GUIDANT CORP, S-3/A, 1996-10-16

GUIDANT CORP
S-3/A, 1996-10-16
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1996

REGISTRATION NO. 333-06363
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1

TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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GUIDANT CORPORATION
(Exact name of registrant as specified in its charter)

INDIANA 35-1931722
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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111 Monument Circle, 29th Floor
Indianapolis, IN 46204-5129
(317) 971-2000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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J.B. King, Esq.
Vice President, General
Counsel and Secretary
Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, IN 46204-5129
(317) 971-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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Copies to:
Bernard E. Kury, Esq. Phyllis G. Korff, Esq.
Dewey Ballantine Skadden, Arps, Slate, Meagher & Flom
1301 Avenue of the Americas 919 Third Avenue
New York, New York 10019-6092 New York, New York 10022-3901
(212) 259-8000 (212) 735-3000
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]

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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF SECURITIES AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED(1) OFFERING PRICE PER UNIT(2) OFFERING PRICE(1)(2) REGISTRATION FEE(4)
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<S> <C> <C> <C> <C>
Common Stock(3) 10,350,000 $45.9375 $475,453,125 $179,657.48
</TABLE>
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(1)Includes 1,350,000 shares issuable upon exercise of an option granted to
the Underwriters to cover over-allotments, if any.

(2)Estimated solely for the purpose of computing the amount of the
registration fee and based on the average of the high and low sales prices
of the Common Stock as reported on the New York Stock Exchange on October
14, 1996 pursuant to Rule 457(c).
(3)Includes the associated Rights (as defined herein) to purchase shares of
Registrant's Series A Participating Preferred Stock, which Rights (a) are
not currently separable from the shares of Common Stock and (b) are not
currently exercisable. See "Description of Common Stock--Shareholder Rights
Plan."

(4)A registration fee of $174,784.48 was paid in connection with the initial
filing of the Registration Statement to register 10,000,000 shares of
Common Stock. Remitted herewith is $4,873, representing the registration
fee for the additional 350,000 shares of Common Stock with a maximum
aggregate offering price of $16,078,125 registered on this Amendment No. 1
to the Registration Statement.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>

EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and the other to be used in connection with a concurrent
international offering (the "International Prospectus"). The two prospectuses
are identical except for the front outside cover page. The form of U.S.
Prospectus is included herein, and the front outside cover page to be used in
the International Prospectus, labelled "Alternate Page for International
Prospectus," is included herein following the form of U.S. Prospectus.
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)

Issued October 16, 1996

9,000,000 Shares

Guidant Corporation

COMMON STOCK

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING ISSUED AND SOLD BY
GUIDANT CORPORATION, AN INDIANA CORPORATION (THE "COMPANY"). OF THE
9,000,000 SHARES OF COMMON STOCK BEING OFFERED, 7,200,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,800,000 SHARES ARE BEING OFFERED INITIALLY
OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS. SEE "UNDERWRITERS." THE COMMON STOCK OF THE
COMPANY IS LISTED ON THE NEW YORK STOCK EXCHANGE AND THE
PACIFIC STOCK EXCHANGE UNDER THE SYMBOL "GDT." ON OCTOBER
15, 1996, THE REPORTED LAST SALE PRICE OF THE COMMON
STOCK ON THE NEW YORK STOCK EXCHANGE WAS $43 3/8 PER
SHARE.

-----------

SEE "RISK FACTORS" ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

-----------

PRICE $ A SHARE

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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(3)................................... $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."

(2) Before deducting expenses payable by the Company estimated at $610,000.

(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
1,350,000 additional shares of Common Stock at the price to public, less
underwriting discounts and commissions, for the purpose of covering over-
allotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions
and proceeds to Company will be $ , $ and
$ , respectively. See "Underwriters."

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The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein, and subject to approval of
certain legal matters by Skadden, Arps, Slate, Meagher & Flom, counsel for the
Underwriters. It is expected that delivery of the shares of Common Stock will
be made on or about , 1996 at the offices of Morgan Stanley & Co.
Incorporated, New York, N.Y., against payment therefor in immediately available
funds.

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MORGAN STANLEY & CO.
Incorporated
ALEX. BROWN & SONS
Incorporated
COWEN & COMPANY
J.P. MORGAN & CO.
PIPER JAFFRAY INC.

, 1996
<PAGE>

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN
OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE......................... 2
PROSPECTUS SUMMARY................... 3
RISK FACTORS......................... 8
USE OF PROCEEDS...................... 10
PRICE RANGE OF COMMON STOCK AND
DIVIDENDS........................... 11
CAPITALIZATION....................... 12
SELECTED CONSOLIDATED FINANCIAL DATA. 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION ................ 15
BUSINESS............................. 24
MANAGEMENT........................... 27
DESCRIPTION OF CAPITAL STOCK......... 31
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
OF COMMON STOCK..................... 33
UNDERWRITERS......................... 35
LEGAL MATTERS........................ 37
EXPERTS.............................. 37
AVAILABLE INFORMATION................ 38
</TABLE>

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents heretofore filed by the Company with the Securities
and Exchange Commission (the "Commission") pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), are incorporated herein by
reference: (1) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995; (2) the Company's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1996 and June 30, 1996; and (3) the description
of the Common Stock and the associated Preferred Stock Purchase Rights of the
Company contained in the Company's Registration Statement on Form 8-A, as
amended, filed with the Commission on October 6, 1994. All documents filed by
the Company with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Common Stock hereunder shall be deemed to
be incorporated by reference herein and to be a part hereof from the date of
the filing of such reports and documents. Any statement contained 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 or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. The Company will provide without charge
to each person to whom this Prospectus is delivered upon written or oral
request, a copy of any or all of such documents that have been or may be
incorporated by reference herein (other than exhibits to such documents which
are not specifically incorporated by reference into such documents). Requests
for such documents should be directed to Investor Relations, Guidant
Corporation, P.O. Box 44906, Indianapolis, Indiana 46244, telephone (317) 971-
2000.

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IN CONNECTION WITH THIS OFFERING, THE U.S. UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, THE PACIFIC STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere or incorporated by reference in this Prospectus. Unless otherwise
indicated, all information in this Prospectus assumes no exercise of the U.S.
Underwriters' over-allotment option. See "Underwriters." Prospective investors
are cautioned that the statements in this Prospectus that are not descriptions
of historical facts may constitute forward looking statements that are subject
to risks and uncertainties. With respect to such forward looking statements,
the Company's actual results could differ materially from those currently
anticipated in such statements due to, among other things, certain factors set
forth under "Risk Factors" and elsewhere in this Prospectus or in documents
incorporated by reference herein.

THE COMPANY

Guidant Corporation, an Indiana corporation (the "Company"), designs,
develops, manufactures and markets a broad range of products for use in cardiac
rhythm management ("CRM"), vascular intervention ("VI"), and other forms of
minimally invasive surgery ("MIS"). In CRM, the Company is a worldwide leader
in implantable cardioverter defibrillator ("ICD") systems. The Company designs,
manufactures and markets a full line of implantable pacemaker systems used in
the treatment of slow or irregular heartbeats. In VI, the Company is also a
worldwide leader in minimally invasive procedures used for opening blocked
coronary arteries. In addition, the Company develops, manufactures and markets
products for use in MIS procedures with products for access, vision,
dissection, retraction and fixation, focusing on laparoscopic market
opportunities in general and cardiovascular surgeries.

The Company's business strategy is to design, develop, manufacture and market
innovative, high quality therapeutic products principally for use in treating
cardiovascular disease and performing minimally invasive surgical procedures,
resulting in improved quality of patient care and reduced treatment costs. This
strategy has led to a consistent record of innovative product introductions,
certain of which have fundamentally changed the treatment of cardiovascular
disease. The Company currently sells its products in over 60 countries.

The Company recently has decided to pursue a strategy that includes the
potential acquisition of one or more businesses in the medical device industry.
The offering of Common Stock pursuant to this Prospectus is intended to
increase the Company's financial flexibility and permit the Company to pursue
effectively such a strategy. The Company's acquisition strategy has been
designed to (i) take advantage of the Company's ability to develop and
commercialize innovative medical devices, (ii) address the desire of the
Company's customers worldwide to narrow the number of vendors and to form broad
economic partnerships, and (iii) address the increased rate of consolidation
among the Company's competitors.

The Company plans to acquire technologies that are complementary to its
existing technology base, products that serve the Company's existing customer
base and businesses that expand its geographic presence. The Company's
management has recently evaluated several possible acquisitions. However, the
Company is not currently in material acquisition negotiations and has no
agreements or understandings with any potential acquiree. The Company is
considering acquiring a development stage company which would not be material
to the operations of the business. The Company believes that several other
companies are also reviewing this opportunity. There can be no assurance that
any acquisition will be consummated or, if consummated, as to the timing and
terms thereof.

The Company was incorporated in Indiana in September 1994 to be the parent of
five of the nine businesses in the Medical Devices and Diagnostics ("MDD")
Division of Eli Lilly and Company, an Indiana corporation ("Lilly"). The
Company consummated an initial public offering of 14,260,000 shares of its
Common Stock in December 1994 (the "IPO"). Prior to the IPO, the Company was a
wholly-owned subsidiary of Lilly. After the IPO, Lilly owned slightly more than
80% of the outstanding shares of Common Stock. Lilly disposed of its remaining
ownership interest in the Company in September 1995 by means of a split-off, an
exchange offer (the "Exchange Offer") pursuant to which Lilly shareholders were
given the opportunity to exchange some or all of

3
<PAGE>

their shares of Lilly's common stock for shares of the Company's Common Stock.
The consummation of the Exchange Offer resulted in Lilly distributing all of
its Company Common Stock to Lilly shareholders. As a result, Lilly no longer
owns any of the Company's Common Stock.

The principal executive offices of the Company are located at 111 Monument
Circle, 29th Floor, Indianapolis, Indiana, 46204-5129, and its telephone number
is (317) 971-2000.

RECENT DEVELOPMENTS

On October 14, 1996, the Company reported net sales of $260.1 million for the
three months ended September 30, 1996, an increase of 11% over the three months
ended September 30, 1995. Foreign currency exchange rates decreased sales
growth by approximately 2%. Cardiac rhythm management product sales of $144.7
million represented a 21% increase over the three months ended September 30,
1995. Vascular intervention product sales decreased 3% compared with the three
months ended September 30, 1995 to $104.7 million. Minimally invasive surgery
product sales of $10.7 million represented a 67% increase over the third
quarter of 1995. Operating income for the period increased by 22% to $74.7
million from $61.3 million during the comparable period in 1995 as a result of
the sales increases and efficiencies gained in manufacturing costs and
operating expenses. Net income and earnings per share of $41.2 million and
$0.57, respectively, represented a 47% increase compared with the third quarter
1995 results. This increase in net income was attributable to the improved
operating income, lower interest expense and goodwill amortization, increased
royalty income, and a lower effective income tax rate.

For the nine months ended September 30, 1996, net sales were $777.7 million,
an increase of 14% compared to the same period in 1995. Reported net income and
earnings per share for the nine months ended September 30, 1996 were $23.5
million and $0.33, respectively. Excluding the special noncash obsolescence
charges reported in the second quarter of 1996, gross profit rose 19% and
operating expenses increased 12% during the nine months ended September 30,
1996 compared to the same period in 1995. Operating income for the nine months
ended September 30, 1996 was $211.4 million, an increase of 33% and contributed
to net income and earnings per share growth of 53% to $107.6 million and $1.49
per share, respectively, before the previously announced special noncash
impairment and obsolescence charges.

SUMMARY CONSOLIDATED INCOME STATEMENTS

(IN MILLIONS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
--------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cardiac rhythm management.............. $ 144.7 $ 119.3 $ 422.7 $ 328.8
Vascular intervention.................. 104.7 108.4 320.7 333.4
Minimally invasive systems............. 10.7 6.4 34.3 20.8
--------- --------- -------- --------
Total net sales...................... $ 260.1 $ 234.1 $ 777.7 $ 683.0
Cost of sales.......................... 69.1 68.1 246.1(1) 212.5
--------- --------- -------- --------
Gross profit......................... 191.0 166.0 531.6 470.5
Research and development............... 37.6 32.2 110.6 100.0
Sales, marketing and administrative.... 78.7 72.5 238.4 211.8
--------- --------- -------- --------
116.3 104.7 349.0 311.8
--------- --------- -------- --------
Income from operations............... 74.7 61.3 182.6 158.7
Other expenses-net..................... 6.8 14.0 34.1 39.8
Impairment charges..................... -- -- 66.9(2) --
--------- --------- -------- --------
6.8 14.0 101.0 39.8
--------- --------- -------- --------
Income before income taxes............. 67.9 47.3 81.6 118.9
Income taxes........................... 26.7 19.3 58.1 48.6
--------- --------- -------- --------
Net income............................. $ 41.2 $ 28.0 $ 23.5 $ 70.3
========= ========= ======== ========
Earnings per share..................... $ 0.57 $ 0.39 $ 0.33 $ 0.98
========= ========= ======== ========
Weighted average shares outstanding.... 72.13 71.86 72.06 71.86
========= ========= ======== ========
</TABLE>
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(1) Includes impact of special noncash obsolescence charges of $28.8 million
recorded in the second quarter of 1996.

(2) In May 1996, the Company recorded noncash charges of $66.9 million from the
impairment of atherectomy-related goodwill and other intangible assets. See
"Management's Discussion and Analysis of Results of Operations and
Financial Condition."

4
<PAGE>

On September 17, 1996, the Company received a favorable ruling from the
Internal Revenue Service (the "IRS") to the effect that this offering will not
affect the ruling issued by the IRS in November 1994 as to the tax-free nature
of the Exchange Offer.

Enrollment of more than 1,000 patients at 59 North American sites in a
randomized clinical trial of the Company's ACS OTW MULTI-LINK(TM) Coronary
Stent System was completed in August 1996. The study compares the clinical
outcomes of the Guidant stent to the Johnson and Johnson Palmaz-Schatz(TM)
stent in single vessel de novo (previously untreated) lesions of 3.0 to 3.75 mm
in diameter. The ACS OTW MULTI-LINK Coronary Stent System is currently sold in
selected international countries.

On May 16, 1996, the Company announced FDA approval to expand product
labeling for its ICD systems. The new labeling covers patients identified by
the Multicenter Automatic Defibrillator Implantation Trial ("MADIT") to be at
high risk for sudden cardiac death. Currently, the Company is the only
manufacturer to have approval for this labeling. MADIT is the first large,
randomized clinical trial comparing implantable defibrillators with
conventional antiarrhythmia drug therapy. The study was terminated in March
1996 because of the significant improvement in survival of patients with
implantable defibrillators. According to the principal investigator of the
study, Arthur J. Moss, M.D., professor of medicine and director of the Heart
Research Follow-up Program at the University of Rochester Medical Center,
patients with implantable defibrillators had 54% fewer deaths and significantly
better overall survival than patients who did not receive the device. Dr. Moss
estimates that about 800,000 Americans survive a heart attack each year and, of
those who survive, approximately 80,000 could benefit from a defibrillator. It
is estimated that about 22,000 ICD systems were implanted in the U.S. last
year.

RISK FACTORS

See "Risk Factors" for information that should be considered by prospective
investors.

5
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered..... 9,000,000 shares(1)
United States offering. 7,200,000 shares
International offering. 1,800,000 shares
Common Stock to be
outstanding after the
offering................. 83,138,005 shares(1)(2)
Use of proceeds.......... Approximately $381.5 million (assuming a public
offering price of $44.00 per share) will be used to
reduce temporarily outstanding commercial
paper indebtedness and bank borrowings, with a
view towards possibly reborrowing when necessary
for acquisitions, and for general corporate purposes
in support of its acquisition strategy.
NYSE and PSE symbol...... "GDT"
</TABLE>
- --------

(1) Excludes 1,350,000 shares of Common Stock subject to the over-allotment
option granted to the Underwriters by the Company.

(2) Excludes 6,973,000 shares of Common Stock reserved for issuance pursuant to
the Guidant Corporation 1994 Stock Plan (the "1994 Stock Plan") and 246,430
shares of Common Stock reserved for issuance pursuant to the Guidant
Corporation Nonemployee Directors Stock Plan.

6
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

(IN MILLIONS, EXCEPT PER-SHARE AND OTHER DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992 1991
--------- ------- -------- -------- -------- -------- -------
(UNAUDITED)
INCOME STATEMENT DATA:
Net sales:
CRM................... $ 278.0 $ 209.5 $ 452.4 $ 378.6 $ 336.5 $ 329.9 $ 304.3
VI.................... 216.0 225.0 447.9 464.5 451.6 423.7 376.9
MIS................... 23.6 14.4 31.0 19.3 6.6 1.2 --
--------- ------- -------- -------- -------- -------- -------
Total net sales..... 517.6 448.9 931.3 862.4 794.7 754.8 681.2
Cost of sales........... 177.0(1) 144.4 283.4 270.9 236.2 211.8 168.9
--------- ------- -------- -------- -------- -------- -------
Gross profit.......... 340.6 304.5 647.9 591.5 558.5 543.0 512.3
Research and
development............. 73.0 67.8 134.7 130.9 129.1 117.9 100.4
Sales, marketing and
administrative.......... 159.7 139.3 291.8 268.9 255.1 251.0 209.1
Restructuring charges... -- -- -- -- 81.5 32.9 --
--------- ------- -------- -------- -------- -------- -------
Income from opera-
tions................ 107.9 97.4 221.4 191.7 92.8 141.2 202.8
Other expenses-net...... 94.2(1) 25.8 51.6 35.8 5.8 20.1 13.5
Net income (loss)....... $ (17.7) $ 42.3 $ 101.1 $ 92.1 $ 50.6 $ 76.8 $ 115.6
Earnings (loss) per
share................... $ (0.25) $ 0.59 $ 1.41 -- -- -- --
Pro forma net income(2). -- -- -- $ 76.2 -- -- --
Pro forma earnings per
share(2)................ -- -- -- $ 1.06 -- -- --
<CAPTION>
JUNE 30, DECEMBER 31,
======================------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991
--------------------- -------- -------- -------- -------- -------
(UNAUDITED)
BALANCE SHEET DATA:
Working capital
(deficit)............... $ (199.4)(3) $ 110.3 $ 116.8 $ 143.3 $ 136.9 $101.7
Total assets............ 988.2 1,057.4 1,103.6 1,288.6 1,118.0 935.7
Borrowings.............. 448.7 (3) 455.0 473.0(4) -- 2.1 2.4
Shareholders' equity.... 373.2 (1) 384.2 264.4(5) 1,048.3 942.7 747.2
Borrowings as a
percentage of total
capitalization......... 54.6% 54.2% 64.1% -- 0.2% 0.3%
Book value per share.... $ 5.18 $ 5.34 $ 3.68 -- -- --
Cash dividends declared
per share............... $ 0.05 $ 0.05 -- -- -- --
OTHER DATA:
Full-time employee
equivalents............. 4,927 4,980 5,055 5,462 4,864 4,316
</TABLE>
- --------

(1) In May 1996, the Company recorded noncash pre-tax charges of $66.9 million
in other expenses-net and $28.8 million in cost of sales for the impairment
of atherectomy-related goodwill and other intangible assets and
obsolescence of older generation CRM products and programmers,
respectively.
(2) The Company reported 1994 earnings per share on a pro forma basis for 1995
comparisons. Pro forma adjustments give effect to the following
transactions as if they occurred on January 1, 1994: (i) borrowings under
the 1994 Credit Agreements (as defined herein), (ii) dividends to Lilly and
(iii) receipt of proceeds from the IPO. Historical earnings per share is
not presented for 1994 since such data is not meaningful due to the changes
in the Company's capital structure and other transactions in connection
with the IPO.

(3) On January 8, 1996, the Company refinanced its outstanding borrowings
through the issuance of commercial paper. The commercial paper borrowings
are supported by a credit facility which permits borrowings up to $600.0
million through January 8, 2001. On June 30, 1996, the Company had
outstanding commercial paper and bank borrowings of $448.7 million. The net
proceeds from this offering will be used to reduce temporarily these
outstanding borrowings. These borrowings are classified as a current
liability resulting in a working capital deficit.

(4) Borrowings at December 31, 1994 increased from December 31, 1993 as a
result of borrowings under the 1994 Credit Agreements.
(5) The decline in shareholders' equity from December 31, 1993 to December 31,
1994 was primarily attributable to dividends to Lilly.

7
<PAGE>

RISK FACTORS

Before purchasing the shares of Common Stock offered hereby, a prospective
investor should carefully consider the factors set forth below, which the
Company believes represent all the material risks in an investment in the
Common Stock offered hereby, as well as the other information set forth
elsewhere in this Prospectus.

SIGNIFICANT COMPETITION AND CONTINUAL TECHNOLOGICAL CHANGE

The medical device market is highly competitive. The Company competes with
many companies, some of which may have access to greater financial and other
resources than the Company. Furthermore, the medical device market is
characterized by rapid product development and technological change. The
present or future products of the Company could be rendered obsolete or
uneconomic by technological advances by one or more of the Company's current
or future competitors or by other therapies such as drugs. The Company must
continue to develop and acquire new products and technology to remain
competitive with other developers of such medical devices and therapies. See
"Business--Competition."

STRINGENT GOVERNMENT REGULATION

The Company's products are subject to extensive regulation by the federal
Food and Drug Administration (the "FDA") and, in some jurisdictions, by state
and foreign governmental authorities. In particular, the Company must obtain
specific clearance from the FDA before it can market products in the United
States. The process of obtaining such clearances can be time consuming and
expensive, and there can be no assurance that all clearances sought by the
Company will be granted or that FDA review will not involve delays adversely
affecting the marketing and sale of the Company's products. Current FDA
enforcement policy prohibits the promotion or labeling of approved medical
devices for unapproved uses. The Company is also required to adhere to the
manufacturing, testing, control, labeling, documentation and product
surveillance requirements of the FDA. These regulations may have a material
impact on the Company's business. Medical device laws are also in effect in
many of the foreign countries where the Company does business. If the FDA
believes that a company is not in compliance with applicable regulations, it
can institute proceedings to detain or seize products, issue a recall, impose
operating restrictions, enjoin future violations and assess civil and criminal
penalties against the company, its officers or its employees and can recommend
criminal prosecution to the Department of Justice. Other regulatory agencies
may have similar powers. In addition, product approvals could be withdrawn due
to the failure to comply with regulatory standards or the occurrence of
unforeseen problems following initial marketing. Any adverse regulatory
action, depending on its magnitude, may have a material adverse effect on the
Company.

DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS; SUBSTANTIAL PATENT LITIGATION

There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. Historically,
litigation has been necessary to enforce certain patent rights held by the
Company. The Company owns numerous United States and foreign patents and has
numerous patent applications pending. The Company also has license rights to
certain patents held by third parties. The Company is currently subject to
claims of, and legal actions alleging, infringement by the Company of the
patent rights of others. An adverse outcome with respect to any one or more of
these claims or actions or any future claims or actions could have a material
adverse effect on the Company. The Company also relies on trade secrets and
proprietary technology that it seeks to protect, in part, through
confidentiality agreements with certain employees, consultants and other
parties. Future litigation by the Company may be necessary to enforce its
patent rights, to protect its trade secrets or know-how or to defend it
against claimed infringement of the rights of others and to determine the
scope and validity of the proprietary rights of others. Any such litigation
could result in substantial cost to and diversion of effort by the Company.
Adverse determinations in any such litigation could subject the Company to
significant liabilities to third parties, could require the Company to seek
licenses from third parties and could prevent the Company from manufacturing,
selling or using certain of its products, any of which could have a material
adverse effect on the Company. See "Business--Legal Proceedings." In addition,
there can be no assurance that pending patent applications will result in
issued patents, that patents issued to or licensed by the Company will not be
challenged or circumvented by competitors or that such patents will be found
to be valid or sufficiently broad to protect the Company's technology or
provide the Company with a competitive advantage.

8
<PAGE>

POTENTIAL PRODUCT LIABILITY; PRODUCT RECALLS

The Company's business exposes it to potential product liability risks which
are inherent in the design, manufacture and marketing of medical devices. The
Company's products are often used in intensive care settings with seriously
ill patients. In addition, many of the medical devices manufactured and sold
by the Company are designed to be implanted in the human body for long periods
of time. Component failures, manufacturing flaws, design defects or inadequate
disclosure of product-related risks or product-related information with
respect to these or other products manufactured or sold by the Company could
result in an unsafe condition or injury to, or death of, the patient. The
occurrence of such a problem could result in product liability claims and/or a
recall of, or safety alert relating to, one or more of the Company's products
which could ultimately result, in certain cases, in the removal from the body
of such products. There can be no assurance that the Company's current product
liability insurance will be adequate or that the Company will be able to
obtain insurance in the future at satisfactory rates or in adequate amounts.
Product liability claims or product recalls in the future, regardless of their
ultimate outcome, could have a material adverse effect on the Company's
business and reputation and on its ability to attract and retain customers for
its products.

DEPENDENCE ON SOLE SOURCES OF SUPPLY

The Company purchases certain of the materials and components used in
manufacturing its products. Certain of these supplies are custom-made for the
Company. In addition, the Company purchases certain supplies from single
sources due to quality considerations, costs or constraints resulting from
regulatory requirements. Agreements with certain suppliers are terminable by
either party upon short notice. The establishment of additional or replacement
suppliers for certain components or materials cannot be accomplished quickly,
largely due to the FDA approval system and the complex nature of manufacturing
processes employed by many suppliers. The inability to develop satisfactory
alternatives, if required, or a reduction or interruption in supply or a
significant increase in the price of materials or components could have a
material adverse effect on the Company.

LIMITATIONS ON THIRD-PARTY REIMBURSEMENT

The Company's products are purchased principally by hospitals or physicians.
Hospitals typically bill various third-party payors, such as governmental
programs (e.g., Medicare and Medicaid), private insurance plans and managed
care plans, for the health care services provided to their patients. Third-
party payors are increasingly negotiating the prices charged for medical
products and services. If hospitals respond to such pressures by substituting
lower cost products or other therapies for the Company's products, the Company
could be adversely affected. Moreover, third-party payors may deny
reimbursement if it is determined that a device was not used in accordance
with cost-effective treatment methods as determined by the payor, was
experimental, or for other reasons.

The ability of customers to obtain appropriate reimbursement for their
products and services from government and third-party payors is critical to
the success of all medical device companies around the world. Several foreign
governments (most notably Germany and Spain) have attempted to dramatically
reshape reimbursement policies affecting medical devices. Further restrictions
on reimbursement of the Company's customers would have an impact on the
products, including clinical products, purchased by customers and the prices
they are willing to pay.

9
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 9,000,000 shares of
Common Stock offered hereby are estimated to be $381.5 million (assuming a
public offering price of $44.00 per share) ($438.9 million if the
Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company intends to use the net proceeds from this offering to reduce
temporarily its outstanding commercial paper indebtedness and bank borrowings,
with a view towards possibly reborrowing when necessary for acquisitions, and
for general corporate purposes in support of its acquisition strategy. See
"Prospectus Summary--The Company." At June 30, 1996, the Company had
approximately $334.4 million of outstanding commercial paper indebtedness with
maturities of up to 90 days and a weighted average interest rate of 5.63% and
approximately $114.3 million in bank borrowings with maturities of up to 90
days and a weighted average interest rate of 4.66%.

10
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

The Common Stock is listed and traded on the New York Stock Exchange, Inc.
("NYSE") and the Pacific Stock Exchange Incorporated under the symbol "GDT."
The following table sets forth for the periods indicated the high and low sale
prices per share of Common Stock as reported on the NYSE and the cash
dividends paid per share of Common Stock:

<TABLE>
<CAPTION>
CASH
HIGH LOW DIVIDENDS
------- ------- ---------
<S> <C> <C> <C>
1994
Fourth Quarter (since commencement of trading on
December 14, 1994).................................. $16 1/8 $14 1/2 --
1995
First Quarter........................................ 19 7/8 15 1/2 --
Second Quarter....................................... 24 1/2 18 1/4 --
Third Quarter........................................ 29 1/4 22 5/8 $0.025
Fourth Quarter....................................... 42 5/8 27 1/2 0.025
1996
First Quarter........................................ 54 5/8 39 1/2 0.025
Second Quarter....................................... 61 3/8 47 3/4 0.025
Third Quarter........................................ 56 1/4 47 0.025
Fourth Quarter (through October 15, 1996)............ 55 3/8 41 1/4 --
</TABLE>

A recently reported last sale price per share for the Company's Common Stock
on the NYSE is set forth on the cover page of this Prospectus. As of October
11, 1996, there were approximately 3,085 holders of the Company's Common
Stock.

The Company's Board of Directors has established an initial policy of
declaring regular quarterly cash dividends on the Common Stock. The
declaration and payment of future dividends, if any, to holders of Common
Stock will be at the discretion of the Board of Directors of the Company and
will depend upon many factors, including the Company's competitive position,
financial condition, earnings and capital requirements. Accordingly, there is
no requirement or assurance that future dividends will be declared or paid.

11
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996 and as adjusted to give effect to the sale by the Company of
9,000,000 shares of Common Stock offered hereby (at an assumed public offering
price of $44.00 per share), after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company and the
application of the estimated net proceeds therefrom. See "Prospectus Summary--
Recent Developments" and "Use of Proceeds."

<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------
ACTUAL ADJUSTMENTS AS ADJUSTED
------ ----------- -----------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C>
Borrowings ..................................... $448.7 $(381.5) $67.2
SHAREHOLDERS' EQUITY:
Common stock-no par value:
Authorized shares: 250,000,000
Issued shares: 72,098,000-Actual.............. 192.5 381.5 574.0
81,098,000-As adjusted (1)
Additional paid-in capital...................... 150.9 -- 150.9
Retained earnings............................... 82.1 -- 82.1
Currency translation adjustments................ (9.8) -- (9.8)
Deferred cost, ESOP............................. (54.3) -- (54.3)
Net unrealized appreciation on investments...... 11.8 -- 11.8
------ ------- ------
Total shareholders' equity.................. 373.2 381.5 754.7
------ ------- ------
Total capitalization...................... $821.9 $ -- $821.9
====== ======= ======
</TABLE>
- --------

(1) Common Stock issued and outstanding does not include approximately 2.0
million shares of Common Stock issued to the Company's ESOP and not yet
allocated to employee accounts.

12
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data for the five years ended
December 31, 1995 are derived from consolidated financial statements of the
Company which have been audited by Ernst & Young LLP, independent auditors.
The selected consolidated financial data for the six-month periods ended June
30, 1996 and June 30, 1995 are derived from unaudited consolidated financial
statements. The consolidated financial data for the six-month periods ended
June 30, 1996 and June 30, 1995 include all adjustments, consisting of normal
recurring accruals, which the Company considers necessary for a fair
presentation of the consolidated results of operations and the consolidated
financial position for these periods. Operating results for the six months
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1996. The following data
should be read in conjunction with the Company's audited and unaudited
financial statements and notes thereto and "Management's Discussion and
Analysis of Results of Operations and Financial Condition," included elsewhere
in this Prospectus and incorporated by reference herein.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992 1991
--------- ------- -------- -------- -------- -------- -------
(IN MILLIONS, EXCEPT PER-SHARE AND OTHER DATA)
(UNAUDITED)
INCOME STATEMENT DATA:
Net sales:
CRM................... $ 278.0 $ 209.5 $ 452.4 $ 378.6 $ 336.5 $ 329.9 $ 304.3
VI.................... 216.0 225.0 447.9 464.5 451.6 423.7 376.9
MIS................... 23.6 14.4 31.0 19.3 6.6 1.2 --
--------- ------- -------- -------- -------- -------- -------
Total net sales..... 517.6 448.9 931.3 862.4 794.7 754.8 681.2
Cost of sales........... 177.0(1) 144.4 283.4 270.9 236.2 211.8 168.9
--------- ------- -------- -------- -------- -------- -------
Gross profit.......... 340.6 304.5 647.9 591.5 558.5 543.0 512.3
Research and
development............. 73.0 67.8 134.7 130.9 129.1 117.9 100.4
Sales, marketing and
administrative.......... 159.7 139.3 291.8 268.9 255.1 251.0 209.1
Restructuring charges... -- -- -- -- 81.5 32.9 --
--------- ------- -------- -------- -------- -------- -------
Income from opera-
tions................ 107.9 97.4 221.4 191.7 92.8 141.2 202.8
Other expenses-net...... 94.2(1) 25.8 51.6 35.8 5.8 20.1 13.5
Net income (loss)....... $ (17.7) $ 42.3 $ 101.1 $ 92.1 $ 50.6 $ 76.8 $ 115.6
Earnings (loss) per
share................... $ (0.25) $ 0.59 $ 1.41 -- -- -- --
Pro forma net income(2). -- -- -- $ 76.2 -- -- --
Pro forma earnings per
share(2)................ -- -- -- $ 1.06 -- -- --
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991
--------------------- -------- -------- -------- -------- -------
(IN MILLIONS, EXCEPT PER-SHARE AND OTHER
(UNAUDITED) DATA)
BALANCE SHEET DATA:
Working capital
(deficit)............... $ (199.4)(3) $ 110.3 $ 116.8 $ 143.3 $ 136.9 $101.7
Total assets............ 988.2 1,057.4 1,103.6 1,288.6 1,118.0 935.7
Borrowings.............. 448.7 (3) 455.0 473.0(4) -- 2.1 2.4
Shareholders' equity.... 373.2 (1) 384.2 264.4(5) 1,048.3 942.7 747.2
Borrowings as a
percentage of total
capitalization......... 54.6% 54.2% 64.1% -- 0.2% 0.3%
Book value per share.... $ 5.18 $ 5.34 $ 3.68 -- -- --
Cash dividends declared
per share............... $ 0.05 $ 0.05 -- -- -- --
OTHER DATA:
Full-time employee
equivalents............. 4,927 4,980 5,055 5,462 4,864 4,316
</TABLE>

13
<PAGE>

- --------

(1) In May 1996, the Company recorded noncash pre-tax charges of $66.9 million
in other expenses-net and $28.8 million in cost of sales for the
impairment of atherectomy-related goodwill and other intangible assets and
obsolescence of older generation CRM products and programmers,
respectively.
(2) The Company reported 1994 earnings per share on a pro forma basis for 1995
comparisons. Pro forma adjustments give effect to the following
transactions as if they occurred on January 1, 1994: (i) borrowings under
the 1994 Credit Agreements, (ii) dividends to Lilly and (iii) receipt of
proceeds from the IPO. Historical earnings per share is not presented for
1994 since such data is not meaningful due to the changes in the Company's
capital structure and other transactions in connection with the IPO.

(3) On January 8, 1996, the Company refinanced its outstanding borrowings
through the issuance of commercial paper. The commercial paper borrowings
are supported by a credit facility which permits borrowings up to $600.0
million through January 8, 2001. On June 30, 1996, the Company had
outstanding commercial paper and bank borrowings of $448.7 million. The
net proceeds from this offering will be used to reduce temporarily these
outstanding borrowings. These borrowings are classified as a current
liability resulting in a working capital deficit.

(4) Borrowings at December 31, 1994 increased from December 31, 1993 as a
result of borrowings under the 1994 Credit Agreements.

(5) The decline in shareholders' equity from December 31, 1993 to December 31,
1994 was primarily attributable to dividends to Lilly.

14
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The Company is a multinational company that designs, develops, manufactures
and markets a broad range of products for use in: (i) CRM; (ii) VI; and (iii)
MIS.

The following tables are summaries of the Company's net sales and major costs
and expenses:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------- -------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------- -------
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales
CRM....................... $278.0 $209.5 $ 452.4 $ 378.6 $ 336.5
VI........................ 216.0 225.0 447.9 464.5 451.6
MIS....................... 23.6 14.4 31.0 19.3 6.6
------ ------ ------- ------- -------
Total net sales......... 517.6 448.9 931.3 862.4 794.7
Cost of sales............... 177.0 144.4 283.4 270.9 236.2
------ ------ ------- ------- -------
Gross profit.............. 340.6 304.5 647.9 591.5 558.5
Research and development.... 73.0 67.8 134.7 130.9 129.1
Sales, marketing and 159.7 139.3 291.8 268.9 255.1
administrative.............. ------ ------ ------- ------- -------
232.7 207.1 426.5 399.8 384.2
------ ------ ------- ------- -------
107.9 97.4 221.4 191.7 174.3
Restructuring charges....... -- -- -- -- 81.5
------ ------ ------- ------- -------
Income from operations.... $107.9 $ 97.4 $ 221.4 $ 191.7 $ 92.8
====== ====== ======= ======= =======
<CAPTION>
AS A PERCENT OF NET SALES
-----------------------------------------
SIX
MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------- -------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales
CRM....................... 53.7% 46.7% 48.6% 43.9% 42.3%
VI........................ 41.7 50.1 48.1 53.9 56.9
MIS....................... 4.6 3.2 3.3 2.2 0.8
------ ------ ------- ------- -------
Total net sales......... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............... 34.2 32.2 30.4 31.4 29.7
------ ------ ------- ------- -------
Gross profit.............. 65.8 67.8 69.6 68.6 70.3
Research and development.... 14.1 15.1 14.5 15.2 16.2
Sales, marketing and 30.9 31.0 31.3 31.2 32.1
administrative.............. ------ ------ ------- ------- -------
45.0 46.1 45.8 46.4 48.3
------ ------ ------- ------- -------
20.8 21.7 23.8 22.2 22.0
Restructuring charges....... -- -- -- -- 10.2
------ ------ ------- ------- -------
Income from operations.... 20.8% 21.7% 23.8% 22.2% 11.8%
====== ====== ======= ======= =======
</TABLE>

15
<PAGE>

OPERATING RESULTS--THREE AND SIX MONTHS ENDED JUNE 30, 1996

The Company had worldwide net sales of $265.5 million for the three months
ended June 30, 1996, reflecting an increase of $41.4 million or 18% over the
same period in 1995. Growth in unit volume of 17% and sales price increases of
3% increased worldwide net sales, offset somewhat by fluctuations in foreign
currency exchange rates which decreased net sales 2%.

The Company had worldwide net sales of $517.6 million for the six months
ended June 30, 1996, an increase of $68.7 million or 15% over the six months
ended June 30, 1995. This growth in worldwide net sales was due to unit volume
growth of 12% and sales price increases of 4%, offset somewhat by foreign
currency exchange rate changes which decreased net sales 1% during this
period.

Net sales of CRM products grew $38.6 million or 36.6% for the three months
ended June 30, 1996 as compared to the same period in 1995. CRM product net
sales grew $68.5 million or 32.7% for the six months ended June 30, 1996 as
compared to the same period in 1995. This growth was led by strong worldwide
sales of the VENTAK MINI family of advanced, tiered-therapy ICD systems
released in the United States in January 1996, and the VENTAK MINI HC released
in May 1996. The technologically advanced VENTAK MINI family of CRM products
is significantly smaller and lighter than the Company's previous products. In
addition, the VENTAK MINI HC incorporates the Company's exclusive TRIAD
defibrillation energy delivery system which is designed to simplify the device
implant procedure and reduce the energy needed for defibrillation. The
Company's adaptive-rate pacemaker products also contributed to sales growth
during the period, led by the VIGOR DR and VIGOR SR which were released to the
United States market in June 1995.

Net sales of VI products for the three months ended June 30, 1996 decreased
$1.9 million or 1.7% from the same period in 1995. For the six months ended
June 30, 1996, net sales of vascular intervention products decreased $9.0
million or 4.0% from 1995. The Company experienced sales growth in angioplasty
products primarily due to the ACS MULTI-LINK Coronary Stent system, launched
in Europe in November 1995, increased sales of over-the-wire catheters such as
the ACS CONCORDE and the high pressure ACS ENDURA which was market released in
March 1996, and continued growth in guidewires and accessory products. The
Company also experienced increased sales resulting from its direct operations
in Japan. This growth was offset by sales volume declines in atherectomy and
dilatation catheters, and lower net average selling prices of most dilatation
catheters in the United States. These lower domestic net average selling
prices of dilatation catheters include the impact of product mix changes due
to the acceptance of the recently launched over-the-wire catheters discussed
above. The Company believes that net average selling prices may continue to
decline due to this shift in product mix. Atherectomy sales declines were
primarily due to increasing usage of coronary stents, a competing alternative
therapy. Management believes that atherectomy products will continue to
experience sales declines in 1996 compared to 1995.

Net sales of MIS products for the three months ended June 30, 1996 were
$12.2 million, an increase of $4.7 million or 62.7% over the same period in
the previous year. MIS net sales for the six months ended June 30, 1996 were
$23.6 million, an increase of 63.9% over the comparable period in 1995. The
Company experienced MIS sales growth in both United States and international
markets as the Company continued to expand the marketing of its innovative
laparoscopic technologies. Sales growth was primarily driven by the ORIGIN
TACKER endoscopic fixation device and custom procedural kits which incorporate
these devices and other MIS products.

Sales growth occurred in both the United States and international markets.
United States net sales increased 11.5% to $164.2 million and international
net sales increased 31.7% to $101.3 million for the three months ended June
30, 1996 as compared to the same period in 1995. For the six months ended June
30, 1996, United States net sales increased 9.1% to $324.9 million and
international net sales increased 27.4% to $192.7 million, as compared to the
six months ended June 30, 1995. United States net sales growth was primarily
due to CRM sales of VENTAK MINI, VIGOR DR, and VIGOR SR. International net
sales growth was primarily driven by

16
<PAGE>

strong European and Japanese sales of the VIGOR family of pacemakers and
strong European sales of the VENTAK MINI product family. The VIGOR family of
pacemakers, which includes conventional and adaptive-rate pacemaker products,
represents a majority of the Company's bradycardia revenues in the United
States, Europe, and Japan. The commencement of new distribution arrangements
in Japan, Italy and the Benelux countries, and sales of the ACS MULTI-LINK
Coronary Stent, guidewires and the recently introduced ACS RX COMET (rapid
exchange catheter) in Europe contributed to the international sales growth.
Perfusion catheter and guidewire sales in Europe and Japan also contributed to
the international sales growth.

Cost of sales was $100.0 million for the three months ended June 30, 1996,
an increase of $26.4 million or 35.9% from the comparable period in 1995. Cost
of sales as a percentage of net sales for the three months ended June 30, 1996
was 37.7% as compared to 32.8% for the same period in 1995. The Company took
noncash obsolescence charges of $28.8 million on certain CRM products and
programmers due to accelerated United States regulatory approval for market
release and customer acceptance of new CRM products, particularly the VENTAK
MINI, VENTAK MINI HC, and VENTAK MINI II families of ICD systems. Cost of
sales, without considering the effect of these special obsolescence charges,
would have been $71.2 million or 26.8% of net sales for the three months ended
June 30, 1996 compared to $73.6 million or 32.8% of net sales for the same
period in 1995. This reduction in cost of sales as a percentage of net sales
resulted from enhanced vascular intervention manufacturing efficiencies, and
reduced manufacturing costs of newer generation CRM products. For the six
months ended June 30, 1996 and 1995, cost of sales, without the effect of the
obsolescence charges in 1996, would have been $148.2 million or 28.6% of net
sales and $144.4 million or 32.2% of net sales, respectively. Including the
effect of the $28.8 million special obsolescence charges, cost of sales was
$177.0 million or 34.2% of net sales for the six months ended June 30, 1996.

The Company has continued investing significant resources in research and
development to develop new innovative products. Research and development
expenses of $37.0 million for the three months ended June 30, 1996 increased
$2.6 million or 7.6% compared to the same period in 1995. These expenses
represented 13.9% and 15.4% of net sales in 1996 and 1995, respectively. For
the six months ended June 30, 1996, research and development expenses
increased $5.2 million or 7.7% and decreased as a percentage of net sales to
14.1% from 15.1% for the same period last year. Increased new product
development costs, related to the VENTAK MINI II, which had its first implant
in Europe in March 1996, and the ACS MULTI-LINK Coronary Stent, were partially
offset by certain other research and development spending reductions,
primarily involving atherectomy products.

Sales, marketing and administrative expenses grew $12.7 million or 18.2% for
the three months ended June 30, 1996 compared to the same period in the prior
year. These expenses represented approximately 31.0% of net sales in both
periods. For the six months ended June 30, 1996, sales, marketing and
administrative expenses increased 14.6% in comparison to the same period in
1995. Variable CRM selling expenses associated with the recent United States
market release of VENTAK MINI were among the primary reasons for this
increased spending during the period. The commencement, primarily in the last
half of 1995, of new distribution arrangements in Japan, Italy and the Benelux
countries also contributed to the increase in sales and marketing expenses.
Increased compensation accruals due to the Company's performance-based bonus
program and related stock price appreciation contributed to an increase in
general and administrative expenses during the period.

Total research and development, and sales, marketing and administrative
spending decreased to 45.0% of net sales for the three months ended June 30,
1996 compared to 46.5% for the same period in 1995. These expenses for the six
months ended June 30, 1996, decreased to 45.0% of net sales compared to 46.1%
for the six months ended June 30, 1995.

Income from operations of $46.1 million and $107.9 million for the three and
six months ended June 30, 1996, respectively, represented a 0.6% decrease and
10.8% increase respectively, from the comparable periods in 1995. Income from
operations was negatively affected by the aforementioned special obsolescence
charges on CRM inventory and programmers. Income from operations, without
considering these noncash charges in 1996, would have increased 61% and 40%
for the three and six months ended June 30, 1996 respectively, over the

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same periods in 1995. Increased net sales combined with lower costs of sales
due to manufacturing efficiencies and controlled growth in operating expenses
resulted in this growth in income from operations.

For the three months ended June 30, 1996, the Company had net other expenses
of $79.5 million compared to $10.5 million for the same period in the prior
year. The Company had net other expenses of $94.2 million and $25.8 million
for the six months ended June 30, 1996 and 1995, respectively. Included in net
other expenses in 1996 are noncash impairment charges of $66.9 million taken
by the Company against its atherectomy-related goodwill and other intangible
assets. This impairment loss was based on an analysis performed in accordance
with Statement of Financial Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. SFAS No. 121 requires certain long-lived assets, which meet
prescribed impairment tests, to be written down to their fair values. The
goodwill and other intangible assets were recorded as part of the purchase of
Devices for Vascular Intervention, Inc. by Lilly in 1989, prior to the
formation of the Company.

The Company's effective income tax rate, without considering the effect of
the obsolescence and impairment charges discussed above, was 39.2% and 39.3%
for the three and six months ended June 30, 1996, respectively, compared to
40.9% for each of the same periods in 1995. The reduced impact of
nondeductible goodwill amortization and increased benefits from reduced state
income taxes and the Company's operations in Puerto Rico contributed to the
reduced effective income tax rate.

The Company experienced a net loss for the three months ended June 30, 1996
of $46.2 million, and a corresponding loss per share of $0.64. For the
comparable period in 1995, net income was $21.2 million, and earnings per
share was $0.30. For the six months ended June 30, 1996 and 1995 the Company
experienced a net loss of $17.7 million, and net income of $42.3 million,
respectively. Without the noncash special obsolescence and impairment charges
totaling $95.7 million, net income would have been $37.9 million, and earnings
per share would have been $0.53 for the three months ended June 30, 1996. For
the six months ended June 30, 1996, net income would have been $66.4 million
and $0.92 per share without these special charges.

OPERATING RESULTS--YEAR ENDED DECEMBER 31, 1995

The Company had worldwide net sales of $931.3 million for the year ended
December 31, 1995, reflecting an increase of $68.9 million or 8% over 1994.
Increased worldwide net sales was due to growth in unit volume of 4%, sales
price increases of 2%, and fluctuations in foreign currency exchange rates of
2%.

Net sales of CRM products for 1995 were $452.4 million, an increase of $73.8
million or 19.5% over 1994. This growth was led by strong sales of recently
introduced ICD systems. In the United States, product introductions included
the VENTAK PRx III tiered-therapy ICD in May 1995, VENTAK P2 and VENTAK P3
multitherapy defibrillators in March 1995 and September 1995, respectively,
and ENDOTAK 70 single-pass endocardial lead system in June 1995. European
sales growth was led by VENTAK PRx III, VENTAK P3, ENDOTAK DSP, and VENTAK
MINI products. The VENTAK MINI family of advanced tiered-therapy cardiac
rhythm management products, introduced in Europe during November 1995 and
approved for United States market release during December 1995, is
significantly smaller than the Company's most recently market-released
predecessor product. The Company's conventional and adaptive-rate pacemaker
products also contributed to this sales growth, led by the United States
market releases of VIGOR DR and VIGOR SR in June 1995.

Net sales of VI products for 1995 were $447.9 million, a decrease of $16.6
million or 3.6% from 1994. The Company had sales growth in angioplasty
products primarily due to the following: (i) increased unit volume from the
worldwide introduction of ACS RX LIFESTREAM (rapid exchange catheter with
perfusion) in March 1995, (ii) increased unit volume of guidewires, (iii) ACS
MULTI-LINK stent, launched in Europe in November 1995, and (iv) ACS OTW
LIFESTREAM (over-the-wire catheter with perfusion), introduced in the United
States in December 1995. This growth was offset by volume declines in
atherectomy and over-the-wire catheters, and lower average selling prices of
angioplasty products. The Company believes that most angioplasty products may

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continue to experience pricing pressures. Atherectomy sales declines were
primarily due to usage of the stent, a competing alternative therapy. The
Company believes that atherectomy products will continue to experience sales
declines in 1996 compared to 1995.

Net sales of MIS products for 1995 were $31.0 million, an increase of $11.7
million or 61% over 1994. MIS sales growth was experienced in both domestic
and international markets as the Company continued to expand the marketing of
its innovative laparoscopic technologies. Sales growth was driven by the
ORIGIN TACKER endoscopic fixation device, the PDBS Preperitoneal Distention
Balloon Systems, and custom procedural kits which incorporate the
aforementioned products and other MIS products.

The Company experienced sales growth both in the United States and
international markets during 1995. Net sales in the United States increased
1.7% to $603.2 million and international net sales increased 21.8% to $328.1
million for 1995 as compared to 1994. United States net sales growth was
primarily due to CRM sales of VENTAK PRx III, VIGOR DR, VIGOR SR, VENTAK P3,
ENDOTAK 70, and VI sales of ACS RX LIFESTREAM and guidewires. International
net sales growth was primarily driven by European and Japanese sales of the
VIGOR family of pacemakers, as well as by continued strong sales of VENTAK PRx
III, VENTAK P3, and ENDOTAK DSP in Europe. The VIGOR family of pacemakers,
which includes conventional and adaptive-rate pacemaker products, represents a
majority of the Company's bradycardia revenues in the United States, Europe
and Japan. Increased guidewire and perfusion catheter sales in Japan and
Europe, the commencement of new distribution arrangements in Japan, Italy, and
the Benelux countries, and the introduction of the ACS MULTI-LINK stent in
Europe also contributed to the international sales growth.

Cost of sales increased 4.6% in 1995, a rate less than the growth rate in
net sales for the year. Cost of sales as a percentage of net sales for 1995
was 30.4% compared to 31.4% in 1994. Unit manufacturing cost reductions,
primarily in VI and MIS, resulting from increased manufacturing efficiencies,
were partially offset by inventory obsolescence charges of $12.9 million taken
on certain CRM products affected by the recent introductions of newer
generation products such as VENTAK PRx III and VENTAK P3. Throughout 1996, the
Company will monitor the impact of the introduction of newer generation CRM
products on its overall inventory position. Such analysis may result in the
recognition of additional obsolescence charges in 1996.

Research and development expenses, which increased $3.8 million or 2.9% in
1995 compared to 1994, represented 14.5% and 15.2% of net sales, respectively,
for these years. Increased research and development costs in connection with
CRM and VI new product development, including development of the VENTAK MINI
family of products and the ACS MULTI-LINK stent, were partially offset by
certain other research and development spending reductions primarily involving
atherectomy products.

Sales, marketing and administrative expenses grew 8.5% in 1995 compared to
1994. Increased sales and marketing expenses were primarily driven by the
transition from the use of independent distributors to direct sales in Japan,
Italy and the Benelux countries, variable selling expenses such as
commissions, and the Company's launch of 25 new products to the United States
market during 1995, particularly the VENTAK PRx III, VIGOR DR, VIGOR SR, ACS
RX LIFESTREAM, ACS OTW LIFESTREAM, and TOURGUIDE Guiding Catheter, and
European market releases of the VENTAK MINI and ACS MULTI-LINK stent.

Increased net sales combined with controlled growth in cost of sales and
research and development spending resulted in an increase in income from
operations of 15.5% in 1995 compared to 1994.

Management believes that profitability of its atherectomy business in 1996
may decline in comparison to 1995. See "--Operating Results--Three and Six
Months Ended June 30, 1996."

For 1995, the Company had net other expenses of $51.6 million as compared to
$35.8 million in 1994. The increase in net other expenses was primarily a
result of a full year of interest expense on the 1994 Credit Agreements which
was offset slightly by increased net royalty income. Net royalty income
increased $5.3 million to $6.8 million in 1995. This increase was due
primarily to royalties received on certain VI technology patents.

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<PAGE>

The Company's effective income tax rate for 1995 was 40.5%, compared to
40.9%, in 1994. Higher income taxes in certain international locations and the
loss of available research tax credits were offset by the reduced impact of
nondeductible expenses, primarily goodwill amortization, and lower state
income taxes.

Net income for 1995 was $101.1 million, an increase of $9.0 million or 9.8%
over 1994. Operating income growth of 15.5% in 1995 was offset by net other
expenses, as discussed above.

Net income of $101.1 million and earnings per share of $1.41 for 1995
increased approximately 33% in comparison to pro forma net income and pro
forma earnings per share for 1994. This increase was primarily due to
operating income growth, increased royalty income, and reduced net interest
expense incurred by the Company on the 1994 Credit Agreements in 1995, in
comparison to pro forma net interest expense on long-term debt for 1994.
Average outstanding borrowings during 1995 were $463.8 million while pro forma
average outstanding borrowings for 1994 were $513.0 million.

The Company reported 1994 earnings per share on a pro forma basis for 1995
comparisons. The pro forma amounts are based on historical results of
operations adjusted to give effect to the following transactions as if they
occurred on January 1, 1994: (i) borrowings under the 1994 Credit Agreements,
(ii) dividends to Lilly, and (iii) receipt of proceeds from the IPO.

OPERATING RESULTS--YEAR ENDED DECEMBER 31, 1994

The Company had worldwide net sales of $862.4 million in 1994, reflecting an
increase of $67.7 million or 9% over 1993. Growth in unit volume of 8% and
fluctuations in foreign currency exchange rates of 2% increased worldwide net
sales while sales prices decreased net sales 1%.

Net sales of CRM products grew $42.1 million or 12.5% in 1994 as compared to
1993, primarily due to the United States introduction of the VENTAK PRx
tiered-therapy ICD in June 1994; sales of the ENDOTAK 70 endocardial lead
system introduced in the United States in August 1994; continued European
sales growth led by VENTAK PRx II, which was commercially released in
September 1993; and the market releases of VENTAK PRx III, VENTAK P3, and
ENDOTAK DSP in October 1994. The Company's pacemaker products also contributed
to this growth, with strong sales performance by the VIGOR product family in
Europe and the United States market release of VIGOR DDD in October 1994.

Net sales of VI products for 1994 increased $12.9 million or 2.9% over 1993
primarily due to the introduction of the ATHEROCATH GTO (atherectomy catheter)
in August 1994, sales of the Company's technologically advanced ACS RX
FLOWTRACK 40 (perfusion catheter) and ACS RX ELIPSE (rapid exchange catheter),
which were introduced in March 1993 and October 1993, respectively, and
increased sales of guidewires. VI net sales growth was partially offset by
volume declines in over-the-wire catheter products and lower average selling
prices of angioplasty catheters. International volume declines in the
Company's atherectomy catheter products also negatively impacted overall sales
growth. An initial stocking of product by its distributor in Japan, where the
Company commenced selling atherectomy products in 1993, as well as unusually
high distributor purchase volume in the second half of 1993 resulting from an
anticipated price increase, contributed to the international atherectomy
catheter volume decline in 1994.

Net sales for MIS products for 1994 increased $12.7 million to $19.3 million
as the Company expanded the marketing of its innovative laparoscopic
technologies, including ACUCLIP Endoscopic Multiple Clip Applier, PDBS
Preperitoneal Distention Balloon Systems, and BLUNT-TIP TROCAR.

The Company experienced sales growth both in the United States and
international markets. Sales in the United States increased 4.0% to $593.1
million and international sales increased 20.0% to $269.3 million for 1994 as
compared to 1993. United States net sales growth was primarily due to CRM
sales of VENTAK PRx and ENDOTAK 70, and VI sales of ATHEROCATH GTO, ACS RX
FLOWTRACK 40, and ACS RX ELIPSE. International net sales growth was primarily
driven by CRM product sales due to the European and Japanese

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introduction of the VIGOR family of pacemakers in May 1993 and August 1994,
respectively, as well as the continued strong sales of VENTAK PRx II,
introduced in the second half of 1993. The VIGOR family of pacemakers, which
includes conventional and adaptive-rate pacemaker products, has grown to
represent a majority of the Company's bradycardia revenues in Europe.
Angioplasty sales in Germany and Japan also contributed to this international
growth. In August 1993, the Company acquired an interest in its distributor,
Danimed GmbH and Co. KG ("Danimed") and began selling directly to its
customers. As of December 31, 1994, the Company had an 80% interest in this
distributor.

Cost of sales, which increased 14.7% in 1994, represented 31.4% of net sales
compared to 29.7% in 1993. This rise in cost of sales was largely attributable
to: (i) increased distribution and warehousing expenses associated with
changing from third-party distributors to direct sales in Germany, the United
Kingdom, and Canada, (ii) conversion and utilization of certain facilities
from development to manufacturing, and (iii) start-up costs related to a shift
in mix to products with greater manufacturing complexity, such as ATHEROCATH
GTO, VENTAK PRx, and the VIGOR family of pacemakers. Lower average selling
prices for certain VI products were largely offset by unit manufacturing cost
reductions.

The Company invests significant resources in research and development in
order to remain competitive and develop new products that serve its global
customers. Research and development expenses, which increased $1.8 million or
1.4% during 1994, represented 15.2% of net sales compared to 16.2% for 1993.
Increased spending on regulatory compliance, and software design and
validation due to investments in CRM new product development, which included
VENTAK PRx III, VENTAK P3, and MINI family of products, were offset by a
reduction in VI spending due to improved efficiency and streamlining
initiatives.

Sales, marketing, and administrative expenses grew 5.4% in 1994 compared to
1993. These expenses represented 31.2% of net sales in 1994 compared to 32.1%
for 1993. Sales and marketing expenses increased modestly in comparison to
1993, less than the growth rate in net sales, due to the reorganization of the
Company's United States VI sales force in early 1994. Administrative expenses,
however, grew at a rate greater than net sales, primarily as a result of
additional corporate expenses, one-time CRM software validation costs, and
increased expenses associated with the transition from the use of independent
distributors to direct sales in Germany, the United Kingdom, and Canada.

Total operating expenses, which comprise research and development and sales,
marketing, and administrative expenses, without the prior year effect or
restructuring charges, increased 4.1% in 1994 and decreased to 46.4% of net
sales, compared to 48.3% in 1993.

Income from operations for 1994 of $191.7 million more than doubled from the
previous year, due primarily to restructuring charges in 1993. Income from
operations, without considering the effect of restructuring charges, increased
$17.4 million or 10.0% from 1993, a growth rate slightly greater than the
growth rate of net sales.

For 1994, the Company had net other expenses of $35.8 million as compared to
$5.8 million for 1993. This increase was primarily a result of interest
expense incurred by the Company on long-term debt and reduced royalty income.
Royalties included net royalty payments to the Company of $4.5 million for
1994 and $18.3 million for 1993 related to licenses granted pursuant to
settlements of patent lawsuits and the termination of a patent license.
Excluding these royalty payments to the Company, the Company had net royalty
expenses of $3.0 million in 1994 compared to $7.2 million in 1993. This
decrease in net royalty expenses is due to growth in net royalty income
excluding the aforementioned royalty payments.

The Company's effective income tax rate for 1994 was 40.9%, compared to
39.8% in 1993. The increase for 1994 resulted from reduced benefits from the
Company's operations in Puerto Rico and lower amounts of available research
tax credits.

The Company's net income for 1994 was $92.1 million, an increase of
approximately $41.5 million or 82.0% from 1993. This significant increase was
caused by restructuring charges taken in 1993. Net income, without considering
the effect of restructuring charges, would have decreased $7.6 million or 7.6%
in 1994.

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Operating income growth, without the effect of restructuring charges of 10.0%,
was offset by net other expenses as discussed above.

Historical earnings per share for 1994 are not presented. This data is not
meaningful due to the changes in the Company's capital structure as previously
discussed. The Company has reported 1994 earnings per share on a pro forma
basis. Pro forma net income and earnings per share were $76.2 million and $1.06
per share, respectively, for 1994.

LIQUIDITY AND FINANCIAL CONDITION

The Company generated cash flows which were sufficient to fund operations.
For the six months ended June 30, 1996, cash provided by operating activities
was $28.0 million compared to $36.2 million for the same period in 1995. This
decrease of $8.2 million resulted from the timing of income tax payments under
a tax-sharing agreement with Lilly and increased receivables due to record
sales growth during the period. These uses of cash were partially offset by
higher operating income without the effect of the noncash special obsolescence
and impairment charges.

Net cash used for investing activities totaled $20.5 million for the six
months ended June 30, 1996, compared to $36.1 million for the same period in
1995. The most significant use of cash for investing activities in 1996 related
to net additions of property and equipment of $25.6 million. The Company paid
approximately $9.4 million to complete certain distributor acquisitions during
the six months ended June 30, 1995.

Net cash used for financing activities totaled $9.9 million for the six
months ended June 30, 1996, compared to $69.3 million for the same period in
1995. The Company's reduction of its short-term borrowings and payment of
dividends comprise the cash used for financing activities during 1996. Payments
of its loans payable to Lilly of $54.3 million was the Company's most
significant use of cash for financing activities during the six months ended
June 30, 1995.

At June 30, 1996, the Company had outstanding borrowings of $448.7 million
through the issuance of commercial paper and bank borrowings at a year to date
weighted average interest rate of 6.08%. The commercial paper borrowings are
supported by a credit facility which permits borrowings up to $600.0 million
through January 8, 2001. This credit facility, under which there are currently
no outstanding borrowings, carries a variable market rate of interest.

The net proceeds from this offering will be used to reduce temporarily
outstanding commercial paper indebtedness and bank borrowings, with a view
towards possibly reborrowing when necessary for acquisitions, and for general
corporate purposes in support of the Company's previously disclosed acquisition
strategy. As a result, these borrowings are classified as a current liability,
and current liabilities exceed current assets by $199.4 million at June 30,
1996. Immediately following this offering and the application of the estimated
net proceeds therefrom, the Company expects to have outstanding borrowings of
approximately $27 million (assuming a public offering price of $44.00 per
share). See "Use of Proceeds."

The Company expects its cash from operations to be adequate to meet its
obligations to make interest payments on its debt and other anticipated cash
needs including capital expenditures which are expected to be approximately
$60.0 million in 1996.

The Company has recognized net deferred tax assets aggregating $55.5 million
at June 30, 1996 and $59.8 million at December 31, 1995. The assets relate
principally to the establishment of inventory and product related reserves, the
acquisition of certain intangible assets, and charges associated with the 1993
restructuring. In view of the consistent profitability of its past operations,
the Company believes that all these assets will be substantially recovered and
that no significant additional valuation allowances are necessary.

The Company's risk management objectives are to reduce earnings volatility
and protect the Company's assets from fluctuations in foreign currency and
interest rates. Simple derivative instruments, including foreign currency
forwards, purchased options, and interest rate swaps, are used as hedges to
meet these objectives. The

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<PAGE>

primary feature of the Company's risk management philosophy is that all
hedging activity must be designed to reduce financial risks associated with
commercial and financial transactions which arise in the ordinary course of
business. All contracts are entered into for purposes "other than trading" as
defined by SFAS No. 119. In 1995, the impact of the Company's hedging activity
was not material.

Interest rate swaps are used to reduce the Company's exposure to interest
rate fluctuations. Currency forward contracts and currency option contracts
are used to reduce the impact of foreign exchange rate movements on
transactions denominated in foreign currencies, primarily intercompany loans
and export intercompany purchases of inventory.

REGULATORY AND OTHER MATTERS

Government and private sector initiatives to limit the growth of healthcare
costs, including price regulation, competitive pricing, and managed care
arrangements, are continuing in several countries where the Company does
business, including the United States. These changes have caused healthcare
providers to put increased emphasis on the delivery of more cost-effective
medical therapies. Although management believes the Company is well positioned
to respond to this worldwide trend toward cost containment, the uncertainty as
to the outcome of future legislation or changes in the marketplace preclude
the Company from predicting the impact these changes may have on future
operating results.

The Company's products are subject to extensive regulation by the FDA and,
in some jurisdictions, by state and foreign governmental authorities. In
particular, the Company must obtain specific clearance from the FDA before it
can market products in the United States. The process of obtaining such
clearances can be time-consuming and expensive, and there can be no assurance
that all clearances sought by the Company will be granted on a timely basis.

The operations of the Company, like those of other medical device companies,
involve the use of substances regulated under environmental laws, primarily in
manufacturing and sterilization processes. While it is difficult to quantify,
the Company believes that the potential impact of compliance will not have a
material impact on the Company's financial position.

The Company operates in an industry susceptible to product liability claims.
Product liability claims may be asserted against the Company in the future
related to events not known at the present time. Management believes that its
risk management practices, including insurance coverage, are adequate to
protect the Company against any material product liability losses.

From time to time, the Company is subject to claims of, and legal actions
alleging, infringement by the Company of patent rights of others. While it is
not possible to predict or determine the outcome of legal actions brought
against it, the Company believes that the ultimate outcome will not have a
material impact on its financial position.

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BUSINESS

PRODUCTS

The Company offers broad product lines in the CRM and VI areas. The Company
believes that a broad product offering provides several benefits including the
ability to (i) take advantage of its research and development expertise across
product lines, (ii) improve its manufacturing and administrative efficiency
and expertise, and (iii) offer innovative sales and marketing programs,
particularly as customer purchasing decisions become more centralized.

Cardiac Rhythm Management. The Company is a leader in the implantable CRM
market. In this market, implantable device systems are used to detect and
treat abnormally fast and abnormally slow or irregular heart rhythms. The
Company's CRM product line is organized into two major product categories:
Tachycardia ("Tachy") and Bradycardia ("Brady").

Tachy products, or ICD systems, are used to detect and treat potentially
fatal, abnormally fast heart rhythms by delivering electrical energy to the
heart and, in so doing, restoring the heart's normal rhythm. Tachyarrhythmias
often result from the presence of abnormal cardiac tissue. This tissue
interferes with the normal electrical activity of the heart. Approximately
27,000 ICDs were implanted worldwide during 1995. The Company offers a broad
array of Tachy products ranging from shock-only devices to more complex
devices and systems, including tiered-therapy devices, offering multiple
therapeutic options. The Tachy product category includes ICDs, endocardial
defibrillation leads, programmers and accessories used primarily in the
treatment of fast arrhythmias.

Brady products, or cardiac pacemaker systems, are generally used to manage a
slow or irregular heartbeat caused by disorders that disrupt the heart's
normal electrical conduction system. This often results in a heart rate
insufficient to provide adequate blood flow through the body, creating
symptoms including fatigue, dizziness and fainting. Approximately 440,000
pacemakers were implanted worldwide in 1995. The Company offers a broad array
of Brady products ranging from conventional single chamber devices to more
sophisticated adaptive-rate, dual chamber devices. The Brady product category
includes pacemaker pulse generators, endocardial pacing leads, programmers and
accessories used primarily in the treatment of slow or irregular arrhythmias.

Vascular Intervention. The Company offers its customers a wide range of VI
products for use in the treatment of coronary artery disease ("CAD"), which is
the formation of blood flow restrictions (atherosclerotic lesions) within the
coronary arteries. More than six million Americans have been diagnosed with
CAD. If untreated, CAD can lead to heart attack, or cause chest pain that may
interfere with normal activities. Since its clinical introduction in 1978,
PTCA has emerged as the principal less invasive and less expensive alternative
to coronary artery bypass graft surgery, which is a highly invasive surgical
procedure for treating CAD. The less invasive nature of PTCA is associated
with a lower cost of treatment, less trauma to the patient and generally
improved patient outcomes. Each year it is estimated that nearly 750,000
patients undergo a minimally invasive CAD intervention (angioplasty,
atherectomy, mechanical or laser ablation or stenting).

The Company is a significant competitor in the vascular intervention market,
offering products which include dilatation catheters (including catheters with
perfusion capability), atherectomy catheters, guidewires, guiding catheters,
stents and related accessories.

Minimally Invasive Surgery. The Company is involved in the development and
marketing of innovative, cost-effective surgical devices and systems which
alter the surgeon's approach to surgical procedures and may provide improved
clinical benefit, reduced operating time and better patient outcomes. MIS uses
small incisions to gain access to the surgical site. Minimally invasive
surgical techniques significantly decrease the patient's postoperative pain,
hospital stay and recovery period by limiting the size of incisions required
to gain access to the primary surgical site as well as reducing the resulting
trauma caused by more invasive procedures. The Company focuses on laparoscopy,
which is a minimally invasive surgical market that has undergone rapid growth
and change. With the launch of a new product line, the VASOVIEW Balloon
Dissection System, for endoscopic harvesting of the saphenous vein, the
Company's strategy is to focus on the cardiovascular market.

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TECHNOLOGY

The Company intends to maintain a technological leadership position in the
CRM and VI segments of the medical devices market, which are driven by
technological innovation and new product development. The Company has
introduced several significant technological advances in the treatment of
cardiovascular disease, including the first implantable defibrillator, the
first catheter with perfusion capability to be marketed in the United States,
the first atherectomy catheter and the first endocardial defibrillation
system. As a result of these and other technological innovations, the Company
has a leading position in rapid exchange catheters, perfusion catheters,
atherectomy catheters, guidewires, ICDs, endocardial defibrillator leads and
gasless laparoscopy systems.

MARKETING

The Company's marketing strategy is to attain a significant worldwide
presence in all the markets in which it serves. The markets for CRM, VI and
MIS products are growing faster internationally than in the United States. As
a result, the Company believes that there is significant potential for growth
in many areas outside the United States where CRM, VI and MIS procedures are
currently not as widely performed by physicians. In addition, by broadening
the markets where the Company sells its products, the Company will be able to
serve more customers without increasing certain of its costs, such as research
and development.

COMPETITION

The medical devices market is highly competitive. The Company competes with
many companies, some of which may have access to greater financial and other
resources than the Company. Furthermore, the medical devices market is
characterized by rapid product development and technological change. The
present or future products of the Company could be rendered obsolete or
uneconomic by technological advances by one or more of the Company's present
or future competitors or by other therapies such as drugs. The Company's
future success will depend upon its ability to remain competitive with other
developers of such medical devices and therapies.

The Company faces substantial competition from a number of other companies
in the markets for its products. The Company's primary competitors in the
Brady pacemaker market are Medtronic, Inc., Pacesetter, Inc. (St. Jude
Medical, Inc.), Intermedics, Inc. (Sulzer Brothers Ltd.) and Telectronics
Pacing Systems (Pacific Dunlop Ltd.). In the Tachy market, the Company
competes primarily with Medtronic, Inc. and Ventritex, Inc. The Company's
primary competitors in VI are SciMed Life Systems, Inc. and Heart Technology,
Inc. (Boston Scientific), Cordis Corporation and Johnson and Johnson
Interventional Systems (Johnson & Johnson), Schneider (Pfizer), USCI (C.R.
Bard, Inc.), and Medtronic, Inc. With respect to MIS devices, the principal
competitors of the Company are United States Surgical Corporation and Ethicon
Endo-Surgery, Inc. (Johnson & Johnson). The Company believes that it competes
primarily on the basis of product features, product quality, customer support,
field services and cost-effectiveness.

LEGAL AND REGULATORY PROCEEDINGS

On May 31, 1994, SciMed Life Systems, Inc. ("SciMed") filed suit against the
Company's subsidiary, Advanced Cardiovascular Systems, Inc. ("ACS"), in the
Northern District of California, San Francisco Division, alleging that the ACS
RX FLOWTRACK 40 and ACS RX ELIPSE catheters infringed certain SciMed patents.
In addition, on November 17, 1995, SciMed filed suit against ACS in the
Northern District of California, San Francisco Division, alleging that the ACS
RX LIFESTREAM catheter infringed certain SciMed patents. Both cases seek
injunctive relief and unspecified monetary damages. ACS exercised its rights
under a settlement agreement between ACS and SciMed (the "Settlement
Agreement") and initiated arbitration proceedings claiming that these ACS
catheters are licensed products under the Settlement Agreement. The Court
granted ACS' request that the two lawsuits be stayed pending the outcome of
the arbitrations which are set for hearing in October 1996. The Arbitration
Panel has ruled that, at the upcoming hearing, SciMed will bear the burden of
proving that the ACS catheters are not licensed under the Settlement
Agreement.

On May 15, 1995, Intermedics, Inc., a division of Sulzermedica USA, Inc.
("Intermedics"), filed suit against the Company's subsidiary Cardiac
Pacemakers, Inc. ("CPI"), in the United States District Court for the Southern
District of Texas, Galveston Division. The lawsuit was subsequently
transferred to the United States

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District Court for Minnesota. The complaint alleges infringement of certain
Intermedics patents by CPI products, including unspecified defibrillator
models bearing the VENTAK and/or PRx trademark(s); unspecified pacemaker
models bearing the VIGOR trademark; and unspecified pacemaker models bearing
the EXCEL trademark (which models are not currently manufactured by CPI).
Intermedics is seeking injunctive and monetary relief of an unspecified
amount.

On August 28, 1995, the Company received a letter from Pacesetter, Inc.
("Pacesetter") advising the Company that Pacesetter believes that certain
Pacesetter patents are being used by the Company in connection with the
Company's VIGOR pacemaker/programmer combination. The Pacesetter letter and a
subsequent letter also advise that it appears to Pacesetter that the Company
may also be using certain patents licensed to Pacesetter in connection with
the Company's VENTAK MINI. On May 3, 1996, Pacesetter filed suit against CPI
in the United States District Court for the District of Delaware. The lawsuit
was subsequently transferred to the United States District Court for
Minnesota. The complaint, as subsequently amended, alleges infringement of six
of the patents referred to in the previous letters and seeks injunctive
relief, unspecified monetary damages, and an award of attorneys' fees.

On December 15, 1995, Boston Scientific Corporation and its subsidiary,
SciMed (collectively, "BSC"), filed suit against ACS in the United States
District Court of Massachusetts alleging violation of federal and state
antitrust laws, as well as state unfair competition and abuse of process laws.
The lawsuit seeks injunctive relief, unspecified monetary damages and a
declaration that certain patents are unenforceable. BSC alleges that the
violations are based on the misuse of the United States patent laws as a
result of agreements concerning certain rapid exchange catheter patents.

On May 15, 1996, The Johns Hopkins University ("Johns Hopkins") filed suit
against the Company and CPI in the District of Maryland, Northern Division.
The complaint alleges that certain of the Company's defibrillators infringe a
patent owned by Johns Hopkins, that the Company has breached an agreement
originally entered into by Johns Hopkins and Medrad, Inc., and that the
Company has been unjustly enriched. Johns Hopkins is seeking injunctive
relief, specific performance, unspecified monetary damages, and an award of
attorneys' fees.

On June 4, 1996, General Surgical Innovations, Inc. ("GSI") filed suit
against the Company's subsidiary, Origin Medsystems, Inc. ("Origin") in the
Northern District of California alleging that Origin's making, using, offering
to sell and selling certain Origin Preperitoneal Distention Balloon Systems
infringed and is continuing to infringe a patent owned by GSI. GSI is seeking
injunctive relief, unspecified monetary damages and an award of costs and
attorneys' fees.

The Company is a party to certain other legal actions arising in the
ordinary course of its business. While it is not possible to predict or
determine the outcome of the legal actions brought against the Company, the
Company believes that the costs associated with all of these actions will not
have a material adverse effect on the Company's consolidated financial
position or liquidity, but could possibly be material to the consolidated
results of operations in any one accounting period.

On August 23, 1996, following the filing with the French Ministry of Labor
and Social Affairs of a small number of reported incidents concerning the use
in France of the 15 mm ACS RX MULTI-LINK Coronary Stent System, the Company in
cooperation with the French Ministry voluntarily suspended sales of this
product and recalled units in France. While the Company believes that this
delivery system is safe and effective, the Company is continuing to cooperate
with the French Ministry which is conducting a review of alleged incidents of
detachment of an elastic membrane that is part of the delivery system for
implanting the stent. The safety and efficacy of the implanted stent itself is
not affected by the alleged elastic membrane detachment. As of September 30,
1996, less than 1/10 of 1% (0.001) of the approximately 16,600 RX units sold
worldwide involved reports that allege incidents of elastic membrane partial
separation or detachment. The Company continues to sell the ACS OTW MULTI-LINK
Coronary Stent System in France and both the OTW and RX versions in other
foreign countries. Although it is not possible to predict what action or
modification to the product, if any, may be required by the French Ministry,
the Company believes that the ultimate outcome of this matter will not have a
material adverse effect on the Company's business. For the nine months ended
September 30, 1996, global net sales of the ACS RX MULTI-LINK Coronary Stent
System were approximately 2.7% of the total net sales of the Company.

26
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company and their ages and
positions are:

EXECUTIVE OFFICERS OF THE COMPANY

<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<C> <S> <C>
James M. Cornelius(1) Chairman of the Board and Director 52
President, Chief Executive Officer and
Ronald W. Dollens(2) Director 49
Vice President, General Counsel, Secretary
J.B. King(3) and Director 66
Vice President and President, Western
James R. Baumgardt Hemisphere Sales 48
Vice President, Finance and Chief Financial
Keith E. Brauer Officer 48
Vice President and President, Cardiac
A. Jay Graf Rhythm Management Group 49
Vice President and President, Vascular
Ginger L. Howard Intervention Group 40
Cynthia L. Lucchese Treasurer 36
Roger Marchetti Chief Accounting Officer 38
Richard van Oostrom Vice President and President of Operations,
Europe, Middle East, Africa and Emerging
Markets 51
Vice President and President, Minimally
F. Thomas (Jay) Watkins, III Invasive Systems Group 44
Vice President, Human Resources and
Joseph A. Yahner Corporate Affairs 49
Maurice A. Cox, Jr.(2) Director 46
Enrique C. Falla(2) Director 57
Susan B. King(3) Director 56
J. Kevin Moore(3) Director 41
Mark Novitch, M.D.(1) Director 64
Eugene L. Step(1) Director 67
Ruedi E. Wager, Ph.D.(3) Director 53
</TABLE>

- --------

(1) Term expires in 1997.
(2) Term expires in 1998.
(3) Term expires in 1999.

A brief summary of the recent business and professional experience of each
executive officer is set forth below.

JAMES M. CORNELIUS

Mr. Cornelius is Chairman of the Board of Directors and a Director of the
Company. Previously, he was Vice President, Finance and Chief Financial
Officer of Lilly from 1983 until his retirement in October 1995. Mr. Cornelius
has served as Treasurer of Lilly and as President of IVAC Corporation, a
former Lilly medical device subsidiary. He joined Lilly in 1967. Mr. Cornelius
is a director of American United Life Insurance Company, Lilly Industries,
Inc., and the National Bank of Indianapolis. Mr. Cornelius also serves as a
trustee of the University of Indianapolis.

RONALD W. DOLLENS

Mr. Dollens is President, Chief Executive Officer and a Director of the
Company. Previously, he served as President of Lilly's MDD Division from 1991
until 1995. Mr. Dollens served as Vice President of Lilly's MDD Division and
Chairman of ACS from 1990 to 1991. He also held the position of President and
Chief Executive Officer of ACS. Mr. Dollens joined Lilly in 1972. Mr. Dollens
currently serves on the boards of Physio-Control International Corporation,
the Health Industry Manufacturers Association, the Eiteljorg Museum, and the
Indiana State Symphony Society Board. He is also the President of the Indiana
Health Industry Forum.

27
<PAGE>

J.B. KING

Mr. King is Vice President, General Counsel, Secretary and a Director of the
Company. Mr. King also acts as counsel to the law firm of Baker & Daniels,
which provides legal services to the Company. He previously was Vice President
and General Counsel for Lilly, a position he held from 1987 until he retired
in 1995. Before joining Lilly, Mr. King was a partner and chairman of the
management committee of Baker & Daniels. Mr. King is a director of Bank One,
Indianapolis, N.A., the Indiana Legal Foundation, IWC Resources, Inc., and
Riley Hospital Memorial Association.

JAMES R. BAUMGARDT

Mr. Baumgardt is a Vice President of the Company and President, Western
Hemisphere Sales. Previously he held the position of Vice President, Corporate
Resources from 1994 to 1995. Mr. Baumgardt has also served as Executive
Director of Human Resources and Business Development for the MDD Division of
Lilly from 1992 to 1994. Mr. Baumgardt was director of personnel for Lilly
from 1990 to 1992 and director of sales for Lilly's Select Product Division
from 1988 to 1990. He joined Lilly in 1970. Mr. Baumgardt is a director of the
Rose-Hulman Institute of Technology.

KEITH E. BRAUER

Mr. Brauer is Vice President, Finance and Chief Financial Officer for the
Company. Previously, he served as executive director of finance and Chief
Accounting Officer of Lilly from 1992 to 1994. Mr. Brauer was executive
director of international finance of Lilly from 1988 to 1992 and director of
corporate affairs of Lilly from 1986 to 1988. Additionally, he held the
position of Vice President of Finance and Treasurer for Physio-Control
Corporation, a former Lilly subsidiary. Mr. Brauer joined Lilly in 1974. Mr.
Brauer is a director of the Indiana Chamber of Commerce. Mr. Brauer also
serves on the University of Michigan Business School Corporate Advisory Board.

A. JAY GRAF

Mr. Graf is a Vice President of the Company and President of the Cardiac
Rhythm Management Group. He has been President and Chief Executive Officer of
CPI since 1992. He joined CPI as Executive Vice President and Chief Operating
Officer in 1990. Mr. Graf has also held the position of Senior Vice President
of operations at Physio-Control Corporation. Additionally, Mr. Graf held the
positions of Vice President of sales and technical services, and Vice
President of marketing and communications at Physio-Control Corporation. Mr.
Graf joined Lilly in 1976. Mr. Graf is a director of ATS Corporation and the
St. Paul Area United Way.

GINGER L. HOWARD

Ms. Howard is a Vice President of the Company and President of the Vascular
Intervention Group. She has been President of ACS since 1993. She served as a
director of pharmaceutical sales for Lilly in 1992 and was director of
corporate pharmaceutical strategic planning from 1989 to 1991. Ms. Howard
joined Lilly in 1979. Ms. Howard is a director of Amylin Pharmaceuticals, Inc.
and the California Healthcare Institute. She also serves on the advisory board
for the California Institute for Federal Policy Research and is a member of
the Committee of 200.

CYNTHIA L. LUCCHESE

Ms. Lucchese is Treasurer of the Company. She served as Worldwide Treasury
Planning Manager for Lilly from 1992 to 1995. She served as Administrative
Audit Manager for Lilly from 1990 to 1992. Ms. Lucchese joined Lilly in 1987.
Prior to joining Lilly, she was a senior auditor for Ernst & Young LLP from
1982 to 1986. Ms. Lucchese is a Certified Public Accountant. She is also a
director for Shepard Poorman Communications Corporation and MEDMARC Mutual
Insurance Company, Incorporated.

28
<PAGE>

ROGER MARCHETTI

Mr. Marchetti is Chief Accounting Officer of the Company. He served as
manager of finance for Lilly's Indianapolis pharmaceutical manufacturing
operations from 1992 to 1994, and manufacturing controller for ACS from 1990
to 1992. Mr. Marchetti joined ACS in 1988 as general accounting manager. Prior
to joining ACS, Mr. Marchetti was on the audit staff of Touche Ross & Co.
(currently Deloitte & Touche LLP) from 1980 to 1986. Mr. Marchetti is a
Certified Public Accountant.

RICHARD M. VAN OOSTROM

Mr. van Oostrom is a Vice President of the Company and President of
Operations, Europe, Middle East, Africa and Emerging Markets. He served as
Vice President of European operations for Lilly's MDD Division from 1984 to
1994. Mr. van Oostrom was an executive director of marketing for Lilly from
1981 to 1984 and President and general manager of Eli Lilly Canada Inc. from
1980 to 1981. He joined Lilly in 1971. Mr. van Oostrom is a board member of
the European trade association for medical prosthesis manufacturers.

F. THOMAS (JAY) WATKINS, III

Mr. Watkins is a Vice President of the Company and President of the
Minimally Invasive Systems Group. He has also been President of Origin since
1995. Mr. Watkins joined Origin in 1989. Previously he has served in
management positions in several start-up companies, including Microgenics
Corporation, and was a consultant with the international consulting firm of
McKinsey & Company, Inc. He is a director of Gynecare, Inc. and CardioGenesis,
Inc.

JOSEPH A. YAHNER

Mr. Yahner is Vice President of Human Resources and Corporate Affairs for
the Company. Previously, he was Vice President of Human Resources for CPI and
U.S. Operations, positions he held from 1992 and 1994, respectively, to 1995.
He served as Director of Operations at Lilly's Tippecanoe Laboratories from
1988 to 1992. Mr. Yahner has also served in various positions in Personnel,
Research, Manufacturing, Quality Control and Technical Services for Lilly. Mr.
Yahner joined Lilly in 1971.

MAURICE A. COX, JR.

Mr. Cox is President and Chief Executive Officer of The Ohio Partners, LLC
(a venture capital company), a position he has held since July 1995.
Previously, he served as President and Chief Executive Officer of CompuServe
Incorporated (an information services company) from 1990 to June 1995. Mr. Cox
joined CompuServe in 1979 and has served as Vice President, Product Management
and as Executive Vice President of CompuServe's Information Services Division.
He is also a director of GT Interactive Software and Huntington National Bank.

ENRIQUE C. FALLA

Mr. Falla is an Executive Vice President for The Dow Chemical Company, a
position he has held since 1991, and is a member of its Board of Directors.
Previously, he served as Chief Financial Officer of The Dow Chemical Company.
He joined The Dow Chemical Company in 1967 and is a member of the Finance and
Investment Policy Committees. Mr. Falla is a director of The Dow Chemical
Company and Kmart Corporation, and is a member of the Board of Trustees of the
University of Miami.

SUSAN B. KING

Ms. King is the Leader in Residence for the Hart Leadership Program at Duke
University, a position she has held since January 1995. Prior to assuming this
position, she served as Senior Vice President, Corporate Affairs for Corning
Incorporated from 1992 to December 1995. Ms. King served as President for its
Steuben Glass Division from 1987 to 1992. She joined Corning Incorporated in
1982. She also served as Chair of the U.S. Consumer Product Safety Commission
from 1978 to 1981. Ms. King is a director of The Coca-Cola Company and the
Health Effects Institute. She is also a Trustee for the Eurasia Foundation,
the National Public Radio Foundation and Duke University.

29
<PAGE>

J. KEVIN MOORE

Mr. Moore is Associate Chief Operating Officer for Duke University Medical
Center, a position he has held since March 1994. Prior to assuming this
position, he served as Assistant Director, Surgical Private Diagnostic
Clinics, and Adjunct Associate Professor, Graduate School of Health
Administration, from April 1989 to March 1994. Mr. Moore served as Assistant
Director for Duke Hospital from May 1988 to April 1989 and he served as
Director of Management Services, Medical Center Administration, and Adjunct
Assistant Professor, Graduate School of Health Administration, from May 1984
to April 1988. Mr. Moore is a director of the American Red Cross Regional
Chapter.

MARK NOVITCH, M.D.

Dr. Novitch has been Professor of Health Care Sciences at George Washington
University Medical Center since 1994. Prior to joining George Washington
University Medical Center, he retired as Vice Chairman of the Board and Chief
Compliance Officer of The Upjohn Company in December 1993. Prior to joining
Upjohn in 1985, Dr. Novitch was Deputy Commissioner of the FDA from 1981 until
1985. He served as Acting Commissioner of the FDA from 1983 to 1984. Dr.
Novitch is currently serving a five-year term as a Trustee and Past President
of the U.S. Pharmacopeial Convention. He is also a member of the Biomedical
Services Board of the American Red Cross. Dr. Novitch is a director of Alteon,
Inc., Calypte Biomedical, Inc., Neurogen Corporation, and Osiris Therapeutics,
Inc.

EUGENE L. STEP

Mr. Step served as Director and Executive Vice President of Lilly until his
retirement in 1992. He joined Lilly in 1956 and has served as President of
Lilly's Pharmaceutical Division and as a member of Lilly's Executive
Committee. Mr. Step is a director of Cell Genesys, Inc., GMIS, Inc., Medco
Research, Inc., Pathogenesis, Inc., and Scios-Nova, Inc.

RUEDI E. WAGER, PH.D.

Dr. Wager is President and Chief Executive Officer of ZLB Central Laboratory
Blood Transfusion Service SRC (a plasma fractionation business in
Switzerland), a position he has held since February 1994. Prior to assuming
this position, he served as Senior Vice President at Sandoz Pharma Ltd. (a
multinational pharmaceutical company) from March 1989 to January 1994. From
January 1993 to January 1994, Dr. Wager served as Head of Corporate Project
Management and member of the Executive Committee at Sandoz Pharma Ltd., and
from March 1989 to December 1993, he served as Head of Worldwide Marketing and
member of the Executive Committee at Sandoz Pharma Ltd. Dr. Wager joined
Sandoz, Ltd. in 1973. Dr. Wager is a director of Portescap SA and Portescap
International SA.

30
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 250,000,000 shares
of Common Stock, without par value, 74,138,005 shares of which are outstanding
and 50,000,000 shares of preferred stock (the "Preferred Stock"), no shares of
which are outstanding. All outstanding shares of the Common Stock are duly
authorized, validly issued, fully paid and non-assessable. The following
summary description of the capital stock of the Company is qualified in its
entirety by reference to the Articles of Incorporation, the material
provisions of which are set forth herein and a copy of which is filed as an
exhibit to the Registration Statement.

COMMON STOCK

The holders of shares of Common Stock are entitled to one vote per share on
all matters to be voted on by shareholders. The holders of shares of Common
Stock are not entitled to cumulate their votes in the election of directors,
which means that holders of more than half the outstanding shares of Common
Stock can elect all the directors of the Company. The holders of shares of
Common Stock are entitled to receive such dividends as may be declared from
time to time by the Board of Directors, in its discretion, from any assets
legally available therefor.

The holders of Common Stock are not entitled to preemptive, subscription or
conversion rights, and there are no redemption or sinking fund provisions
applicable to the Common Stock. The holders of Common Stock are not subject to
further calls or assessments by the Company. Upon liquidation of the Company,
after payment or provision for payment of all of the Company's obligations and
any liquidation preference of any outstanding preferred stock, the holders of
Common Stock are entitled to share ratably in the remaining assets of the
Company.

PREFERRED STOCK

The Company currently has no shares of Preferred Stock outstanding. The
Company's Board of Directors, without further approval of the shareholders, is
vested with broad authority with respect to the Preferred Stock to establish
and designate series, fix the number of shares to be included in each series,
provide for a sinking fund for the purchase or redemption of shares or a
purchase fund for the purchase of shares of such series, and to determine the
relative rights, preferences and limitations of each series, including, but
not limited to, the dividend and voting rights of such Preferred Stock and the
preferential amounts payable to the holders of Preferred Stock on liquidation.
The Board of Directors will also determine whether such Preferred Stock will
be convertible into other securities of the Company, including the Common
Stock. Accordingly, the issuance of Preferred Stock, while promoting
flexibility in connection with possible acquisitions and other corporate
purposes, could adversely affect the voting rights of the holders of, or the
market price of, the Common Stock, and, under certain circumstances, make it
more difficult for a third party to gain control of the Company. The holders
of Preferred Stock also have the right to vote separately as a class on any
proposal involving fundamental changes in the rights of holders of Preferred
Stock pursuant to the Indiana Business Corporation Law.

In connection with the Company's Shareholder Rights Plan (the "Rights
Agreement"), the Board of Directors has authorized the issuance of up to
1,500,000 shares of Series A Participating Preferred Stock ("Series A
Preferred Stock") upon exercise of rights issued under the Rights Agreement.
See "--Shareholder Rights Plan" for a description of the rights of Series A
Preferred Stock.

CERTAIN ARTICLES OF INCORPORATION AND BY-LAWS PROVISIONS AND INDIANA ANTI-
TAKEOVER PROVISIONS

Under the Indiana Business Corporation Law, directors are required to
discharge their duties (i) in good faith, (ii) with the care an ordinarily
prudent person in a like position would exercise under similar circumstances;
and (iii) in a manner the directors reasonably believe to be in the best
interests of the company. However, the Indiana Business Corporation Law
exonerates directors from liability for breach of these standards of conduct
unless the breach constitutes willful misconduct or recklessness. This
exoneration from liability may not affect the availability of equitable
relief, including injunctions. Furthermore, the exoneration from liability
under Indiana law does not affect the liability of directors for violations of
the federal securities laws.

31
<PAGE>

The provisions of the Company's Articles of Incorporation provide for higher
shareholder voting requirements for certain transactions (such as business
combinations) with or otherwise involving persons who own 5% or more of the
voting stock of the Company (subject to certain exceptions), for the
classification of the Board of Directors into three classes, and that
directors may be removed by vote of 80% of the Company's outstanding voting
power. The provisions of the Articles of Incorporation also authorize the
board to issue Preferred Stock without shareholder approval.

The Indiana Business Corporation Law provides that any person or group of
persons that acquires the power to vote more than one-fifth of the Company's
shares shall not have the right to vote such shares unless granted voting
rights by the holders of a majority of the outstanding shares of the Company
and by the holders of a majority of the outstanding shares excluding shares
held by the acquiring person, officers of the Company and employees of the
Company who are also directors of the Company. The Indiana Business
Corporation Law also prohibits a person who acquires beneficial ownership of
10% or more of the Company's shares (an "Interested Shareholder"), or any
affiliate or associate of an Interested Shareholder, from effecting a merger
or other business combination with the Company for a period of five years from
the date on which the person became an Interested Shareholder, unless the
transactions in which the person became an Interested Shareholder was approved
in advance by the Company's Board of Directors. Following the five-year
period, a merger or other business combination may be affected with an
Interested Shareholder only in certain circumstances.

The provisions of the Indiana Business Corporation Law relating to
exoneration of directors may discourage shareholders from bringing a lawsuit
against directors for breach of their fiduciary duty and may also have the
effect of reducing the likelihood of derivative litigation against directors
and officers, even though such an action, if successful, might otherwise have
benefited the Company and its shareholders.

The overall effect of the above provisions may be to render more difficult
or to discourage a merger, a tender offer, a proxy contest, or the assumption
of control of the Company by a holder of a large block of the Company's stock
or other person, or the removal of incumbent management, even if such actions
may be beneficial to the Company's shareholders generally. In addition, a
shareholder's investment in the Company may be adversely affected to the
extent that litigation costs and damage awards against the Company's directors
and officers are paid by the Company pursuant to the indemnification
provisions of the Indiana Business Corporation Law and the Company's Articles
of Incorporation.

SHAREHOLDER RIGHTS PLAN

Under the terms of the Company's Shareholder Rights Plan, all shareholders
of Common Stock received for each share owned a Preferred Stock purchase right
(a "Right") entitling them to purchase from the Company one one-hundredth of a
share of Series A Preferred Stock at an exercise price of $43.50 per one one-
hundredth of a share, subject to adjustment. The Rights are not exercisable
until after the date on which the Company's right to redeem has expired. The
Company may redeem the Rights for $0.01 per Right up to and including the 10th
business day after the date of a public announcement that a person (the
"Acquiring Person") has acquired ownership of stock having 10% or more of the
Company's general voting power (the "Stock Acquisition Date").

The Rights Agreement provides that, if the Company is acquired in a business
combination transaction at any time after a Stock Acquisition Date, generally,
each holder of a Right will be entitled to purchase at the exercise price a
number of the acquiring company's shares having a market value of twice the
exercise price. The Rights Agreement also provides that, in the event of
certain other business combinations, certain self-dealing transactions, or the
acquisition by a person of stock having 15% or more of the Company's general
voting power, generally, each holder of a Right will be entitled to purchase
at the exercise price a number of the shares of the Company's Common Stock
having a market value of twice the exercise price. Any Rights beneficially
owned by an Acquiring Person shall not be entitled to the benefit of the
adjustments with respect to the number of shares described above. The Rights
will expire on October 17, 2004, unless redeemed earlier by the Company.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is First Chicago Trust
Company of New York. Its address for such purposes is 30 West Broadway, New
York, New York 10007.

32
<PAGE>

CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following discussion concerns certain United States federal income and
estate tax consequences of the ownership and disposition of shares of Common
Stock applicable to Non-U.S. Holders of such shares of Common Stock. In
general, a "Non-U.S. Holder" is any holder other than (i) a citizen or
resident, as specifically defined for United States federal income and estate
tax purposes, of the United States, (ii) a corporation, partnership or any
entity treated as a corporation or partnership for United States federal
income tax purposes created or organized in the United States or under the
laws of the United States or of any State, or (iii) an estate or trust whose
income is includible in gross income for United States federal income tax
purposes regardless of its source. The discussion is based on current law,
which is subject to change retroactively or prospectively, and is for general
information only. The discussion does not address all aspects of United States
federal income and estate taxation and does not address any aspects of state,
local or foreign tax laws. The discussion does not consider any specific facts
or circumstances that may apply to a particular Non-U.S. Holder (including the
fact that in the case of a Non-U.S. Holder that is a partnership, the United
States tax consequences of holding and disposing of shares of Common Stock may
be affected by certain determinations made at the partner level). Accordingly,
prospective investors are urged to consult their tax advisors regarding the
United States federal, state, local and non-U.S. income and other tax
consequences of holding and disposing of shares of Common Stock.

Dividends. In general, dividends paid to a Non-U.S. Holder will be subject
to United States withholding tax at a 30% rate (or such lower rate as may be
prescribed by an applicable tax treaty) unless the dividends are either (i)
effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States, or (ii) if a tax treaty applies, attributable
to a United States permanent establishment maintained by the Non-U.S. Holder.
Dividends effectively connected with such a trade or business or attributable
to such a permanent establishment (if a tax treaty applies) and so treated as
effectively connected income will generally not be subject to withholding (if
the Non-U.S. Holder files certain forms annually with the "payor," as defined
for United States federal income tax purposes, of the dividend) and will
generally be subject to United States federal income tax on a net income basis
at regular graduated rates. In the case of a Non-U.S. Holder which is a
corporation, such effectively connected income also may be subject to the 30%
branch profits tax (which is generally imposed on a foreign corporation on the
repatriation from the United States of effectively connected earnings and
profits except to the extent an applicable tax treaty otherwise provides). The
branch profits tax may not apply, or may apply at a reduced rate, if the
recipient is a qualified resident of certain countries with which the United
States has an income tax treaty.

To determine the applicability of a tax treaty providing for a lower rate of
withholding, dividends paid to an address in a foreign country are presumed
under current Treasury Regulations to be paid to a resident of that country,
unless the payor has definite knowledge that such presumption is not warranted
or an applicable tax treaty (or United States Treasury Regulations thereunder)
requires some other method for determining a Non-U.S. Holder's residence.
Under current regulations, the Company must report annually to the Internal
Revenue Service ("IRS") and to each Non-U.S. Holder the amount of dividends
paid to, and the tax withheld with respect to, each Non-U.S. Holder. These
reporting requirements apply regardless of whether withholding was reduced or
eliminated by an applicable tax treaty. Copies of these reports also may be
made available under the provisions of a specific treaty or agreement with the
tax authorities in the country in which the Non-U.S. Holder resides.

Sale of Common Stock. Generally, a Non-U.S. Holder will not be subject to
United States federal income tax on any gain realized upon the disposition of
such holder's shares of Common Stock unless (i) the gain is effectively
connected with a trade or business carried on by the Non-U.S. Holder within
the United States or, if a tax treaty applies, attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United States; (ii) the
Non-U.S. Holder is an individual who holds the shares of Common Stock as a
capital asset and is present in the United States for 183 days or more in the
taxable year of the disposition, and either (a) such Non-U.S. Holder has a
"tax home" (as specifically defined for United States federal income tax
purposes) in the United States (unless the gain from the disposition is
attributable to an office or other fixed place of business maintained by such
Non-U.S. Holder in a foreign country and such gain has been subject to a
foreign tax equal

33
<PAGE>

to at least 10%), or (b) the gain from the disposition is attributable to an
office or fixed place of business maintained by such Non-U.S. Holder in the
United States; (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of United States tax law applicable to certain United States
expatriates; or (iv) the Company is or has been during certain periods a
"United States real property holding corporation" as defined for United States
federal income tax purposes (which the Company does not believe that it is or
is likely to become) and the Non-U.S. Holder held, at any time during the
five-year period ending on the date of disposition (or such shorter period
that such shares were held), directly or indirectly, more than 5% of the
Common Stock.

Estate Tax. Shares of Common Stock owned or treated as owned by an
individual who is not a citizen or resident (as defined for United States
federal estate tax purposes) of the United States at the time of death will be
includible in such individual's gross estate for United States federal estate
tax purposes (unless an applicable tax treaty provides otherwise) and
therefore may be subject to United States federal estate tax.

Backup Withholding and Information Reporting. Under current United States
federal income tax law, backup withholding tax (which generally is a
withholding tax imposed at the rate of 31% on certain payments to persons that
fail to furnish the information required under the United States information
reporting requirements) and information reporting requirements apply to
payments of actual and constructive dividends. Backup withholding tax and
information reporting requirements will generally not apply to dividends paid
on Common Stock to Non-U.S. Holders to which the Company is required to
withhold at a 30% rate or, if applicable, a lower treaty rate, as described
under "--Dividends."

The payment of the proceeds from the disposition of shares of Common Stock
to or through the United States office of a broker will be subject to
information reporting and backup withholding unless the holder or beneficial
owner certifies, under penalties of perjury, among other things, as to its
status as a Non-U.S. Holder, or otherwise establishes an exemption. Generally,
the payment of the proceeds from the disposition of shares of Common Stock to
or through a non-U.S. office of a broker will not be subject to backup
withholding and will not be subject to information reporting. In the case of
the payment of proceeds from the disposition of shares of Common Stock to or
through a non-U.S. office of a broker that is a U.S. person or a "U.S.-related
person," existing regulations require information reporting on the payment
unless the broker receives a statement from the owner, signed under penalties
of perjury, certifying, among other things, its status as a Non-U.S. Holder,
or the broker has documentary evidence in its files that the owner is a Non-
U.S. Holder and the broker has no actual knowledge to the contrary. For this
purpose, a "U.S.-related person" is (i) a "controlled foreign corporation" for
United States federal income tax purposes or (ii) a foreign person 50% or more
of whose gross income from all sources for the three-year period ending with
the close of its taxable year preceding the payment (or for such part of the
period that the broker has been in existence) is derived from activities that
are effectively connected with the conduct of a United States trade or
business. Non-U.S. Holders should consult their tax advisors regarding the
application of these rules to their particular situations, the availability of
an exemption therefrom, and the procedure for obtaining such an exemption, if
available.

A Non-U.S. Holder generally may obtain a refund of any excess amounts
withheld by filing the appropriate claim for refund with the IRS.

Proposed Regulations. On April 22, 1996, the Internal Revenue Service issued
proposed regulations relating to withholding, backup withholding and
information reporting that, if adopted in their current form, would, among
other things, unify current certification procedures and forms and clarify
reliance standards. The proposed regulations would, among other things,
eliminate the general current law presumption that dividends paid to an
address in a foreign country are paid to a resident of that country and would
impose certain certification and documentation requirements on Non-U.S.
Holders claiming the benefit of a reduced withholding rate with respect to
dividends under a tax treaty. These regulations generally are proposed to be
effective with respect to payments made after December 31, 1997, although in
certain cases they are proposed to be effective only with respect to payments
made after December 31, 1999. Proposed regulations are subject to change,
however, prior to their adoption in final form. Prospective investors are
urged to consult their tax advisors regarding the potential effect on them of
the proposed regulations.

34
<PAGE>

UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below, for whom Morgan Stanley & Co. Incorporated, Alex. Brown & Sons
Incorporated, Cowen & Company, J.P. Morgan Securities Inc. and Piper Jaffray
Inc. are serving as U.S. Representatives, have severally agreed to purchase,
and the Company has agreed to sell to them, and the International Underwriters
named below, for whom Morgan Stanley & Co. International Limited, Alex. Brown
& Sons Incorporated, Cowen & Company, J.P. Morgan Securities Ltd. and Piper
Jaffray Inc., are serving as International Representatives, have severally
agreed to purchase, and the Company has agreed to sell to them, the respective
number of shares of the Common Stock set forth opposite the names of such
Underwriters below.

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated...................................
Alex. Brown & Sons Incorporated.....................................
Cowen & Company.....................................................
J.P. Morgan Securities Inc. ........................................
Piper Jaffray Inc. .................................................
---------
Subtotal.......................................................... 7,200,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited..........................
Alex. Brown & Sons Incorporated.....................................
Cowen & Company.....................................................
J.P. Morgan Securities Ltd. ........................................
Piper Jaffray Inc. .................................................
---------
Subtotal.......................................................... 1,800,000
---------
Total................................................................. 9,000,000
=========
</TABLE>

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters," and the U.S. Representatives and
International Representatives are collectively referred to as the
"Representatives." The Underwriting Agreement provides that the obligations of
the several Underwriters to pay for and accept delivery of the shares of
Common Stock offered hereby are subject to the approval of certain legal
matters by their counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all of the shares of Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
such shares are taken.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and
(ii) it has not

35
<PAGE>

offered or sold, and will not offer or sell, directly or indirectly, any U.S.
Shares or distribute any prospectus relating to the U.S. Shares outside the
United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any International Shares (as defined
below) for the account of any United States or Canadian Person and (ii) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
International Shares or distribute any prospectus relating to the
International Shares within the United States or Canada or to any United
States or Canadian Person. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
Agreement Between U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person) and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
U.S. Underwriters and the International Underwriters under the Underwriting
Agreement are referred to herein as the U.S. Shares and the International
Shares, respectively.

Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of Common Stock, directly or
indirectly, in any province or territory of Canada in contravention of the
securities laws thereof and has represented that any offer or sale of Common
Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer or sale is made. Each U.S. Underwriter has further agreed to
send to any dealer who purchases from it any shares of Common Stock a notice
stating in substance that, by purchasing such Common Stock, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell, directly or indirectly, any of such Common Stock in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and
that any offer or sale of Common Stock in Canada will be made only pursuant to
an exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer or sale is made, and that such dealer
will deliver to any other dealer to whom it sells any of such Common Stock a
notice to the foregoing effect.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that: (i) it has not
offered or sold and, prior to the date six months after the date of issue of
the shares of Common Stock, will not offer or sell any shares of Common Stock
in the United Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purpose of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995
(the "Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the shares of Common Stock in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document in
connection with the issue or sale of the shares of Common Stock to a person
who is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
such document may otherwise lawfully be issued or passed on.

The Underwriters initially propose to offer part of the Common Stock
directly to the public at the price to public set forth on the cover page
hereof and part to certain dealers at a price which represents a concession
not

36
<PAGE>

in excess of $ per share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $
per share to other Underwriters or to certain other dealers. After the initial
offering of the Common Stock, the offering price and other selling terms may
from time to time be varied by the Underwriters.

Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 1,350,000 additional shares of Common Stock at
the public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The U.S. Underwriters may exercise
such an option to purchase solely for the purpose of covering over-allotments,
if any, made in connection with the offering of the shares of Common Stock
hereby. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock offered by the U.S. Underwriters hereby.

The Company and its executive officers and directors have agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the Underwriters, they will not, during the period commencing on the
date hereof and ending 90 days after the date of this Prospectus, (1) 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 to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (whether such shares or any such securities are
now owned by the Company or are hereafter acquired), or (2) enter into any
swap or similar agreement that transfers to another, in whole or in part, any
of the economic consequences of ownership of the Common Stock, whether any
such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (i) the sale of any Shares to the
Underwriters pursuant to the offering of Common Stock hereby, (ii) any shares
of Common Stock sold by the Company upon the exercise of an option or warrant
or the conversion of a security outstanding on the date of this Prospectus and
(iii) grants of stock options and restricted stock under the 1994 Stock Plan.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

Certain of the Underwriters and their affiliates have from time to time
performed, and continue to perform, various investment banking and other
financial services for the Company.

LEGAL MATTERS

Certain legal matters relating to the Common Stock being offered hereby will
be passed upon for the Company by Dewey Ballantine, 1301 Avenue of the
Americas, New York, New York 10019-6092. As to matters of Indiana law, Dewey
Ballantine may rely upon the opinion of Baker & Daniels, Indianapolis,
Indiana. Mr. King, Vice President, General Counsel, Secretary and a Director
of the Company, also currently acts as counsel to Baker & Daniels. Certain
legal matters relating to the Common Stock being offered hereby will be passed
upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom, 919 Third
Avenue, New York, New York 10022-3901.

EXPERTS

The financial statements and schedules included or incorporated by reference
in this Prospectus, to the extent and for the periods indicated in their
reports, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports, which are incorporated by reference herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.

37
<PAGE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. The reports, proxy statements and other
information filed by the Company with the Commission 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 or its
regional offices located at Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661-2511 and at Suite 1300, 7 World Trade Center,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a Web site at http://www.sec.gov. which contains reports, proxy
statements and other information regarding registrants that file
electronically with the Commission. In addition, such reports, proxy
statements and other information may be inspected at the offices of the NYSE,
20 Broad Street, New York, New York 10005 and the PSE, 301 Pine Street, San
Francisco, California 94101.

The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and the exhibits and
schedules filed therewith, which may be obtained from the principal office of
the Commission in Washington, D.C. upon the payment of fees prescribed by the
Commission.

Statements contained in this Prospectus as to the contents of any contract
or other document referred to are not necessarily complete and in each
instance where such contract or other document has been filed as an exhibit to
the Registration Statement, reference is made to the exhibit so filed, each
such statement being qualified in all respects by such reference.

38
<PAGE>

[LOGO OF GUIDANT]
<PAGE>

PROSPECTUS (Subject to Completion)

Issued October 16, 1996

9,000,000 Shares

Guidant Corporation

COMMON STOCK

-----------

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING ISSUED AND SOLD BY
GUIDANT CORPORATION, AN INDIANA CORPORATION (THE "COMPANY"). OF THE
9,000,000 SHARES OF COMMON STOCK BEING OFFERED, 1,800,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 7,200,000 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS.
SEE "UNDERWRITERS." THE COMMON STOCK OF THE COMPANY IS LISTED ON
THE NEW YORK STOCK EXCHANGE AND THE PACIFIC STOCK EXCHANGE
UNDER THE SYMBOL "GDT." ON OCTOBER 15, 1996, THE REPORTED
LAST SALE PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE WAS $43 3/8 PER SHARE.

-----------

SEE "RISK FACTORS" ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.

-----------

PRICE $ A SHARE

-----------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- ------------- -----------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."

(2) Before deducting expenses payable by the Company estimated at $610,000.

-----------

MORGAN STANLEY & CO.
International
ALEX. BROWN & SONS
Incorporated
COWEN & COMPANY
J.P. MORGAN SECURITIES LTD.
PIPER JAFFRAY INC.

, 1996
<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the
sale of the Common Stock being registered. All amounts are estimated except
the Securities and Exchange Commission registration fee and NASD filing fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $179,657.48
New York Stock Exchange Fee................................... 35,000.00
Pacific Stock Exchange Fee.................................... 7,500.00
NASD Filing Fee............................................... 30,500.00
Printing and engraving........................................ 195,000.00
Accounting services........................................... 40,000.00
Legal services................................................ 100,000.00
Transfer Agent and Registrar fees and expenses................ 5,000.00
Expenses of qualification under state blue sky laws .......... 15,000.00
Miscellaneous................................................. 2,342.52
-----------
Total..................................................... $610,000.00
===========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Indiana Business Corporation Law provides that a corporation, unless
limited by its Articles of Incorporation, is required to indemnify its
directors and officers against reasonable expenses incurred in the successful
defense of any proceeding arising out of their serving as a director or
officer of the corporation.

As permitted by the Indiana Business Corporation law, the Company's Articles
of Incorporation provide for indemnification of directors, officers, and
employees of the Company against any and all liability and reasonable expense
that may be incurred by them, arising out of any claim or action, civil or
criminal in which they may become involved by reason of being or having been a
director, officer, or employee. To be entitled to indemnification, those
persons must have been wholly successful in the claim or action or the Board
of Directors or independent legal counsel must have determined that such
persons acted in good faith in what they reasonably believed to be in the best
interest of the Company and, in addition, in any criminal action, had no
reasonable cause to believe that their conduct was unlawful.

Officers and directors of the Company are insured, subject to certain
exclusions and deductible and maximum amounts, against loss from claims
arising in connection with their acting in their respective capacities, which
include claims under the Securities Act of 1933.

ITEM 16. LIST OF EXHIBITS.

1.1Form of Underwriting Agreement.
4.1Specimen of Certificate for Common Stock.**

5.1Opinion of Dewey Ballantine as to legality of the securities being
registered.

5.2Opinion of Baker & Daniels as to legality of the securities being
registered.
10.1 Rights Agreement, dated as of October 17, 1994, between the Company and
Bank One, Indianapolis, N.A.**
23.1Consent of Ernst & Young LLP.
23.2Consent of Dewey Ballantine (contained in Exhibit 5.1).
23.3Consent of Baker & Daniels (contained in Exhibit 5.2).

24.1Power of Attorney.*

- --------

* Previously filed.
** Incorporated herein by reference to the identical exhibit filed as part of
the Company's Registration Statement on Form S-1, File No. 33-83934.

II-1
<PAGE>

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

The undersigned registrant hereby undertakes:

For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

For purposes of determining any liability under the Securities Act, each
filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of
the Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

II-2
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Indianapolis, State of Indiana, on
October 14, 1996.

GUIDANT CORPORATION

By: /s/ James M. Cornelius
----------------------------
James M. Cornelius
Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE

/s/ James M. Cornelius Chairman of the Board October 14,
- ------------------------ (principal executive 1996
James M. Cornelius officer)

/s/ Ronald W. Dollens President, Chief Executive October 14,
- ------------------------ Officer, Director (principal 1996
Ronald W. Dollens executive officer)

/s/ Keith E. Brauer Chief Financial Officer October 14,
- ------------------------ (principal financial 1996
Keith E. Brauer officer)

/s/ Roger Marchetti Chief Accounting Officer October 14,
- ------------------------ (principal accounting 1996
Roger Marchetti officer)

* Director October 14,1996
------------------------
Maurice A. Cox

* Director October 14,1996
------------------------
Enrique C. Falla

/s/ J.B. King Director October 14,1996
------------------------
J.B. King

II-3
<PAGE>

SIGNATURE TITLE DATE

* Director October 14, 1996
- --------------------------
Susan B. King

* Director October 14, 1996
- --------------------------
J. Kevin Moore

* Director October 14, 1996
- --------------------------
Mark Novitch, M.D.

* Director October 14, 1996
- --------------------------
Eugene L. Step

* Director October 14, 1996
- --------------------------
Ruedi E. Wager, Ph.D

Ronald W. Dollens
*By: ----------------------
Attorney-in-fact

II-4

<PAGE>

Exhibit 1.1

9,000,000 Shares

Guidant Corporation

Common Stock

UNDERWRITING AGREEMENT

October , 1996
<PAGE>
October , 1996

Morgan Stanley & Co. Incorporated
Alex. Brown & Sons Incorporated
Cowen & Company
J.P. Morgan Securities Inc.
Piper Jaffray Inc.
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036

Morgan Stanley & Co. International Limited
Alex. Brown & Sons Incorporated
Cowen & Company
J.P. Morgan Securities Ltd.
Piper Jaffray Inc.
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England

Dear Sirs:

Guidant Corporation, an Indiana corporation (the "Company"), proposes
to issue and sell to the several Underwriters (as defined below) 9,000,000
shares of its common stock (the "Firm Shares").
-----------

It is understood that, subject to the conditions hereinafter stated,
7,200,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
----------------
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
-----------------
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and 1,800,000 Firm Shares (the "International Shares") will be sold to the
--------------------
several International Underwriters named in Schedule II hereto (the

"International Underwriters") in connection with the offering and sale of such
- ---------------------------
International Shares outside the United States and Canada to persons other
<PAGE>

than United States and Canadian Persons. Morgan Stanley & Co. Incorporated,
Alex. Brown & Sons Incorporated, Cowen & Company, J.P. Morgan Securities Inc.
and Piper Jaffray Inc. shall act as representatives (the "U.S. Representatives")
--------------------
of the several U.S. Underwriters, and Morgan Stanley & Co. International
Limited, Alex. Brown & Sons Incorporated, Cowen & Company, J.P. Morgan
Securities Ltd. and Piper Jaffray Inc. shall act as representatives (the

"International Representatives") of the several International Underwriters. The
- ------------------------------
U.S. Underwriters and the International Underwriters are hereinafter
collectively referred to as the "Underwriters."
------------

The Company also proposes to sell to the several U.S. Underwriters not
more than an additional 1,350,000 shares of its common stock (the "Additional
----------
Shares"), if and to the extent that the U.S. Representatives shall have
- ------
determined to exercise, on behalf of the U.S. Underwriters, the right to
purchase such shares of common stock granted to the U.S. Underwriters in Article
II hereof. The Firm Shares and the Additional Shares are hereinafter
collectively referred to as the "Shares." The shares of common stock of the
------
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the "Common Stock."
------------

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The registration
----------
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus to be used in connection with
the offering and sale of Shares outside the United States and Canada to persons
other than United States and Canadian Persons. The international prospectus is
identical to the U.S. prospectus except for the outside front cover page. The
registration statement as amended at the time it becomes effective, including
the information (if any) deemed to be part of the registration statement at the
time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as
amended (the "Securities Act"), is hereinafter referred to as the "Registration
-------------- ------------
Statement;" the U.S. prospectus and the international prospectus in the
- ---------
respective forms first used to confirm sales of Shares

2
<PAGE>

are hereinafter collectively referred to as the "Prospectus" (including in the
----------
case of all references to the Registration Statement and the Prospectus
documents incorporated therein by reference). If the Company has filed an
abbreviated registration statement to register additional shares of Common Stock
pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration
---------------------
Statement"), then any reference herein to the term "Registration Statement"
- ---------
shall be deemed to include such Rule 462 Registration Statement.

The Company represents and warrants to each of the Underwriters that:

(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before, or to the best of the Company's
knowledge, threatened by the Commission.

(b) (i) Each document, if any, filed or to be filed pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
------------
incorporated by reference in the Prospectus complied, or will comply when so
filed, in all material respects with the Exchange Act and the applicable rules
and regulations of the Commission thereunder; (ii) each part of the Registration
Statement, when such part became effective, did not contain, and each such part,
as amended or supplemented, if applicable, will not contain, any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; (iii)
the Registration Statement and the Prospectus comply, and, as amended or
supplemented, if applicable, will comply, in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder; and (iv) the Prospectus does not contain, and, as amended or
supplemented, if applicable, will not contain, any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
paragraph I(b) do not apply to statements or omissions in the Registration
Statement or the Prospectus

3
<PAGE>

based upon information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.

(c) The Company has been duly incorporated, is validly existing as a
corporation under the laws of Indiana, with full corporate power and authority
to own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole.

(d) Each subsidiary of the Company listed on Annex A hereto has been
duly incorporated, is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with full corporate power and
authority to own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole. Annex A
attached hereto lists all material subsidiaries (the "Material Subsidiaries") of
the Company (including, without limitation, all significant subsidiaries (as
defined in Regulation S-X of the Commission) of the Company).

(e) The outstanding shares of capital stock of each Material
Subsidiary of the Company have been duly authorized and validly issued, are
fully paid and nonassessable and are owned either directly or indirectly (except
for directors' qualifying shares) by the Company free and clear of all liens,
encumbrances and perfected (or, to the best of the Company's knowledge,
unperfected) security interests, and no options, warrants or rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in any Material
Subsidiary of the Company are outstanding.

4
<PAGE>

(f) The authorized capital stock of the Company conforms as to legal
matters in all material respects to the description thereof contained in the
Prospectus.

(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and non-
assessable, and there are no outstanding options, warrants or other rights
granted by the Company to purchase shares of Common Stock or other securities of
the Company, except as described in the Prospectus and except for stock options
and performance awards granted to employees pursuant to the Guidant Corporation
1994 Stock Plan and stock options granted to directors pursuant to the Guidant
Corporation 1996 Non-employee Directors Stock Plan.

(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will not
be subject to any preemptive or similar rights.

(i) This Agreement has been duly authorized, executed and delivered
by the Company.

(j) The Sublicense Agreement, dated October 18, 1994, between Eli
Lilly and Company and Cardiac Pacemakers, Inc. ("CPI"), a subsidiary of the
---
Company (the "Sublicense Agreement"), has not been amended or modified since its
--------------------
execution and remains in full force and effect.

(k) Neither the Company nor any of its Material Subsidiaries is in
violation of its certificate of incorporation or by-laws or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument binding upon the Company or any of its
subsidiaries, other than any such violation or default that would not have a
material adverse effect on the Company and its subsidiaries, taken as a whole;
and the execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby have not, and the
performance by the Company of its obligations under this Agreement will not,
contravene, violate, conflict with, result in a breach of, or constitute a de-

5
<PAGE>

fault under (i) any provision of applicable law or regulation, (ii) the articles
of incorporation or by-laws of the Company or any Material Subsidiary of the
Company, (iii) any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument binding upon the Company or any of its Material
Subsidiaries, or (iv) any judgment, determination, order or decree of any
governmental body, agency or court having jurisdiction over the Company or any
Material Subsidiary of the Company, except, in the case of clauses (i), (iii)
and (iv) hereof, any such contravention that would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole. No consent,
approval, authorization or order of or qualification with any governmental body
or agency was required for the execution and delivery by the Company of this
Agreement or is required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the securities or Blue
Sky laws of the various states of the United States in connection with the offer
and sale of the Shares.

(l) There has not occurred any material adverse change, or any
development reasonably likely to result in a material adverse change, in the
condition, financial or otherwise, or in the earnings, business or operations of
the Company and its subsidiaries, taken as whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement).

(m) There are no legal or governmental actions, suits, proceedings,
claims, or investigations pending or, to the best of the Company's knowledge,
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is subject
that are required to be described in the Registration Statement or the
Prospectus and are not so described or which would affect the performance by the
Company of its obligations under this Agreement, nor are there any statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.

6
<PAGE>

(n) Each of the Company and its Material Subsidiaries has all
necessary consents, authorizations, approvals, orders, certificates and permits
(collectively, "Authorizations") of and from, and has made all declarations and
--------------
filings (collectively, "Filings") with, all federal, state, local and other
-------
governmental authorities, all self-regulatory organizations and all courts and
other tribunals, to own, lease, license and use its properties and assets and to
conduct its business in the manner described in the Prospectus, or required for
the performance by the Company of its obligations under this Agreement, except
to the extent that the failure to obtain an Authorization or to make a Filing
would not have a material adverse effect on the Company and its subsidiaries,
taken as a whole.

(o) Each preliminary prospectus filed as part of any amendment to the
Registration Statement, or filed pursuant to Rule 424 or Rule 462 under the
Securities Act, complied when so filed in all material respects with the
Securities Act and the rules and regulations of the Commission thereunder.

(p) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.

(q) The Company and its Material Subsidiaries (i) are in compliance
in all material respects with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("Environmental Laws"), (ii) have received all Authorizations
------------------
required of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such
Authorization, except where such noncompliance with Environmental Laws, failure
to receive required Authorizations or failure to comply with the terms and
conditions of such Authorizations would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a whole.

(r) In the ordinary course of its business, the Company reviews the
effect of Environmental Laws on

7
<PAGE>

the business, operations and properties of the Company and its subsidiaries, in
the course of which it identifies and evaluates associated costs and liabilities
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
permit, license or approval, any related constraints on operating activities and
any potential liabilities to third parties). On the basis of such review, the
Company has reasonably concluded that such associated costs and liabilities
would not, singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.

(s) To the best of the Company's knowledge, the accountants who have
certified or shall certify the financial statements filed with the Commission as
part of the Registration Statement and the Prospectus are independent
accountants as required by the Securities Act. The consolidated financial
statements of the Company and its subsidiaries (together with the related notes
thereto) included in the Registration Statement fairly present in all material
respects the financial position and results of operations of the Company and its
subsidiaries at the respective dates and for the respective periods to which
they apply. Such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved except as otherwise stated therein.

(t) No holder of any securities of the Company has any rights, not
effectively satisfied or waived, to the registration of securities of the
Company because of the filing of the Registration Statement or the consummation
of the transactions contemplated therein.

(u) To the best of the Company's knowledge, no labor dispute with the
employees of the Company or any of its Material Subsidiaries exists or is
imminent, and the Company is not aware of any existing or imminent labor
disturbance by such employees which is reasonably likely to have a material
adverse effect on the Company and its subsidiaries, taken as a whole.

(v) The Common Stock, including the Shares, has been approved for
listing on the New York Stock

8
<PAGE>

Exchange, Inc. and the Pacific Stock Exchange under the symbol "GDT".

(w) Except as disclosed in the Prospectus, the Company and its
subsidiaries own, possess or license the patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names and other rights or
interests in items of intellectual property as are necessary for the operation
of the business now operated by them (the "patent and proprietary rights");
-----------------------------
except as disclosed in the Prospectus, neither the Company nor any subsidiary
has received notice of any other asserted rights with respect to any of the
patent and proprietary rights which, if determined unfavorably with respect to
the interests of the Company or any subsidiary of the Company, would have a
material adverse effect on the Company and its subsidiaries, taken as a whole;
and neither the Company nor any subsidiary is aware that any person or entity is
infringing or otherwise violating any of the Company's patents, trademarks,
servicemarks or copyrights in a manner that could materially affect the use
thereof by the Company or any of its subsidiaries.

(x) The Company has no knowledge of any impediment to the
enforceability of any of the patents owned by the Company or any of its
subsidiaries that are necessary for the operation of the business now operated
by them or of any materially relevant prior art references not cited during the
prosecution of any of such patents in the U.S. Patent and Trademark Office or
applicable foreign patent office.

(y) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).

II.

The Company hereby agrees to sell to the several Underwriters and the
Underwriters, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agree, severally
and not jointly, to purchase from the Company

9
<PAGE>

the respective numbers of Firm Shares set forth in Schedules I and II hereto
opposite their names at $____ a share -- the "purchase price."
--------------

On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall
have a one-time right to purchase, severally and not jointly, up to 1,350,000
Additional Shares at the purchase price. Additional Shares may be purchased as
provided in Article IV hereof solely for the purpose of covering over-allotments
made in connection with the offering of the Firm Shares. If any Additional
Shares are to be purchased, each U.S. Underwriter agrees, severally and not
jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule I
hereto opposite the name of such U.S. Underwriter bears to the total number of
U.S. Firm Shares. The Additional Shares to be purchased by the U.S.
Underwriters hereunder and the U.S. Firm Shares are hereinafter collectively
referred to as the "U.S. Shares."
-----------

The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), it will not during the
--------------
period ending 90 days after the date of the initial public offering of the
Shares, (1) 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 to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock of the Company or any securities
convertible into or exercisable or exchangeable for such Common Stock (whether
such shares or any such securities are now owned by the Company or are hereafter
acquired), or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (i) the Shares to
be sold hereunder,

10
<PAGE>

(ii) any shares of such Common Stock sold by the Company upon the exercise of an
option or warrant or the conversion of a security outstanding on the date
hereof, and (iii) grants of stock options and restricted stock under the Guidant
Corporation 1994 Stock Plan.

III.

The Company is advised by you that the Underwriters propose to make a
public offering of their respective portions of the Shares as soon after the
Registration Statement and this Agreement have become effective as in your
judgment is advisable. The Company is further advised by you that the Shares
are to be offered to the public initially at U.S. $____ a share (the "public
------
offering price") and to certain dealers selected by you at a price that
- --------------
represents a concession not in excess of U.S. $.__ a share under the public
offering price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of U.S. $.__ a share, to any Underwriter or
to certain other dealers.

Each U.S. Underwriter hereby makes to and with the Company the
representations and agreements of such U.S. Underwriter contained in the fifth
and sixth paragraphs of Article III of the Agreement Between U.S. and
International Underwriters of even date herewith. Each International
Underwriter hereby makes to and with the Company the representations and
agreements of such International Underwriter contained in the eighth, ninth and
tenth paragraphs of Article III of such Agreement.

IV.

Payment for the Firm Shares shall be made by wire transfer or
certified or official bank check or checks payable to the order of the Company
in immediately available funds at the office of Morgan Stanley & Co.
Incorporated, 1585 Broadway, New York, New York, at 10:00 A.M., local time, on
July , 1996, or at such other time on the same or such other date, not later
than July , 1996, as shall be designated in writing by you. The time and date
of such payment are hereinafter referred to as the "Closing Date."
------------

11
<PAGE>

Payment for any Additional Shares shall be made by certified or
official bank check or checks payable to the order of the Company in immediately
available funds at the office of Morgan Stanley & Co. Incorporated, 1585
Broadway, New York, New York, at 10:00 A.M., local time, on such date (which may
be the same as the Closing Date but shall in no event be earlier than the
Closing Date nor later than ten business days after the giving of the notice
hereinafter referred to) as shall be designated in a written notice from the
U.S. Representatives to the Company of their determination, on behalf of the
U.S. Underwriters, to purchase a number, specified in said notice, of Additional
Shares, or on such other date, in any event not later than September , 1996, as
shall be designated in writing by the U.S. Representatives. The time and date
of such payment are hereinafter referred to as the "Option Closing Date." The
-------------------
notice of the determination to exercise the option to purchase Additional Shares
and of the Option Closing Date may be given at any time within 30 days after the
date of this Agreement.

Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the purchase price therefor.

The obligations of the Company and the several obligations of the
Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than the date hereof.

The several obligations of the Underwriters hereunder are subject to
the following further conditions:

(a) Subsequent to the execution and delivery of this Agreement and prior to
the Closing Date:

12
<PAGE>

(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by
any "nationally recognized statistical rating organization," as such term
is defined for purposes of Rule 436(g)(2) under the Securities Act; and

(ii) there shall not have occurred any change, or any development
reasonably likely to result in a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations, of the
Company and its subsidiaries, taken as a whole, from that set forth in the
Registration Statement (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), that, in your judgment, is
material and adverse and that makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the
Prospectus.

(b) The Underwriters shall have received on the Closing Date a certificate,
dated the Closing Date and signed by an executive officer of the Company, to the
effect set forth in clause (a)(i) above and to the effect that the
representations and warranties of the Company contained in this Agreement are
true and correct as of the Closing Date and that the Company has complied with
all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date. The officer
signing and delivering such certificate may rely upon the best of his knowledge
as to proceedings threatened.

(c) You shall have received on the Closing Date an opinion of Baker &
Daniels, counsel for the Company, dated the Closing Date, to the effect that:

(i) the authorized capital stock of the Company conforms as to
legal matters in all material respects to the description thereof contained
in the Prospectus; and

(ii) the statements (1) in the Prospectus under the caption
"Description of Capital Stock",

13
<PAGE>

(2) in the Registration Statement in Item 15 and (3) in the Company's
Registration Statement on Form 8-A, as amended, describing the Company's
capital stock which is incorporated by reference in the Registration
Statement, in each case insofar as such statements constitute summaries of
the legal matters, documents or proceedings referred to therein, fairly
present in all material respects the information called for with respect to
such legal matters, documents and proceedings and fairly summarize the
matters referred to therein.

(d) You shall have received on the Closing Date an opinion of Dewey
Ballantine, counsel for the Company, dated the Closing Date, to the effect that:

(i) the execution and delivery by the Company of this Agreement
and the consummation of the transactions contemplated by this Agreement
have not, and the performance by the Company of its obligations under this
Agreement will not, contravene, violate, conflict with, result in a breach
of, or constitute a default under (i) any provision of applicable New York,
California or U.S. federal law or regulation, or (ii) to the best of such
counsel's knowledge (based solely on inquiries of responsible officers of
the Company), any judgment, determination, order or decree of any New York,
California or U.S. federal governmental body, agency or court having
jurisdiction over the Company or any subsidiary of the Company, except, in
the case of clauses (i) and (ii) hereof, any such contravention, violation,
conflict, breach or default that would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole. No consent,
approval, authorization or order of or qualification with any New York,
California or U.S. federal governmental body or agency was required for the
execution of this Agreement by the Company or the consummation of the
transactions contemplated by this Agreement or is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of New York or
California in connection with the offer and sale of the Shares;

14
<PAGE>

(ii) each of Advanced Cardiovascular Systems, Inc. ("ACS"),
---
Devices for Vascular Intervention, Inc. ("DVI") and Origin Medsystems, Inc.
---
("Origin") has been duly incorporated, is validly existing as a corporation
------
in good standing under the laws of the jurisdiction of its incorporation,
with full corporate power and authority to own its property and to conduct
its business as described in the Prospectus;

(iii) the outstanding shares of capital stock of each of ACS, DVI
and Origin have been duly authorized and validly issued, are fully paid and
nonassessable;

(iv) the statements (1) in the Prospectus under the captions
"Business - Legal Proceedings" and (2) in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 in Item 1 under the
captions "Business - Government Regulation" and "Business - Health Care
Reform, Third Party Reimbursement", in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present in all material respects the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;

(v) to the best of such counsel's knowledge (based solely on
inquiries of responsible officers of the Company), there are no legal or
governmental actions, suits, proceedings, claims or investigations pending
or threatened to which the Company or any of its subsidiaries is a party or
to which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or
the Prospectus and are not so described or which would affect the
performance by the Company of its obligations under this Agreement, nor
does such counsel know of any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required;

15
<PAGE>

(vi) the Registration Statement and the Prospectus and any
supplements or amendments thereto (except for financial statements and the
notes related thereto, schedule and other financial, accounting and
statistical data as to which such counsel need not express any opinion)
comply as to form in all material respects with the Securities Act and the
rules and regulations of the Commission thereunder;

(vii) the Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended;

(viii) the Registration Statement is effective under the
Securities Act and, to the best knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued
under the Securities Act or proceedings therefor initiated or threatened by
the Commission; and

(ix) each document, if any, filed pursuant to the Exchange Act
and incorporated by reference in the Registration Statement and the
Prospectus (except for financial statements and notes related thereto,
schedule and other financial, accounting and statistical data included
therein or excluded therefrom as to which such counsel need not express an
opinion) complied when so filed as to form in all material respects with
the Exchange Act and rules and regulations of the Commission thereunder.

In addition, such counsel shall state that they have participated
in conferences with officers and representatives of the Company, officers
and representatives of the subsidiaries of the Company, representatives of
the independent accountants of the Company, the U.S. Representatives and
the International Representatives at which the contents of the Registration
Statement and the Prospectus and related matters were discussed and,
although such counsel need not pass upon or assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration State-

16
<PAGE>

ment or the Prospectus and have made no independent check or verification
thereof, except as described in paragraph (iv) above, on the basis of the
foregoing, no facts have come to such counsel's attention that have led
such counsel to believe that the Registration Statement, at the time it
became effective, contained an untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus, as of its date and as of the Closing Date, contained or
contains an untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading,
except that such counsel need not express an opinion or belief with respect
to information contained in the financial statements and the notes related
thereto, schedule and other financial, accounting and statistical data
included therein or excluded therefrom.

(e) You shall have received on the Closing Date an opinion of John H.
Lapke, Esq., counsel for CPI, dated the Closing Date, to the effect that:

(i) CPI has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Minnesota, with full
corporate power and authority to own its property and to conduct its
business as described in the Prospectus;

(ii) the outstanding shares of capital stock of CPI have been
duly authorized and validly issued, are fully paid and nonassessable; and

(iii) no consent, approval, authorization or order of or
qualification with any Minnesota governmental body or agency was required
for the execution of this Agreement by the Company or the consummation of
the transactions contemplated by this Agreement or is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of Minnesota in
connection with the offer and sale of the Shares.

17
<PAGE>

(f) You shall have received on the Closing Date an opinion of J.B. King,
Esq., Vice President, General Counsel and Secretary of the Company, dated the
Closing Date, to the effect that:

(i) the Company has been duly incorporated and is validly
existing as a corporation under the laws of Indiana, with full corporate
power and authority to own its property and to conduct its business as
described in the Prospectus;

(ii) the Company and each subsidiary of the Company listed on
Annex A is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole;

(iii) the outstanding shares of capital stock of each subsidiary
of the Company listed on Annex A are owned either directly or indirectly
(except for directors' qualifying shares) by the Company and, to the best
of such counsel's knowledge, are owned free and clear of all liens,
encumbrances and perfected or unperfected security interests, and, to the
best of such counsel's knowledge, no options, warrants or rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into shares of capital stock or ownership interests
in any such subsidiary of the Company are outstanding;

(iv) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly issued,
fully paid and non-assessable, and, to the best of such counsel's
knowledge, there are no outstanding options, warrants or other rights
granted by the Company to purchase shares of Common Stock or other
securities of the Company, except as described in the Prospectus and except
for stock options and performance awards granted to employees pursuant to
the Guidant Corporation 1994 Stock Plan and stock

18
<PAGE>

options granted to directors pursuant to the Guidant Corporation 1996 Non-
employee Directors Stock Plan;

(v) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares is
not subject to any statutory preemptive or, to the best of such counsel's
knowledge, any similar rights;

(vi) this Agreement has been duly authorized, executed and
delivered by the Company;

(vii) to the best knowledge of such counsel, neither the Company
nor any of its Material Subsidiaries is in violation of its certificate of
incorporation or by-laws or in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument binding upon the Company or any of its subsidiaries, other than
any such violation or default that would not have a material adverse effect
on the Company and its subsidiaries taken as a whole; and the execution and
delivery by the Company of this Agreement and the performance by the
Company of its obligations under this Agreement will not, contravene,
violate, conflict with, result in a breach of, or constitute a default
under (i) any provision of applicable law or regulation, (ii) the articles
of incorporation or by-laws of the Company or any Material Subsidiary of
the Company, (iii) to the best of such counsel's knowledge, any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument binding upon the Company or any of its Material Subsidiaries, or
(iv) to the best of such counsel's knowledge, any judgment, determination,
order or decree of any governmental body, agency or court having
jurisdiction over the Company or any Material Subsidiary of the Company,
except, in the case of clauses (i), (iii) and (iv) hereof, any such
contravention that would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole. No consent, approval,
authorization or order of or qualification with any state (other than

19
<PAGE>

New York, California, Minnesota or Delaware as to which such counsel need
render no opinion) or local governmental body or agency was required for
the execution and delivery by the Company of this Agreement or is required
for the performance by the Company of its obligations under this Agreement,
except such as may be required by the securities or Blue Sky laws of the
various states of the United States in connection with the offer and sale
of the Shares;

(viii) to the best of such counsel's knowledge, there are no
legal or governmental actions, suits, proceedings, claims, or
investigations pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or which
would affect the performance by the Company of its obligations under this
Agreement, nor does such counsel know of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required; and

(ix) to the best of such counsel's knowledge, each of the
Company and its Material Subsidiaries has all necessary Authorizations of
and from, and has made all Filings with, all state, local and other
governmental authorities, all self-regulatory organizations and all courts
and other tribunals, to own, lease, license and use its properties and
assets and to conduct its business in the manner described in the
Prospectus, or required for the performance by the Company of its
obligations under this Agreement, except to the extent that the failure to
obtain an Authorization or to make a Filing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.

In addition, such counsel shall state that he or members of his
staff have participated in conferences with officers and representatives of
the Company, officers and representatives of the subsid-

20
<PAGE>

iaries of the Company, representatives of the independent accountants of
the Company, the U.S. Representatives and the International Representatives
at which the contents of the Registration Statement and the Prospectus and
related matters were discussed and, although such counsel need not pass
upon or assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus and has made no independent check or verification thereof, on
the basis of the foregoing, no facts have come to the attention of such
counsel or any member of his staff that have led them to believe that the
Registration Statement, at the time it became effective, contained an
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, or that the Prospectus, as of its date and as of the
Closing Date, contained or contains an untrue statement of a material fact
or omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading, except that such counsel need not express an opinion
or belief with respect to information contained in the financial statements
and the notes related thereto, schedules and other financial, accounting
and statistical data included therein or excluded therefrom.

In rendering such opinion, such counsel may state that such
opinion is limited to matters governed by the laws of the states of
Indiana, California, Delaware and Minnesota and that he has relied as to
matters involving the application of the laws of the states of California,
Delaware and Minnesota upon the opinion of other members of the Company's
legal department, John H. Lapke, Esq., counsel to CPI, or upon the law
firm of Dewey Ballantine, as the case may be.

(g) You shall have received on the Closing Date opinions of Ralph Hall,
General Counsel, and Secretary of CPI, Bruce J. Barclay, General Counsel and
Secretary of ACS, dated the Closing Date, in form and substance satisfactory to
you and your counsel relating to intellectual property matters.

21
<PAGE>

The opinions described in paragraphs (c), (d), (e), (f) and (g) above
shall be rendered to you at the request of the Company and shall so state
therein.

(h) You shall have received on the Closing Date an opinion of Skadden,
Arps, Slate, Meagher & Flom, special counsel for the Underwriters, dated the
Closing Date, in form and substance satisfactory to you.

(i) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Ernst & Young LLP, independent
public accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in, or
incorporated by reference into the Registration Statement and the Prospectus.

(j) On or prior to the Closing Date, the Company shall have delivered to
the U.S. Representatives and the International Representatives a letter executed
by certain officers and directors of the Company, in form and substance
reasonably satisfactory to you and your counsel, evidencing such officers' and
directors' agreement to be subject to lock-up provisions that are substantially
similar to those described in Article II of this Agreement, and such agreement
shall be in full force and effect on the Closing Date.

The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and other matters related to
the issuance of the Additional Shares.

VI.

In further consideration of the agreements of the Underwriters herein
contained, the Company covenants as follows:

22
<PAGE>

(a) To furnish to you, without charge, five signed copies of the
Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and to furnish to you in New York City, without charge, prior
to 1:00 P.M. local time on the business day next succeeding the date of this
Agreement (or such later time as you and the Company shall agree if the
Underwriters have not provided information required to be included in the
Prospectus in a timely manner) and, during the period mentioned in paragraph (c)
below, as many copies of the Prospectus and any supplements and amendments
thereto or to the Registration Statement as you may reasonably request.

(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and to file no such proposed amendment or supplement to which you
reasonably object. However, notwithstanding such reasonable objection, the
Company may file such proposed amendment or supplement, upon written
notification to you by Dewey Ballantine of the Company's intention to do so, if
in the opinion of Dewey Ballantine such filing is reasonably required to comply
with applicable law.

(c) If, during such period after the first date of the public offering of
the Shares as in the opinion of your counsel the Prospectus is required by law
to be delivered in connection with sales by an Underwriter or dealer, any event
shall occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the light
of the circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if, in the opinion of your counsel, it is necessary to amend or
supplement the Prospectus to comply with law, forthwith to prepare, file with
the Commission and furnish, at its own expense, to the Underwriters and to the
dealers (whose names and addresses you will furnish to the Company) to which
Shares may have been sold by you on behalf of the Underwriters and to any other
dealers upon request, either amendments or supplements to the Prospectus so that
the statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be

23
<PAGE>

misleading or so that the Prospectus, as amended or supplemented, will comply
with law.

(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request and to pay all reasonable expenses (including reasonable fees and
disbursements of counsel) in connection with such qualification and in
connection with any review of the offering of the Shares by the National
Association of Securities Dealers, Inc.; provided, however, that the Company
shall not be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not otherwise so
subject.

(e) To make generally available to the Company's security holders and to
you as soon as practicable an "earning statement" covering the twelve-month
period ending September 30, 1997 that satisfies the provisions of Section 11(a)
of the Securities Act and the rules and regulations of the Commission
thereunder.

(f) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement,
including: (i) the fees, disbursements and expenses of the Company's counsel and
the Company's accountants in connection with the registration and delivery of
the Shares under the Securities Act and all other fees or expenses in connection
with the preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky memorandum in connection with the offer and sale of the Shares under state
securities laws and all expenses in connection with the qualification of the
Shares for offer and sale under state securi-

24
<PAGE>

ties laws as provided in Section 6(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in connection
with such qualification and in connection with the Blue Sky memorandum, (iv) all
filing fees and disbursements of counsel to the Underwriters incurred in
connection with the review and qualification of the Offering by the National
Association of Securities Dealers, Inc., (v) all costs and expenses incident to
listing the Shares on the New York Stock Exchange and the Pacific Stock
Exchange, (vi) the cost of printing certificates representing the Shares, (vii)
the costs and charges of any transfer agent, registrar or depositary, (viii) the
costs and expenses of the Company relating to investor presentations on any
"road show" undertaken in connection with the marketing of the Offering,
including, without limitation, expenses associated with the production of road
show slides and graphics, fees and expenses of any consultants engaged in
connection with road show presentations with the prior approval of the Company,
travel and lodging expense of the representatives and officers of the Company
and any such consultants, and the cost of any aircraft chartered in connection
with the road show, and (ix) all other costs and expenses incident to the
performance of the obligations of the Company hereunder for which provision is
not otherwise made in this Section. It is understood, however, that except as
provided in this Article, Article VII, and the third paragraph of Article IX
below, the Underwriters will pay all of their costs and expenses, including fees
and disbursements of their counsel, stock transfer taxes payable on resale of
any of the Shares by them, and any advertising expenses connected with any
offers they may make.

(g) To use the proceeds from the sale of the Shares in the manner described
in the Prospectus under the caption "Use of Proceeds".

VII.

The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred by any

25
<PAGE>

Underwriter or any such controlling person in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein; provided, however, that the foregoing indemnity with
respect to any preliminary prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased Shares, or any person controlling such Underwriter, if a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such losses, claims, damages or
liabilities.

Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Underwriter,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.

In case any proceeding (including any governmental investigation)
shall be instituted involving any

26
<PAGE>

person in respect of which indemnity may be sought pursuant to any of the two
preceding paragraphs, such person (the "indemnified party") shall promptly
-----------------
notify the person against whom such indemnity may be sought (the "indemnifying
------------
party") in writing and the indemnifying party, upon request of the indemnified
- -----
party, shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the reasonable fees and disbursements
of such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in respect of the
legal expenses of any indemnified party in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm (in addition to any local counsel)
for all such indemnified parties and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Underwriters and such control persons of Underwriters, such firm shall be
designated in writing by Morgan Stanley. In the case of any such separate firm
for the Company, and such directors, officers and control persons of the
Company, such firm shall be designated in writing by the Company. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such

27
<PAGE>

settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.

If the indemnification provided for in the first or second paragraph
of this Article VII is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other hand in connection
with the offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by the Company and the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus, bear to the aggregate public offering
price of the Shares. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Article VII are several in proportion to the respective number
of Shares they have purchased hereunder, and not joint.

28
<PAGE>

The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Article VII were determined by pro
---
rata allocation (even if the Underwriters were treated as one entity for such
- ----
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article VII, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Article VII are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.

The indemnity and contribution provisions contained in this Article
VII and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter or by or on behalf
of the Company, its officers or directors or any person controlling the Company
and (iii) acceptance of and payment for any of the Shares.

VIII.

This Agreement shall be subject to termination by notice given by you
to the Company, if (a) after the execution and delivery of this Agreement and
prior to the

29
<PAGE>

Closing Date (i) trading generally shall have been suspended or materially
limited on or by, as the case may be, any of the New York Stock Exchange, the
American Stock Exchange, the National Association of Securities Dealers, Inc.,
the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the
Chicago Board of Trade, (ii) trading of any securities of the Company shall have
been suspended on any exchange or in any over-the-counter market, (iii) a
general moratorium on commercial banking activities in New York shall have been
declared by either Federal or New York State authorities, or (iv) there shall
have occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in your judgment, is material
and adverse and (b) in the case of any of the events specified in clauses (a)(i)
through (iv), such event singly or together with any other such event makes it,
in your judgment, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.

IX.

This Agreement shall become effective upon the later of (x) execution
and delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Registration Statement by the Commission.

If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I or Schedule
II bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
--------
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to Article II be increased pursuant to this Article IX by an
amount in excess of one-ninth of such number of

30
<PAGE>

Shares without the written consent of such Underwriter. If, on the Closing Date
or the Option Closing Date, as the case may be, any Underwriter or Underwriters
shall fail or refuse to purchase Shares and the aggregate number of Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Shares to be purchased on such date, and arrangements satisfactory to
you and the Company for the purchase of such Shares are not made within 36 hours
after such default, this Agreement shall terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case either you
or the Company shall have the right to postpone the Closing Date or the Option
Closing Date, as the case may be, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and in
the Prospectus or in any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.

If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.

This Agreement may be signed in two or more counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.

31
<PAGE>

This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York.

Very truly yours,

GUIDANT CORPORATION

By
------------------------
Name:
Title:

Accepted, October , 1996

MORGAN STANLEY & CO. INCORPORATED
ALEX. BROWN & SONS INCORPORATED
COWEN & COMPANY
J.P. MORGAN SECURITIES INC.
PIPER JAFFRAY INC.

Acting severally on behalf
of themselves and the several
U.S. Underwriters named in
Schedule I hereto.

By Morgan Stanley & Co. Incorporated

By
---------------------------
Name:
Title:

MORGAN STANLEY & CO. INTERNATIONAL LIMITED
ALEX. BROWN & SONS INCORPORATED
COWEN & COMPANY
J.P. MORGAN SECURITIES LTD.
PIPER JAFFRAY INC.

Acting severally on behalf
of themselves and the several
International Underwriters named
in Schedule II hereto.

By Morgan Stanley & Co. International Limited

By
---------------------------
Name:
Title:

32
<PAGE>

SCHEDULE I
U.S. UNDERWRITERS
-----------------

Number of
Firm
Shares To
Underwriter Be Purchased
- ----------- ------------
<S> <C>
Morgan Stanley & Co. Incorporated . . . . .
Alex. Brown & Sons Incorporated . . . . . .
Cowen & Company . . . . . . . . . . . . . .
J.P. Morgan Securities Inc. . . . . . . . .
Piper Jaffray Inc. . . . . . . . . . . . .

Total U.S. Firm Shares. . . . . . . . . . . 7,200,000
</TABLE>
<PAGE>

SCHEDULE II
INTERNATIONAL UNDERWRITERS
--------------------------

Number of
Firm
Shares To
Underwriter Be Purchased
- ----------- ------------

Morgan Stanley & Co. International Limited . . . . . . .
Alex. Brown & Sons Incorporated . . . . . . . . . . . . .
Cowen & Company . . . . . . . . . . . . . . . . . . . . .
J.P. Morgan Securities Ltd. . . . . . . . . . . . . . . .
Piper Jaffray Inc. . . . . . . . . . . . . . . . . . . .

Total International Shares. . . . . . . . . . . . . . . . 1,800,000
<PAGE>

ANNEX A

. Advanced Cardiovascular Systems, Inc., a California corporation.

. Cardiac Pacemakers, Inc., a Minnesota corporation.

. Devices for Vascular Intervention, Inc., a California corporation.

. Origin Medsystems, Inc., a Delaware corporation.

<PAGE>

Exhibit 5.1

September 26, 1996

Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, IN 46204-5129

Dear Sirs:

We refer to the Registration Statement on Form S-3 (the "Registration
Statement") filed by Guidant Corporation, an Indiana corporation (the
"Company"), with the Securities and Exchange Commission (the "Commission") on
June 20, 1996 under the Securities Act of 1933, as amended (the "Securities
Act"), and Amendment No. 1 thereto, relating to 10,350,000 shares of the
Company's common stock, without par value (the "Shares").

We have examined and are familiar with originals, or copies certified or
otherwise identified to our satisfaction, of such corporate records of the
Company, certificates of officers of the Company and of public officials and
such other documents as we have deemed appropriate as a basis for the opinions
expressed below.

Based upon the foregoing, it is our opinion that:

1. The Company is a validly existing corporation under the laws of the
State of Indiana.

2. The Shares being offered pursuant to the Registration Statement
are validly authorized, and, when the Registration Statement
shall have become effective and the Shares have been sold upon
the terms and conditions described in the Registration Statement
and set forth in the Underwriting Agreement filed as an exhibit
to the Registration Statement, the Shares will be legally issued
and fully paid and nonassessable.

<PAGE>

We are members of the bar of the State of New York and express no
opinion as to the laws of any jurisdiction except the State of New York and the
federal law of the United States. As to matters governed by Indiana law, we
have relied solely upon the opinion of Baker & Daniels, Indianapolis, Indiana, a
copy of which is enclosed herewith.

We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to our name in the Prospectus
constituting a part of such Registration Statement under the heading "Legal
Matters." In giving such consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission promulgated
thereunder.

Very truly yours,

/s/ Dewey Ballantine

<PAGE>

Exhibit 5.2

September 26, 1996

Guidant Corporation
29th Floor
111 Monument Circle
Indianapolis, IN 46204-5129

Ladies and Gentlemen:

We have examined the corporate records and proceedings of Guidant
Corporation, an Indiana corporation (the "Company"), with respect to:

(a) the organization of the Company; and

(b) the legal sufficiency of all corporate proceedings of the Company
taken in connection with the authorization, issuance, form, validity and
nonassessability of the 10,350,000 shares of Common Stock, without par
value (the "Shares"), to be offered under the Registration Statement on
Form S-3 (Registration No. 333-06363), as amended (the "Registration
Statement"), in connection with which this opinion letter is given.

The law covered by this opinion letter is limited to the laws of the State
of Indiana.

Based on the foregoing, we are of the opinion that:

1. The Company is a validly existing corporation under the laws of the
State of Indiana.

2. The Shares being offered pursuant to the Registration Statement are
validly authorized, and, when the Registration Statement shall have become
effective and the Shares have been sold upon the terms and conditions described
in the Registration Statement and set forth in the Underwriting Agreement filed
as an exhibit to the Registration Statement, the Shares will be legally issued
and fully paid and nonassessable.

<PAGE>

Guidant Corporation September 26, 1996

Dewey Ballantine may rely upon this opinion letter in rendering their
opinions in connection with the Registration Statement as if this opinion letter
were addressed to them.

We consent to the filing of this opinion letter as Exhibit 5.2 to the
Registration Statement and to the reference to our name in the Prospectus
constituting a part of such Registration Statement under the heading "Legal
Matters." In giving such consent, we do not hereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Securities and Exchange
Commission thereunder.

Yours very truly,

/s/ Baker & Daniels

<PAGE>

EXHIBIT 23.1

[LETTERHEAD OF ERNST & YOUNG LLP]

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" in Amendment No. 1 to the Registration
Statement on Form S-3 and related Prospectus of Guidant Corporation contained
therein dated October 15, 1996 for the registration of 10,350,000 shares of
its common stock and to the incorporation by reference therein of our report
dated February 13, 1996, with respect to the consolidated financial statements
of Guidant Corporation incorporated by reference in its Annual Report on Form
10-K for the year ended December 31, 1995, filed with the Securities and
Exchange Commission.

Our audit also included the financial statement schedule of Guidant Corporation
listed in Item 14(a) of the Company's Form 10-K. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.

/s/ Ernst & Young LLP

October 15, 1996

Ernst & Young is a member of Ernst & Young International, Ltd.