<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
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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
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<S> <C> <C> <C> <C>
Common Stock(3) 10,000,000 $50.6875 $506,875,000 $174,784.48
</TABLE>
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(1)Includes 1,000,000 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 June 18,
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."
--------------
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 June 20, 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 JUNE 19,
1996, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK
ON THE NEW YORK STOCK EXCHANGE WAS $49 1/4 PER SHARE.
-----------
SEE "RISK FACTORS" ON PAGE 7 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.
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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
$ .
(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
1,000,000 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."
-----------
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.
-----------
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..................................... 7
USE OF PROCEEDS.................................. 9
PRICE RANGE OF COMMON STOCK AND
DIVIDENDS..................................... 10
CAPITALIZATION................................... 11
SELECTED CONSOLIDATED FINANCIAL
DATA.......................................... 12
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL
CONDITION ........................................ 14
BUSINESS.......................................... 23
MANAGEMENT........................................ 26
DESCRIPTION OF CAPITAL STOCK...................... 30
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON
U.S. HOLDERS OF COMMON STOCK...................... 32
UNDERWRITERS...................................... 34
LEGAL MATTERS..................................... 36
EXPERTS........................................... 36
AVAILABLE INFORMATION............................. 37
</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 Report on Form 10-Q for the
quarter ended March 31, 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."
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. There can be no
assurance that an 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 April 30, 1996, the Company announced FDA approval to market the VENTAK
MINI HC and the VENTAK MINI II families of ICD systems in the United States.
The VENTAK MINI II pulse generator is 59 cc in size and weighs 115 grams, 13%
smaller than the VENTAK MINI HC. These defibrillators incorporate the Company's
TRIAD defibrillation energy delivery system which is designed to reduce the
amount of energy needed for defibrillation by as much as 15%. Both of these
defibrillators are designed and labeled for implantation in the patient's
shoulder (pectoral) area and abdominal region.
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 implantable defibrillators were implanted in the
U.S. last year.
On May 20, 1996, the Company announced plans to take two separate noncash
charges which prior to taxes total approximately $96.0 million against second
quarter 1996 earnings. The first is an impairment charge against the Company's
atherectomy-related goodwill and other intangible assets of approximately $67.0
million. 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 term 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 second is an approximate $29.0 million pretax
charge to manufacturing costs as a result of obsolescence of older generation
CRM products and programmers. This charge is primarily due to accelerated U.S.
regulatory approval for market release and customer acceptance of the new CRM
products, particularly the VENTAK MINI and VENTAK MINI II families of ICD
systems. The after-tax impact on earnings of these charges is estimated to be
approximately $84.0 million and will result in a net loss for the quarter
ending June 30, 1996.
RISK FACTORS
See "Risk Factors" for information that should be considered by prospective
investors.
4
<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................. 83,133,005 shares(1)(2)
Use of proceeds.......... Approximately $ million 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>
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(1) Excludes 1,000,000 shares of Common Stock subject to the over-allotment
option granted to the Underwriters by the Company.
(2) Excludes 6,978,000 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.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF THE COMPANY
(IN MILLIONS, EXCEPT PER SHARE AND OTHER DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996(1) 1995 1995 1994 1993 1992 1991
-------- ------- ------ ------ ------ ------ ------
(UNAUDITED)
INCOME STATEMENT DATA:
Net sales:
CRM................... $ 133.8 $ 103.9 $452.4 $378.6 $336.5 $329.9 $304.3
VI.................... 106.9 114.0 447.9 464.5 451.6 423.7 376.9
MIS................... 11.4 6.9 31.0 19.3 6.6 1.2 --
-------- ------- ------ ------ ------ ------ ------
Total net sales..... 252.1 224.8 931.3 862.4 794.7 754.8 681.2
Cost of sales........... 77.0 70.8 283.4 270.9 236.2 211.8 168.9
-------- ------- ------ ------ ------ ------ ------
Gross profit............ 175.1 154.0 647.9 591.5 558.5 543.0 512.3
Research and
development............. 36.0 33.4 134.7 130.9 129.1 117.9 100.4
Sales, marketing and
administrative.......... 77.3 69.6 291.8 268.9 255.1 251.0 209.1
Restructuring charges... -- -- -- -- 81.5 32.9 --
-------- ------- ------ ------ ------ ------ ------
Income from operations.. 61.8 51.0 221.4 191.7 92.8 141.2 202.8
Other expenses-net...... 14.7 15.3 51.6 35.8 5.8 20.1 13.5
Net income.............. $ 28.5 $ 21.1 $101.1 $ 92.1 $ 50.6 $ 76.8 $115.6
Earnings per share(2)... $ 0.40 $ 0.29 $ 1.41 -- -- -- --
Pro forma net income(2). -- -- -- $ 76.2 -- -- --
Pro forma earnings per
share(2)................ -- -- -- $ 1.06 -- -- --
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996(1) 1995 1994 1993 1992 1991
----------- -------- -------- -------- -------- ------
(UNAUDITED)
BALANCE SHEET DATA:
Working capital......... $ 140.7 $ 110.3 $ 116.8 $ 143.3 $ 136.9 $101.7
Total assets............ 1,056.4 1,057.4 1,103.6 1,288.6 1,118.0 935.7
Total borrowings........ 471.3 455.0(3) 473.0(4) -- 2.1 2.4
Shareholders' equity.... 409.6 384.2 264.4(5) 1,048.3 942.7 747.2
Total borrowings as a
percentage of total
capitalization......... 53.5% 54.2% 64.1% -- 0.2% 0.3%
Book value per share.... $ 5.69 $ 5.34 $ 3.68 -- -- --
Cash dividends declared
per share............... $ 0.025 $ 0.05 -- -- -- --
OTHER DATA:
Full-time employee
equivalents............. 4,858 4,980 5,055 5,462 4,864 4,316
</TABLE>
- --------
(1) In May 1996, the Company recorded noncash pre-tax charges of $67.0 million
and $29.0 million for the impairment of atherectomy-related goodwill and
other intangible assets and CRM obsolescence, respectively. See "--Recent
Developments."
(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) Total borrowings under the 1994 Credit Agreements were $455.0 million on
December 31, 1995, and matured on January 8, 1996. On January 8, 1996, the
Company refinanced its outstanding borrowings through the issuance of
commercial paper. The commercial paper borrowings are supported by the 1996
Credit Agreement.
(4) Total 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.
6
<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.
7
<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.
8
<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 $ ($ 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 $ million of outstanding commercial paper indebtedness with
maturities ranging from one to 90 days and a weighted average interest rate of
% and approximately $ million in bank borrowings due on with an
interest rate of %.
9
<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 (through June 19, 1996)............. 61 3/8 47 3/4 0.025(1)
</TABLE>
- --------
(1) On May 20, 1996, the Board of Directors of the Company declared a
quarterly dividend of $0.025 per share of Common Stock payable on June 28,
1996 to shareholders of record on June 7, 1996.
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 June 13,
1996, there were approximately 3,091 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.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 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 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>
MARCH 31, 1996
-------------------------------
ACTUAL ADJUSTMENTS AS ADJUSTED
------ ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Current portion of long-term debt............... $ 86.3 $
Long-term debt.................................. 385.0
------ ------- ------
Total borrowings............................ 471.3
SHAREHOLDERS' EQUITY:
Common stock-no par value:
Authorized shares: 250,000,000
Issued shares: 72,019,000-Actual.............. 192.5
81,019,000-As Adjusted
Additional paid-in capital...................... 147.9
Retained earnings............................... 130.0
Currency translation adjustments................ (5.1)
Deferred cost, ESOP............................. (55.7)
------ ------- ------
Total shareholders' equity.................. 409.6
------ ------- ------
Total capitalization...................... $880.9 $ $
====== ======= ======
</TABLE>
11
<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 three-month periods ended
March 31, 1996 and March 31, 1995 are derived from unaudited consolidated
financial statements. The consolidated financial data for the three-month
periods ended March 31, 1996 and March 31, 1995 include all adjustments,
consisting of normal recurring accruals, which the Company considers necessary
for a fair presentation of the consolidated financial position and the
consolidated results of operations for these periods. Operating results for
the three months ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1996. See
"Prospectus Summary--Recent Developments." 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>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996(1) 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AND OTHER DATA)
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales:
CRM................... $133.8 $103.9 $452.4 $378.6 $336.5 $329.9 $304.3
VI.................... 106.9 114.0 447.9 464.5 451.6 423.7 376.9
MIS................... 11.4 6.9 31.0 19.3 6.6 1.2 --
------- ------- ------- ------- ------ ------ ------
Total net sales..... 252.1 224.8 931.3 862.4 794.7 754.8 681.2
Cost of sales........... 77.0 70.8 283.4 270.9 236.2 211.8 168.9
------- ------- ------- ------- ------ ------ ------
Gross profit........... 175.1 154.0 647.9 591.5 558.5 543.0 512.3
Research and
development............. 36.0 33.4 134.7 130.9 129.1 117.9 100.4
Sales, marketing and
administrative.......... 77.3 69.6 291.8 268.9 255.1 251.0 209.1
Restructuring charges... -- -- -- -- 81.5 32.9 --
------- ------- ------- ------- ------ ------ ------
Income from operations. 61.8 51.0 221.4 191.7 92.8 141.2 202.8
Other expenses, net..... 14.7 15.3 51.6 35.8 5.8 20.1 13.5
Net income.............. $ 28.5 $ 21.1 $101.1 $ 92.1 $ 50.6 $ 76.8 $115.6
Earnings per share(2)... $ 0.40 $ 0.29 $ 1.41 -- -- -- --
Pro forma net income(2). -- $ 76.2 -- -- --
Pro forma earnings per
share(2)................ -- $ 1.06 -- -- --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------------------------------------
1996(1) 1995 1994 1993 1992 1991
---------- --------- --------- --------- -------- --------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AND OTHER DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 140.7 $ 110.3 $ 116.8 $ 143.3 $ 136.9 $101.7
Total assets............ 1,056.4 1,057.4 1,103.6 1,288.6 1,118.0 935.7
Total borrowings........ 471.3 455.0(3) 473.0(4) -- 2.1 2.4
Shareholders' equity.... 409.6 384.2 264.4(5) 1,048.3 942.7 747.2
Total borrowings as a
percentage of total
capitalization.......... 53.5% 54.2% 64.1% -- 0.2% 0.3%
Book value per share.... $ 5.69 $ 5.34 $ 3.68 -- -- --
Cash dividends declared
per share............... $ 0.025 $ 0.05 -- -- -- --
OTHER DATA:
Full-time employee
equivalents............. 4,858 4,980 5,055 5,462 4,864 4,316
</TABLE>
12
<PAGE>
- --------
(1) In May 1996, the Company recorded noncash pre-tax charges of $67.0 million
and $29.0 million for the impairment of atherectomy-related goodwill and
other intangible assets and CRM obsolescence, respectively. See
"Prospectus Summary--Recent Developments."
(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) Total borrowings under the 1994 Credit Agreements were $455.0 million on
December 31, 1995, and matured on January 8, 1996. On January 8, 1996, the
Company refinanced its outstanding borrowings through the issuance of
commercial paper. The commercial paper borrowings are supported by the
1996 Credit Agreement.
(4) Total 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.
13
<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. See "Prospectus Summary--Recent Developments."
The following tables are summaries of the Company's net sales and major costs
and expenses:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- -------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------- -------
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales
CRM....................... $133.8 $103.9 $ 452.4 $ 378.6 $ 336.5
VI........................ 106.9 114.0 447.9 464.5 451.6
MIS....................... 11.4 6.9 31.0 19.3 6.6
------ ------ ------- ------- -------
Total net sales......... 252.1 224.8 931.3 862.4 794.7
Cost of sales............... 77.0 70.8 283.4 270.9 236.2
------ ------ ------- ------- -------
Gross profit.............. 175.1 154.0 647.9 591.5 558.5
Research and development.... 36.0 33.4 134.7 130.9 129.1
Sales, marketing and 77.3 69.6 291.8 268.9 255.1
administrative.............. ------ ------ ------- ------- -------
113.3 103.0 426.5 399.8 384.2
------ ------ ------- ------- -------
61.8 51.0 221.4 191.7 174.3
Restructuring charges....... -- -- -- -- 81.5
------ ------ ------- ------- -------
Income from operations.... $ 61.8 $ 51.0 $ 221.4 $ 191.7 $ 92.8
====== ====== ======= ======= =======
<CAPTION>
AS A PERCENT OF NET SALES
-----------------------------------------
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- -------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales
CRM....................... 53.1% 46.2% 48.6% 43.9% 42.3%
VI........................ 42.4 50.7 48.1 53.9 56.9
MIS....................... 4.5 3.1 3.3 2.2 0.8
------ ------ ------- ------- -------
Total net sales......... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............... 30.5 31.5 30.4 31.4 29.7
------ ------ ------- ------- -------
Gross profit.............. 69.5 68.5 69.6 68.6 70.3
Research and development.... 14.3 14.8 14.5 15.2 16.2
Sales, marketing and 30.7 31.0 31.3 31.2 32.1
administrative.............. ------ ------ ------- ------- -------
45.0 45.8 45.8 46.4 48.3
------ ------ ------- ------- -------
24.5 22.7 23.8 22.2 22.0
Restructuring charges....... -- -- -- -- 10.2
------ ------ ------- ------- -------
Income from operations.... 24.5% 22.7% 23.8% 22.2% 11.8%
====== ====== ======= ======= =======
</TABLE>
14
<PAGE>
OPERATING RESULTS--THREE MONTHS ENDED MARCH 31, 1996
The Company had worldwide net sales of $252.1 million for the three months
ended March 31, 1996, reflecting an increase of $27.3 million or 12% over the
same period in 1995. Increased worldwide net sales was due to net sales price
increases of 8% and growth in unit volume of 4%. Net fluctuations in foreign
currency exchange rates had minimal impact on sales during the period compared
to the same period in 1995.
Net sales of CRM products for the three months ended March 31, 1996 grew
$29.9 million or 28.8% over the same period in 1995. This growth was led by
strong worldwide sales of the recently introduced VENTAK MINI family of
advanced, tiered-therapy ICDs. The technologically advanced VENTAK MINI family
of CRM products is significantly smaller and lighter than the Company's most
recently market-released predecessor products. 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 the three months ended March 31, 1996 decreased
$7.1 million or 6.2% from the same period in 1995. The Company had sales
growth in angioplasty products primarily due to the ACS MULTI-LINK stent,
launched in Europe in November 1995. The Company also had sales growth in
Japan and increased sales of guidewires and accessory products during the
period. This growth was offset by volume declines in atherectomy and
dilatation catheters, and lower net average selling prices of most angioplasty
products. The lower net average selling prices on angioplasty products
includes the impact of product mix changes due to the acceptance of recently
launched over-the-wire catheters. As a result, the Company believes that lower
net average selling prices may continue due to this shift in product mix.
Management further believes that dilatation catheter sales during the period
were negatively affected by Company programs whereby customers were given
newer generation products, such as the recently released ACS CONCORDE over-
the-wire catheter and ACS ENDURA non-compliant, high-pressure, over-the-wire
catheter, in exchange for their on-hand older generation catheters.
Atherectomy sales declines were primarily due to 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 March 31, 1996 were
$11.4 million, an increase of $4.5 million or 65.2% over the comparable period
in 1995. 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 and custom procedural kits which incorporate the
aforementioned device and other MIS products.
The Company experienced sales growth both in the United States and
international markets during the first quarter of 1996. Net sales in the
United States increased 6.8% to $160.7 million and international net sales
increased 22.8% to $91.4 million for the first quarter of 1996 compared to the
first quarter of 1995. United States net sales growth was primarily due to CRM
sales of VENTAK MINI, VIGOR DR, and VIGOR SR. VENTAK MINI was released to the
United States market in January 1996 and the VIGOR family was market released
in June 1995. International net sales growth was primarily driven by 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, and sales of ACS MULTI-LINK stent and guidewires in Europe also
contributed to the international sales growth.
Cost of sales increased 8.8% for the three months ended March 31, 1996, a
rate less than the growth rate in net sales. Cost of sales as a percentage of
net sales for the first quarter of 1996 was 30.5% compared to 31.5% for the
same period in 1995. Unit manufacturing cost reductions, primarily in vascular
intervention and MIS, resulting from increased manufacturing efficiencies, and
reduced manufacturing costs of newer generation CRM products, such as the
VENTAK MINI, were partially offset by inventory obsolescence charges of $7.2
million taken on certain CRM products affected by the recent introductions of
these newer generation products.
15
<PAGE>
Throughout 1996, the Company will continue to monitor the impact of recently
introduced CRM products on its overall inventory position. Such analysis may
result in the recognition of additional obsolescence charges. See "Prospectus
Summary--Recent Developments."
Research and development expenses, which increased $2.6 million or 7.8% for
the three months ended March 31, 1996, compared to the same period in 1995,
represented 14.3% and 14.8% of net sales, respectively, for these periods.
Increased research and development costs in connection with new product
development, including VENTAK MINI II, which had its first implant in Europe
in March 1996, and 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 11.1% for the first
quarter of 1996 compared to the same period in 1995. Variable CRM selling
expenses associated with the recent United States market release of VENTAK
MINI were among the drivers of the increased sales and marketing expenses
during the period. The commencement 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.
The Company attained near record levels of operating income during the
period. Income from operations of $61.8 million represented 24.5% of net sales
during the first quarter of 1996. Income from operations was 22.7% of net
sales during the same period in 1995. Sales growth combined with controlled
spending in cost of sales and other operating expenses resulted in an increase
in income from operations of 21.2% during the three months ended March 31,
1996, compared to the same period in 1995.
For the first quarter of 1996, the Company had net other expenses of $14.7
million as compared to $15.3 million during the first quarter of 1995. The
decrease in net other expenses was primarily a result of increased net royalty
income. Net royalty income increased $1.8 million, due primarily to royalties
received on certain vascular intervention technology patents.
The Company's effective income tax rate for the three months ended March 31,
1996 was 39.5%, compared to 40.9% during the comparable period in 1995. Higher
income taxes in certain international locations were offset by the reduced
impact of nondeductible expenses, primarily goodwill amortization, and reduced
state income taxes.
Net income for the three months ended March 31, 1996 was $28.5 million, an
increase of $7.4 million or over 35% compared to the same period in 1995.
Earnings per share of $0.40 for the three months ended March 31, 1996 also
increased approximately 35% in comparison to earnings per share for the
comparable period in 1995. This increase in net income and earnings per share
was due to operating income growth of 21.2%, reduced net other expenses, and a
lower effective income tax rate.
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 implantable cardioverter-defibrillators. In the United States,
product introductions included the VENTAK PRx III tiered-therapy implantable
cardioverter-defibrillator 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
16
<PAGE>
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
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.
17
<PAGE>
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. Management will continue to monitor
developments in this business and assess the continued recoverability of its
atherectomy-related goodwill and other intangible assets, which totaled
approximately $70.0 million at December 31, 1995. Such analysis will be
performed in accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. No impairment
in value is indicated as of December 31, 1995. A noncash impairment loss, if
required, could have a material impact on the Company's reported results of
operations. See "Prospectus Summary--Recent Developments."
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.
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 defibrillator 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
18
<PAGE>
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 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.
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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. 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 three months ended March 31, 1996, cash provided by operating
activities was $2.7 million compared to $12.5 million for the same period in
1995. This decrease in cash provided by operating activities was primarily due
to final income tax payments under a tax-sharing agreement with Lilly. Working
capital was $140.7 million at March 31, 1996, a $30.4 million increase from
the prior year-end level. This increase was primarily due to increased
accounts receivable resulting from sales growth during the period. The current
ratio at March 31, 1996 was 1.5:1 compared to 1.4:1 at December 31, 1995. For
the year ended December 31, 1995, cash provided by operating activities was
$72.8 million compared to $175.9 million in 1994. This decrease in cash
provided by operating activities was primarily due to payments associated with
the Company's strategic decision to change its distribution arrangement in
Japan and payments to Lilly. The Company expects to generate sufficient cash
to fund future working capital needs.
Net cash used for investing activities totaled $15.7 million for the three
months ended March 31, 1996, compared to $11.4 million for the same period in
1995. The most significant use of cash for investing activities related to net
additions of property and equipment of $12.4 million. Net additions of
property and equipment for the same period in the prior year were $11.6
million. Net cash used for investing activities totaled $88.4 million for the
year ended December 31, 1995, compared to $71.7 million in 1994. The most
significant use of cash for investing activities related to net additions of
property and equipment of $64.7 million and $51.1 million in 1995 and 1994,
respectively. The increase in additions of property and equipment relate
primarily to investments of approximately $10.0 million in software, hardware,
and networking equipment purchased in connection with the implementation of a
global integrated management information system. Increased requirements for
CRM programmers resulting from the growth in sales of CRM products and the
October 1995 market release of the Model 2950 programmer and related new
software applications also contributed to increased spending on property and
equipment. The Company also paid approximately $10.8 million to complete the
acquisitions of three European distributors during 1995.
Net cash provided by financing activities totaled $14.5 million for the
three months ended March 31, 1996. The Company increased its net borrowings as
of March 31, 1996, by $16.3 million to fund first quarter tax payments and
performance-based bonus compensation accrued throughout 1995. For the three
months ended March 31, 1995, the Company's net cash used for financing
activities was $69.3 million, driven by the reduction of its loans payable to
Lilly and affiliated companies and reductions of its long-term borrowings
during the
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<PAGE>
period. Net cash used for financing activities totaled $88.6 million for the
year ended December 31, 1995. Payments of its loans payable to Lilly and its
subsidiaries of $78.0 million was the Company's most significant use of cash
for financing activities in 1995.
At March 31, 1996, the Company had outstanding borrowings of $471.3 through
the issuance of commercial paper and commercial bank loans at a weighted
average interest rate of 6.05%. The Company expects that a minimum of $385.0
million of borrowings will remain outstanding through the next twelve months
and, accordingly, has classified this portion of the borrowings as long-term
at March 31, 1996. The Company's commercial paper borrowings are supported by
a credit facility aggregating $600.0 million that permits borrowings through
January 8, 2001. This credit facility, under which there are currently no
outstanding borrowings, carries a variable market rate of interest. At
December 31, 1995, the Company had outstanding borrowings of $455.0 million
under a $700.0 million credit facility which expired January 8, 1996 (the
"1994 Credit Agreement"). Borrowings under the facility carried a variable
interest rate (6.39% at December 31, 1995). The Company repaid $18.0 million
of these borrowings during 1995 using cash flow primarily generated by
operations. The net proceeds of this offering will be used to reduce
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 acquisition strategy.
Immediately following this offering and the application of the estimated net
proceeds therefrom, the Company expects to have outstanding borrowings of
approximately $ . 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
$67.0 million in 1996.
The Company has recognized net deferred tax assets aggregating $61.1 million
at March 31, 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 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.
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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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<PAGE>
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. in the production of endocardial
defibrillation lead systems and implantable defibrillators. Ventritex, Inc.
also markets competing defibrillation products. 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 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.
24
<PAGE>
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 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 letter requests that the
Company cease using such patents. The Pacesetter letter and a subsequent
letter also advise that it appears to Pacesetter that the Company may also be
using five 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 complaint alleges
infringement of three of the patents referred to in the previous letters and
seeks injunctive relief and unspecified monetary damages. Additional
litigation by Pacesetter seeking injunctive and monetary relief is a
possibility.
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.
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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
---- -------- ---
<S> <C> <C>
James M. Cornelius(1) Chairman of the Board and Director 52
Ronald W. Dollens(2) President, Chief Executive Officer and Director 49
J.B. King(3) Vice President, General Counsel, Secretary and Director 66
James R. Baumgardt Vice President and President, Western Hemisphere Sales 48
Keith E. Brauer Vice President, Finance and Chief Financial Officer 48
A. Jay Graf Vice President and President, Cardiac Rhythm Management Group 49
Ginger L. Howard Vice President and President, Vascular Intervention Group 40
Cynthia L. Lucchese Treasurer 35
Roger Marchetti Chief Accounting Officer 38
Richard van Oostrom Vice President and President of Operations, Europe, Middle East,
Africa and Emerging Markets 51
F. Thomas (Jay) Watkins, III Vice President and President, Minimally Invasive Systems Group 44
Joseph A. Yahner Vice President, Human Resources and Corporate Affairs 48
Maurice A. Cox, Jr.(2) Director 45
Enrique C. Falla(2) Director 56
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.
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<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.
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<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 previously served as President of
Origin. 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.
28
<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.
29
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 250,000,000 shares
of Common Stock, without par value, 74,133,005 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.
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<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 The First National
Bank of Boston. Its address for such purposes is 160 Federal Street, Boston,
Massachusetts 02106-2016.
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<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
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<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.
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<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 offered or sold, and will not offer or sell, directly or
indirectly, any U.S. Shares or distribute any prospectus
34
<PAGE>
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 1995 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 in excess of $ per share under the public offering price. Any
Underwriter may allow, and such dealers
35
<PAGE>
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 1,000,000 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 he 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.
36
<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.
37
<PAGE>
[LOGO]
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[Alternate page for International Prospectus]
PROSPECTUS (Subject to Completion)
Issued June 20, 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 JUNE 19, 1996, REPORTED LAST SALE
PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE
WAS $49 1/4 PER SHARE.
-----------
SEE "RISK FACTORS" ON PAGE 7 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
-----------
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
-----------
<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
$ .
(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
1,000,000 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."
-----------
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.
-----------
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.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $
New York Stock Exchange Fee...................................
Pacific Stock Exchange Fee....................................
NASD Filing Fee...............................................
Printing and engraving........................................
Accounting services...........................................
Legal services................................................
Transfer Agent and Registrar fees and expenses................
Expenses of qualification under state blue sky laws ..........
Miscellaneous.................................................
-----------
Total.....................................................
===========
</TABLE>
- --------
*Estimated
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.
1.1 Form of Underwriting Agreement.*
4.1 Specimen of Certificate for Common Stock.**
5.1 Opinion of Dewey Ballantine as to legality of the securities being
registered.*
5.2 Opinion 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.**
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Dewey Ballantine (contained in Exhibit 5.1).
23.3 Consent of Baker & Daniels (contained in Exhibit 5.2).
24.1 Power of Attorney (included on signature page).
- --------
*To be filed by amendment.
** 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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Indianapolis, State of Indiana, on June 19, 1996.
GUIDANT CORPORATION
By: /s/ James M. Cornelius
---------------------------------
James M. Cornelius
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Keith E. Brauer and Ronald W. Dollens his or
her true and lawful attorneys-in-fact and agents, each acting alone, with full
power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any or all
amendments to this Registration Statement, including post-effective
amendments, and to file the same, with all exhibits thereto, and all documents
in connection therewith, with the Securities and Exchange Commission, granting
unto attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, and hereby ratifies and confirms all that
said attorney-in-fact and agents, each acting alone, or their substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ James M. Cornelius Chairman of the Board June 19, 1996
- ----------------------------- (principal executive
James M. Cornelius officer)
/s/ Ronald W. Dollens President, Chief Executive June 19, 1996
- ----------------------------- Officer, Director (principal
Ronald W. Dollens executive officer)
/s/ Keith E. Brauer Chief Financial Officer June 19, 1996
- ----------------------------- (principal financial
Keith E. Brauer officer)
/s/ Roger Marchetti Chief Accounting Officer June 19, 1996
- ----------------------------- (principal accounting
Roger Marchetti officer)
/s/ Maurice A. Cox Director June 19, 1996
- -----------------------------
Maurice A. Cox
/s/ Enrique C. Falla Director June 19, 1996
- -----------------------------
Enrique C. Falla
/s/ J.B. King Director June 19, 1996
- -----------------------------
J.B. King
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C>
/s/ Susan B. King Director June 19, 1996
- -----------------------------
Susan B. King
/s/ J. Kevin Moore Director June 19, 1996
- -----------------------------
J. Kevin Moore
/s/ Mark Novitch, M.D. Director June 19, 1996
- -----------------------------
Mark Novitch, M.D.
/s/ Eugene L. Step Director June 19, 1996
- -----------------------------
Eugene L. Step
/s/ Ruedi E. Wager, Ph.D. Director June 19, 1996
- -----------------------------
Reudi E. Wager, Ph.D.
</TABLE>
II-4
<PAGE>
EXHIBIT 23.1
ERNST & YOUNG LLP One Indiana Square Phone: 317 681 7000
Suite 3400 Fax: 317 681 7216
Indianapolis, Indiana 46204-2094
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" in the Registration Statement on Form S-3 and related
Prospectus of Guidant Corporation contained therein dated June 20, 1996 for the
registration of 10,000,000 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.
ERNST & YOUNG LLP
June 20, 1996
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
