts, as applicable, and the sale thereof may be made by the
Company or any of the Trusts directly to institutional investors or others, who
may be deemed to be underwriters within the meaning of the Securities Act with
respect to any resale thereof. The terms of any such sales will be described in
the Prospectus Supplement relating thereto.
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Securities may also be offered and sold, if so indicated in the applicable
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("remarketing firms"), acting as principals for their own
accounts or as agents for the Company or any of the Trusts, as applicable. Any
remarketing firm will be identified and the terms of its agreement, if any, with
the Company or any such Trust and its compensation will be described in the
applicable Prospectus Supplement. Remarketing firms may be deemed to be
underwriters, as that term is defined in the Securities Act, in connection with
the Securities remarketed thereby.
If so indicated in the applicable Prospectus Supplement, the Company or any
of the Trusts, as applicable, may authorize agents and underwriters to solicit
offers by certain institutions to purchase Securities from the Company or any
such Trust at the public offering price set forth in the applicable Prospectus
Supplement pursuant to delayed delivery contracts providing for payment and
delivery on the date or dates stated in the applicable Prospectus Supplement.
Such delayed delivery contracts will be subject only to those conditions set
forth in the applicable Prospectus Supplement. A commission indicated in the
applicable Prospectus Supplement will be paid to underwriters and agents
soliciting purchases of Securities pursuant to delayed delivery contracts
accepted by the Company or any of the Trusts, as applicable.
Agents, underwriters, dealers and remarketing firms may be entitled under
relevant agreements with the Company or any of the Trusts, as applicable, to
indemnification by the Company or any such Trust against certain liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such agents, underwriters, dealers and remarketing firms may
be required to make in respect thereof.
Each series of Securities will be a new issue and, other than the Common
Stock, which is listed on the New York Stock Exchange, will have no established
trading market. The Company may elect to list any series of Securities on an
exchange, and in the case of the Common Stock, on any additional exchange, but,
unless otherwise specified in the applicable Prospectus Supplement, the Company
shall not be obligated to do so. No assurance can be given as to the liquidity
of the trading market for any of the Securities.
Agents, underwriters, dealers and remarketing firms may, engage in
transactions with, or perform services for, the Company and its subsidiaries in
the ordinary course of business.
The place and time of delivery for Securities will be set forth in the
accompanying Prospectus Supplement for such Securities.
LEGAL MATTERS
The validity of the Securities will be passed upon for the Company, BSC
Capital Trust, BSC Capital Trust II and BSC Capital Trust III, as the case may
be, by Shearman & Sterling, New York, New York. Certain matters of Delaware Law
relating to the validity of the Trust Preferred Securities will be passed upon
for the Company and the Trusts by Prickett, Jones, Elliott & Kristol, special
counsel to the Company, BSC Capital Trust, BSC Capital Trust II and BSC Capital
Trust III. If the Securities are being distributed in an underwritten offering,
the validity of the Securities will be passed upon for the underwriters by
counsel identified in the related Prospectus Supplement.
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company incorporated by reference and included, respectively, in the
Company's 1998 Form 10-K, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon incorporated by reference and
included therein and incorporated herein by reference. Such consolidated
financial statements and financial
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statement schedule have been incorporated herein by reference in reliance upon
such reports, given upon the authority of such firm as experts in accounting and
auditing.
The combined balance sheets of Schneider Worldwide, formerly a business of
Pfizer Inc., as of December 31, 1997 and 1996, and the related combined
statements of income and cash flows for each of the years in the three-year
period ended December 31, 1997, are incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
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13,000,000 SHARES
[BOSTON SCIENTIFIC LOGO]
COMMON STOCK
-------------------------------------------------
PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
BANC OF AMERICA SECURITIES LLC
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
DEUTSCHE BANC ALEX. BROWN
U.S. BANCORP PIPER JAFFRAY
JUNE 24, 1999
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